AS FILED WITH THE SEC ON ______________. REGISTRATION NO. 33-25434
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 11 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 27 [X]
(Check appropriate box or boxes)
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THE PRUDENTIAL INDIVIDUAL VARIABLE
CONTRACT ACCOUNT
(Exact Name of Registrant)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Depositor)
PRUDENTIAL PLAZA
NEWARK, NEW JERSEY 07102-3777
(800) 445-4571
(Address and telephone number of principal executive offices)
------------
THOMAS C. CASTANO
ASSISTANT SECRETARY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRUDENTIAL PLAZA
NEWARK, NEW JERSEY 07102-3777
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
------------
Individual Variable Annuity Contracts--The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1995 was filed on
February 29, 1996.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on pursuant to paragraph (b) of Rule 485
---------------
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (a) of Rule 485
---------------
(date)
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(A) UNDER THE 1933 ACT)
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N-4 ITEM NUMBER AND CAPTION LOCATION
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PART A
1. Cover Page.................................... Cover Page
2. Definitions................................... Definitions of Special Terms Used in This Prospectus
3. Synopsis or Highlights........................ Brief Description of the Contract
4. Condensed Financial Information............... Accumulation Unit Values
5. General Description of Registrant,
Depositor, and Portfolio Companies............ General Information About The Prudential, The
Prudential Individual Variable Contract Account, and
The Variable Investment Options Available Under the
Contract; The Fixed-Rate Option
6. Deductions and Expenses....................... Brief Description of the Contract; Charges, Fees, and
Deductions
7. General Description of Variable Annuity
Contracts..................................... Part A: Brief Description of the Contract; Allocation
of Purchase Payments; Transfers; Death Benefit; The
Fixed-Rate Option; Voting Rights; Ownership of the
Contract; State Regulation
Part B: Participation in Divisible Surplus
8. Annuity Period................................ Brief Description of the Contract; Sales Charges on
Withdrawals; Effecting an Annuity
9. Death Benefit................................. Death Benefit; Effecting an Annuity
10. Purchases and Contract Value.................. Brief Description of the Contract; The Prudential
Insurance Company of America; Requirements for
Issuance of a Contract; Valuation of a Contract
Owner's Contract Fund
11. Redemptions................................... Brief Description of the Contract; Short-Term
Cancellation Right or "Free Look"; Withdrawals;
Charges, Fees, and Deductions; Effecting an Annuity
12. Taxes......................................... Premium Taxes; Federal Tax Status
13. Legal Proceedings............................. Litigation
14. Table of Contents of the Statement of
Additional Information........................ Additional Information
PART B
15. Cover Page.................................... Cover Page
16. Table of Contents............................. Contents
17. General Information and History............... Not Applicable
</TABLE>
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<TABLE>
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N-4 ITEM NUMBER AND CAPTION LOCATION
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18. Services...................................... Experts
19. Purchase of Securities Being Offered.......... Part A: Brief Description of the Contract; Charges,
Fees, and Deductions; Sale of the Contract and Sales
Commissions
20. Underwriters.................................. Part A: Sale of the Contract and Sales Commissions
Part B: Principal Underwriters
21. Calculation of Performance Data............... Financial Statements of The Prudential Individual
Variable Contract Account
22. Annuity Payments.............................. Part A: Valuation of a Contract Owner's Contract
Fund; Effecting an Annuity
23. Financial Statements.......................... Financial Statements of The Prudential Individual
Variable Contract Account; Consolidated Financial
Statements of The Prudential Insurance Company of
America and Subsidiaries
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
MAY 1, 1996
DISCOVERY PLUS VARIABLE ANNUITY
PROSPECTUS
PRUDENTIAL
& LOGO
<PAGE>
PROSPECTUS
MAY 1, 1996
THE PRUDENTIAL
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
This prospectus describes the DISCOVERY(R) Plus Contract* (the "Contract"), an
individual variable annuity contract issued by The Prudential Insurance Company
of America ("The Prudential").
The Contract is purchased by making a single payment of $10,000 or more.
Subsequent payments of $1,000 or more ($10,000 or more when issued in New York)
are also accepted. The purchase payments will be allocated as the Contract owner
directs in one or more of the following ways. They may be allocated to one or
more of the subaccounts of The Prudential Individual Variable Contract Account
(the "Account"), to a fixed-rate option or to a real estate option funded by
another separate account of The Prudential.
The assets of each subaccount of the Account will be invested in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The attached
prospectus for the Series Fund and its statement of additional information
describe the investment objectives of and risks of investing in the thirteen
currently available portfolios of the Series Fund: the MONEY MARKET PORTFOLIO,
the DIVERSIFIED BOND PORTFOLIO, the GOVERNMENT INCOME PORTFOLIO, the
CONSERVATIVE BALANCED PORTFOLIO, the FLEXIBLE MANAGED PORTFOLIO, the HIGH YIELD
BOND PORTFOLIO, the STOCK INDEX PORTFOLIO, the EQUITY INCOME PORTFOLIO, the
EQUITY PORTFOLIO, the PRUDENTIAL JENNISON PORTFOLIO, the SMALL CAPITALIZATION
STOCK PORTFOLIO, the GLOBAL PORTFOLIO, and the NATURAL RESOURCES PORTFOLIO.
Other subaccounts and portfolios may be added in the future. Any portion of a
purchase payment allocated to the FIXED-RATE OPTION is credited with interest
daily at a rate periodically declared by The Prudential in its sole discretion,
but not less than 3.1%. If the real estate investment option is selected, the
requested portion of a purchase payment will be allocated to The PRUDENTIAL
VARIABLE CONTRACT REAL PROPERTY ACCOUNT (the "Real Property Account"), a
separate account of The Prudential which, through a partnership, invests
primarily in income-producing real property. The Real Property Account is
described in a prospectus that is attached to this one. This prospectus
describes the Contract generally and The Prudential Individual Variable Contract
Account.
On the annuity date, the amount credited under the Contract will be applied to
effect a fixed-dollar annuity at rates no less favorable than those set forth in
the Contract and guaranteed by The Prudential. With the consent of The
Prudential, the annuity date can be changed. Upon annuitization, the Contract
owner's participation in the investment options ceases. Prior to that annuity
date, the Contract owner may withdraw in whole or in part the cash surrender
value of the Contract. Federal tax law, however, imposes restrictions on
withdrawals from Section 403(b) annuities. The value allocated to the
subaccounts and the Real Property Account will vary with the investment
performance of those accounts, and the value allocated to the fixed-rate option
will increase as interest is credited. Withdrawals may be subject to tax and to
a contingent deferred sales charge and, in certain circumstances, a tax penalty
equal to 10% of that portion of the amount withdrawn which is includible in
income.
--------------------------------------
This prospectus provides information a prospective investor should know before
investing. Additional information about the Contract has been filed with the
Securities and Exchange Commission in a statement of additional information,
dated May 1, 1996, which information is incorporated herein by reference, and is
available without charge upon written request to The Prudential Insurance
Company of America, Prudential Plaza, Newark, New Jersey 07102-3777, or by
telephoning (800) 445-4571.
The Contents of the statement of additional information appear on page 27 of
this prospectus.
--------------------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC. AND A CURRENT
PROSPECTUS FOR THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
*DISCOVERY is a registered mark of The Prudential.
PIVC-1 Ed 5-96, Catalog #646956H
<PAGE>
<TABLE>
PROSPECTUS CONTENTS
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PAGE
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DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................................................................1
BRIEF DESCRIPTION OF THE CONTRACT..............................................................................................2
FEE TABLE......................................................................................................................4
ACCUMULATION UNIT VALUES.......................................................................................................7
GENERAL INFORMATION ABOUT THE PRUDENTIAL, THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT
ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT..............................................10
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA............................................................................10
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT....................................................................10
THE PRUDENTIAL SERIES FUND, INC........................................................................................10
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT.................................................................11
DETAILED INFORMATION ABOUT THE CONTRACT.......................................................................................12
REQUIREMENTS FOR ISSUANCE OF A CONTRACT................................................................................12
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"...........................................................................12
ALLOCATION OF PURCHASE PAYMENTS........................................................................................12
ADDITIONAL AMOUNTS.....................................................................................................13
TRANSFERS..............................................................................................................13
WITHDRAWALS............................................................................................................14
DEATH BENEFIT..........................................................................................................14
VALUATION OF A CONTRACT OWNER'S CONTRACT FUND..........................................................................15
CHARGES, FEES, AND DEDUCTIONS.................................................................................................15
1. PREMIUM TAXES.......................................................................................................15
2. SALES CHARGES ON WITHDRAWALS........................................................................................16
3. RECAPTURE OF ADDITIONAL AMOUNTS.....................................................................................17
4. ADMINISTRATIVE CHARGE...............................................................................................17
5. CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS.....................................................................17
6. EXPENSES INCURRED BY THE SERIES FUND................................................................................18
THE FIXED-RATE OPTION.........................................................................................................18
FEDERAL TAX STATUS............................................................................................................18
TAXES PAYABLE BY CONTRACT OWNERS.......................................................................................19
CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS....................................................................20
PLANS FOR SELF-EMPLOYED INDIVIDUALS....................................................................................20
IRAS...................................................................................................................20
SEPS...................................................................................................................21
TDA'S..................................................................................................................21
ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE OR LOCAL GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS........................22
QUALIFIED PENSION AND PROFIT SHARING PLANS.............................................................................22
MINIMUM DISTRIBUTION OPTION............................................................................................22
WITHHOLDING............................................................................................................22
TAXES ON THE PRUDENTIAL................................................................................................23
ERISA DISCLOSURE.......................................................................................................23
ADDITIONAL ERISA REQUIREMENTS..........................................................................................23
EFFECTING AN ANNUITY .........................................................................................................23
1. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN..............................................................................24
2. INTEREST PAYMENT OPTION.............................................................................................24
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES...................................................24
OTHER INFORMATION.............................................................................................................24
VOTING RIGHTS..........................................................................................................24
SALE OF THE CONTRACT AND SALES COMMISSIONS.............................................................................25
SUBSTITUTION OF SERIES FUND SHARES.....................................................................................25
</TABLE>
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<TABLE>
<CAPTION>
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OWNERSHIP OF THE CONTRACT..............................................................................................25
PERFORMANCE INFORMATION................................................................................................26
REPORTS TO CONTRACT OWNERS.............................................................................................26
STATE REGULATION.......................................................................................................26
LITIGATION.............................................................................................................26
ADDITIONAL INFORMATION.................................................................................................26
DIRECTORS AND OFFICERS........................................................................................................28
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS USED IN THIS
PROSPECTUS
ACCOUNT--See The Prudential Individual Variable Contract Account (the "Account")
below.
ADDITIONAL AMOUNT--On payments made during the first 3 Contract years, and
thereafter at The Prudential's discretion, an additional 1% added to and
invested with the purchase payment. This Additional Amount or "bonus" will be
recaptured by The Prudential if the payment is withdrawn within 6 Contract years
after it is made.
AMOUNT CREDITED UNDER THE CONTRACT--See Contract fund below.
ANNUITANT--The person or persons, designated by the Contract owner, upon whose
life or lives monthly annuity payments are based after an annuity is effected.
ANNUITY CONTRACT--A contract designed to provide an annuitant with an income,
which may be a lifetime income, beginning on the annuity date.
ANNUITY DATE--The date, specified in the Contract, when annuity payments are to
begin.
BONUS--See Additional Amount above.
CASH SURRENDER VALUE--The surrender value of the Contract, which equals the
Contract fund less any contingent deferred sales charge, any bonus subject to
recapture, and any administrative charge due upon surrender.
CONTRACT ANNIVERSARY--The same day and month as the Contract date in each later
year.
CONTRACT DATE--The date The Prudential received the initial purchase payment for
the Contract.
CONTRACT FUND--The total value attributable to a specific Contract representing
amounts in all the subaccounts, under the fixed-rate option, and in the Real
Property Account. At times throughout this prospectus, when an alternative
identification may be desirable for complete clarity, or to further describe the
role of the Contract fund, we refer to the Contract fund as "the amount credited
under the Contract." The term should not be confused with The Prudential Series
Fund, Inc. (the "Series Fund") defined below.
CONTRACT OWNER--The person who purchases a DISCOVERY Plus Contract and makes the
purchase payments. The owner will usually also be an annuitant, but need not be.
The owner has all rights in the Contract before the annuity date. Subject to
certain limitations and requirements described in this prospectus, these rights
include the right to make withdrawals or surrender the Contract, to designate
and change the beneficiaries who will receive the proceeds at the death of the
annuitant before the annuity date, to transfer funds among the subaccounts, the
fixed-rate option, and the Real Property Account, and to designate a mode of
settlement for the annuitant on the annuity date.
CONTRACT YEAR--A year that starts on the Contract date or on a Contract
anniversary.
FIXED-RATE OPTION--An investment option under which The Prudential credits
interest to the amount allocated at a rate periodically declared in advance by
The Prudential but not less than 3.1%.
SUBACCOUNT--A division of the Account, the assets of which are invested in
shares of the corresponding portfolio of the Series Fund.
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT (THE "ACCOUNT")--A separate
account of The Prudential registered as a unit investment trust under the
Investment Company Act of 1940.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")--A mutual fund with
separate portfolios, one or more of which may be chosen as an underlying
investment for the Contract.
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT (THE "REAL PROPERTY
ACCOUNT")--A separate account of The Prudential which, through a partnership,
invests primarily in income-producing real property.
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a subaccount to the next. Such determinations are made when
the net asset values of the portfolios of the Series Fund are calculated, which
is generally at 4:15 p.m. New York City time on each day during which the New
York Stock Exchange is open.
VARIABLE INVESTMENT OPTIONS--The subaccounts and the Real Property Account.
1
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
The Prudential DISCOVERY Plus Contract (the "Contract") provides a way to invest
on a tax-deferred basis in one or more investment options with different
investment objectives and to obtain income protection for later life by
receiving annuity payments commencing on the annuity date. DISCOVERY Plus is a
variable annuity contract. It is called a "variable" contract because the value
of the Contract depends upon the investment results of the investment option[s]
selected. Amounts held under the Contract may be withdrawn, in whole or in part,
prior to the annuity date.
The Contract is purchased by making an initial purchase payment of at least
$10,000. Subsequent payments of at least $1,000 ($10,000 or more when issued in
New York) may also be made. The Prudential Insurance Company of America ("The
Prudential") allocates the purchase payment (after deduction of any applicable
amount needed to pay taxes attributable to premiums) in the subaccount[s], The
Prudential Variable Contract Real Property Account (the "Real Property Account")
or the fixed-rate option in accordance with the owner's instructions.
The assets of each subaccount are invested in a corresponding portfolio of The
Prudential Series Fund, Inc. (the "Series Fund"), a series mutual fund to which
The Prudential acts as investment advisor. The Series Fund currently has
thirteen portfolios available for investment by Contract owners. The MONEY
MARKET PORTFOLIO is invested in short-term debt obligations similar to those
purchased by money market funds; the DIVERSIFIED BOND PORTFOLIO (formerly the
Bond Portfolio) is invested primarily in high quality medium-term corporate and
government debt securities; the GOVERNMENT INCOME PORTFOLIO (formerly the
Government Securities Portfolio) is invested primarily in U.S. Government
securities including intermediate and long-term U.S. Treasury securities and
debt obligations issued by agencies of or instrumentalities established,
sponsored or guaranteed by the U.S. Government; the CONSERVATIVE BALANCED
PORTFOLIO (formerly the Conservatively Managed Flexible Portfolio) is invested
in a mix of money market instruments, fixed income securities, and common
stocks, in proportions believed by the investment manager to be appropriate for
an investor who desires diversification of investment who prefers a relatively
lower risk of loss and a correspondingly reduced chance of high appreciation;
the FLEXIBLE MANAGED PORTFOLIO (formerly the Aggressively Managed Flexible
Portfolio) is invested in a mix of money market instruments, fixed income
securities, and common stocks, in proportions believed by the investment manager
to be appropriate for an investor desiring diversification of investment who is
willing to accept a relatively high level of loss in an effort to achieve
greater appreciation; the HIGH YIELD BOND PORTFOLIO is invested primarily in
high yield fixed income securities of medium to lower quality, also known as
high risk bonds; the STOCK INDEX PORTFOLIO is invested in common stocks selected
to duplicate the price and yield performance of the Standard & Poor's 500
Composite Stock Price Index; the EQUITY INCOME PORTFOLIO (formerly the High
Dividend Stock Portfolio) is invested primarily in common stocks and convertible
securities that provide favorable prospects for investment income returns above
those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index; the
EQUITY PORTFOLIO (formerly the Common Stock Portfolio) is invested primarily in
common stocks; the PRUDENTIAL JENNISON PORTFOLIO (formerly the Growth Stock
Portfolio) is invested primarily in equity securities of established companies
with above-average growth prospects; the SMALL CAPITALIZATION STOCK PORTFOLIO is
invested primarily in equity securities of publicly-traded companies with small
market capitalization; the GLOBAL PORTFOLIO (formerly the Global Equity
Portfolio) is invested primarily in common stocks and common stock equivalents
(such as convertible debt securities) of foreign and domestic issuers; and the
NATURAL RESOURCES PORTFOLIO is invested primarily in common stocks and
convertible securities of natural resource companies, and in securities
(typically debt securities or preferred stock) the terms of which are related to
the market value of a natural resource. Further information about the Series
Fund portfolios can be found under THE PRUDENTIAL SERIES FUND, INC. on page 10.
The Contract owner also may invest a portion of his or her purchase payments in
the Real Property Account, which, through a partnership, invests primarily in
income-producing real property. If a Contract owner elects to invest in this
real estate investment option, the assets will be maintained in a subaccount of
the Real Property Account related to the Contract that provides the mechanism
and maintains the records whereby various Contract charges are made. The
investment objectives of the Real Property Account and the partnership are
described briefly under THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
on page 11.
The value of the Contract will vary to reflect the investment results of the
variable investment options (the subaccounts and the Real Property Account) in
which money is invested and the amount of interest credited on amounts allocated
to the fixed-rate option. The total amount attributable to a Contract allocated
to all the variable investment options and to the fixed-rate option is known as
the "Contract fund". For a discussion of the fixed-rate option, see THE
FIXED-RATE OPTION, page 18.
The Contracts described in this prospectus have a further attractive feature.
During the first 3 Contract years, and in Contract years thereafter at The
Prudential's discretion, The Prudential will add an Additional Amount, as a
bonus, of 1% to every purchase payment. The Prudential reserves the right to
limit its payment of such Additional Amounts under a particular Contract to
$1,000 in each Contract year. This Additional Amount will be allocated among the
subaccounts, the Real Property Account, and the fixed-rate option in the same
proportions as the
2
<PAGE>
purchase payment to which it is added. See ADDITIONAL AMOUNTS, page 13. During
the first 6 Contract years following a purchase payment, the bonus attributable
to any portion of that purchase payment that is withdrawn will be recaptured by
The Prudential, unless such withdrawn purchase payment is used to effect an
annuity that is not subject to a sales charge. See SALES CHARGES ON WITHDRAWALS,
page 16 and RECAPTURE OF ADDITIONAL AMOUNTS, page 17.
The Prudential makes charges under the Contract for the costs of selling and
distributing the Contract, for administering the Contract, and for assuming
mortality and expense risks under the Contract. Moreover, on any Contract
subject to a tax attributable to premiums, The Prudential will deduct the tax,
as provided under applicable law, from the purchase payment when received, or
from the Contract fund at the time the annuity is effected. The deduction for
taxes imposed on purchase payments will be lower, or not made at all, if total
purchase payments meet certain minimum amounts. See PREMIUM TAXES, page 15. The
Prudential makes a charge against the Series Fund's assets and against the Real
Property Account's assets for providing investment advisory and management
services.
The administrative charge is a daily charge equal to an annual rate of 0.2% of
the assets held in the variable investment options. A maintenance charge of $30
will be deducted on a Contract anniversary or at the time of a full withdrawal
if and only if the amount then credited under the Contract is less than $10,000.
This $30 fee will not be charged if the Contract fund is less than $10,000 as a
result of a withdrawal due to confinement in a nursing home or hospital, or due
to a terminal illness. The mortality and expense risk charge is a daily charge
equal to an annual rate of 1% of the assets held in the variable investment
options. A contingent deferred sales charge may be imposed upon the withdrawal
of purchase payments. The maximum contingent deferred sales charge is 7% of the
purchase payment withdrawn. Further detail about charges may be found under
CHARGES, FEES, AND DEDUCTIONS, page 15.
Subject to restrictions on withdrawals from Section 403(b) annuities ("TDA's")
imposed by federal tax law, the Contract owner may withdraw all or part of the
amount credited under the Contract prior to the annuity date, subject to the
possible sales charge mentioned above and the possible recapture of the 1%
bonus. See WITHDRAWALS, page 14 and TDA'S, page 21. If a full or partial
withdrawal is requested, it may be wholly or partially taxable. Certain
withdrawals may be subject to a federal penalty tax as well as to federal income
tax. See TAXES PAYABLE BY CONTRACT OWNERS, page 19. If a lump sum is requested,
it will be paid within 7 days and deducted from the amount credited under the
Contract. See WITHDRAWALS, page 14. If an annuity option is selected, annuity
payments will be in monthly installments of guaranteed amounts. See EFFECTING AN
ANNUITY, page 23.
In the event that the annuitant dies prior to the annuity date or the surrender
of the Contract for its cash surrender value, The Prudential will pay a death
benefit to the stated beneficiary. See DEATH BENEFIT, page 14. In the event that
the owner dies before the entire value of the Contract is distributed, the
remaining value must be distributed according to certain specified rules in
order for the Contract to qualify as an annuity for tax purposes.
Amounts may be transferred among the subaccounts, to the Real Property Account,
and to the fixed-rate option up to four times each year. There are limitations
upon transfers into and out of the Real Property Account and out of the
fixed-rate option. See TRANSFERS, page 13.
As long as the minimum purchase payment requirements are satisfied, this
Contract may be purchased in connection with, or used for rollovers from,
retirement arrangements that qualify for federal tax benefits under Sections
401, 403(a), 403(b), 408(a), 408(b) or 457 of the Internal Revenue Code ("tax
favored plans"). There are certain special provisions and/or restrictions
applicable to Contracts issued to tax favored plans. Such Contracts may not
invest in The Real Property Account.
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK", page 12.
This Brief Description of the Contract is intended to provide a broad overview
of the more significant features of the Contract. More detailed information will
be found in subsequent sections of this prospectus and in the Contract document.
3
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments..........None (1% bonus added to payment
up to a maximum bonus of $1,000
per Contract year)
Maximum Deferred Sales Load:
MAXIMUM DEFERRED SALES
CHARGE AS A PERCENTAGE OF
CONTRACT YEARS AFTER PAYMENT PURCHASE PAYMENT WITHDRAWN*
---------------------------- ---------------------------
0 ........................... 7% plus return of 1% bonus
1 year....................... 7% plus return of 1% bonus
2 years...................... 7% plus return of 1% bonus
3 years...................... 6% plus return of 1% bonus
4 years...................... 5% plus return of 1% bonus
5 years...................... 4% plus return of 1% bonus
6 or more years.............. 0%
*The deferred sales load is not imposed on that portion of the withdrawals made
in any Contract year equal to the first 10% of the Contract fund. The deferred
sales load is not imposed in connection with the Critical Care Access feature
and may be reduced on the withdrawal of purchase payments made on or after the
annuitant's 81st birthday.
Annual Contract Fee....................................................... None*
*If the Contract fund is less than $10,000, a $30 annual charge is assessed.
This $30 fee will not be charged if the Contract fund is less than $10,000 as a
result of a withdrawal due to confinement in a nursing home or hospital, or due
to a terminal illness. The minimum initial purchase payment is $10,000.
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE CONTRACT FUND)
ALL SUBACCOUNTS
Mortality and Expense Risk Fee......................... 1.00%
Administrative Charge.................................. .20%
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Total Separate Account Annual Expenses................. 1.20%
======
<TABLE>
THE PRUDENTIAL SERIES FUND, INC. ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<CAPTION>
HIGH
MONEY DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE YIELD
MARKET BOND INCOME BALANCED MANAGED BOND
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management Fee............ .40% .40% .40% .55% .60% .55%
Other Expenses....................... .04% .04% .05% .03% .03% .06%
---- ---- ---- ---- ---- ----
Total Series Fund Annual Expenses.... .44% .44% .45% .58% .63% .61%
==== ==== ==== ==== ==== ====
<CAPTION>
SMALL
STOCK EQUITY PRUDENTIAL CAPITALIZATION NATURAL
INDEX INCOME EQUITY JENNISON STOCK GLOBAL RESOURCES
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Management Fee ........... .35% .40% .45% .60% .40% .75% .45%
Other Expenses....................... .03% .03% .03% .19% .20% .31% .05%
---- ---- ---- ---- ---- ---- ----
Total Series Fund Annual Expenses.... .38% .43% .48% .79% .60% 1.06% .51%
==== ==== ==== ==== ==== ===== ====
</TABLE>
4
<PAGE>
The purpose of the foregoing tables is to assist the Contract owners in
understanding the expenses of The Prudential Individual Variable Contract
Account and The Prudential Series Fund, Inc. (the "Series Fund") that they bear,
directly or indirectly. See the sections on charges in this prospectus and the
attached prospectus for the Series Fund. The above tables do not include any
taxes attributable to premiums. Currently there is no deduction for such taxes
at the time purchase payments are made, but in some states a deduction is made
when an annuity is effected.
Except for the Global Portfolio, The Prudential reimburses a portfolio when its
ordinary operating expenses, excluding taxes, interest, and brokerage
commissions exceed 0.75% of the portfolio's average daily net assets. The
amounts listed for the portfolios under "Other Expenses" are based on amounts
incurred in the last fiscal year.
The Prudential Jennison and Small Capitalization Stock Portfolios commenced
operation on May 1, 1995 and therefore do not have expense amounts available for
the entire fiscal year. Consequently, for the fee table above and the examples
that follow, the figures shown as "Other Expenses" and total expenses are based
on actual expenses from May 1 through December 31, 1995. It is anticipated that
as average net assets of both portfolios grow, the magnitude of "Other Expenses"
will decrease and become comparable to that of other portfolios.
EXAMPLES OF FEES AND EXPENSES.
The following examples, and those on page 6, illustrate the cumulative dollar
amount of all the above expenses that would be incurred on each $1,000
investment.
o The examples assume a consistent 5% annual return on invested assets;
o The examples do not take into consideration any taxes attributable to
premiums which may be payable at the time of annuitization or at the time
of purchase payments;
o The amounts shown are accurate for Contract funds over $10,000 and
understated for Contract funds less than $10,000.
For a term less than 10 years, the expenses shown in Table I, describe
applicable charges for the withdrawal of your entire Contract fund. THE EXAMPLES
SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES INCURRED IN ANY GIVEN YEAR MAY BE MORE OR LESS THAN THOSE SHOWN
IN THE EXAMPLES.
The following example shows how the Year 1 expenses shown in Table I were
calculated for the Flexible Managed Portfolio, for each $1,000 invested. This
assumes a withdrawal is made just prior to the end of the first year after
payment. The amount of the Annual Contract Charge in this example is calculated
in a manner prescribed by the Securities and Exchange Commission.
<TABLE>
<CAPTION>
<S> <C> <C>
Initial Investment $1,000.00
Plus 1% bonus ($1,000 + $10) 1,010.00
5% Assumed Rate of Return ($1,010 x 1.05) 1,060.50
Average Value of Funds [($1,010 + $1,060.50)/2] 1,035.25
Annual Expenses (1.0 risk fees + 0.20 administrative charge
+ 0.60 management fee + 0.03 expense) 1.83%
Annual Contract Charge 0.00
Total Contract Expenses ($1,035.25 x 1.83%) + $0 18.95
Contingent Deferred Sales Charge computation for withdrawal of entire fund:
Net Contract fund ($1,060.50 - $18.95) $1,041.55
10% Charge-free withdrawal 104.16
Initial investment 1,000.00*
Amount subject to withdrawal charge ($1,000 - $104.16) 895.84
Surrender charge @ 7% 62.71
Plus Total Contract Expenses (as calculated above) 18.95
---------
TOTAL CHARGES $ 81.66
</TABLE>
*Note that in this example, The Prudential would recapture the 1% bonus that had
been credited to the initial investment.
5
<PAGE>
TABLE I
- -------
If you withdraw your entire Contract fund, thereby surrendering your Contract,
just prior to the end of the applicable time period, you would pay the following
cumulative expenses on each $1,000 invested, assuming 5% annual return on
assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO....................................... $ 80 $115 $135 $198
DIVERSIFIED BOND PORTFOLIO................................... $ 80 $115 $135 $198
GOVERNMENT INCOME PORTFOLIO.................................. $ 80 $115 $135 $199
CONSERVATIVE BALANCED PORTFOLIO.............................. $ 81 $119 $142 $213
FLEXIBLE MANAGED PORTFOLIO .................................. $ 82 $121 $145 $219
HIGH YIELD BOND PORTFOLIO.................................... $ 81 $120 $144 $217
STOCK INDEX PORTFOLIO........................................ $ 79 $113 $132 $191
EQUITY INCOME PORTFOLIO...................................... $ 80 $115 $134 $197
EQUITY PORTFOLIO............................................. $ 80 $116 $137 $202
PRUDENTIAL JENNISON PORTFOLIO................................ $ 83 $126 $154 $236
SMALL CAPITALIZATION STOCK PORTFOLIO......................... $ 81 $120 $143 $216
GLOBAL PORTFOLIO............................................. $ 86 $134 $168 $265
NATURAL RESOURCES PORTFOLIO.................................. $ 80 $117 $138 $205
</TABLE>
As an example, if the entire Contract fund is invested in the Flexible
Managed Portfolio, and you surrendered your entire Contract just prior to the
end of 1 year, you would pay $82 per $1,000 invested, reflecting all charges
including the 7% contingent deferred sales charge.
TABLE II
- --------
If you annuitize just before the end of the applicable time period, you would
pay the following cumulative expenses on each $1,000 invested, assuming 5%
annual return on assets:
(Note: The 1, 3 and 5 Year columns reflect the imposition of the contingent
deferred sales charge; however, some of the annuity options may not be
subject to this charge after year 1. Where this is the case, the expenses
shown in Table III below would be applicable. See page 16 under the SALES
CHARGES ON WITHDRAWALS section.)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO....................................... $ 80 $115 $135 $198
DIVERSIFIED BOND PORTFOLIO................................... $ 80 $115 $135 $198
GOVERNMENT INCOME PORTFOLIO.................................. $ 80 $115 $135 $199
CONSERVATIVE BALANCED PORTFOLIO.............................. $ 81 $119 $142 $213
FLEXIBLE MANAGED PORTFOLIO................................... $ 82 $121 $145 $219
HIGH YIELD BOND PORTFOLIO.................................... $ 81 $120 $144 $217
STOCK INDEX PORTFOLIO........................................ $ 79 $113 $132 $191
EQUITY INCOME PORTFOLIO...................................... $ 80 $115 $134 $197
EQUITY PORTFOLIO............................................. $ 80 $116 $137 $202
PRUDENTIAL JENNISON PORTFOLIO................................ $ 83 $126 $154 $236
SMALL CAPITALIZATION STOCK PORTFOLIO......................... $ 81 $120 $143 $216
GLOBAL PORTFOLIO............................................. $ 86 $134 $168 $265
NATURAL RESOURCES PORTFOLIO.................................. $ 80 $117 $138 $205
</TABLE>
TABLE III
- ---------
If you do not withdraw any portion of your Contract fund as of the end of the
applicable time period, you would pay the following cumulative expenses on each
$1,000 invested, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO....................................... $ 17 $ 53 $ 91 $198
DIVERSIFIED BOND PORTFOLIO................................... $ 17 $ 53 $ 91 $198
GOVERNMENT INCOME PORTFOLIO.................................. $ 17 $ 53 $ 91 $199
CONSERVATIVE BALANCED PORTFOLIO.............................. $ 18 $ 57 $ 98 $213
FLEXIBLE MANAGED PORTFOLIO................................... $ 19 $ 59 $101 $219
HIGH YIELD BOND PORTFOLIO.................................... $ 19 $ 58 $100 $217
STOCK INDEX PORTFOLIO........................................ $ 16 $ 51 $ 88 $191
EQUITY INCOME PORTFOLIO...................................... $ 17 $ 52 $ 90 $197
EQUITY PORTFOLIO............................................. $ 17 $ 54 $ 93 $202
PRUDENTIAL JENNISON PORTFOLIO................................ $ 21 $ 64 $109 $236
SMALL CAPITALIZATION STOCK PORTFOLIO......................... $ 19 $ 58 $ 99 $216
GLOBAL PORTFOLIO............................................. $ 23 $ 72 $124 $265
NATURAL RESOURCES PORTFOLIO.................................. $ 18 $ 55 $ 94 $205
</TABLE>
Notice that in all 3 of the above tables, the level of cumulative charges is
identical for the 10 year column. This is because at that point there are no
contingent deferred sale charges taken by The Prudential upon surrender or
annuitization. It may be helpful to consider the dollar amounts shown as
percentages of the amount invested ($1,000) over the period specified. In the
case of the Flexible Managed Portfolio, $219 at the end of 10 years equals
$21.90 per year, or approximately 2.2% of $1,000.
6
<PAGE>
<TABLE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(Condensed Financial Information)
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
Money Market
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 1.847 $ 1.796 $ 1.766 $ 1.722 $ 1.641 $ 1.536 $ 1.440
2. Accumulation unit value at
end of period ................. 1.931 1.847 1.796 1.766 1.722 1.641 1.536
3. Number of accumulation units
outstanding at end of period .. 132,240,079 137,690,220 98,824,301 110,136,278 108,951,868 78,507,679 20,144,839
----------------------------------------------------------------------------------------------
Diversified Bond
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 2.430 $ 2.541 $ 2.335 $ 2.204 $ 1.916 $ 1.790 $ 1.599
2. Accumulation unit value at
end of period ................. 2.899 2.430 2.541 2.335 2.204 1.916 1.790
3. Number of accumulation units
outstanding at end of period .. 62,158,709 62,532,884 65,012,139 43,861,931 26,025,946 14,221,106 6,775,075
----------------------------------------------------------------------------------------------
Government Income
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 1.456 $ 1.553 $ 1.397 $ 1.335 $ 1.164 $ 1.108 $ 1.000
2. Accumulation unit value at
end of period ................. 1.719 1.456 1.553 1.397 1.335 1.164 1.108
3. Number of accumulation units
outstanding at end of period .. 131,063,592 148,872,947 161,058,905 103,111,144 35,607,897 8,957,406 3,570,059
----------------------------------------------------------------------------------------------
Conservative Balanced
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 2.655 $ 2.713 $ 2.447 $ 2.316 $ 1.968 $ 1.892 $ 1.666
2. Accumulation unit value at
end of period ................. 3.077 2.655 2.713 2.447 2.316 1.968 1.892
3. Number of accumulation units
outstanding at end of period .. 296,641,925 313,266,018 242,321,897 133,530,065 59,165,985 29,438,662 10,559,021
* Commencement of Business
The financial statements of the Account are in the statement of additional information.
</TABLE>
7
<PAGE>
<TABLE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(Condensed Financial Information) (Continued)
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
Flexible Managed
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 2.828 $ 2.995 $ 2.587 $ 2.434 $ 1.963 $ 1.950 $ 1.656
2. Accumulation unit value at end
of period ..................... 3.469 2.828 2.955 2.587 2.434 1.963 1.950
3. Number of accumulation units
outstanding at end of period .. 135,780,708 140,860,169 111,136,044 62,046,878 33,449,040 20,844,438 7,863,675
----------------------------------------------------------------------------------------------
High Yield Bond
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 1.605 $ 1.670 $ 1.417 $ 1.220 $0.887 $ 1.019 $ 1.078
2. Accumulation unit value at
end of period ................. 1.865 1.605 1.670 1.417 1.220 0.887 1.019
3. Number of accumulation units
outstanding at end of period .. 86,497,155 82,161,785 68,503,233 31,814,404 9,103,642 3,962,676 2,636,013
----------------------------------------------------------------------------------------------
Stock Index
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ........... $ 1.772 $ 1.776 $ 1.639 $ 1.548 $ 1.208 $ 1.268 $ 1.018
2. Accumulation unit value at
end of period ................. 2.401 1.772 1.776 1.639 1.548 1.208 1.268
3. Number of accumulation units
outstanding at end of period .. 99,553,628 89,080,644 91,215,676 71,404,267 38,553,592 17,965,337 5,881,105
----------------------------------------------------------------------------------------------
Equity Income
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ........ $ 2.104 $ 2.099 $ 1.737 $ 1.596 $ 1.267 $ 1.332 $ 1.139
2. Accumulation unit value
at end of period .............. 2.530 2.104 2.099 1.737 1.596 1.267 1.332
3. Number of accumulation units
outstanding at end of period .. 220,184,990 218,661,165 155,205,890 66,252,437 28,475,526 16,439,709 9,230,667
* Commencement of Business
The financial statements of the Account are in the statement of additional information.
</TABLE>
8
<PAGE>
<TABLE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(Condensed Financial Information) (Continued)
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
Equity
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ............ $ 3.738 $ 3.681 $ 3.056 $ 2.709 $ 2.176 $ 2.323 $ 1.884
2. Accumulation unit value at
end of period .................. 4.850 3.738 3.681 3.056 2.709 2.176 2.323
3. Number of accumulation units
outstanding at end of period ... 167,580,951 144,061,975 109,315,212 64,109,169 35,797,392 13,870,625 5,468,614
----------------------------------------------------------------------------------------------
Prudential Jennison
----------------------------------------------------------------------------------------------
01/01/95*
to
12/31/95
------------
<S> <C>
1. Accumulation unit value at
beginning of period ............ $ 1.009
2. Accumulation unit value at
end of period .................. 1.245
3. Number of accumulation units
outstanding at end of period ... 19,918,994
----------------------------------------------------------------------------------------------
Small Capitalization Stock
----------------------------------------------------------------------------------------------
01/01/95*
to
12/31/95
------------
<S> <C>
1. Accumulation unit value at
beginning of period ............ $ 1.002
2. Accumulation unit value at
end of period .................. 1.190
3. Number of accumulation units
outstanding at end of period ... 15,303,395
----------------------------------------------------------------------------------------------
Global
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ............ $ 1.339 $ 1.425 $ 1.007 $ 1.056 $ 0.959 $ 1.115 $ 1.015
2. Accumulation unit value at
end of period .................. 1.533 1.339 1.425 1.007 1.056 0.959 1.115
3. Number of accumulation units
outstanding at end of period ... 121,272,476 127,945,906 51,691,984 12,211,247 8,345,863 5,058,856 1,221,795
----------------------------------------------------------------------------------------------
Natural Resources
----------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 02/27/89*
to to to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period ............ $ 1.751 $ 1.851 $ 1.497 $ 1.412 $ 1.295 $ 1.391 $ 1.137
2. Accumulation unit value at
end of period .................. 2.196 1.751 1.851 1.497 1.412 1.295 1.391
3. Number of accumulation units
outstanding at end of period ... 37,663,872 38,719,527 21,404,880 9,178,489 7,245,895 7,525,168 2,095,818
* Commencement of Business
The financial statements of the Account are in the statement of additional information.
</TABLE>
9
<PAGE>
GENERAL INFORMATION ABOUT THE PRUDENTIAL,
THE PRUDENTIAL INDIVIDUAL VARIABLE
CONTRACT ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
The Prudential Insurance Company of America ("The Prudential") is a mutual
insurance company, founded in 1875 under the laws of the State of New Jersey. It
is licensed to sell life insurance and annuities in the District of Columbia,
Guam, and in all states. These Contracts are not offered in any state in which
the necessary approvals have not yet been obtained.
The Prudential's consolidated financial statements appear in the statement of
additional information and should be considered only as bearing upon The
Prudential's ability to meet its obligations under the Contracts.
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
The Prudential Individual Variable Contract Account (the "Account") was
established on October 12, 1982 under New Jersey law as a separate investment
account. The Account meets the definition of a "separate account" under the
federal securities laws. The Account holds assets that are segregated from all
of The Prudential's other assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of The Prudential. The Prudential is also the
legal owner of the assets in the Account. The Prudential will at all times
maintain assets in the Account with a total market value at least equal to the
reserve and other liabilities relating to the variable benefits attributable to
the Account. These assets may not be charged with liabilities which arise from
any other business The Prudential conducts. In addition to these assets, the
Account's assets may include funds contributed by The Prudential to commence
operation of the Account and may include accumulations of the charges The
Prudential makes against the Account. From time to time these additional assets
will be transferred to The Prudential's general account. Before making any such
transfer, The Prudential will consider any possible adverse impact the transfer
might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of The Prudential. There are currently thirteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements appear in the statement of additional information.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of The Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. The
Account will purchase and redeem shares from the Series Fund at net asset value.
Shares will be redeemed to the extent necessary for The Prudential to provide
benefits under the Contract and to transfer assets from one subaccount to
another, as requested by Contract owners. Any dividend or capital gain
distribution received from a portfolio of the Series Fund will be reinvested
immediately at net asset value in shares of that portfolio and retained as
assets of the corresponding subaccount.
The Prudential is the investment advisor for the assets of each of the
portfolios of the Series Fund. The Prudential's principal business address is
Prudential Plaza, Newark, New Jersey 07102-3777. The Prudential has a Service
Agreement with its wholly-owned subsidiary The Prudential Investment Corporation
("PIC"), which provides that, subject to The Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, The Prudential has entered into a Subadvisory
Agreement with its wholly-owned subsidiary Jennison Associates Capital Corp.
("Jennison"), under which Jennison furnishes investment advisory services in
connection with the management of the Prudential Jennison Portfolio. Further
detail is provided in the prospectus and statement of additional information for
the Series Fund. The Prudential, PIC and Jennison are registered as investment
advisors under the Investment Advisers Act of 1940.
10
<PAGE>
As an investment advisor, The Prudential charges the Series Fund a daily
investment management fee as compensation for its services. The following table
shows the investment management fee charged for each portfolio of the Series
Fund available for investment by Contract owners.
- --------------------------------------------------------------------------
ANNUAL INVESTMENT
PORTFOLIO MANAGEMENT FEE AS
A PERCENTAGE OF AVERAGE
DAILY NET ASSETS
- --------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 0.40%
DIVERSIFIED BOND PORTFOLIO 0.40%
GOVERNMENT INCOME PORTFOLIO 0.40%
CONSERVATIVE BALANCED PORTFOLIO 0.55%
FLEXIBLE MANAGED PORTFOLIO 0.60%
HIGH YIELD BOND PORTFOLIO 0.55%
STOCK INDEX PORTFOLIO 0.35%
EQUITY INCOME PORTFOLIO 0.40%
EQUITY PORTFOLIO 0.45%
PRUDENTIAL JENNISON PORTFOLIO 0.60%
SMALL CAPITALIZATION STOCK PORTFOLIO 0.40%
GLOBAL PORTFOLIO 0.75%
NATURAL RESOURCES PORTFOLIO 0.45%
- --------------------------------------------------------------------------
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the Series Fund, nor the Series Fund currently foresees any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Prudential Variable Contract Real Property Account (the "Real Property
Account") is a separate account of The Prudential that, through a general
partnership formed by The Prudential and two of its subsidiaries, invests
primarily in income-producing real property such as office buildings, shopping
centers, agricultural land, hotels, apartments or industrial properties. It also
invests in mortgage loans and other real estate-related investments, including
sale-leaseback transactions. The objectives of the Real Property Account and the
partnership are to preserve and protect capital, provide for compounding of
income as a result of reinvestment of cash flow from investments, and provide
for increases over time in the amount of such income through appreciation in the
value of assets.
The partnership has entered into an investment management agreement with The
Prudential, under which The Prudential selects the properties and other
investments held by the partnership. The Prudential charges the partnership a
daily fee for investment management which amounts to 1.25% per year of the
average daily gross assets of the partnership.
A FULL DESCRIPTION OF THE REAL PROPERTY ACCOUNT, ITS MANAGEMENT, POLICIES, AND
RESTRICTIONS, ITS CHARGES AND EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN, THE PARTNERSHIP'S INVESTMENT OBJECTIVES, AND ALL OTHER ASPECTS OF THE
REAL PROPERTY ACCOUNT'S AND THE PARTNERSHIP'S OPERATIONS IS CONTAINED IN THE
ATTACHED PROSPECTUS FOR THE REAL PROPERTY ACCOUNT, WHICH SHOULD BE READ TOGETHER
WITH THIS PROSPECTUS BY ANY CONTRACT OWNER CONSIDERING THE REAL ESTATE
INVESTMENT OPTION. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE
MET.
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DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The minimum initial purchase payment is $10,000. The Contract may generally be
issued on proposed annuitants below the age of 86. Before issuing any Contract,
The Prudential requires submission of certain information. Following The
Prudential's review of the information and approval of issuance of the Contract,
a Contract will be issued that sets forth precisely the owner's rights and the
Company's obligations. The Contract owner may thereafter make additional
purchase payments of $1,000 or more ($10,000 or more when issued in New York),
but there is no obligation to do so. These additional purchase payments may be
made by check payable to the order of The Prudential and mailed to a Prudential
Home Office, accompanied by forms that will be provided for this purpose.
The Contract date will be the date the initial purchase payment and required
information are received in The Prudential Home Office. The amount credited
under the Contract begins to vary as of the end of the first valuation period to
reflect the investment results of the variable investment option[s] and/or the
interest rate declared for the fixed-rate option as chosen by the applicant. If
the issuance of the Contract is not approved, because the current underwriting
requirements are not met, the purchase payment will promptly be returned. The
Company reserves the right to change these requirements on a non-discriminatory
basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, a Contract may be returned for a refund within 10 days after it is
received by the Contract owner. Some states allow a longer period of time during
which a Contract may be returned for a refund. A refund can be requested by
mailing or delivering the Contract to the representative who sold it or to The
Prudential Home Office specified in the Contract. The Contract owner will then
receive a refund of all purchase payments made, plus or minus any change due to
investment experience in the value of the invested portion of the payments,
excluding any bonus paid on the purchase payments, calculated as if no charges
had been made against the Account or the Series Fund. However, if applicable law
so requires, the Contract owner who exercises his or her short-term cancellation
right will receive a refund of all purchase payments made, excluding any bonus
paid on the purchase payments, with no adjustment for investment experience.
ALLOCATION OF PURCHASE PAYMENTS
The Contract owner determines how the initial purchase payment will be allocated
among the subaccounts, the Real Property Account, and the fixed-rate option, by
specifying the desired allocation on the application form for a Contract. The
owner may choose to allocate nothing to a particular subaccount, to the Real
Property Account or to the fixed-rate option, but any allocation made must be at
least 10% and may not be a fractional percent. Subsequent purchase payments will
be allocated in the same proportions as the most recent purchase payment made by
the owner. The subsequent purchase payments which are allocated to the variable
investment option[s] will be credited under the Contract based on the next
computed value of an accumulation unit following receipt of payment by The
Prudential. The value of an accumulation unit is determined when the net asset
values of the portfolios of the Series Fund are calculated, which is generally
at 4:15 p.m. New York City time on each day during which the New York Stock
Exchange is open. Subsequent purchase payments allocated to the fixed-rate
option will begin earning interest on the date received. The Contract owner may
change the way in which subsequent purchase payments are allocated by providing
The Prudential with written instructions or by telephoning the designated
Prudential Home Office, provided the Contract owner is enrolled to use the
Telephone Transfer System.
Additionally, a feature called Dollar Cost Averaging ("DCA") is available to
Contract owners. Under this feature, purchase payments may be allocated to the
portion of the Money Market subaccount used for this feature (the "DCA
account"), and designated dollar amounts will be transferred monthly from the
DCA account to other investment options available under the Contract, excluding
the Money Market subaccount and the fixed-rate option, but including the Real
Property Account. Automatic monthly transfers must be at least 3% of the amount
allocated to the DCA account (that is, if $10,000 is designated, the minimum
monthly transfer is $300), with a minimum of $20 transferred into any one
investment option. These amounts are subject to change at The Prudential's
discretion. The minimum transfer amount will only be recalculated if the amount
designated for transfer is increased.
When DCA is established at issue, the greater of $10,000 or 10% of the initial
purchase payment must be allocated to the DCA account. When DCA is established
after issue, the Contract owner must allocate to the DCA account at least
$10,000. These minimums are subject to change at The Prudential's discretion.
After DCA has been established and as long as the DCA account has a positive
balance, Contract owners may allocate or transfer amounts to the DCA account,
subject to the limitations on purchase payments and transfers generally. In
addition,
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<PAGE>
if the Contract owner has already established DCA, the purchase payment
allocation instructions may include an allocation of all or a portion of all
your purchase payment to the DCA account.
Each automatic monthly transfer will take effect as of the end of the valuation
period on the Monthly date (i.e. the Contract date and the same date in each
subsequent month), provided the New York Stock Exchange ("NYSE") is open on that
date. If the NYSE is not open on the Monthly date, the transfer will take effect
as of the end of the valuation period on the next day that the NYSE is open. If
the Monthly date does not occur in a particular month (e.g., February 30), the
transfer will take effect as of the end of the valuation period on the last day
of the month that the NYSE is open. Automatic monthly transfers will continue
until the balance in the DCA account reaches zero, or until the Contract owner
gives notification of a change in allocation or cancellation of the feature. If
the Contract has an outstanding payment allocation to the DCA account, but the
DCA option has previously been canceled, purchase payments allocated to the DCA
account will be allocated to the Money Market subaccount. Currently, there is no
charge for using the DCA feature.
ADDITIONAL AMOUNTS
For purchase payments made, during the first 3 Contract years, and in Contract
years thereafter at The Prudential's discretion, The Prudential will add an
Additional Amount, as a bonus, of 1% to the purchase payment and allocate that
Additional Amount to the subaccounts, the Real Property Account, and the
fixed-rate option in the same manner as that purchase payment. The Prudential
reserves the right, however, to limit its payment of such Additional Amounts to
$1,000 in each Contract year. This Additional Amount or bonus will work as
follows. Suppose the owner makes an initial purchase payment of $10,000 to be
allocated equally to the Equity Subaccount and the fixed-rate option. The
Prudential would increase the payment by 1%, or $100, and allocate $5,050 to
both the Equity Subaccount and to the fixed-rate option. Later in the year the
owner sends The Prudential an additional purchase payment of $6,000, but fails
to indicate how it should be applied. The Prudential would increase that amount
by 1% or $60, and based on the owner's most recent instruction, would allocate
$3,030 to both the Equity Subaccount and to the fixed-rate option.
The Additional Amount will not be subject to taxes attributable to premiums. It
will, however, be recaptured by The Prudential in the event the owner makes a
withdrawal of a purchase payment on which an Additional Amount was paid within 6
Contract years after the payment, unless such withdrawn purchase payment is used
to effect an annuity that is not subject to a sales charge. See SALES CHARGES ON
WITHDRAWALS, page 16, and RECAPTURE OF ADDITIONAL AMOUNTS, page 17.
TRANSFERS
The Contract owner may make up to four transfers per Contract year without the
Prudential's consent. The Contract owner may transfer all or part of the amount
credited to any subaccount to any of the other subaccounts, to the Real Property
Account or to the fixed-rate option without charge. The Contract owner may
transfer amounts by proper written notice to a Prudential Home Office, or by
telephone unless the Contract owner asks that transfers by telephone not be
made.
The Prudential has adopted procedures designed to ensure that requests by
telephone are genuine and will require appropriate identification for that
purpose. The Prudential will not be liable for following telephone instructions
that it reasonably believes to be genuine. The Prudential cannot guarantee that
owners will be able to get through to complete a telephone transfer during peak
periods such as periods of drastic economic or market change. Transfers among
subaccounts will take effect as of the end of the valuation period in which a
proper transfer request is received at a Prudential Home Office. The request may
be in dollars, such as a request to transfer $5,000 from one subaccount to
another, or may be in terms of a percentage reallocation among subaccounts. In
the latter case, the percentage must be whole numbers.
Transfers from the fixed-rate option to the variable investment options are
currently permitted once each Contract year and only during the 30-day period
beginning on the Contract anniversary. The maximum amount which currently may be
transferred out of the fixed-rate option each year is the greater of: (a) 25% of
the amount in the fixed-rate option, and (b) $5,000. These limits are subject to
change in the future. Although it is not The Prudential's present practice to do
so, it may in the future permit transfers outside of the 30-day period beginning
on the Contract anniversary and change the maximum amount that may be
transferred out of the fixed-rate option.
Transfers from the Real Property Account to the subaccounts or to the fixed-rate
option are currently permitted once each Contract year and only during the
30-day period beginning on the Contract anniversary. The maximum amount which
currently may be transferred out of the Real Property Account is the greater of:
(a) 50% of the amount in the Real Property Account, and (b) $10,000. Transfer
requests received prior to the Contract anniversary will be effected on the
Contract anniversary. Transfer requests received within the 30-day period
beginning on the Contract anniversary will be effected as of the end of the
valuation period in which a proper transfer request is received at a Prudential
Home Office. Restrictions on transfers to and from the Real Property
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<PAGE>
Account, which are subject to change, are fully described in the attached
prospectus for the Real Property Account.
WITHDRAWALS
Subject to any restrictions on withdrawals contained in the tax favored plan
under which a participant is covered, the Contract owner may at any time make a
withdrawal from the Contract fund of all or part of the cash surrender value of
the Contract. However, The Prudential's consent will be required for a partial
withdrawal if the amount requested is less than $500 or if it would reduce the
amount credited under the Contract to less than $500. In addition, there are
certain restrictions on the withdrawal of salary reduction contributions and
earnings invested in annuity contracts subject to Section 403(b) of the Internal
Revenue Code. Under such contracts, withdrawals may be made prior to attaining
age 59 1/2 in the event of severance of employment, death, total and permanent
disability and, in limited circumstances, hardship. See TDA'S, page 21. Amounts
held under TDA contracts as of December 31, 1988 are exempt from these
restrictions. The withdrawal restrictions do not apply to transfers among the
available investment options offered by The Prudential or to the direct transfer
of all or part of the Contract owner's interest in the Contract to a Section
403(b) tax-deferred annuity contract of another insurance company or to a mutual
fund custodial account under Section 403(b)(7).
Unless otherwise specified, a partial withdrawal will be allocated among all
subaccounts, the Real Property Account, and the fixed-rate option in the same
proportions as the value of the amount in each subaccount, the Real Property
Account, and the fixed-rate option bears to the total amount then credited to
the Contract. If a total or partial withdrawal is made in the first 6 Contract
years following a purchase payment, there may be a contingent deferred sales
charge. See SALES CHARGES ON WITHDRAWALS, page 16. The withdrawal will be
effected as of the end of the valuation period in which a proper withdrawal
request is received at a Prudential Home Office.
The Prudential will generally pay the amount of any withdrawal, less any
applicable sales charges and any required tax withholding, within 7 days after
it receives a properly completed withdrawal request. The Prudential may delay
payment of any withdrawal allocable to the subaccount[s] for a longer period if
the disposal or valuation of the Account's assets is not reasonably practicable
because the New York Stock Exchange is closed for other than a regular holiday
or weekend, trading is restricted by the SEC or the SEC declares that an
emergency exists. With respect to the amount of any withdrawal allocable to the
fixed-rate option, The Prudential expects to pay the withdrawal promptly upon
request. However, The Prudential has the right to delay payment of such
withdrawal for up to 6 months (or a shorter period if required by applicable
law). The Prudential will pay interest of at least 3% a year if it delays such a
payment for 30 days or more (or a shorter period if required by applicable law).
The Prudential also offers an Automated Withdrawal feature which enables
Contract owners to receive periodic withdrawals either monthly, quarterly,
semi-annually or annually. Withdrawals may be made from a designated investment
option or proportionally from all investment options. Withdrawals must be in a
specified amount rather than a percentage of the amount in the portfolio.
Withdrawal charges may apply if the withdrawals in any Contract year exceed the
withdrawal-free amount.
A withdrawal will generally have federal income tax consequences, which could
include tax penalties. The Contract owner should consult with a tax advisor
before making a withdrawal.
DEATH BENEFIT
If the annuitant should die before he or she has begun to receive annuity
payments, a death benefit, calculated as of the date due proof of death is
received by The Prudential, will be payable to the beneficiary you designate.
Unless the retirement arrangement that covered you provides otherwise, the
beneficiary will have the right to elect to receive this amount without the
imposition of any sales charge or any further annual maintenance charge, in one
sum, in periodic payments, in the form of a lifetime annuity or in a combination
of these ways. Payments will begin once The Prudential receives all information
necessary to process the claim. If the death benefit is payable as a result of
your coverage under a qualified pension plan, IRA, SEP or tax-deferred annuity,
your entire death benefit must be distributed within 5 years after your date of
death. However, if an annuity payment option is elected, and if annuity payments
begin within one year of your death, the death benefits may be distributed over
the beneficiary's life expectancy. If your spouse is your beneficiary, annuity
payments need only begin on or before April 1 of the calendar year following the
calendar year in which you would have attained age 70 1/2 or in some instances,
the remaining interest in the Contract may be rolled over to an IRA owned by
your spouse. With respect to Contracts issued in connection with IRAs, if your
spouse is the designated beneficiary, the Contract may continue with your spouse
treated as the employee. If you die after you have begun to receive annuity
payments as a result of your coverage under a qualified pension plan, IRA, SEP
or tax-deferred annuity, but before your entire interest in the Contract is
distributed, the remaining portion of your interest in the Contract must be
distributed at least as rapidly under the method of distribution being used as
of your date of death. Special additional rules apply to Contracts used in
conjunction with plans subject to Section 457 of the Code. Subject to the terms
of the
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retirement arrangement, if the beneficiary fails to make any election within any
time limit prescribed by or for the retirement arrangements that covered the
Contract owner, The Prudential will make a one-sum cash payment to the
beneficiary, after deduction of the annual account charge then due. The death
benefit will equal the greatest of: (1) the purchase payments made plus any
bonus credited by The Prudential, reduced by any previous withdrawal(s) in the
same proportion that such withdrawal(s) reduced the Contract fund on the
withdrawal date(s); (2) the Contract fund as of the date the Prudential Home
Office receives due proof of death; and (3) the amount that would have been
payable as determined above if the insured had died as of the sixth Contract
anniversary.
Under certain types of retirement arrangements, the Retirement Equity Act of
1984 provides that in the case of a married Participant, a pre-retirement
survivor annuity be paid to the Participant's spouse if the Participant dies
prior to his or her retirement under the plan. A Participant may waive this
coverage with his or her spouse's consent on or after attaining age 35 or upon
termination of employment, if earlier. This consent must contain the signatures
of the Participant and spouse and must be notarized or witnessed by an
authorized plan representative. Unless such consent is obtained, the law
requires that at least 50% of the Participant's account balance as of his or her
date of death be used to purchase a life annuity form of payment for the
Participant's spouse even if the designated beneficiary is someone other than
the spouse. These spousal consent requirements were generally effective
beginning January 1, 1985 and apply to married vested Participants in most
qualified pension plans, including plans for self-employed individuals, and
those Section 403(b) annuities which are considered employee pension benefit
plans under ERISA. Subject to these spousal consent rules, unless the
beneficiary has been irrevocably designated, the owner may change the
beneficiary at any time.
VALUATION OF A CONTRACT OWNER'S CONTRACT FUND
The value of a Contract owner's Contract fund is the sum of his or her interests
in the variable investment options and in the fixed-rate option. The portion of
the Contract fund allocated to the Account is the sum of the interests in each
subaccount. The values are measured in Units, for example, Money Market Units,
Diversified Bond Units or Flexible Managed Units. Every purchase payment made by
an owner is converted into Units of the subaccount or subaccounts selected by
dividing the amount of the purchase payment by the Unit Value for the subaccount
to which that amount has been allocated. The value of these Units changes each
valuation period to reflect the investment results, expenses, and charges of the
subaccount and the corresponding Series Fund portfolio. Further detail about
Units is contained in the statement of additional information.
There is, of course, no guarantee that an owner's Contract fund will increase or
that it will not fall below the amount of the owner's total purchase payments.
However, The Prudential guarantees a minimum interest rate of 3.1% a year on
that portion of the Contract fund allocated to the fixed-rate option. Excess
interest on payments allocated to the fixed-rate option may be credited in
addition to the guaranteed interest rate. See THE FIXED-RATE OPTION, page 18.
The valuation of the portion of the Contract fund held in the Real Property
Account is described in the attached prospectus for the Real Property Account.
CHARGES, FEES, AND DEDUCTIONS
1. PREMIUM TAXES
A charge may be deducted for taxes attributable to premiums. For these purposes,
"taxes attributable to premiums" shall include any state or local premium taxes
and, where approval has been obtained, any federal premium taxes and any
federal, state or local income, excise, business or any other type of tax (or
component thereof) measured by or based upon the amount of premium received by
The Prudential. If The Prudential pays a state or local tax at the time purchase
payments are made, the deduction will be made at that time based on the
applicable rate. In many states, The Prudential pays a premium tax when an
annuity is effected. In those states, the tax will be deducted at that time. The
tax rates currently in effect in those states that impose a tax range from 0.5%
to 5%. The Prudential also reserves the right to deduct from each purchase
payment a charge up to a maximum of 0.3% for federal income taxes measured by
premiums in those states where approval has been obtained. Currently, no such
charge is being made in any state.
A deduction for any such taxes imposed on purchase payments will not be made,
however, except to the extent that the total tax attributable to premiums is in
excess of 4% when: (1) a Contract owner's total purchase payments, less any
purchase payments withdrawn, equal or exceed $50,000; or (2) a Contract owner
purchases separate Contracts for each of his or her children or grandchildren as
annuitants, each Contract has purchase payments totalling at least $25,000, and
total purchase payments, less any purchase payments withdrawn, equal or exceed
$50,000.
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2. SALES CHARGES ON WITHDRAWALS
A contingent deferred sales charge may be imposed on the withdrawal of purchase
payments. The charge compensates The Prudential for paying all of the expenses
of selling and distributing the Contracts, including sales commissions, printing
of prospectuses, sales administration, preparation of sales literature, and
other promotional activities. There is no sales charge on the withdrawal of
investment income. No sales charge will be imposed if the Contract is
surrendered due to the death of the annuitant.
The sales charge will be applied as a percentage of the amount of a purchase
payment withdrawn within 6 Contract years following the payment, allowing for a
10% yearly free withdrawal privilege. The percentage charged will vary from 4%
to 7% depending on how soon the withdrawal occurs from the date the purchase
payment was made. Any amount that the owner withdraws will first be treated for
the purpose of calculating this sales charge as a withdrawal of investment
income until an amount equal to the Contract's total investment income has been
withdrawn. For the purpose of determining sales charges, further withdrawals
will be considered withdrawals of purchase payments. Purchase payments are
deemed to be withdrawn on a first-in, first-out basis. The amount of any sales
charge will depend on the amount of purchase payments withdrawn and the number
of Contract years that has elapsed since the owner made the particular purchase
payment. The sales charge will be determined without reference to the source of
the withdrawal.
In a Contract year when sales charges apply (the first 6 Contract years
following a purchase payment), the withdrawal of purchase payment amounts up to
10% of the Contract fund may be made without incurring a sales charge. This is
so even if partial withdrawals have been made in previous years. This
charge-free withdrawal amount does not accumulate from Contract year to Contract
year. In the first 6 years following a purchase payment, a sales charge will
apply to any part of a withdrawal of a purchase payment in each year which is in
excess of 10% of the Contract fund as of the date of the first withdrawal in
that Contract year.
In addition, for non-qualified contracts and qualified contracts issued on or
after May 1, 1993, the following will apply: based on regulatory approval of the
Waiver of Withdrawal Charges endorsement ("Critical Care Access"), all or part
of any withdrawal and maintenance charges associated with a full or partial
withdrawal, or any annuitization or withdrawal charge due on the annuity date,
will be waived following the receipt of due proof that the annuitant or
co-annuitant (if applicable) has been confined to an eligible nursing home or
hospital for a period of at least 3 months or a physician has certified that the
annuitant or co-annuitant (if applicable) has 6 months or less to live.
If an owner withdraws all or part of a purchase payment before the end of the
Contract year during which it was made, the sales charge will be 7% of the
purchase payment withdrawn, after deducting the 10% free withdrawal amount. The
sales charge imposed on the withdrawal of a purchase payment during the 2
Contract years following the Contract year in which the purchase payment was
made is 7% and then decreases in the 3rd, 4th, and 5th years following the year
in which the payment was made, in accordance with the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FOR WITHDRAWALS OF PURCHASE THE SALES CHARGE WILL BE EQUAL TO
PAYMENTS DURING THE CONTRACT YEAR THE FOLLOWING PERCENTAGE OF THE
INDICATED PURCHASE PAYMENT WITHDRAWN(a)
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Contract Year In Which Payment Made 7%
First Contract Year Following Year in Which Payment Made 7%
Second Contract Year Following Year in Which Payment Made 7%
Third Contract Year Following Year in Which Payment Made 6%
Fourth Contract Year Following Year in Which Payment Made 5%
Fifth Contract Year Following Year in Which Payment Made 4%
Subsequent Contract Years No Charge
- --------------------------------------------------------------------------------------------------------------
(a) Subject to 10% free withdrawal described above.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
For purchase payments made on and after the annuitant's 81st birthday, the sales
charge percentages described in the above table for withdrawals of such purchase
payments will be subject to reduction based on reductions in costs for purposes
of complying with state non-forfeiture laws.
The owner's withdrawal request should specify the source from which the
withdrawal is to be made. Otherwise, the withdrawal, subject to minimum amount
requirements, will be allocated to the investment option[s] in which the
Contract fund is invested in the same proportions as the value of the interests
in these options bears to the total value of the owner's Contract fund.
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Amounts used for the purpose of effecting an annuity or the interest payment
option are subject to the withdrawal charges described above. See EFFECTING AN
ANNUITY, page 23. However, this charge will not be deducted if a life annuity or
fixed term annuity of 10 years or greater is effected after the first Contract
year.
To the extent that the contingent deferred sales charge is insufficient to
recover all distribution expenses associated with the Contracts, the deficiency
will be met from The Prudential's surplus which is, in part, derived from the
charges for the assumption of mortality and expense risks (described in item 5
below) and from mortality gains from Contracts under which annuity payments are
being made.
3. RECAPTURE OF ADDITIONAL AMOUNTS
If an owner makes a withdrawal which consists partially or wholly of purchase
payments, The Prudential may recapture the Additional Amounts that were credited
to the Contract fund based on those payments. If the duration from the start of
the Contract year in which a purchase payment was made to the start of the
Contract year of withdrawal is 6 years or more, the Additional Amounts credited
will not be recaptured. For example, suppose you make an initial purchase
payment of $10,000 for which you are credited with a bonus of 1% or $100. In the
second year, you make an additional payment of $2,400 and are credited with an
additional bonus of $24. In the fifth Contract year you request a partial
Contract withdrawal of $1,600. On the date of the withdrawal, the value of your
Contract fund is $13,900, which includes $1,376 of earnings. Thus, the requested
withdrawal represents a withdrawal of $224 of purchase payments. Because $224 of
purchase payments is being withdrawn and the duration from the start of the
Contract years of these purchase payment to the Contract year of withdrawal is
less than 6 years, the portion of the Additional Amounts recaptured will be
$2.24 (1% of $224).
The Prudential will not recapture Additional Amounts credited upon the portion
of the purchase payment withdrawn if such withdrawal is used to effect an
annuity that is not subject to a sales charge or is the result of a withdrawal
where surrender charges have been waived due to confinement in a nursing home or
hospital, or due to a terminal illness. See SALES CHARGES ON WITHDRAWALS, page
16.
4. ADMINISTRATIVE CHARGE
There are two possible charges imposed under the Contracts to reimburse The
Prudential for the expenses it incurs in administering the Contracts, which
include such things as issuing the Contract, establishing and maintaining
records, and providing reports to Contract owners. These are an annual
maintenance charge and a daily administrative charge. An annual maintenance
charge of $30 will be deducted if and only if the Contract fund is less than
$10,000 on a Contract anniversary or at the time a full withdrawal is effected.
This $30 fee will not be charged if the Contract fund is less than $10,000 as a
result of a withdrawal due to confinement in a nursing home or hospital, or due
to a terminal illness, as applied under the Waiver of Withdrawal Charges
endorsement. See SALES CHARGES ON WITHDRAWALS, page 16. Otherwise, no annual
maintenance charge will be made. This charge is not made after annuitization and
may not be increased by The Prudential.
The daily administrative charge will be assessed by deducting, from the assets
of each of the variable investment options, a percentage of those assets
equivalent to an effective annual rate of up to 0.2% (.00054740%, daily). This
administrative charge is guaranteed never to be increased above an effective
annual rate of 0.2% over the life of the Contracts, and is intended to cover the
average anticipated administrative expenses to be incurred over the periods
these Contracts are in force. This fee contains no element of anticipated
profit. Because the administrative charge is a percentage of assets, however,
there is no necessary relationship between the amount of administrative charge
imposed on a given Contract and the amount of expenses that may be attributable
to that Contract.
5. CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS
In addition to the sales and administrative charges described above, a deduction
is made daily from each of the variable investment options to reimburse The
Prudential for assuming the risk that its estimates of longevity and of the
expenses it expects to incur, over the lengthy periods that the Contract may be
in effect--estimates that are the basis for the level of the other charges it
makes and the annuity purchase rates it guarantees under the Contract--will turn
out to be incorrect. The charge will be made daily at an annual rate of up to 1%
(.00272616%, daily) of the assets held in the variable investment options. Of
this amount, 0.3% is for assuming the risk that the charges made under the
Contracts may not cover administrative expenses, and 0.7% is for assuming
mortality risks. This charge is not assessed against amounts allocated to the
fixed-rate option or after a fixed-dollar annuity is effected.
To the extent that the charge for these risks exceeds the actual cost of
expenses and benefits, The Prudential will realize a gain. These proceeds will
become part of The Prudential's general account and will be available to cover
any deficiency to the extent to which deferred sales charges cover sales
expenses under the Contracts.
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6. EXPENSES INCURRED BY THE SERIES FUND
The charges and expenses of the Series Fund, net of reimbursements, are
indirectly borne by the Contract owners. Investment management fees for the
available Series Fund portfolios are briefly described under THE PRUDENTIAL
SERIES FUND, INC. on page 10. Further detail about management fees and other
Series Fund expenses is provided in the attached prospectus for the Series Fund
and its statement of additional information. Higher charges and expenses are
incurred if the Real Property Account is selected, as described in the
prospectus for the Real Property Account that is attached to this one.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE
FIXED-RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND THE
PRUDENTIAL HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE
FIXED-RATE OPTION. DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE
SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS
RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
As explained earlier, a Contract owner may elect to allocate, either initially
or by transfer, all or part of the amount credited under the Contract to a
fixed-rate option, and the amount so allocated or transferred becomes part of
The Prudential's general assets. Sometimes this is referred to as The
Prudential's general account, which consists of all assets owned by The
Prudential other than those in the Account and in other separate accounts that
have been or may be established by The Prudential. Subject to applicable law,
The Prudential has sole discretion over the investment of the assets of the
general account, and Contract owners do not share in the investment experience
of those assets. Instead, The Prudential guarantees that the part of the
Contract fund allocated to the fixed-rate option will accrue interest daily at
an effective annual rate that The Prudential declares periodically, but not less
than an effective annual rate of 3.1%. Currently, for Contracts issued on or
after November 6, 1995, the declared interest rates will remain in effect from
the date money is allocated to the fixed-rate option until that same date one
year later. For Contracts issued prior to November 6, 1995, the declared
interest rates will remain in effect from the date money is allocated to the
fixed rate option until that same date three years following the date of the
allocation. After the initial guarantee period, a new crediting rate will be
declared each year, and will remain in effect for at least the calendar year, so
long as required by applicable law. The Prudential reserves the right to change
this practice. The Prudential is not obligated to credit interest at a higher
rate than 3.1% where state approved (otherwise 4%), although in its sole
discretion it may do so. Different crediting rates may be declared for different
portions of the Contract fund allocated to the fixed-rate option. On request, a
Contract owner will be advised of the interest rates that currently apply to his
or her Contract.
Transfers from the fixed-rate option are subject to strict limits. See
TRANSFERS, page 13.
FEDERAL TAX STATUS
The following discussion is general in nature. It is not intended as tax advice.
Nor does it consider any applicable state or other tax laws. A qualified tax
advisor should be consulted for complete information and advice. The discussion
is based on current laws and interpretations, which may change.
The following rules do not generally apply to annuity Contracts held by or for
non-natural persons (e.g., corporations). For special rules relating to
contracts issued in connection with tax qualified plans, IRAs, TDA's and Section
457 plans, see CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS, page 20 .
Where a contract is held by a non-natural person, unless the Contract owner is a
nominee or agent for a natural person (or in other limited circumstances), the
Contract will generally not be treated as an annuity for tax purposes, and
increases in the value of the Contract will be subject to current tax.
The following discussion assumes that the Contract will be treated as an annuity
for federal income tax purposes. Section 817(h) of the Internal Revenue Code
(the "Code") provides that the underlying investments for a variable annuity
must satisfy certain diversification requirements. For further details on
diversification requirements, see DIVIDENDS, DISTRIBUTIONS, AND TAXES in the
attached prospectus for the Series Fund. The Prudential believes the underlying
variable investment options for the Contract meet these diversification
requirements. In connection with the issuance of temporary regulations relating
to diversification requirements under Section 817(h), the Treasury Department
announced that such regulations do not provide guidance concerning the extent to
which Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or revenue
rulings under Section 817(d) relating to the definition of a variable contract.
Because of this uncertainty, The Prudential reserves the right to make such
changes as it deems necessary to assure that the Contract continues to qualify
as an annuity for tax purposes. Any such changes will apply
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uniformly to affected Contract owners and will be made with such notice to
affected Contract owners as is feasible under the circumstances.
Under current law The Prudential believes that the Contract will be treated as
an annuity for federal income tax purposes and that the issuing insurance
company, The Prudential, and not the Contract owner, will be treated as the
owner of the underlying investments for the Contract. Accordingly, no tax should
be payable by any Contract owner as a result of any increase in the value of the
Contract until money is received by him or her, either in the form of a cash
withdrawal or as an annuity. It is important, however, to consider how amounts
that are withdrawn will be taxed.
TAXES PAYABLE BY CONTRACT OWNERS
The Code generally provides that amounts withdrawn by a Contract owner from his
or her Contract, before annuity payments begin, will be treated for tax purposes
as being first withdrawals of investment income, rather than as withdrawals of
purchase payments, until all investment income has been withdrawn. Except to the
extent provided under the terms of your retirement plan, the assignment or
pledge (or agreement to assign or pledge) any portion of the value of the
Contract for a loan shall be treated as a withdrawal subject to this rule. In
the case of a Contract purchased in connection with a tax favored plan,
withdrawals are generally pro-rated between investment income and purchase
payments that were not attributable to contributions excludible from an
employee's income (or deductible in the case of an IRA). In many cases, the
amount of such purchase payments will be zero and hence the total withdrawal
will be taxable as ordinary income. Amounts withdrawn before annuity payments
begin which represent a distribution of investment income will be taxable as
ordinary income and may be subject to a penalty tax. Amounts which represent a
withdrawal of purchase payments will ordinarily not be taxable as ordinary
income or be subject to a penalty tax.
All contracts issued after October 21, 1988 by the same company (and affiliates)
to the same contract owner during any calendar year are treated as one annuity
contract for purposes of determining the amount includible in income of any
distribution that is not received as an annuity payment. In the case of an IRA
or TDA, the Code requires that all IRAs or TDA's be treated as one contract for
purposes of calculating the taxable portion of distributions. However, under IRS
regulations the minimum distribution requirement may be satisfied by making a
distribution from any IRA or TDA equal to the sum of the minimum distribution
amounts required for each IRA or TDA owned by the contract owner without the
need to make a minimum withdrawal from each IRA or TDA owned.
Where a contract is issued in exchange for a contract containing purchase
payments made before August 14, 1982, favorable tax rules may apply to certain
withdrawals from the contract. Consult a tax advisor for information regarding
these rules.
Different tax rules apply to receipt of annuity payments. A portion of each
annuity payment received under a Contract will be treated as a partial return of
the purchase payments and will not be taxable. The remaining portion of the
annuity payment will be taxed as ordinary income. Exactly how an annuity payment
is divided into taxable and non-taxable portions depends upon the period over
which annuity payments are expected to be received, which in turn is governed by
the form of annuity selected and, where a lifetime annuity is chosen, by the
life expectancy of the annuitant. In the case of Contracts under which annuity
payments commence after 1986, annuity payments which are received after the
annuitant recovers the full amount of the purchase payments will be fully
includible in income. Should annuity payments cease on account of the death of
the annuitant before the purchase payment has been fully recovered, the
annuitant, on his or her last tax return, (or in certain cases the beneficiary),
is allowed a deduction for the unrecovered amount. As noted above, the cost
basis for Contracts purchased in connection with a tax favored plan is often
zero and in such cases, each annuity payment will be fully taxable. A lump sum
payment taken in lieu of remaining annuity payments is not considered an annuity
payment for tax purposes. Any such lump sum payment distributed to an annuitant
generally would be taxable as ordinary income and may be subject to a penalty
tax as described above. However, special averaging rules may apply in the case
of a lump sum distribution from a qualified plan.
The Code further provides that any amount received under an annuity contract may
be subject to a penalty tax. The amount of the penalty is equal to 10% of that
portion of the amount that is includible in income. Some withdrawals will be
exempt from the penalty. Some examples are withdrawals: (1) made on or after the
Contract owner reaches age 59 1/2, (2) made on or after the death of the
Contract owner, (3) attributable to the Contract owner becoming disabled within
the meaning of Code section 72(m)(7), (4) in the form of level annuity payments,
made not less frequently than annually under a lifetime annuity, (5) allocable
to investment in the contract before August 14, 1982, (6) under a qualified
funding asset (defined by Code section 130(d)), or (7) under an immediate
annuity contract (within the meaning of section 72(u)(4)). Exceptions (5)
through (7) only apply to contracts that are not purchased in connection with a
tax favored plan. In the case of a Contract purchased in connection with a tax
favored plan, a 50% excise tax is imposed on the amount by which minimum
required distributions exceed
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actual distributions. Penalty taxes are also imposed on excess contributions to
most tax favored plans or aggregate distributions from most tax favored plans in
excess of a specified amount and in certain other circumstances.
If the 10% penalty tax does not apply to a withdrawal by reason of the exception
for withdrawals in the form of a level annuity (clause (4) above), but the
series of payments is modified (other than by reason of death or disability),
either (a) before the end of the 5-year period beginning with the first payment
and after the Contract owner reaches age 59 1/2, or (b) before the Contract
owner attains age 59 1/2, the Contract owner's tax for the year of the
modification will be increased by the penalty tax that would have been imposed
without the exception, plus interest for the deferral period.
Generally, the same tax rules apply to amounts received as a death benefit by
the beneficiary as those set forth above with respect to the Contract owner,
except that the early withdrawal penalty tax does not apply. The election of an
annuity payment option by the beneficiary may defer taxes otherwise payable upon
the receipt of a lump sum death benefit. Certain minimum distribution
requirements apply in the case where the owner dies. See IRS REQUIRED
DISTRIBUTIONS ON DEATH OF OWNER in the Statement of Additional Information.
In addition, a transfer of the Contract to or the designation of a beneficiary
who is either 37 1/2 years younger than the Contract owner or a grandchild of
the Contract owner may have Generation Skipping Transfer tax consequences under
section 2601 of the Code.
Certain transfers of a Contract for less than full consideration, such as a
gift, will trigger tax on the investment income in the Contract. This rule does
not apply to certain transfers between spouses or incident to divorce. See
OWNERSHIP OF THE CONTRACT, page 25.
CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS
The Contract may be purchased for use in connection with various retirement
arrangements entitled to favorable federal income tax treatment ("tax favored
plans"). These are individual retirement accounts and annuities ("IRAs") subject
to Sections 408(a) and 408(b) of the Code, simplified employee pension plans
("SEPs") under Section 408(k) of the Code, tax deferred annuities ("TDA's")
under Section 403(b) of the Code, deferred compensation plans of state and local
governments and tax exempt organizations under Section 457 of the Code, and
pension, profit sharing and annuity plans qualified under Sections 401(a) and
403(a) of the Code. Such plans, accounts, and annuities must satisfy certain
requirements of the Code in order to be entitled to the federal income tax
benefits accorded to these plans. A discussion of these requirements is beyond
the scope of this prospectus, and it is assumed that such requirements are met
with respect to a Contract purchased for use in connection with a tax favored
plan.
In general, assuming the requirements and limitations of the Code provisions
applicable to the particular type of tax favored plan involved are satisfied,
purchase payments (other than after-tax employee payments) under the Contract
will be deductible (or not includible in income) up to certain amounts each year
and tax will not be imposed on the investment income and realized gains of the
subaccounts in which the purchase payments have been invested until a
distribution is received. Persons contemplating the purchase of a Contract in
connection with a tax favored plan should consult their tax advisor before
purchasing a Contract for such purposes.
The comments which follow concerning specific tax favored plans are intended
merely to call attention to certain of their features. No attempt has been made
to discuss in full the tax ramifications involved or to offer tax advice. As
suggested above, a qualified tax advisor should be consulted for advice and
answers to any questions.
PLANS FOR SELF-EMPLOYED INDIVIDUALS
For self-employed individuals who establish qualified plans, contributions are
deductible within the limits prescribed by the Code. Annual deductible
contributions cannot exceed the lesser of $30,000 or 25% of "earned income". For
this purpose "earned income" is computed after the deduction for contributions
to the plan is considered.
Under such tax qualified plans, payments generally may not begin before
Participants attain age 59 1/2 (except in the event of total disability or
death, if authorized by the plan). Payments must begin by April 1 of the year
following attainment of age 70 1/2 and are subject to certain minimum
distribution requirements. Any distribution to employees before age 59 1/2 may
result in certain tax penalties.
IRAS
The Code permits persons who receive certain qualifying distributions from a
qualified pension or profit-sharing plan, TDA or IRA to make, within 60 days, a
tax-free "rollover" transfer of all or any part of the amount of such
distribution to an IRA which they establish. Additionally, the spouse of a
deceased employee may roll over to an IRA certain distributions received by the
spouse from a qualified pension or profit-sharing plan, TDA or IRA on account of
the employee's death.
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Because the Contract's minimum initial payment of $10,000 is greater than the
maximum annual contribution permitted to be made to an IRA (generally, $2,000),
a Contract may be purchased as a Section 408(b) IRA only in connection with a
"rollover" of the proceeds of a qualified plan, TDA or IRA. In order to qualify
as an IRA under Section 408(b) of the Code, a Contract must contain certain
provisions: (1) the owner of the Contract must be the annuitant, except when a
transfer is made to a former spouse in accordance with a divorce decree as
provided in Section 408(d)(6) of the Code; (2) the rights of the owner cannot be
forfeitable; (3) generally, the Contract may not be sold, assigned, discounted
or pledged for any purpose to any person except The Prudential; (4) except in
the case of a "rollover" contribution, the annual premium may not exceed $2,000;
(5) generally, the annuity date may be no later than April 1st of the calendar
year following the calendar year in which the annuitant attains age 70 1/2; and
(6) annuity and death benefit payments must satisfy certain minimum distribution
requirements. Contracts issued as Section 408(b) IRAs will conform to such
requirements.
SEPS
Under a SEP, annual employer contributions to an IRA established by an employee
are not includible in income up to the lesser of $30,000 or 15% of the
employee's earned income (excluding the employer's contribution to the SEP). In
addition, a SEP must satisfy certain minimum participation requirements and
contributions may not discriminate in favor of highly compensated employees.
Contracts issued as Section 408(b) IRAs established under a SEP must satisfy the
requirements described above for a Section 408(b) IRA.
Certain SEP arrangements are permitted to allow employees to elect to reduce
their salaries by as much as $9,500 (in 1996, indexed annually) and have their
employer make contributions on their behalf to the SEP. These arrangements,
called salary reduction SEPs, are available only if the employer maintaining the
SEP has 25 or fewer employees and at least 50% of the eligible employees elect
to make salary reduction contributions. Other limitations may reduce the
permissible contribution level for highly compensated employees.
In accordance with IRS regulations, persons who purchase a Contract used as an
IRA, including one established under a SEP arrangement, are given disclosure
material prepared by The Prudential. The material includes this prospectus, a
copy of the Contract, and a brochure containing information about eligibility,
contribution limits, tax consequences, and other particulars concerning IRAs.
The regulations require that such persons be given 7 days after making an
initial contribution in which to affirm or reverse their decision to
participate. Therefore, within 7 days after establishing the Contract, a person
may cancel his or her Contract by notifying The Prudential in writing, and The
Prudential will refund all of the purchase payments under the Contract or, if
greater, the amount credited under the Contract (less any bonus) computed as of
the valuation period that The Prudential receives the notice for cancellation.
This 7-day period may or may not coincide with any part of the 10-day free look
period described under SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK", page 12.
TDA'S
Section 403(b) of the Code permits employers and employees of Section 501(c)(3)
tax-exempt organizations and public educational organizations to make, subject
to certain limitations, contributions to an annuity in which the employee's
rights are nonforfeitable (commonly referred to as a "tax deferred annuity").
The amounts contributed under a TDA and increments thereon are not taxable as
income until distributed as annuity income or otherwise. Generally,
contributions to a TDA may be made through a salary reduction arrangement up to
a maximum of $9,500. However, under certain special rules, the limit could be
increased as much as $3,000. In addition, the Code permits certain total
distributions from a TDA to be "rolled over" to another TDA or IRA. Certain
partial distributions from a TDA may be "rolled over" to an IRA.
An annuity contract will not qualify as a TDA, unless under such contract
distributions from salary reduction contributions and earnings thereon (other
than distributions attributable to assets held as of December 31, 1988) may be
paid only on account of attainment of age 59 1/2, severance of employment,
death, total and permanent disability and, in limited circumstances, hardship.
(Such hardship withdrawals are permitted, however, only to the extent of salary
reduction contributions and not earnings thereon).
The Section 403(b)(11) withdrawal restrictions referred to above do not apply to
the transfer of all or part of a Contract owner's interest in his or her
Contract among the available investment options offered by The Prudential or to
the direct transfer of all or part of the Contract owner's interest in the
Contract to a Section 403(b) tax-deferred annuity contract of another insurance
company or to a mutual fund custodial account under Section 403(b)(7) of the
Code.
In imposing the restrictions on withdrawals as described above, The Prudential
is relying upon a no-action letter dated November 28, 1988 from the Chief of the
Office of Insurance Products and Legal Compliance of the Securities and Exchange
Commission to the American Council of Life Insurance.
Employer contributions are subject generally to the same coverage, minimum
participation and nondiscrimination rules applicable to qualified pension and
profit-sharing plans. Distributions from a TDA attributable to benefits
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accruing after December 31, 1986 must commence by April 1 of the calendar year
following the year in which an employee attains age 70 1/2. However, for
governmental and church plans, distributions may be delayed until April 1 of the
calendar year following the calendar year the participant retires if that is
later. Distributions must satisfy minimum distribution requirements similar to
those that apply to qualified plans generally.
ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE OR LOCAL GOVERNMENTS AND
TAX EXEMPT ORGANIZATIONS
A Contract may be used to fund an eligible deferred compensation plan of a state
or local government or a tax-exempt organization. The amounts contributed under
such plans and increments thereon are not taxable as income until distributed or
otherwise made available to the employee or other beneficiary. If the
requirements of Section 457 of the Code are not met, however, employees may be
required to include in gross income all or part of the contributions and
earnings thereon. The assets of deferred compensation plans are part of the
employer's general assets. Contributions generally may not exceed the lesser of
$7,500 or 33 1/3% of the employee's compensation. Distributions must begin by
April 1 of the year following attainment of age 70 1/2. However, for
governmental and church plans, distributions may be delayed until April 1 of the
calendar year following the calendar year the participant retires if that is
later. Distributions are subject to special minimum distribution rules.
QUALIFIED PENSION AND PROFIT SHARING PLANS
A Contract may be used to fund a qualified pension or profit-sharing plan. The
plan itself must satisfy the coverage, minimum participation nondiscrimination
and minimum distribution and all other requirements applicable generally to
qualified pension and profit-sharing plans. The Code also imposes dollar
limitations on contributions that may be made to or benefits that may be
received from a qualified pension or profit-sharing plan (including a limitation
of $9,500 (in 1996, indexed annually) on the amount that an employee may
contribute through a salary reduction arrangement in the case of a plan with a
qualified "cash or deferred" arrangement). Generally, distributions from a
qualified plan must begin by April 1 of the year following attainment of age
70 1/2. However, for governmental and church plans, distributions may be delayed
until April 1 of the calendar year the participant retires, if that is later.
Distributions are subject to certain minimum distribution requirements.
MINIMUM DISTRIBUTION OPTION
The Minimum Distribution Option is a program available with IRA and SEP
programs. It enables the client to satisfy IRS minimum distribution
requirements, without having to annuitize or cash surrender their Contracts.
Distributions from IRAs and SEPs must begin by April 1 of the year following
attainment of age 70 1/2. Each year until the maturity date, The Prudential will
recalculate the minimum amount the Contract owner is required to withdraw from
his or her IRA or SEP. The Prudential will send the Contract owner a check for
the minimum distribution amount less any partial withdrawals made during the
year. The Prudential's calculations are based solely on the cash value of the
Contract. If the Contract owner has other IRA accounts, he or she will be
responsible for taking the minimum distribution from each.
WITHHOLDING
Certain distributions from qualified retirement plans and 403(b) annuities will
be subject to mandatory 20% withholding unless the distribution is an eligible
rollover distribution that is "directly" rolled over into another qualified
plan, 403(b) annuity or IRA. Unless the Contract owner elects to the contrary,
the portion of any taxable amounts received under the Contract (except for
Contracts issued in connection with plans that are subject to Section 457 of the
Code) will be subject to withholding to meet federal income tax obligations. The
rate of withholding on annuity payments where mandatory withholding is not
required will be determined on the basis of the withholding certificate filed by
the Contract owner with The Prudential. For payments not subject to mandatory
withholding, if no such certificate is filed, the Contract owner will be
treated, for purposes of determining the withholding rate, as a married person
with three exemptions; the rate of withholding on all other payments made under
the Contract, such as amounts received upon withdrawals, will be 10%. Thus, if
the Contract owner fails to elect that there be no withholding, The Prudential
will withhold from every withdrawal or annuity payment the appropriate
percentage of the amount of the payment that is taxable. The Prudential will
provide the Contract owner with forms and instructions concerning the right to
elect that no amount be withheld from payments. Recipients who elect not to have
withholding made are liable for payment of federal income taxes on the taxable
portion of the distribution. All recipients may be subject to penalties under
the estimated tax payment rules if withholding and estimated tax payments are
not sufficient. Contract owners who do not provide a social security number or
other taxpayer identification number will not be permitted to elect out of
withholding. Generally, there will be no withholding for taxes until payments
are actually received under the Contract. Distributions to Contract owners under
an eligible deferred compensation plan subject to Section 457 of the Code are
treated as the payment of wages for federal income tax purposes and thus are
subject to the general withholding requirements.
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TAXES ON THE PRUDENTIAL
Although the Account is registered as an investment company, it is not a
separate taxpayer for purposes of the Code. The earnings of the Account are
taxed as part of the operations of The Prudential. No charge is being made
currently against the Account for Company federal income taxes (excluding any
charge for taxes attributable to premiums.) The Prudential will review the
question of a charge to the Account for Company federal income taxes
periodically. Such a charge may be made in future years for any federal income
taxes that would be attributable to the Contract.
Under current law, The Prudential may incur state and local taxes (in addition
to premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contract or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon The Prudential that are attributable to the Account may result
in a corresponding charge against the Account.
ERISA DISCLOSURE
The Employee Retirement Income Security Act of 1974 ("ERISA") prevents a
fiduciary with respect to a pension or profit-sharing plan from receiving any
benefit from any party dealing with the plan as a result of the sale of the
Contract (other than benefits that would otherwise be provided in the plan).
Administrative exemptions issued by the IRS and the Department of Labor under
ERISA permit transactions between insurance agents and qualified pension and
profit sharing plans under Sections 401(a) and 403(a) of the Code and with SEP
IRAs. To be able to rely on the exemption certain information must be disclosed
to the plan fiduciary. The information that must be disclosed includes the
relationship between the agent and the insurer, a description of any charges,
fees, discounts, penalties or adjustments that may be imposed in connection with
the purchase, holding, exchange or termination of the Contract, as well as the
commissions received by the agent. Information about any applicable charges,
fees, discounts, penalties or adjustments may be found under CHARGES, FEES AND
DEDUCTIONS, page 15. Information about sales representatives and commissions may
be found under SALE OF THE CONTRACT AND SALES COMMISSIONS, page 25. In addition
to disclosure, other conditions apply to the use of the exemption. For example,
a plan fiduciary may not be a partner or employee of The Prudential
representative making the sale. The fiduciary must not be a relative of the
representative (including spouse, direct descendant, spouse of a direct
descendant, ancestor, brother, sister, spouse of a brother or sister). The
representative may not be an employee, officer, director or partner of either
the independent fiduciary or the employer establishing the plan. No relative of
the representative may: (1) control, directly or indirectly, the corporation
establishing or maintaining the plan; (2) be either a partner with a 10% or more
interest in the partnership or the sole proprietor establishing or maintaining
the plan; or (3) be an owner of a 5% or more interest in a Subchapter S
Corporation establishing or maintaining the plan. In addition, no affiliate
(including relatives) of the representative may be a trustee, administrator or a
fiduciary with written authority to acquire, manage or dispose of the assets of
the plan.
ADDITIONAL ERISA REQUIREMENTS
If your retirement arrangement is a plan governed by ERISA, additional
requirements such as spousal consent to distributions may be necessary. Consult
the terms of your retirement arrangement.
EFFECTING AN ANNUITY
Upon the annuity date, the amount credited under a Contract (which includes any
amount allocated to the fixed-rate option as well as to the variable investment
options) is converted into a fixed-dollar annuity payable to the annuitant[s]
named in the Contract. If two annuitants are named in the Contract, the Contract
owner may decide how much of the amount is to be applied for each annuitant and
under which form[s] of annuity. If the Contract is not large enough to produce a
monthly payment of $50, the Contract owner will be paid the cash surrender value
in a single sum.
When a Contract owner requests a withdrawal in the form of an annuity, all
amounts held in the investment options will be withdrawn 7 days prior to the end
of the month in which the request is made or the end of a subsequent month
designated by the owner. An amount equal to the withdrawal charge, if any, and
any additional amount subject to recapture, will be deducted. An amount equal to
the premium tax, if any, imposed by the state in which the annuitant resides is
then deducted (unless deducted earlier). Many states do not impose a premium
tax. In other states the tax ranges from 1% to 5% of the amount applied to
effect an annuity. See PREMIUM TAXES, page 15. Some local jurisdictions also
impose a tax. The amount remaining is applied to effect an annuity. This
amount becomes part of The Prudential's general account.
The amount of the monthly payments will depend upon the amount applied and
tables of rates set forth in the Contract which The Prudential guarantees will
be used even if longevity has significantly improved since the Contract date.
If, however, The Prudential at the time is offering more favorable rates, then
those will be used.
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The annuity will be in one of two forms listed below and other forms may be
available with The Prudential's consent. All the annuity options under this
Contract are fixed annuity options under which the Contract owner's
participation in the variable investment options ceases when the annuity is
effected and the amount of each monthly payment does not change. Unless The
Prudential consents to a later date, an annuity must begin no later than the
first Contract anniversary after the annuitant's 90th birthday, or if there are
two annuitants named in the Contract, the 90th birthday of the primary
annuitant. Special rules apply in the case of a Contract issued in connection
with a tax favored retirement plan. The Prudential will then make monthly
payments to the annuitant on the first day of each month for a period determined
by the form of annuity selected. Unless applicable law states otherwise and
subject to the terms of the retirement arrangement, if the owner has not
selected an annuity option to take effect by the annuity date, the interest
payment option (see below) will become effective then.
Where the owner dies before the annuity starting date, the entire interest must
be distributed within 5 years of death. The requirement will be satisfied,
however, if the distribution to a designated beneficiary begins no later than
one year after the owner's death and is to continue over the beneficiary's life
or a period not exceeding the beneficiary's life expectancy. If the owner's
spouse is the designated beneficiary, the Contract may continue with the spouse
treated as the owner. If the owner dies on or after the annuity starting date
and before the entire interest in the annuity has been distributed, the
remaining interest will be distributed at least as rapidly as under the method
being used as of the date of death.
1. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN
Payments will be made to the annuitant monthly during his or her lifetime. If
the annuitant dies before the 120th monthly payment is due, monthly annuity
payments do not continue to the beneficiary designated by the annuitant unless
he or she so selects. Instead, the discounted value of the remaining unpaid
installments, to and including the 120th monthly payment, is payable to the
beneficiary in one sum. In calculating the discounted value of the unpaid future
payments, The Prudential will discount each such payment at the interest rate
used to compute the amount of the actual 120 payments. If the payments were
based on the tables of rates set forth in the Contract, the interest rate used
is 3.5% a year. Once annuity payments have begun, an annuitant may withdraw the
present value of any of the 120 payments certain that have not been paid.
2. INTEREST PAYMENT OPTION
The annuitant may choose to have The Prudential hold a designated amount to
accumulate at interest. If no option has been selected by the annuity date, this
option will automatically become effective unless applicable law states
otherwise. The Prudential will pay interest at an effective rate of at least 3%
a year, and it may pay a higher rate of interest. Once this option is effected,
an annuitant may withdraw the unpaid balance, or any part not less than $100.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES
It should be noted that while in general the Contract provides for sex-distinct
annuity purchase rates for life annuities, those rates are not applicable to
Contracts offered in states that have adopted regulations prohibiting
sex-distinct annuity purchase rates. Rather, blended unisex annuity purchase
rates for life annuities will be provided under all Contracts issued in those
states, whether the annuitant is male or female. Other things being equal, such
unisex annuity purchase rates will result in the same monthly annuity payments
for male and female annuitants.
In addition, employers and employee organizations considering purchase of a
Contract should consult their legal advisors to determine whether purchase of a
Contract based on sex-distinct annuity purchase rates is consistent with Title
VII of the Civil Rights Act of 1964 or other applicable law. The Prudential may
offer the Contracts with unisex annuity purchase rates to such prospective
purchasers.
Special provisions may apply if the Contract is issued in connection with a tax
favored retirement plan. The necessary information will be provided by the plan
sponsor or administrator.
OTHER INFORMATION
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. The
Prudential is the legal owner of those shares and as such has the right to vote
on any matter voted on at Series Fund shareholders meetings. However, The
Prudential will, as required by law, vote the shares of the Series Fund at any
regular and special shareholders meetings it is required to hold in accordance
with voting instructions received from Contract owners. The Series Fund will not
hold annual shareholders meetings when not required to do so under Maryland law
or the Investment Company Act of 1940.
24
<PAGE>
Series Fund shares for which no timely instructions from Contract owners are
received, and any shares attributable to general account investments of The
Prudential will be voted in the same proportion as shares in the respective
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit The Prudential to vote shares of the Series Fund in its own right, it may
elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give The Prudential instructions will be determined as
of the record date chosen by the Board of Directors of the Series Fund. The
Prudential will furnish Contract owners with proper forms and proxies to enable
them to give these instructions. The Prudential reserves the right to modify the
manner in which the weight to be given voting instructions is calculated where
such a change is necessary to comply with current federal regulations or
interpretations of those regulations.
Contract owners also share with the owners of all Prudential Contracts and
policies the right to vote in elections for members of the Board of Directors of
The Prudential.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
The Prudential, acts as the principal underwriter of the Contract. Prusec,
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
1111 Durham Avenue, South Plainfield, New Jersey 07080. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-dealers
authorized by Prusec and applicable law to do so. Registered representatives of
such other broker-dealers may be paid on a different basis than described below.
The maximum commission that will be paid to the representative is 3.5% of the
purchase payment received, and the amount paid to the broker-dealer to cover
both the individual representative's commission and other distribution expenses
will not exceed 6% of the purchase payment. Trail commissions based on the size
of the Contract fund may be paid. Such commissions will be subject to reduction
if The Prudential accepts purchase payments on and after the annuitant's 81st
birthday. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 12 . The
representative may be required to return all of the first year commission if the
Contract is not continued through the first year. Representatives who meet
certain productivity, profitability, and persistency standards with regard to
the sale of the Contract will be eligible for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. The Prudential expects to recover its total sales expenses over the
periods the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from The Prudential's surplus.
SUBSTITUTION OF SERIES FUND SHARES
Although The Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes or the unavailability of shares for investment. In that
event, The Prudential may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
OWNERSHIP OF THE CONTRACT
Generally, the Contract owner is entitled to exercise all the rights under the
Contract. The Contract owner is usually, but not always, an annuitant. Ownership
of the Contract may, however, be transferred to another person who need not be
the person who is to receive annuity payments. Transfer of the ownership of a
Contract may involve federal income tax consequences, or may be prohibited under
certain Contracts, and the owner should
25
<PAGE>
consult with a qualified tax advisor before attempting any such transfer.
Generally, ownership of the Contract is not assignable to another insurance
company or employee benefit plan or program without The Prudential's consent.
PERFORMANCE INFORMATION
Performance information for the subaccounts may appear in advertising and
reports to current and prospective Contract owners. Performance information is
based on historical investment experience of those investment options and does
not indicate or represent future performance.
Total returns are based on the overall dollar or percentage change in value of a
hypothetical investment. Total return quotations reflect changes in unit values
and the deduction of applicable charges.
A cumulative total return reflects performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the performance had
been constant over the entire period.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the subaccount
over a specified seven-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
Reports or advertising may include comparative performance information,
including, but not limited to: comparisons to market indices; comparisons to
other investments; performance rankings; and data presented by analysts or
included in publications.
See "Performance Information" in the Statement of Additional Information for
recent performance information.
REPORTS TO CONTRACT OWNERS
Once each Contract year, Contract owners will be sent statements that provide
certain information pertinent to their own Contract. These statements detail
values and transactions made and specific Contract data that apply only to each
particular Contract. On request, a Contract owner will be sent a current
statement in a form similar to that of the annual statement described above, but
The Prudential may limit the number of such requests or impose a reasonable
charge if such requests are made too frequently.
Each Contract owner will be sent an annual report for the Account. Contract
owners will also be sent annual and semi-annual reports of the Series Fund
showing the financial condition of the portfolios and the investments held in
each.
STATE REGULATION
The Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
The Prudential is required to submit annual statements of its operations,
including financial statements, to the insurance departments of the various
jurisdictions in which it does business to determine solvency and compliance
with local insurance laws and regulations.
In addition to the annual statements referred to above, The Prudential is
required to file with New Jersey and other jurisdictions a separate statement
with respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
LITIGATION
No litigation is pending that would have a material effect upon the Account or
the Series Fund.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 and the Investment Company Act of 1940, relating to the offering described
in this prospectus. This prospectus does not include all of the information set
forth in the registration statement. Certain portions have been omitted pursuant
to the rules and regulations of the SEC. The omitted information may, however,
be obtained from the SEC's principal office in Washington, D.C., upon payment of
a prescribed fee.
Further information, including the statement of additional information prepared
by The Prudential, may also be obtained from The Prudential's office. The
address and telephone number are set forth on the cover of this prospectus.
26
<PAGE>
The Contents of the statement of additional information include:
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
B. PRINCIPAL UNDERWRITER
C. DETERMINATION OF SUBACCOUNT UNIT VALUES
D. IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER
E. PARTICIPATION IN DIVISIBLE SURPLUS
F. PERFORMANCE INFORMATION
G. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
DETERMINATION OF SUBACCOUNT UNIT VALUES
A. SUBACCOUNT UNIT VALUES
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT
27
<PAGE>
DIRECTORS AND OFFICERS
The directors and certain officers of The Prudential, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF THE PRUDENTIAL
FRANKLIN E. AGNEW. Director.--Business Consultant and former Senior Vice
President of H.J. Heinz. Address: One Mellon Bank Center, Suite 2120,
Pittsburgh, PA 15219.
FREDERIC K. BECKER, Director.--President of Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
WILLIAM W. BOESCHENSTEIN, Director.--Director, Owens-Corning Fiberglas
Corporation. Address: One Seagate, Toledo, OH 43604.
LISLE C. CARTER, JR., Director.--Former Senior Vice President and General
Counsel, United Way of America. Address: 701 North Fairfax Avenue, Alexandria,
VA 22314.
JAMES G. CULLEN, Director.--Vice Chairman, Bell Atlantic Corporation since 1995;
1993 to 1995: President, Bell Atlantic Corporation; Prior to 1993: President,
New Jersey Bell. Address: 1310 North Court House Road, 11th floor, Alexandria,
VA 22201.
CAROLYNE K. DAVIS, Director.--Health Care Advisor, Ernst & Young. Address: 5480
Cayuga Lake Road, Romulus, NY 14541.
ROGER A. ENRICO, Director.--Chairman and Chief Executive Officer, Pepsico
Worldwide Restaurants since 1994; 1993 to 1994: Vice Chairman, Pepsi Co. Inc.;
1991 to 1993: Chairman and Chief Executive Officer, Pepsi Co. Worldwide Foods.
Address: 6303 Forest Park, Dallas, TX 75235.
ALLAN D. GILMOUR, Director.--Former Vice Chairman, Ford Motor Company. Address:
Prudential Plaza, Newark, NJ 07102-3777.
WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, United
Negro College Fund, Inc. since 1991. Address: 8260 Willow Oaks Corporate Drive,
Fairfax, VA 22031.
JON F. HANSON, Director.--Chairman, Hampshire Management Co. Address: 235 Moore
Street, Suite 200, Hackensack, NJ 07601.
CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since
1993; 1991 to 1992 Assistant to the President and Director of Presidential
Personnel, U.S. Government. Address: 1775 Massachusetts Avenue, N.W.,
Washington, DC 20036-2188.
ALLEN F. JACOBSON, Director.--Former Chairman and Chief Executive Officer,
Minnesota Mining & Manufacturing Co. Address: 30 Seventh Street East, St. Paul,
MN 55101-4901.
GARNETT L. KEITH, JR., Director and Vice Chairman.--Vice Chairman of The
Prudential. Address: Prudential Plaza, Newark, NJ 07102-3777.
BURTON G. MALKIEL, Director.--Professor, Princeton University. Address:
Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton, NJ
08544-1021.
JOHN R. OPEL, Director.--Prior to 1994, Chairman of the Executive Committee,
International Business Machines Corporation. Address: 590 Madison Avenue, New
York, NY 10022.
ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.
- --Chairman of the Board, President, and Chief Executive Officer, The Prudential
since 1994; Prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation. Address: Prudential Plaza, Newark, NJ 07102-3777.
CHARLES R. SITTER, Director.--Former President and Director, Exxon Corporation.
Address: 225 John W. Carpenter Freeway, Irving, TX 75062.
DONALD L. STAHELI, Director.--Chairman and Chief Executive Officer, Continental
Grain Company since 1994; Prior to 1994; Chairman, Continental Grain Company.
Address: 277 Park Avenue, New York, NY 10172.
RICHARD M. THOMSON, Director.--Chairman of the Board and Chief Executive
Officer, The Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion
Centre, Toronto, Ontario, M5K 1A2, Canada.
P. ROY VAGELOS, M.D., Director.--Former Chairman, President and Chief Executive
Officer, Merck & Co., Inc. Address: One Crossroads Drive, Bedminster, NJ 07921.
28
<PAGE>
STANLEY C. VAN NESS, Director.--Attorney, Picco, Herbert, and Kennedy (law
firm). Address: One State Street Square, Suite 1000, Trenton, NJ 08607-1388.
PAUL A. VOLCKER, Director.--Chairman, James D. Wolfensohn, Inc. Address: 599
Lexington Avenue, New York, NY 10022.
JOSEPH H. WILLIAMS, Director.--Director, The Williams Companies since 1994;
Prior to 1994: Chairman and Chief Executive Officer, The Williams Companies.
Address: P.O. Box 2400, Tulsa, OK 74102.
OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MARK B. GRIER, Chief Financial Officer.--Chief Financial Officer of The
Prudential since 1995; Prior to 1995: Executive Vice President and Head of
Global Markets, Chase Manhattan Corporation.
SUSAN L. BLOUNT, Vice President and Secretary.--Vice President and Secretary of
The Prudential since 1995; Prior to 1995: Assistant General Counsel for
Prudential Residential Services Company.
C. EDWARD CHAPLIN, Vice President and Treasurer.--Vice President and Treasurer
of The Prudential since 1995; 1993 to 1995: Managing Director and Assistant
Treasurer of The Prudential; 1992 to 1993: Vice President and Assistant
Treasurer, Banking and Cash Management for The Prudential; Prior to 1992:
Regional Vice President of Prudential Mortgage Capital Company.
29
<PAGE>
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
--------------------
BULK RATE
U.S. Postage
PAID
Jersey City, N.J.
Permit No. 60
--------------------
The Prudential Insurance Company of America
Prudential Plaza
Newark, New Jersey 07102-3777
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
THE PRUDENTIAL
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
The Prudential DISCOVERY(R) Plus Contract* (the "Contract") is a variable
annuity contract issued by The Prudential Insurance Company of America ("The
Prudential") and funded through The Prudential Individual Variable Contract
Account (the "Account"). The Contract is purchased by making an initial purchase
payment of $10,000 or more; subsequent payments must be $1,000 or more ($10,000
or more when issued in New York).
This statement of additional information is not a prospectus and should be read
in conjunction with the Contract's prospectus, dated May 1, 1996, which is
available without charge upon written request to The Prudential Insurance
Company of America, Prudential Plaza, Newark, New Jersey 07102-3777, or by
telephoning (800) 445-4571.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
*DISCOVERY is a registered mark of The Prudential.
PIVC-1B Ed 5-96
Catalog #64M101W
<PAGE>
<TABLE>
CONTENTS
<CAPTION>
PAGE
<S> <C>
OTHER INFORMATION CONCERNING THE ACCOUNT.....................................................1
A. EXPERTS..............................................................................1
B. PRINCIPAL UNDERWRITER................................................................1
C. DETERMINATION OF SUBACCOUNT UNIT VALUES..............................................1
D. IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER.........................................1
E. PARTICIPATION IN DIVISIBLE SURPLUS ..................................................2
F. PERFORMANCE INFORMATION..............................................................2
G. FINANCIAL STATEMENTS.................................................................6
FINANCIAL STATEMENTS OF THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT.................A1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES........................................................................B1
</TABLE>
<PAGE>
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
The financial statements included in the statement of additional information and
the financial statements from which the Condensed Financial Information included
in this prospectus have been derived, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein. Such
financial statements and Condensed Financial Information have been included
herein in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP's principal business
address is Two Hilton Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of The Prudential. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
B. PRINCIPAL UNDERWRITER
Pruco Securities Corporation ("Prusec"), an indirectly wholly-owned subsidiary
of The Prudential, performs all sales and distribution functions regarding the
Contracts and may be deemed to be the "principal underwriter" of the Account
under the Investment Company Act of 1940.
C. DETERMINATION OF SUBACCOUNT UNIT VALUES
The value for each Subaccount Unit is computed as of the end of each "valuation
period" as defined in the prospectus (also referred to in this section as
"business day"). On any given business day the value of a Unit in each
subaccount will be determined by multiplying the value of a Unit of that
subaccount for the preceding business day by the net investment factor for that
subaccount for the current business day. The net investment factor for any
business day is determined by dividing the value of the assets of the subaccount
for that day by the value of the assets of the subaccount for the preceding
business day (ignoring, for this purpose, changes resulting from new purchase
payments and withdrawals), and subtracting from the result the daily equivalent
of the 1.2% annual charge for administrative expenses and mortality and expense
risks. (See CHARGES, FEES, AND DEDUCTIONS in the prospectus.) The Account's
financial statements reflect a different breakdown of the expense structure than
is described in the prospectus. The mortality and expense risk charges described
in item 5 therein combined with an administrative charge described in item 4
total an amount which is the same 1.2% per year described in Note 3A of the
Notes to the Account's financial statements. The value of the assets of a
subaccount is determined by multiplying the number of shares of the Series Fund
held by that subaccount by the net asset value of each share and adding the
value of dividends declared by the Series Fund but not yet paid.
D. IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER
If the Contract owner dies before the entire interest in the Contract is
distributed, the value of the Contract must be distributed to the designated
beneficiary as described in this section so that the Contract qualifies as an
annuity under the Internal Revenue Code.
If the death occurs on or after the annuity date, the remaining portion of the
interest in the Contract must be distributed at least as rapidly as under the
method of distribution being used as of the date of death. If the death occurs
before the annuity date, the entire interest in the Contract must be distributed
within 5 years after date of death. However, if an annuity payment option is
selected by the designated beneficiary and if annuity payments begin within 1
year of the owner's death, the value of the Contract may be distributed over the
beneficiary's life or a period not exceeding the beneficiary's life expectancy.
The owner's designated beneficiary is the person to whom ownership of the
Contract passes by reason of death, and must be a natural person. Special
additional rules apply to Contracts issued in conjunction with plans subject to
Section 457 of the Code. For Contracts purchased in connection with a tax
favored plan where the owner's spouse is the beneficiary, annuity payments need
only begin on or before April 1 of the calendar year following the calendar year
in which the owner would have attained age 70 1/2 or in some instances the
remaining interest in the Contract may be rolled over to an IRA owned by the
spouse.
If any portion of the Contract owner's interest is payable to (or for the
benefit of) the surviving spouse of the owner, the Contract may be continued
with the surviving spouse as the owner. This rule does not apply to Contracts
issued in connection with tax favored plans other than IRAs.
1
<PAGE>
E. PARTICIPATION IN DIVISIBLE SURPLUS
A mutual life insurance company, such as The Prudential, differs from a stock
life insurance company in that it has no stockholders who are the owners of the
enterprise. Every owner of a Prudential Contract participates in the divisible
surplus of The Prudential, according to an annual determination of The
Prudential's Board of Directors of the portion, if any, of the divisible surplus
of the entire company that is attributable to the class of contracts of which he
or she is an owner. Before annuity payments begin, it is unlikely that any
dividends will be payable to the owners of the Contracts described in the
prospectus. However, there may be dividends payable during an annuity payout
period.
F. PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1995. The performance information is based on historical
experience and does not indicate or represent future performance.
2
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
Table 1 below shows the average annual rates of total return on hypothetical
investments of $1,000 for periods ended December 31, 1995 in each subaccount
other than the Money Market Subaccount. These figures assume withdrawal of the
investments at the end of the period other than to effect an annuity under the
Contract.
<TABLE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<CAPTION>
====================================================================================================
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS ESTABLISHED
DATE ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/95 12/31/95 12/31/95
====================================================================================================
<S> <C> <C> <C> <C>
DIVERSIFIED BOND 2/89 13.14 8.14 9.09
- ----------------------------------------------------------------------------------------------------
GOVERNMENT 5/89 11.89 7.60 8.45
INCOME
- ----------------------------------------------------------------------------------------------------
CONSERVATIVE 2/89 9.70 8.87 9.38
BALANCED
- ----------------------------------------------------------------------------------------------------
FLEXIBLE MANAGED 2/89 16.52 11.63 11.41
- ----------------------------------------------------------------------------------------------------
HIGH YIELD BOND 2/89 9.98 15.67 8.34
- ----------------------------------------------------------------------------------------------------
STOCK INDEX 2/89 29.40 14.36 13.36
- ----------------------------------------------------------------------------------------------------
EQUITY INCOME 2/89 14.11 14.47 12.37
- ----------------------------------------------------------------------------------------------------
EQUITY 2/89 23.65 17.06 14.83
- ----------------------------------------------------------------------------------------------------
PRUDENTIAL 5/95 N/A N/A 17.30
JENNISON
- ----------------------------------------------------------------------------------------------------
SMALL 5/95 N/A N/A 12.62
CAPITALIZATION
STOCK
- ----------------------------------------------------------------------------------------------------
GLOBAL 5/89 8.31 9.38 6.84
- ----------------------------------------------------------------------------------------------------
NATURAL 2/89 19.30 10.69 10.10
RESOURCES
====================================================================================================
</TABLE>
The average annual rates of total return shown above are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)"- ERA. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; " is the number of
years; and ERA is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum deferred sales charge that may be
applicable to a particular period. The annual contract fee is not included
because it applies only if the Contract fund is less than $10,000.
3
<PAGE>
NON-STANDARD TOTAL RETURN
Table 2 below shows the average annual rates of return as in Table 1, but
assumes that the investments are not withdrawn at the end of the period or that
the Contract owner annuitizes at the end of the period.
<TABLE>
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<CAPTION>
====================================================================================================
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS ESTABLISHED
DATE ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/95 12/31/95 12/31/95
====================================================================================================
<S> <C> <C> <C> <C>
DIVERSIFIED BOND 2/89 19.31 8.63 9.09
- ----------------------------------------------------------------------------------------------------
GOVERNMENT 5/89 18.06 8.11 8.45
INCOME
- ----------------------------------------------------------------------------------------------------
CONSERVATIVE 2/89 15.89 9.35 9.38
BALANCED
- ----------------------------------------------------------------------------------------------------
FLEXIBLE MANAGED 2/89 22.66 12.05 11.41
- ----------------------------------------------------------------------------------------------------
HIGH YIELD BOND 2/89 16.17 16.02 8.34
- ----------------------------------------------------------------------------------------------------
STOCK INDEX 2/89 35.45 14.73 13.36
- ----------------------------------------------------------------------------------------------------
EQUITY INCOME 2/89 20.26 14.84 12.37
- ----------------------------------------------------------------------------------------------------
EQUITY 2/89 29.74 17.39 14.83
- ----------------------------------------------------------------------------------------------------
PRUDENTIAL 5/95 N/A N/A 23.43
JENNISON
- ----------------------------------------------------------------------------------------------------
SMALL 5/95 N/A N/A 18.78
CAPITALIZATION
STOCK
- ----------------------------------------------------------------------------------------------------
GLOBAL 5/89 14.51 9.84 6.84
- ----------------------------------------------------------------------------------------------------
NATURAL RESOURCES 2/89 25.42 11.13 10.10
====================================================================================================
</TABLE>
4
<PAGE>
Table 3 shows the cumulative total return for the subaccounts, assuming no
withdrawal.
<TABLE>
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<CAPTION>
====================================================================================================
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS ESTABLISHED
DATE ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/95 12/31/95 12/31/95
====================================================================================================
<S> <C> <C> <C> <C>
DIVERSIFIED BOND 2/89 19.31 51.29 81.26
- ----------------------------------------------------------------------------------------------------
GOVERNMENT 5/89 18.06 47.65 71.74
INCOME
- ----------------------------------------------------------------------------------------------------
CONSERVATIVE 2/89 15.89 56.34 84.68
BALANCED
- ----------------------------------------------------------------------------------------------------
FLEXIBLE 2/89 22.66 76.66 109.41
MANAGED
- ----------------------------------------------------------------------------------------------------
HIGH YIELD BOND 2/89 16.17 110.20 72.99
- ----------------------------------------------------------------------------------------------------
STOCK INDEX 2/89 35.45 98.78 135.72
- ----------------------------------------------------------------------------------------------------
EQUITY INCOME 2/89 20.26 99.71 122.06
- ----------------------------------------------------------------------------------------------------
EQUITY 2/89 29.74 122.88 157.47
- ----------------------------------------------------------------------------------------------------
PRUDENTIAL 5/95 N/A N/A 23.43
JENNISON
- ----------------------------------------------------------------------------------------------------
SMALL 5/95 N/A N/A 18.78
CAPITALIZATION
STOCK
- ----------------------------------------------------------------------------------------------------
GLOBAL 5/89 14.51 59.89 55.48
- ----------------------------------------------------------------------------------------------------
NATURAL 2/89 25.42 69.50 93.14
RESOURCES
====================================================================================================
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1995 were 4.3499% and 4.4440%, respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1% charge for mortality and
expense risks and the 0.20% charge for administration. It does not reflect the
deferred sales charge. It also does not reflect the annual contract fee, which
is charged only if the Contract Fund is less than $10,000.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield - ((base period
return + 1) 365/7) - 1.
The yields on amounts held in the Money Market Subaccount will fluctuate on a
daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
5
<PAGE>
COMPARISONS
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Annuity Research and Data Services (VARDS), and
Lipper Analytical Services, Inc.; (4) data presented by analysts such as Dow
Jones, A.M. Best, The Bank Rate Monitor National Index; and (5) data in
publications such as The Wall Street Journal, Times, Forbes, Barrons, Fortune,
Money Magazine, and Financial World.
G. FINANCIAL STATEMENTS
The consolidated financial statements of The Prudential and subsidiaries
included herein should be distinguished from the financial statements of the
Account, and should be considered only as bearing upon the ability of The
Prudential to meet its obligations under the Contracts.
6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
TOTAL MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $5,444,558,604 $ 301,875,184 $ 230,850,183 $1,051,022,427 $ 750,088,016
Receivable from Related Separate Account........ 112,981 0 112,981 0 0
-------------- -------------- -------------- -------------- --------------
Total Assets.................................. $5,444,671,585 $ 301,875,184 $ 230,963,164 $1,051,022,427 $ 750,088,016
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
LIABILITIES
Payable to Related Separate Account............. 319,050 0 0 0 64,082
-------------- -------------- -------------- -------------- --------------
NET ASSETS........................................ $5,444,352,535 $ 301,875,184 $ 230,963,164 $1,051,022,427 $ 750,023,934
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners [Note 7].............. $5,421,669,993 $ 296,695,117 $ 230,461,365 $1,047,234,939 $ 748,845,182
Equity of annuitants [Note 7]................... 784,567 78,379 501,799 12,010 91,342
Equity of The Prudential Insurance Company of
America....................................... 21,897,975 5,101,688 0 3,775,478 1,087,410
-------------- -------------- -------------- -------------- --------------
$5,444,352,535 $ 301,875,184 $ 230,963,164 $1,051,022,427 $ 750,023,934
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Accumulation units.............................. 153,623,767 79,509,191 215,937,641 215,896,989
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
TOTAL MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 194,172,359 $ 17,183,675 $ 14,420,460 $ 19,602,886 $ 21,936,917
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [Note 3A].................. 58,459,090 3,572,438 2,485,614 10,505,320 8,101,521
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 135,713,269 13,611,237 11,934,846 9,097,566 13,835,396
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 150,358,900 0 502,131 36,304,982 31,019,792
Realized gain (loss) on shares redeemed
[average cost basis].......................... 8,509,392 0 (575,793) 1,787,973 2,338,699
Net unrealized gain on investments.............. 606,951,341 0 25,152,294 177,526,174 92,545,862
-------------- -------------- -------------- -------------- --------------
NET GAIN ON INVESTMENTS........................... 765,819,633 0 25,078,632 215,619,129 125,904,353
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 901,532,902 $ 13,611,237 $ 37,013,478 $ 224,716,695 $ 139,739,749
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A1
<PAGE>
STATEMENTS OF NET ASSETS (CONTINUED)
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD STOCK EQUITY NATURAL
BALANCED BOND INDEX INCOME RESOURCES
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $1,323,818,832 $ 192,078,101 $ 305,165,827 $ 630,289,355 $ 102,616,497
Receivable from Related Separate Account........ 0 0 0 0 0
-------------- -------------- -------------- -------------- --------------
Total Assets.................................. $1,323,818,832 $ 192,078,101 $ 305,165,827 $ 630,289,355 $ 102,616,497
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
LIABILITIES
Payable to Related Separate Account............. 254,968 0 0 0 0
-------------- -------------- -------------- -------------- --------------
NET ASSETS........................................ $1,323,563,864 $ 192,078,101 $ 305,165,827 $ 630,289,355 $ 102,616,497
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners [Note 7].............. $1,322,743,616 $ 190,910,072 $ 303,450,955 $ 628,727,127 $ 102,007,152
Equity of annuitants [Note 7]................... 101,037 0 0 0 0
Equity of The Prudential Insurance Company of
America....................................... 719,211 1,168,029 1,714,872 1,562,228 609,345
-------------- -------------- -------------- -------------- --------------
$1,323,563,864 $ 192,078,101 $ 305,165,827 $ 630,289,355 $ 102,616,497
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Accumulation units.............................. 429,889,311 102,366,296 126,409,456 248,502,852 46,456,844
<CAPTION>
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 215,123,382 $ 288,392,436 $ 32,347,295
Receivable from Related Separate Account........ 0 0 0
-------------- -------------- --------------
Total Assets.................................. $ 215,123,382 $ 288,392,436 $ 32,347,295
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES
Payable to Related Separate Account............. 0 0 0
-------------- -------------- --------------
NET ASSETS........................................ $ 215,123,382 $ 288,392,436 $ 32,347,295
-------------- -------------- --------------
-------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners [Note 7].............. $ 214,243,199 $ 287,421,420 $ 28,948,748
Equity of annuitants [Note 7]................... 0 0 0
Equity of The Prudential Insurance Company of
America....................................... 880,183 971,016 3,398,547
-------------- -------------- --------------
$ 215,123,382 $ 288,392,436 $ 32,347,295
-------------- -------------- --------------
-------------- -------------- --------------
Accumulation units.............................. 139,717,751 167,252,309 23,250,886
</TABLE>
STATEMENTS OF OPERATIONS (CONTINUED)
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD STOCK EQUITY NATURAL
BALANCED BOND INDEX INCOME RESOURCES
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 52,080,576 $ 18,700,767 $ 5,547,995 $ 22,221,011 $ 1,180,883
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [Note 3A].................. 14,861,508 2,056,257 2,948,524 6,924,845 1,104,293
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 37,219,068 16,644,510 2,599,471 15,296,166 76,590
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 44,897,730 0 2,163,961 26,532,315 4,657,784
Realized gain (loss) on shares redeemed
[average cost basis].......................... 2,363,488 (257,168) 1,244,308 921,914 661,765
Net unrealized gain on investments.............. 99,860,016 9,519,030 67,650,481 62,603,120 15,537,556
-------------- -------------- -------------- -------------- --------------
NET GAIN ON INVESTMENTS........................... 147,121,234 9,261,862 71,058,750 90,057,349 20,857,105
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 184,340,302 $ 25,906,372 $ 73,658,221 $ 105,353,515 $ 20,933,695
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
<CAPTION>
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON*
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 3,246,250 $ 17,989,214 $ 956
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [Note 3A].................. 2,444,033 3,283,191 89,483
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 802,217 14,706,023 (88,527)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 4,103,547 0 0
Realized gain (loss) on shares redeemed
[average cost basis].......................... 1,484,297 (1,549,875) 67,696
Net unrealized gain on investments.............. 21,601,985 33,262,626 945,643
-------------- -------------- --------------
NET GAIN ON INVESTMENTS........................... 27,189,829 31,712,751 1,013,339
-------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 27,992,046 $ 46,418,774 $ 924,812
-------------- -------------- --------------
-------------- -------------- --------------
*Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A2
<PAGE>
STATEMENTS OF NET ASSETS (CONTINUED)
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------
SMALL
CAPITALIZATION
STOCK
--------------
<S> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 20,891,069
Receivable from Related Separate Account........ 0
--------------
Total Assets.................................. $ 20,891,069
--------------
--------------
LIABILITIES
Payable to Related Separate Account............. 0
--------------
NET ASSETS........................................ $ 20,891,069
--------------
--------------
NET ASSETS, representing:
Equity of Contract owners [Note 7].............. $ 19,981,101
Equity of annuitants [Note 7]................... 0
Equity of The Prudential Insurance Company of
America....................................... 909,968
--------------
$ 20,891,069
--------------
--------------
Accumulation units.............................. 16,794,510
</TABLE>
STATEMENTS OF OPERATIONS (CONTINUED)
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------
SMALL
CAPITALIZATION
STOCK*
--------------
<S> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 60,769
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [Note 3A].................. 82,063
--------------
NET INVESTMENT INCOME (LOSS)...................... (21,294)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 176,658
Realized gain (loss) on shares redeemed
[average cost basis].......................... 22,088
Net unrealized gain on investments.............. 746,554
--------------
NET GAIN ON INVESTMENTS........................... 945,300
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 924,006
--------------
--------------
*Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A3
<PAGE>
(This page intentionally left blank.)
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED
TOTAL MARKET BOND
------------------------------ ------------------------------ ------------------------------
1995 1994 1995 1994 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 135,713,269 $ 109,176,830 $ 13,611,237 $ 7,909,882 $ 11,934,846 $ 11,051,810
Capital gains distributions
received....................... 150,358,900 90,120,652 0 0 502,131 502,181
Realized gain (loss) on shares
redeemed
[average cost basis]........... 8,509,392 (222,561) 0 0 (575,793) (1,189,724)
Net unrealized gain (loss) on
investments.................... 606,951,341 (293,645,714) 0 0 25,152,294 (20,577,461)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 901,532,902 (94,570,793) 13,611,237 7,909,882 37,013,478 (10,213,194)
-------------- -------------- -------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in............................. 1,558,638,620 2,259,702,701 411,591,864 464,841,336 38,739,795 49,300,910
Withdrawals and transfers out.... (1,524,246,512) (1,419,835,561) (419,028,549) (397,515,189) (43,822,166) (62,036,927)
Annuity benefit payments......... (68,616) (17,578) (5,622) 0 (34,728) 0
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS.... 34,323,492 839,849,562 (7,442,307) 67,326,147 (5,117,099) (12,736,017)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (50,249,195) 27,362,416 (4,638,255) 5,360,709 (1,911,305) (530,717)
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 885,607,199 772,641,185 1,530,675 80,596,738 29,985,074 (23,479,928)
NET ASSETS:
Beginning of year................ 4,558,745,336 3,786,104,151 300,344,509 219,747,771 200,978,090 224,458,018
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $5,444,352,535 $4,558,745,336 $ 301,875,184 $ 300,344,509 $ 230,963,164 $ 200,978,090
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
------------------------------ ------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 9,097,566 $ 7,607,777 $ 13,835,396 $ 10,641,173
Capital gains distributions
received....................... 36,304,982 28,556,126 31,019,792 18,672,462
Realized gain (loss) on shares
redeemed
[average cost basis]........... 1,787,973 928,662 2,338,699 110,654
Net unrealized gain (loss) on
investments.................... 177,526,174 (28,001,165) 92,545,862 (57,317,849)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 224,716,695 9,091,400 139,739,749 (27,893,560)
-------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in............................. 288,749,556 303,883,305 87,022,392 209,097,153
Withdrawals and transfers out.... (169,137,106) (155,341,591) (121,137,946) (109,865,507)
Annuity benefit payments......... (13,346) (11,976) (6,854) (1,695)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS.... 119,599,104 148,529,738 (34,122,408) 99,229,951
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (3,431,783) 2,313,971 (7,106,153) 2,142,366
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 340,884,016 159,935,109 98,511,188 73,478,757
NET ASSETS:
Beginning of year................ 710,138,411 550,203,302 651,512,746 578,033,989
-------------- -------------- -------------- --------------
End of year...................... $1,051,022,427 $ 710,138,411 $ 750,023,934 $ 651,512,746
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
HIGH
CONSERVATIVE YIELD
BALANCED BOND
------------------------------ ------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 37,219,068 $ 28,586,197 $ 16,644,510 $ 13,954,147
Capital gains distributions
received....................... 44,897,730 13,199,561 0 120
Realized gain (loss) on shares
redeemed
[average cost basis]........... 2,363,488 (404,868) (257,168) (98,699)
Net unrealized gain (loss) on
investments.................... 99,860,016 (66,969,793) 9,519,030 (20,478,513)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 184,340,302 (25,588,903) 25,906,372 (6,622,945)
-------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in............................. 145,643,727 432,095,316 122,765,949 131,806,320
Withdrawals and transfers out.... (222,721,330) (206,086,390) (114,608,028) (106,613,592)
Annuity benefit payments......... (8,066) (3,907) 0 0
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS.... (77,085,669) 226,005,019 8,157,921 25,192,728
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (12,105,790) 1,621,577 (1,062,663) (53,774)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 95,148,843 202,037,693 33,001,630 18,516,009
NET ASSETS:
Beginning of year................ 1,228,415,021 1,026,377,328 159,076,471 140,560,462
-------------- -------------- -------------- --------------
End of year...................... $1,323,563,864 $1,228,415,021 $ 192,078,101 $ 159,076,471
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A6
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
------------------------------ ------------------------------ ------------------------------
1995 1994 1995 1994 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 2,599,471 $ 2,522,812 $ 15,296,166 $ 12,379,984 $ 76,590 $ (83,012)
Capital gains distributions
received....................... 2,163,961 306,826 26,532,315 27,001,472 4,657,784 1,610,550
Realized gain (loss) on shares
redeemed
[average cost basis]........... 1,244,308 1,565,117 921,914 246,513 661,765 22,685
Net unrealized gain (loss) on
investments.................... 67,650,481 (4,912,064) 62,603,120 (41,456,054) 15,537,556 (6,512,677)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 73,658,221 (517,309) 105,353,515 (1,828,085) 20,933,695 (4,962,454)
-------------- -------------- -------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in............................. 76,847,881 55,720,850 110,509,968 251,114,271 31,004,748 61,551,700
Withdrawals and transfers out.... (50,233,802) (58,321,184) (102,680,260) (100,023,343) (33,046,525) (23,266,443)
Annuity benefit payments......... 0 0 0 0 0 0
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS.... 26,614,079 (2,600,334) 7,829,708 151,090,928 (2,041,777) 38,285,257
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ 867,445 (39,704) (3,066,591) (72,254) (921,930) 253,409
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 101,139,745 (3,157,347) 110,116,632 149,190,589 17,969,988 33,576,212
NET ASSETS:
Beginning of year................ 204,026,082 207,183,429 520,172,723 370,982,134 84,646,509 51,070,297
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 305,165,827 $ 204,026,082 $ 630,289,355 $ 520,172,723 $ 102,616,497 $ 84,646,509
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A7
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON* STOCK*
------------------------------ ------------------------------ -------------- --------------
1995 1994 1995 1994 1995 1995
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 802,217 $ (1,596,724) $ 14,706,023 $ 16,202,784 $ (88,527) $ (21,294)
Capital gains distributions
received....................... 4,103,547 271,354 0 0 0 176,658
Realized gain (loss) on shares
redeemed
[average cost basis]........... 1,484,297 176,826 (1,549,875) (1,579,727) 67,696 22,088
Net unrealized gain (loss) on
investments.................... 21,601,985 (10,458,220) 33,262,626 (36,961,918) 945,643 746,554
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 27,992,046 (11,606,764) 46,418,774 (22,338,861) 924,812 924,006
-------------- -------------- -------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in............................. 113,094,450 210,091,889 33,801,087 90,199,651 62,276,197 36,591,006
Withdrawals and transfers out.... (124,676,870) (81,643,439) (71,305,548) (119,121,956) (34,172,583) (17,675,799)
Annuity benefit payments......... 0 0 0 0 0 0
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS.... (11,582,420) 128,448,450 (37,504,461) (28,922,305) 28,103,614 18,915,207
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (7,087,547) 5,354,433 (14,155,348) 11,012,400 3,318,869 1,051,856
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 9,322,079 122,196,119 (5,241,035) (40,248,766) 32,347,295 20,891,069
NET ASSETS:
Beginning of year................ 205,801,303 83,605,184 293,633,471 333,882,237 0 0
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 215,123,382 $ 205,801,303 $ 288,392,436 $ 293,633,471 $ 32,347,295 $ 20,891,069
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
*Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A11.
A8
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
NOTE 1: GENERAL
The Prudential Individual Variable Contract Account (the "Account") of The
Prudential Insurance Company of America ("The Prudential") was established on
October 12, 1982 by a resolution of The Prudential's Board of Directors in
conformity with insurance laws of the State of New Jersey. The assets of the
Account are segregated from The Prudential's other assets. The two products that
invest in the Account are The Prudential Variable Investment Plan ("VIP") and
The Prudential Discovery Plus ("Discovery Plus").
The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are thirteen subaccounts within the Account,
each of which invests only in a corresponding portfolio of The Prudential Series
Fund, Inc. (the "Series Fund"). The Series Fund is a diversified open-end
management investment company, and is managed by The Prudential.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund, the number
of shares of each portfolio held by the subaccounts of the Account and the
aggregate cost of investments in such shares at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------
PORTFOLIO MONEY DIVERSIFIED FLEXIBLE
INFORMATION MARKET BOND EQUITY MANAGED
- -------------------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 30,187,518 20,405,528 40,991,754 41,999,808
Net asset value per share: $ 10.0000 $ 11.3131 $ 25.6399 $ 17.8593
Cost: $ 301,875,184 $ 222,916,890 $ 842,963,109 $ 671,343,851
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
HIGH
PORTFOLIO CONSERVATIVE YIELD STOCK EQUITY
INFORMATION BALANCED BOND INDEX INCOME
- -------------------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 86,474,596 24,624,135 15,291,880 38,737,215
Net asset value per share: $ 15.3088 $ 7.8004 $ 19.9561 $ 16.2709
Cost: $ 1,253,721,968 $ 196,791,207 $ 216,899,586 $ 580,103,461
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------
SMALL
PORTFOLIO NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
INFORMATION RESOURCES GLOBAL INCOME JENNISON STOCK
- -------------------------- ---------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Number of shares: 5,941,274 13,849,265 24,609,152 2,578,135 1,765,434
Net asset value per share: $ 17.2718 $ 15.5332 $ 11.7189 $ 12.5468 $ 11.8334
Cost: $ 89,078,071 $ 192,120,774 $ 277,661,918 $ 31,401,652 $20,144,515
</TABLE>
NOTE 3: CHARGES AND EXPENSES
A. Mortality Risk, Expense Risk and Administrative Charges
The mortality risk and expense risk charges at effective annual rates of
0.8% and 0.4%, respectively (for a total of 1.2% per year), are applied
daily against the net assets representing equity of VIP Contract owners and
annuitants held in each subaccount.
The mortality risk, expense risk and administrative charges at effective
annual rates of 0.7%, 0.3%, and 0.2%, respectively (for a total of 1.2% per
year), are applied daily against the net assets representing equity of
Discovery Plus Contract owners held in each subaccount.
A9
<PAGE>
B. Deferred Sales Charge
A deferred sales charge is imposed upon the withdrawal of certain purchase
payments to compensate The Prudential for sales and other marketing
expenses. The amount of any sales charge will depend on the amount withdrawn
and the number of Contract years that have elapsed since the Contract owner
or annuitant made the purchase payments deemed to be withdrawn. No sales
charge is made against the withdrawal of investment income. A reduced sales
charge is imposed in connection with the withdrawal of a purchase payment to
effect an annuity if three or more Contract years have elapsed since the
Contract date, unless the annuity effected is an annuity certain. No sales
charge is imposed upon death benefit payments or upon transfers made between
subaccounts.
C. Annual Maintenance Charge
An annual maintenance charge of $30 will be deducted if and only if the
Contract fund is less than $10,000 on a Contract anniversary or at the time
a full withdrawal is effected, including a withdrawal to effect an annuity.
The charge is made by reducing accumulation units credited to a Contract
owner's account.
NOTE 4: TAXES
The operations of the subaccounts form a part of, and are taxed with, the
operations of The Prudential. Under the Internal Revenue Code, all ordinary
income and capital gains allocated to the Contract owners and annuitants are not
taxed to The Prudential. As a result, the unit values of the subaccounts are not
affected by federal income taxes on distributions received by the subaccounts.
NOTE 5: ACCUMULATION UNIT TRANSACTIONS
The number of Accumulation Units purchased and withdrawn (throughout the years
indicated) was as follows:
<TABLE>
<CAPTION>
ACCUMULATION UNITS PURCHASED
-----------------------------------------------------------------------------------------
HIGH
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE YIELD
YEARS ENDED MARKET BOND EQUITY MANAGED BALANCED BOND
- -------------------- ------------- ------------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994... 256,018,424 19,801,000 81,852,673 72,504,920 160,880,292 79,370,956
December 31, 1995... 218,860,627 14,669,625 66,808,670 28,037,336 53,792,691 68,163,494
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATION UNITS PURCHASED (CONTINUED)
--------------------------------------------------------------------------------------------------------
SMALL
STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
YEARS ENDED INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- -------------------- ------------- ------------- ------------ ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994... 31,597,341 117,804,422 33,138,799 149,424,174 59,657,506 - -
December 31, 1995... 34,877,051 46,761,643 17,302,848 83,835,424 22,144,196 51,205,991 32,360,465
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATION UNITS WITHDRAWN
-----------------------------------------------------------------------------------------
HIGH
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE YIELD
YEARS ENDED MARKET BOND EQUITY MANAGED BALANCED BOND
- -------------------- ------------- ------------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994... 218,629,130 25,211,160 41,956,320 38,528,310 77,208,502 64,242,151
December 31, 1995... 222,646,766 16,991,087 39,122,149 39,950,683 82,130,315 63,634,004
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATION UNITS PURCHASED (CONTINUED)
--------------------------------------------------------------------------------------------------------
SMALL
STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
YEARS ENDED INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- -------------------- ------------- ------------- ------------ ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994... 33,043,081 47,222,133 12,587,330 58,318,882 80,605,093 - -
December 31, 1995... 23,196,785 43,627,248 18,436,399 92,359,520 46,715,765 27,955,106 15,565,954
</TABLE>
NOTE 6: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase (decrease) in net assets resulting from surplus transfers
represents the net contributions (withdrawals) of The Prudential to the Account.
A10
<PAGE>
NOTE 7: ACCUMULATION AND ANNUITY UNIT INFORMATION
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUE
----------------------------------------------------------------------------
VALUE AT END OF YEAR
HIGH
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE YIELD
MARKET BOND EQUITY MANAGED BALANCED BOND
--------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1985................. $ 1.2102 $ 1.3325 $ 1.3716 $ 1.3131 $ 1.3284 $ --
Dec. 31, 1986................. 1.2739 1.5069 1.5598 1.4983 1.4985 --
Dec. 31, 1987................. 1.3409 1.4932 1.5668 1.4534 1.5034 0.9410
Dec. 31, 1988................. 1.4227 1.5964 1.8123 1.6205 1.6368 1.0523
Dec. 31, 1989................. 1.5358 1.7902 2.3233 1.9499 1.8923 1.0186
Dec. 31, 1990................. 1.6413 1.9159 2.1759 1.9634 1.9681 0.8872
Dec. 31, 1991................. 1.7218 2.2044 2.7093 2.4335 2.3157 1.2202
Dec. 31, 1992................. 1.7658 2.3345 3.0562 2.5874 2.4471 1.4171
Dec. 31, 1993 (*As Restated).. 1.7963 2.5407 3.6806 2.9552 2.7132 1.6701*
Dec. 31, 1994................. 1.8469 2.4295 3.7380 2.8277 2.6551 1.6054
Dec. 31, 1995................. 1.9313 2.8986 4.8497 3.4685 3.0769 1.8650
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUE (CONTINUED)
-------------------------------------------------------------------------------------------
VALUE AT END OF YEAR
SMALL
STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
--------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec. 31, 1985................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Dec. 31, 1986................. -- -- -- -- -- -- --
Dec. 31, 1987................. 0.8594 -- -- -- -- -- --
Dec. 31, 1988................. 0.9803 1.0987 1.0379 -- -- -- --
Dec. 31, 1989................. 1.2683 1.3318 1.3911 1.1145 1.1079 -- --
Dec. 31, 1990................. 1.2077 1.2669 1.2954 0.9590 1.1639 -- --
Dec. 31, 1991................. 1.5480 1.5962 1.4118 1.0556 1.3354 -- --
Dec. 31, 1992................. 1.6386 1.7369 1.4969 1.0073 1.3966 -- --
Dec. 31, 1993................. 1.7757 2.0989 1.8513 1.4248 1.5534 -- --
Dec. 31, 1994................. 1.7723 2.1038 1.7507 1.3391 1.4556 -- --
Dec. 31, 1995................. 2.4005 2.5301 2.1957 1.5334 1.7185 1.2451 1.1897
</TABLE>
<TABLE>
<CAPTION>
ANNUITY UNIT VALUE USING A 3 1/2% ASSUMED INVESTMENT RESULT
----------------------------------------------------------------------------
VALUE AT END OF YEAR
HIGH
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE YIELD
MARKET BOND EQUITY MANAGED BALANCED BOND
--------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1985................. $ 1.1073 $ 1.2199 $ 1.2552 $ 1.2007 $ 1.2154 $ --
Dec. 31, 1986................. 1.1263 1.3330 1.3792 1.3238 1.3248 --
Dec. 31, 1987................. 1.1454 1.2763 1.3386 1.2408 1.2842 0.9130
Dec. 31, 1988................. 1.1741 1.3183 1.4960 1.3366 1.3510 0.9864
Dec. 31, 1989................. 1.2248 1.4285 1.8531 1.5541 1.5091 0.9225
Dec. 31, 1990................. 1.2643 1.4767 1.6754 1.5116 1.5161 0.7761
Dec. 31, 1991................. 1.2813 1.6417 2.0157 1.8102 1.7235 1.0312
Dec. 31, 1992................. 1.2692 1.6793 2.1964 1.8591 1.7593 1.1567
Dec. 31, 1993 (*As Restated).. 1.2477 1.7661 2.5559 2.0517 1.8847 1.3172*
Dec. 31, 1994................. 1.2393 1.6317 2.5079 1.8968 1.7820 1.2233
Dec. 31, 1995................. 1.2519 1.8810 3.1440 2.2483 1.9954 1.3733
</TABLE>
<TABLE>
<CAPTION>
ANNUITY UNIT VALUE USING A 3 1/2% ASSUMED INVESTMENT RESULT
-------------------------------------------------------------------------------------------
VALUE AT END OF YEAR
SMALL
STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
--------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec. 31, 1985................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Dec. 31, 1986................. -- -- -- -- -- -- --
Dec. 31, 1987................. 0.8532 -- -- -- -- -- --
Dec. 31, 1988................. 0.9404 1.0664 1.0141 -- -- -- --
Dec. 31, 1989................. 1.1757 1.2490 1.3135 1.0735 1.0826 -- --
Dec. 31, 1990................. 1.0812 1.1476 1.1813 0.8923 1.0987 -- --
Dec. 31, 1991................. 1.3391 1.3970 1.2440 0.9488 1.2179 -- --
Dec. 31, 1992................. 1.3693 1.4684 1.2739 0.8746 1.2302 -- --
Dec. 31, 1993................. 1.4338 1.7036 1.5300 1.1953 1.3222 -- --
Dec. 31, 1994................. 1.3828 1.6499 1.3980 1.0855 1.1971 -- --
Dec. 31, 1995................. 1.8097 1.9174 1.6941 1.2010 1.3657 1.2159 1.1619
</TABLE>
Payments to annuitants under Contracts providing for a variable payout option
are based on the value of an Annuity Unit. The investment results of the Account
are reflected in the changes in the value of an Annuity Unit to the extent that
they are greater or less than the assumed investment result in the annuitant's
Contract.
A11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
The Prudential Individual
Variable Contract Account and the
Board of Directors of The Prudential
Insurance Company of America
Newark, New Jersey
We have audited the accompanying statements of net assets of The Prudential
Individual Variable Contract Account of The Prudential Insurance Company of
America (comprising, respectively, the Money Market, Diversified Bond, Equity,
Flexible Managed, Conservative Balanced, High Yield Bond, Stock Index, Equity
Income, Natural Resources, Global, Government Income, Prudential Jennison, and
Small Capitalization Stock subaccounts) as of December 31, 1995, the related
statements of operations for the periods presented in the year then ended, and
the statements of changes in net assets for each of the periods presented in the
two years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the respective subaccounts
constituting The Prudential Individual Variable Contract Account as of December
31, 1995, the results of their operations, and the changes in their net assets
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A12
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
December 31,
1995 1994
-------- --------
(In Millions)
ASSETS
Fixed maturities .............................. $ 85,585 $ 78,620
Equity securities ............................. 1,937 2,327
Mortgage loans ................................ 23,680 26,199
Investment real estate ........................ 1,568 1,600
Policy loans .................................. 6,800 6,631
Other invested assets ......................... 4,019 5,147
Short-term investments ........................ 7,874 10,630
Securities purchased under
agreements to resell ......................... 5,130 5,591
Trading account securities .................... 3,658 6,341
Cash .......................................... 1,633 1,109
Accrued investment income ..................... 1,915 1,932
Premiums due and deferred ..................... 2,402 2,712
Broker-dealer receivables ..................... 8,136 8,164
Other assets .................................. 6,608 6,266
Assets held in Separate Accounts .............. 58,435 48,633
-------- --------
TOTAL ASSETS ................................... $219,380 $211,902
======== ========
LIABILITIES, AVR AND SURPLUS
Liabilities:
Policy liabilities and insurance reserves:
Future policy benefits and claims ............ $ 94,973 $ 98,354
Unearned premiums ............................ 836 1,144
Other policy claims and
benefits payable ............................ 1,932 1,848
Policy dividends ............................. 1,894 1,822
Policyholder account balances ................ 12,540 12,195
Securities sold under agreements
to repurchase ................................ 7,993 8,919
Notes payable and other borrowings ............ 9,157 12,009
Broker-dealer payables ........................ 6,083 6,198
Other liabilities ............................. 14,976 11,983
Liabilities related to Separate Accounts ...... 57,586 47,946
-------- --------
Total Liabilities .............................. 207,970 202,418
-------- --------
Asset Valuation Reserve (AVR) .................. 2,742 2,035
-------- --------
Surplus:
Capital Notes ................................. 984 298
Special surplus fund .......................... 1,274 1,097
Unassigned surplus ............................ 6,410 6,054
-------- --------
Total Surplus .................................. 8,668 7,449
-------- --------
TOTAL LIABILITIES, AVR
AND SURPLUS ................................... $219,380 $211,902
======== ========
CONSOLIDATED STATEMENTS OF
OPERATIONS AND CHANGES IN SURPLUS AND ASSET VALUATION RESERVE (AVR)
Years Ended December 31,
1995 1994 1993
------- ------- -------
(In Millions)
REVENUE
Premiums and annuity
considerations ........................... $27,413 $29,698 $29,982
Net investment income ..................... 9,844 9,595 10,090
Broker-dealer revenue ..................... 3,800 3,677 4,025
Realized investment
gains/(losses) ........................... 882 (450) 953
Other income .............................. 972 1,037 924
------- ------- -------
Total Revenue .............................. 42,911 43,557 45,974
------- ------- -------
BENEFITS AND EXPENSES
Current and future benefits
and claims ............................... 27,854 30,788 30,573
Insurance and underwriting
expenses ................................. 4,577 4,830 4,982
Limited partnership matters ............... 0 1,422 390
General, administrative and
other expenses ........................... 6,034 5,794 5,575
------- ------- -------
Total Benefits and Expenses ................ 38,465 42,834 41,520
------- ------- -------
Income from operations
before dividends
and income taxes .......................... 4,446 723 4,454
Dividends to policyholders ................. 2,519 2,290 2,339
------- ------- -------
Income/(loss) before
income taxes .............................. 1,927 (1,567) 2,115
Income tax provision/(benefit) ............. 1,348 (392) 1,236
------- ------- -------
NET INCOME/(LOSS) .......................... 579 (1,175) 879
Surplus, beginning of year ................. 7,449 8,004 7,365
Issuance of Capital Notes
(after net charge-off of
non-admitted prepaid
postretirement benefit
cost of $113 in 1993) ..................... 686 0 185
Net unrealized investment
gains/(losses) and change
in AVR .................................... (46) 620 (425)
------- ------- -------
SURPLUS, END OF YEAR ....................... 8,668 7,449 8,004
------- ------- -------
AVR, beginning of year ..................... 2,035 2,687 2,457
Increase/(decrease) in AVR ................. 707 (652) 230
------- ------- -------
AVR, END OF YEAR ........................... 2,742 2,035 2,687
------- ------- -------
TOTAL SURPLUS AND AVR ...................... $11,410 $ 9,484 $10,691
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
-------- -------- --------
(In Millions)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income/(loss) ..................... $ 579 $(1,175) $ 879
Adjustments to reconcile net
income/(loss) to cash flows from
operating activities:
(Decrease)/increase in policy
liabilities and insurance
reserves ........................... (1,691) 1,289 2,747
Net increase in Separate
Accounts ........................... (162) (52) (59)
Realized investment
(gains)/losses ..................... (882) 450 (953)
Depreciation, amortization and
other non-cash items ............... 217 379 261
Gain on sale and results of
operations from reinsurance
segment ............................ (72) 0 0
Decrease/(increase) in
operating assets:
Mortgage loans ...................... (305) (226) (226)
Policy loans ........................ (169) (175) (174)
Securities purchased
under agreements to
resell ............................. 139 2,979 (2,049)
Trading account
securities ......................... 2,707 2,324 (2,087)
Broker-dealer
receivables ....................... 28 969 (1,803)
Other assets ........................ 205 3,254 (2,172)
(Decrease)/increase in
operating liabilities:
Securities sold under
agreements to repurchase ........... (475) (3,247) 1,134
Broker-dealer payables .............. (115) 788 1,280
Other liabilities ................... 501 (3,170) 1,794
-------- -------- --------
Cash Flows from Operating
Activities ........................... 505 4,387 (1,428)
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities ..................... 100,317 90,914 100,023
Equity securities .................... 2,302 1,426 1,725
Mortgage loans ....................... 5,567 4,154 4,789
Investment real estate ............... 291 407 336
Other invested assets ................ 1,943 1,022 1,352
Property and equipment ............... 3 637 6
Sale of reinsurance segment .......... 790 0 0
Payments for the purchase of:
Fixed maturities ..................... (107,192) (91,032) (101,217)
Equity securities .................... (1,450) (1,535) (1,085)
Mortgage loans ....................... (3,002) (3,446) (3,530)
Investment real estate ............... (387) (161) (196)
Other invested assets ................ (515) (1,687) (531)
Property and equipment ............... (238) (392) (640)
Short-term investments (net) .......... 2,756 (4,281) (2,150)
Net change in cash placed as
collateral for securities loaned ..... 1,379 2,011 (589)
-------- -------- --------
Cash Flows from Investing
Activities ........................... $ 2,564 $ (1,963) $ (1,707)
-------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net (payments)/proceeds of
short-term debt ...................... $ (2,489) $ (1,115) $ 1,106
Proceeds from the issuance of
long-term debt ....................... 763 345 1,228
Payments for the settlement of
long-term debt ....................... (1,376) (760) (721)
Proceeds/(payments) from
unmatched securities purchased
under agreements to resell ........... 322 1,086 (47)
(Payments)/proceeds for
unmatched securities sold under
agreements to repurchase ............. (451) (2,537) 1,707
Proceeds from the issuance of
Capital Notes ........................ 686 0 298
-------- -------- --------
Cash Flows from
Financing Activities ................. (2,545) (2,981) 3,571
-------- -------- --------
Net increase/(decrease)
in cash .............................. 524 (557) 436
Cash, beginning of year ............... 1,109 1,666 1,230
-------- -------- --------
CASH, END OF YEAR ..................... $ 1,633 $ 1,109 $ 1,666
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income tax payments, net of refunds, made during 1995, 1994 and 1993 were $430
million, $64 million and $933 million, respectively. Interest payments made
during 1995, 1994 and 1993 were $1,413 million, $1,429 million and $1,171
million, respectively.
The 1995 amounts are presented net of the cash flow activities of the
reinsurance segment.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
1. ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The Prudential Insurance Company of America ("Prudential"), a mutual life
insurance company, and its subsidiaries (collectively, "the Company"). The
activities of the Company cover a broad range of financial services,
including life and health care insurance, property and casualty insurance,
securities brokerage, asset management, investment advisory services, and
real estate development and brokerage. All significant intercompany
balances and transactions have been eliminated in consolidation.
B. BASIS OF PRESENTATION
The consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners ("NAIC") and their respective domiciliary state
insurance departments. Prescribed statutory accounting practices include
publications of the NAIC, state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed.
The Company, with permission from the New Jersey Department of Insurance
("the Department"), prepares an Annual Report that differs from the Annual
Statement filed with the Department in that subsidiaries are consolidated
and certain financial statement captions are presented differently.
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
Management has used estimates and assumptions in the preparation of the
financial statements that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.
Life and General Insurance Operations--Life premiums are recognized as
income over the premium paying period of the related policies. Annuity
considerations are recognized as revenue when received. Health and property
and casualty premiums are earned ratably over the terms of the related
insurance and reinsurance contracts or policies. Expenses incurred in
connection with acquiring new insurance business, including such
acquisition costs as sales commissions, are charged to operations as
incurred.
Broker-Dealer Operations--The Company is engaged in the securities industry
in the United States, with operations in various foreign countries. Client
transactions are recorded on a settlement date basis. Securities and
commodities commission revenues and related expenses are accrued for client
transactions on a trade date basis. Investment banking revenue includes
advisory fees, selling concessions, management and underwriting fees, and
is recorded, net of related expenses, when the services are substantially
completed. Asset management and portfolio service fees are fees earned on
total assets under management and mutual funds sponsored by the Company and
third parties. Certain costs that are directly related to the sales of
mutual funds are deferred.
C. INVESTED ASSETS
Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost.
Equity securities, which consist primarily of common stocks, are carried at
fair value.
Mortgage loans are stated primarily at unpaid principal balances. Mortgage
loans for non-life subsidiaries are recorded net of valuation reserves.
Investment real estate, except for real estate acquired in satisfaction of
debt, is carried at cost less accumulated straight-line depreciation,
encumbrances and permanent impairments in value. Real estate acquired in
satisfaction of debt, included in "Other assets," is carried at the lower
of cost or fair value less disposition costs.
Policy loans are stated at unpaid principal balances.
Other invested assets primarily represent the Company's investment in joint
ventures and other forms of partnerships. These investments are carried
primarily on the equity method where the Company has the ability to
exercise significant influence over the operating and financial policies of
the entity.
Short-term investments are stated at amortized cost, which approximates
fair value.
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are collateralized financing transactions and are
carried at their contract amounts plus accrued interest. These agreements
are generally
F-3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
collateralized by cash or securities with market values in excess of the
obligations under the contract. It is the Company's policy to take
possession of securities purchased under resale agreements, to value the
securities daily, and to require adjustment of the underlying collateral
when deemed necessary.
Trading account securities from broker-dealer operations are reported based
upon quoted market prices.
Securities lending is a program whereby securities are loaned to third
parties, primarily major brokerage firms. As of December 31, 1995 and 1994,
the estimated fair values of loaned securities were $7,982 million and
$8,506 million, respectively. Company and NAIC policies require a minimum
of 102% and 105% of the fair value of the domestic and foreign loaned
securities, respectively, to be separately maintained as collateral for the
loans. Cash collateral received is invested in short-term investments. The
offsetting collateral liability as of December 31, 1995 and 1994 is $5,690
million and $4,252 million, respectively. Non-cash collateral is recorded
in memorandum records and is not reflected in the consolidated financial
statements.
Derivative financial instruments--For the Company's non-insurance
subsidiaries, derivatives used for trading purposes are recorded at fair
value as of the reporting date. Realized and unrealized changes in fair
values are recognized in "Broker-dealer revenue" and "Other income" in the
period in which the changes occur. Gains and losses on hedges of existing
assets or liabilities are included in the carrying amount of those assets
or liabilities and are deferred and recognized in earnings in the same
period as the underlying hedged item. For interest rate swaps that qualify
for settlement accounting, the interest differential to be paid or received
under the swap agreements is accrued over the life of the agreements as a
yield adjustment. Gains and losses on early termination of derivatives that
modify the characteristics of designated assets and liabilities are
deferred and are amortized as an adjustment to the yield of the related
assets or liabilities over their remaining lives
Derivatives used in asset/liability risk management activities, which
support life and health insurance and annuity contracts, are recorded at
fair value with unrealized gains and losses recorded in "Net unrealized
investment gains/(losses) and change in AVR." Upon termination of
derivatives supporting life and health insurance and annuity contracts, the
interest-related gains and losses are amortized through the Interest
Maintenance Reserve (IMR).
D. SEPARATE ACCOUNTS
These assets and liabilities, reported at estimated market value, represent
segregated funds invested for pension and other clients. Investment risks
associated with market value changes are generally borne by the clients,
except to the extent of minimum guarantees made by the Company with respect
to certain accounts.
E. CAPITAL NOTES
Interest payments on the 1993 Capital Notes are preapproved by the
Department. This practice differs from that prescribed by the NAIC. The
NAIC practices provide for Insurance Commissioner approval of every
interest payment before the payment is made. The interest payments on the
Capital Notes issued in 1995 comply with prescribed NAIC practices.
Prudential has included all notes as a component of surplus (Note 7).
F. FUTURE APPLICATION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued Interpretation
No. 40, "Applicability of Generally Accepted Accounting Principles to
Mutual Life Insurance and Other Enterprises," which, as amended, is
effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of mutual life insurance
companies, with respect to utilizing statutory basis financial statements
for general purposes, in not allowing such financial statements to be
referred to as having been prepared in accordance with GAAP. Interpretation
No. 40 requires GAAP financial statements of mutual life insurance
companies to apply all GAAP pronouncements, unless specifically exempted.
Implementation of Interpretation No. 40 will require significant effort and
judgment. The Company is assessing the impact of Interpretation No. 40 on
its consolidated financial statements. Such effort has not been completed
and management currently believes surplus will increase significantly.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. FUTURE POLICY BENEFITS, RESERVE FOR LOSSES AND LOSS EXPENSES
A. For life insurance, general insurance and annuities, unpaid claims and
claim adjustment expenses include estimates of benefits and associated
settlement expenses on reported claims and those which are incurred but not
reported.
Activity in the liability for unpaid claims and claim adjustment expenses
is:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- -----------------------
Accident Property Accident Property Accident Property
and and and and and and
Health Casualty Health Casualty Health Casualty
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(In Millions)
Balance at January 1 ........................ $2,738 $5,116 $2,654 $4,869 $2,623 $4,712
Less reinsurance recoverables .............. 23 1,018 15 1,070 22 1,107
------ ------ ------ ------ ------ ------
Net balance at January 1 .................... 2,715 4,098 2,639 3,799 2,601 3,605
------ ------ ------ ------ ------ ------
Incurred related to:
Current year ............................... 8,062 2,387 7,398 2,541 7,146 2,364
Prior years ................................ (48) 95 (105) 158 (167) 109
------ ------ ------ ------ ------ ------
Total incurred .............................. 8,014 2,482 7,293 2,699 6,979 2,473
------ ------ ------ ------ ------ ------
Paid related to:
Current year ............................... 5,972 1,010 5,568 1,237 5,336 1,119
Prior years ................................ 1,807 959 1,649 1,163 1,605 1,160
------ ------ ------ ------ ------ ------
Total paid .................................. 7,779 1,969 7,217 2,400 6,941 2,279
------ ------ ------ ------ ------ ------
Less reinsurance
segment (Note 10) .......................... 0 2,326 0 0 0 0
------ ------ ------ ------ ------ ------
Net balance at December 31 .................. 2,950 2,285 2,715 4,098 2,639 3,799
Plus reinsurance recoverables .............. 15 819 23 1,018 15 1,070
------ ------ ------ ------ ------ ------
Balance at December 31 ...................... $2,965 $3,104 $2,738 $5,116 $2,654 $4,869
====== ====== ====== ====== ====== ======
</TABLE>
As a result of changes in estimates of insured events in prior years, the
declines of $48 million, $105 million and $167 million in the provision for
claims and claim adjustment expenses for accident and health business in
1995, 1994 and 1993, respectively, were due to lower-than-expected trends
in claim costs and an accelerated decline in indemnity health business.
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expenses for property and
casualty business (net of reinsurance recoveries of $88 million, $47
million and $120 million in 1995, 1994 and 1993, respectively) increased by
$95 million, $158 million and $109 million in 1995, 1994 and 1993,
respectively, due to increased loss development and reserve strengthening
for asbestos and environmental claims.
B. Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables, which produce reserves that
meet the aggregate requirements of state laws and regulations.
Approximately 39% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of the net
level premium reserve or the policy cash value. About 54% of individual
life insurance reserves are calculated according to the Commissioner's
Reserve Valuation Method ("CRVM"), or methods which compare CRVM to policy
cash values. The remaining reserves include universal life reserves which
are equal to the greater of the policyholder account value less the
unamortized expense allowance and the policy cash value, or are for
supplementary benefits whose reserves are calculated using methods,
interest rates and tables appropriate for the benefit provided.
For group life insurance, about 56% of the reserves are associated with
extended death benefits. These reserves are primarily calculated using
modified group tables at various interest rates. The remainder are unearned
premium reserves (calculated using the 1960 Commissioner's Standard Group
Table), reserves for group life fund accumulations and other miscellaneous
reserves.
Reserves for deferred individual annuity contracts are determined using the
Commissioner's Annuity Reserve Valuation Method. These account for 72% of
the individual annuity reserves. The remaining reserves are equal to the
present value of future payments with the annuity mortality table and
interest rates based on the date of issue or maturity as appropriate.
Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves. For money
purchase annuities issued in Canada, the reserve equals the present value
of each deposit accumulated to the end of its guarantee period at its
guaranteed interest rate, discounted at the valuation interest rate.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Accident and health reserves represent the present value of the future
potential payments, discounted for contingencies and interest. The
remaining material reserves for active life reserves and unearned premiums
are valued using the preliminary term method, gross premium valuation
method, or a pro-rata portion of gross premiums. Reserves are also held for
amounts not yet due on hospital benefits and other coverages.
The reserve for guaranteed interest contracts, deposit funds and other
liabilities without life contingencies equal either the present value of
future payments discounted at the guaranteed rate or the fund value.
3. INCOME TAXES
Under the Internal Revenue Code ("the Code"), Prudential and its life
insurance subsidiaries are taxed on their gain from operations after
dividends to policyholders. In calculating this tax, the Code requires the
capitalization and amortization of policy acquisition expenses.
The Code also imposes an "equity tax" on mutual life insurance companies
based on an imputed surplus which, in effect, reduces the deduction for
policyholder dividends. The amount of the equity tax is estimated in the
current year based on the anticipated equity tax rate, and is adjusted in
subsequent years as the rate is finalized.
Prudential files a consolidated federal income tax return with all of its
domestic subsidiaries. Net operating losses of the non-life subsidiaries may
be used in this consolidated return, but are limited each year to the lesser
of 35% of cumulative eligible non-life subsidiary losses or 35% of life
company taxable income. The provision reported in the consolidated financial
statements also includes tax liabilities for foreign subsidiaries.
The non-insurance subsidiaries of the Company recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in their financial statements. Included in "Income tax
provision/(benefit)" are deferred taxes of $109 million, $(477) million and
$21 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
At December 31, 1995, the Company had consolidated non-life tax loss
carryforwards of $595 million which will expire between 1998 and 2010, if not
utilized.
4. INVESTED ASSETS
A. FIXED MATURITIES
The Company invests in both investment grade and non-investment grade
public and private fixed maturities. The Securities Valuation Office of the
NAIC rates the fixed maturities held by insurers for regulatory purposes
and groups investments into six categories ranging from highest quality
bonds to those in or near default. The lowest three NAIC categories
represent primarily high-yield securities and are defined by the NAIC as
including any security with a public agency rating equivalent to B+ or B1
or less. These securities approximate 0.9% and 1.6% of the Company's
consolidated assets at December 31, 1995 and 1994, respectively.
The carrying value and estimated fair value of fixed maturities at December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995
-------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
(In Millions)
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies ..................................................... $16,494 $1,409 $ 1 $17,902
Obligations of U.S. states and their
political subdivisions ....................................... 1,365 70 2 1,433
Fixed maturities issued by foreign governments
and their agencies and political subdivisions ................ 3,641 275 4 3,912
Corporate securities .......................................... 58,998 4,792 108 63,682
Mortgage-backed securities .................................... 5,048 276 10 5,314
Other fixed maturities ........................................ 39 0 0 39
------- ------ ---- -------
Total ......................................................... $85,585 $6,822 $125 $92,282
======= ====== ==== =======
</TABLE>
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1994
------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
(In Millions)
U.S. Treasury securities and obligations of
U.S. government corporations and agencies .................. $13,576 $ 122 $ 646 $13,052
Obligations of U.S. states and their
political subdivisions ..................................... 2,776 32 165 2,643
Fixed maturities issued by foreign governments
and their agencies and political subdivisions .............. 3,093 37 153 2,977
Corporate securities ........................................ 54,076 1,191 1,772 53,495
Mortgage-backed securities .................................. 4,889 82 148 4,823
Other fixed maturities ...................................... 210 0 0 210
------- ------ ------ -------
Total ....................................................... $78,620 $1,464 $2,884 $77,200
======= ====== ====== ========
</TABLE>
The carrying value and estimated fair value of fixed maturities at December
31, 1995, categorized by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers may
prepay obligations with or without call or prepayment penalties.
Estimated
Carrying Fair
Value Value
-------- ---------
(In Millions)
Due in one year or less .................... $ 398 $ 402
Due after one year through five years ...... 26,936 27,748
Due after five years through ten years ..... 23,124 24,637
Due after ten years ........................ 30,079 34,181
------- -------
80,537 86,968
Mortgage-backed securities ................. 5,048 5,314
------- -------
Total ...................................... $85,585 $92,282
======= =======
Proceeds from the sale and maturity of fixed maturities during 1995, 1994
and 1993 were $100,317 million, $90,914 million and $100,023 million,
respectively. Gross gains of $2,083 million, $693 million and $2,473
million and gross losses of $943 million, $2,009 million and $698 million
were realized on such sales during 1995, 1994 and 1993, respectively.
B. MORTGAGE LOANS
Mortgage loans at December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
(In Millions)
Commercial and agricultural loans:
In good standing ...................................... $17,792 75.1% $19,752 75.4%
In good standing
with restructured terms .............................. 976 4.1% 1,412 5.4%
Past due 90 days or more .............................. 145 0.6% 339 1.3%
In process of foreclosure ............................. 158 0.7% 387 1.5%
Residential loans ...................................... 4,609 19.5% 4,309 16.4%
------- ----- ------- -----
Total mortgage loans ................................... $23,680 100.0% $26,199 100.0%
======= ===== ======= =====
</TABLE>
At December 31, 1995, the Company's mortgage loans were collateralized by
the following property types: office buildings (29%), retail stores (20%),
residential properties (19%), apartment complexes (13%), industrial
buildings (10%), agricultural properties (7%) and other commercial
properties (2%). The mortgage loans are geographically dispersed throughout
the United States and Canada with the largest concentrations in California
(23%) and New York (9%). Included in these balances
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
are mortgage loans with affiliated joint ventures of $653 million and $684
million at December 31, 1995 and 1994, respectively.
C. INVESTMENT REAL ESTATE
Accumulated depreciation on investment real estate was $643 million and
$748 million at December 31, 1995 and 1994, respectively.
D. OTHER INVESTED ASSETS
The Company's net equity in joint ventures and other forms of partnerships
amounted to $2,612 million and $3,357 million as of December 31, 1995 and
1994, respectively. The Company's share of net income from such entities
was $326 million, $354 million and $375 million for 1995, 1994 and 1993,
respectively.
E. NET UNREALIZED INVESTMENT GAINS/(LOSSES)
Net unrealized investment gains/(losses), which result principally from
changes in the carrying values of invested assets, were $661 million, $(32)
million and $(195) million for the years ended December 31, 1995, 1994 and
1993, respectively.
F. ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
These reserves are required for life insurance companies under NAIC
regulations. The AVR is calculated based on a statutory formula and is
designed to mitigate the effect of valuation and credit-related losses on
unassigned surplus. The IMR captures net realized capital gains and losses
resulting from changes in the general level of interest rates. These gains
and losses are amortized into investment income over the expected remaining
life of the investments sold. At December 31, 1995, the components of AVR
are 67% for fixed maturities, equity securities and short-term investments;
21% for mortgage loans; and 12% for investment real estate and other
invested assets. The IMR balance at December 31, 1995 and 1994 was $1,191
million and $502 million, respectively. During 1995, 1994 and 1993, $775
million, $(929) million and $1,082 million of net realized investment
gains/(losses) were deferred, respectively.
G. RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets in the amounts of $6,271 million and $5,901 million at December 31,
1995 and 1994, respectively, were on deposit with governmental authorities
or trustees as required by law. Assets valued at $3,558 million and $5,855
million at December 31, 1995 and 1994, respectively, were maintained as
compensating balances or pledged as collateral for bank loans and other
financing agreements. Restricted cash and securities of $1,137 million and
$897 million at December 31, 1995 and 1994, respectively, were included in
the consolidated financial statements. The restricted cash represents funds
deposited by clients and funds accruing to clients as a result of trades or
contracts.
5. EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
The Company has several defined benefit pension plans, which cover
substantially all of its employees. Benefits are generally based on career
average earnings and credited length of service. The Company's funding
policy for U.S. plans is to contribute annually the amount necessary to
satisfy the Internal Revenue Service contribution guidelines.
Employee pension benefit plan status is as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994
------------------------ ------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(In Millions)
Actuarial present value of benefit obligation:
Vested benefit obligation ..................................... $(3,270) $(236) $(2,749) $(207)
======= ===== ====== =====
Accumulated benefit obligation ................................ (3,572) (261) (3,025) (230)
======= ===== ====== =====
Projected benefit obligation ................................... (4,330) (297) (3,975) (272)
Plan assets at fair value ...................................... 6,688 206 5,524 180
------- ----- ------ -----
Plan assets in excess of projected benefit obligation .......... 2,358 (91) 1,549 (92)
Unrecognized transition amount ................................. (904) (4) (976) (4)
Unrecognized prior service cost ................................ 199 16 211 17
Unrecognized net (gain)/loss ................................... (753) 15 (18) 27
Additional minimum liability ................................... 0 (8) 0 (8)
------- ----- ------ -----
Prepaid/(accrued) pension cost ................................. $ 900 $ (72) $ 766 $ (60)
======= ===== ====== =====
</TABLE>
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $4,974 million and $4,325 million are
included in Separate Account assets and liabilities at December 31, 1995
and 1994, respectively.
In compliance with statutory accounting principles, Prudential's prepaid
pension costs of $900 million and $766 million at December 31, 1995 and
1994, respectively, are considered non-admitted assets. These assets are
excluded from the consolidated assets and the changes in these non-admitted
assets were $134 million, $(19) million, and $142 million in 1995, 1994 and
1993, respectively.
The components of the net periodic pension (benefit)/expense for 1995, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(In Millions)
Service cost--benefits earned during the year ............................. $ 133 $ 163 $ 133
Interest cost on projected benefit obligation ............................. 392 311 301
Actual return on assets ................................................... (1,288) 56 (854)
Net amortization and deferral ............................................. 629 (639) 301
Net curtailment gains and special termination benefits .................... 0 156 0
------- ----- -----
Net periodic pension (benefit)/expense .................................... $ (134) $ 47 $(119)
======= ===== =====
</TABLE>
The net reduction to surplus relating to the Company's pension plans is $0,
$28 million and $23 million in 1995, 1994 and 1993, respectively, which
considers the changes in Prudential's non-admitted prepaid pension asset of
$134 million, $(19) million and $142 million, respectively. The accounting
assumptions used by Prudential were:
As of September 30,
--------------------
1995 1994 1993
---- ---- ----
Discount rate ................................. 7.5% 8.5% 7.0%
Rate of increase in compensation levels ....... 4.5% 5.5% 5.0%
Expected long-term rate of return on assest ... 9.0% 9.0% 9.0%
The 1995 pension benefit for the Company's non-U.S. plans is $8 million.
B. POSTRETIREMENT BENEFITS
The Company provides certain life insurance and health care benefits for
its retired employees. Substantially all of the Company's employees may
become eligible to receive a benefit if they retire after age 55 with at
least 10 years of service.
Postretirement benefits, with respect to Prudential, are recognized in
accordance with prescribed NAIC policy. Prudential has elected to amortize
its transition obligation over 20 years. The Company's funding of its
postretirement benefit obligations totaled $48 million, $31 million and
$404 million in 1995, 1994 and 1993, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
The postretirement benefit plan status is as follows:
September 30,
------------------
1995 1994
-------- -------
(In Millions)
Accumulated postretirement benefit obligation (APBO):
Retirees ............................................... $(1,526) $(1,337)
Fully eligible active plan participants ................ (152) (188)
------- -------
Total APBO ............................................... (1,678) (1,525)
------- -------
Plan assets at fair value ................................ 1,309 1,232
------- -------
Funded status ............................................ (369) (293)
Unrecognized transition amount ........................... 423 448
Unrecognized net loss/(gain) ............................. 1 (41)
------- -------
Prepaid postretirement benefit cost ...................... $ 55 $ 114
======= =======
Plan assets consist of group and individual variable life insurance
policies, group life and health contracts and short-term investments, of
which $990 million and $996 million are included in the Consolidated
Statement of Financial Position at December 31, 1995 and 1994,
respectively. In compliance with statutory accounting principles,
Prudential's prepaid postretirement benefit costs of $99 million and $127
million at December 31, 1995 and 1994, respectively, are considered
non-admitted assets. These assets are excluded from the consolidated assets
and the changes in these non-admitted assets of $(28) million, $(90)
million and $217 million in 1995, 1994 and 1993, respectively, are reported
in "General, administrative and other expenses" in 1995 and 1994, and in
"Issuance of Capital Notes" in 1993.
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
(In Millions)
Service cost .................................................. $ 56 $ 38 $ 41
Interest cost ................................................. 123 112 124
Actual return on plan assets .................................. (144) (98) (86)
Amortization of transition obligation ......................... 25 23 39
Other ......................................................... 47 (3) 77
Net curtailment and special termination benefits .............. 0 58 0
----- ---- ----
Net periodic postretirement benefit cost ...................... $ 107 $130 $195
===== ==== ====
</TABLE>
The net reduction to surplus relating to the Company's postretirement
benefit plans is $79 million, $40 million, and $412 million in 1995, 1994
and 1993, respectively, which considers the changes in the non-admitted
prepaid postretirement benefit cost of $(28) million, $(90) million and
$217 million in 1995, 1994 and 1993, respectively.
The accounting assumptions used by Prudential were:
<TABLE>
<CAPTION>
As of September 30,
------------------------------------------
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Discount rate ............................................... 7.5% 8.5% 7.0%
Expected long-term rate of return on plan assets ............ 8.0% 9.0% 9.0%
Rate of increase in compensation levels ..................... 4.5% 5.5% 5.0%
Health care cost trend rates ................................ 8.9-13.3% 9.1-13.9% 9.5-14.7%
Ultimate health care cost trend rate at 2006 ................ 5.0% 6.0% 5.0%
</TABLE>
The effect of a 1% increase in health care cost trend rates on the
September 30, 1995, accumulated postretirement benefit obligation and
service and interest costs would be $138 million and $16 million,
respectively.
C. POSTEMPLOYMENT BENEFITS
The Company accrues for postemployment benefits primarily for life and
health benefits provided to former or inactive employees who are not
retirees. The net accumulated liability for these benefits at December 31,
1995 and 1994 was $102 million and $151 million, respectively. The Company
funded $45 million of postemployment benefits during 1995.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------- -------------------------
Weighted Weighted
Average Average
Balance Cost of Funds Balance Cost of Funds
-------- ------------- ------- -------------
<S> <C> <C> <C> <C>
(In Millions)
Short-term debt:
Commercial paper ........................... $3,711 5.8% $ 4,108 5.6%
Medium-term notes payable .................. 9 7.4% 204 4.8%
Other ...................................... 2,007 6.4% 4,876 5.8%
------ -------
Total Short Term ............................ 5,727 6.0% 9,188 5.7%
------ -------
Long-term debt:
Notes payable .............................. 1,309 7.2% 1,684 7.3%
Medium-term notes payable .................. 377 5.6% 535 5.9%
Euro medium-term notes payable ............. 537 6.0% 584 4.7%
Other ...................................... 1,207 6.2% 18 10.3%
------ -------
Total Long Term ............................. 3,430 6.5% 2,821 6.5%
------ -------
Total ....................................... $9,157 6.2% $12,009 5.9%
====== =======
</TABLE>
Scheduled repayments of long-term debt as of December 31, 1995, are as
follows: $321 million in 1996, $448 million in 1997, $868 million in 1998,
$667 million in 1999, $620 million in 2000, and $593 million thereafter.
As of December 31, 1995, the Company had $6,770 million in lines of credit
from numerous financial institutions of which $4,263 million were unused.
7. SURPLUS
A. Capital Notes
A summary of the outstanding Capital Notes as of December 31, 1995 is as
follows:
Principal Interest Maturity
Issue Date (Par) Rate Date
---------- --------- -------- --------
(In Millions)
April 1993 ................ $ 300 6.875% April 2003
June 1995 ................. 250 7.650% July 2007
July 1995 ................. 100 8.100% July 2015
June 1995 ................. 350 8.300% July 2025
------
Total ..................... $1,000
======
The notes are subordinate in right of payment to policyholder claims and to
senior indebtedness, and principal repayments are subject to a risk-based
capital test.
The net proceeds from the April 1993 notes, approximately $298 million,
were contributed to a voluntary employee benefit association trust to
prefund certain obligations of Prudential to provide postretirement medical
and other benefits. This resulted in a prepaid asset, which is non-admitted
for statutory purposes. The net increase to surplus from the issuance of
the notes, including a tax benefit of $104 million less the charge-off of
the non-admitted asset of $217 million, was $185 million (Note 5B).
B. SPECIAL SURPLUS FUND
In accordance with the requirements of various states, a special surplus
fund has been established for contingency reserves of $1,274 million and
$1,097 million as of December 31, 1995 and 1994, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented on the next page have been determined using
available information and reasonable valuation methodologies. Considerable
judgment is applied in interpreting data to develop the estimates of fair
value. Accordingly, such estimates
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
presented may not be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair values. The following methods and
assumptions were used in calculating the fair values. (For all other
financial instruments presented in the table, the carrying value is a
reasonable estimate of fair value.)
Fixed Maturities--Fair values for fixed maturities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the
current market spreads between the U.S. Treasury yield curve and corporate
bond yield curve, adjusted for the type of issue, its current credit
quality and its remaining average life. The fair value of certain
non-performing private placement securities is based on amounts provided by
state regulatory authorities.
Equity Securities--Fair value is based on quoted market prices, where
available, or prices provided by state regulatory authorities.
Mortgage Loans--The fair value of residential mortgages is based on recent
market trades or quotes, adjusted where necessary for differences in risk
characteristics. The fair value of the commercial mortgage and agricultural
loan portfolio is primarily based upon the present value of the scheduled
cash flows discounted at the appropriate U.S. Treasury rate, adjusted for
the current market spread for a similar quality mortgage. For certain
non-performing and other loans, fair value is based upon the value of the
underlying collateral.
Policy Loans--The estimated fair value of policy loans is calculated using
a discounted cash flow model based upon current U.S. Treasury rates and
historical loan repayments.
Derivative Financial Instruments--The fair value of swap agreements is
estimated based on the present value of future cash flows under the
agreements discounted at the applicable zero coupon U.S. Treasury rate and
swap spread. The fair value of forwards and futures is estimated based on
market quotes for a transaction with similar terms, while the fair value of
options is based principally on market quotes. The fair value of loan
commitments is estimated based on fees actually charged or those currently
charged for similar arrangements, adjusted for changes in interest rates
and credit quality subsequent to origination.
Investment-Type Insurance Contract Liabilities--Fair values for the
Company's investment-type insurance contract liabilities are estimated
using a discounted cash flow model, based on interest rates currently being
offered for similar contracts.
Notes Payable and Other Borrowings--The estimated fair value of notes
payable and other borrowings is based on the borrowing rates currently
available to the Company for debt with similar terms and maturities.
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
1995 1994
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
(In Millions)
FINANCIAL ASSETS:
Fixed maturities ........................... $ 85,585 $ 92,282 $ 78,620 $77,200
Equity securities .......................... 1,937 1,937 2,327 2,327
Mortgage loans ............................. 23,680 24,268 26,199 24,955
Policy loans ............................... 6,800 7,052 6,631 6,018
Short-term investments ..................... 7,874 7,874 10,630 10,630
Securities purchased under
agreements to resell ...................... 5,130 5,130 5,591 5,591
Trading account securities ................. 3,658 3,658 6,341 6,341
Cash ....................................... 1,633 1,633 1,109 1,109
Broker-dealer receivables .................. 8,136 8,136 8,164 8,164
Assets held in Separate Accounts ........... 58,435 58,435 48,633 48,633
Derivative financial instruments ........... 1,473 1,640 1,219 1,268
FINANCIAL LIABILITIES:
Investment-type insurance contracts ........ 35,336 36,258 39,747 38,934
Securities sold under agreements to
repurchase ................................ 7,993 7,993 8,919 8,919
Notes payable and other borrowings ......... 9,157 9,231 12,009 11,828
Broker-dealer payables ..................... 6,083 6,083 6,198 6,198
Liabilities related to Separate
Accounts .................................. 57,586 57,586 47,946 47,946
Derivative financial instruments ........... 1,704 1,781 1,611 1,665
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
A. Derivative Financial Instruments
Derivatives, including swaps, forwards, futures, options, and loan
commitments subject to market risk, are used for trading and other
than trading activities (Note 1C). The following two tables summarize
the Company's outstanding positions on a gross basis before netting
pursuant to rights of offset, qualifying master netting agreements
with counterparties or collateral arrangements as of December 31, 1995
and 1994, respectively:
DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1995
(In Millions)
<TABLE>
<CAPTION>
Trading Other Than Trading Total
-------------------- -------------------- -------------------------------
Estimated Estimated Carrying Estimated
Notional Fair Value Notional Fair Value Notional Amount Fair Value
-------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets ................. $12,720 $1,131 $ 114 $ 10 $12,834 $1,132 $1,141
Liabilities ............ 11,488 1,317 4,476 62 15,964 1,371 1,379
Forwards:
Assets ................. 20,351 291 2,281 33 22,632 305 324
Liabilities ............ 22,068 278 6,675 48 28,743 291 326
Futures:
Assets ................. 1,387 14 2,590 34 3,977 20 48
Liabilities ............ 3,065 18 1,821 11 4,886 24 29
Options:
Assets ................. 1,961 20 4,345 97 6,306 20 117
Liabilities ............ 1,700 17 2,724 20 4,424 18 37
Loan Commitments:
Assets ................. 0 0 123 10 123 (4) 10
Liabilities ............ 0 0 1,412 10 1,412 0 10
------- ------ ------- ---- ------- ------ ------
Total:
Assets ................. $36,419 $1,456 $ 9,453 $184 $45,872 $1,473 $1,640
======= ====== ======= ==== ======= ====== ======
Liabilities ............ $38,321 $1,630 $17,108 $151 $55,429 $1,704 $1,781
======= ====== ======= ==== ======= ====== ======
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1994
(In Millions)
<TABLE>
<CAPTION>
Trading Other Than Trading Total
-------------------- -------------------- -------------------------------
Estimated Estimated Carrying Estimated
Notional Fair Value Notional Fair Value Notional Amount Fair Value
-------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets ................. $13,852 $ 837 $ 184 $ 9 $14,036 $ 845 $ 846
Liabilities ............ 14,825 1,216 4,993 48 19,818 1,236 1,264
Forwards:
Assets ................. 21,988 300 2,720 24 24,708 312 324
Liabilities ............ 19,898 289 3,112 19 23,010 299 308
Futures:
Assets ................. 1,520 40 4,296 17 5,816 30 57
Liabilities ............ 1,878 35 505 3 2,383 35 38
Options:
Assets ................. 2,924 31 2,407 8 5,331 34 39
Liabilities ............ 3,028 38 2,217 2 5,245 40 40
Loan Commitments:
Assets ................. 0 0 212 2 212 (2) 2
Liabilities ............ 0 0 1,543 15 1,543 1 15
------- ------ ------- --- ------- ------ ------
Total:
Assets ................. $40,284 $1,208 $ 9,819 $60 $50,103 $1,219 $1,268
======= ====== ======= === ======= ====== ======
Liabilities ............ $39,629 $1,578 $12,370 $87 $51,999 $1,611 $1,665
======= ====== ======= === ======= ====== ======
</TABLE>
Derivatives Held for Trading Purposes--The Company uses derivatives
for trading purposes in securities broker-dealer activities and in a
limited-purpose swap subsidiary to meet the financial and hedging
needs of its customers. Net trading revenues for the years ended
December 31, 1995 and 1994, relating to forwards and futures and swaps
were $110 million, $42 million and $3 million, and $42 million, $33
million and $8 million, respectively. Net trading revenues for options
were not material. Average fair values for trading derivatives in an
asset position during the years ended December 31, 1995 and 1994 were
$1,394 million and $1,526 million, respectively, and for derivatives
in a liability position were $1,582 million and $1,671 million,
respectively. Of those derivatives held for trading purposes at
December 31, 1995, 55% of the notional amount consisted of interest
rate derivatives, 40% consisted of foreign currency derivatives, and
5% consisted of equity and commodity derivatives.
Derivatives Held for Purposes Other Than Trading--The Company uses
derivatives primarily for asset/liability risk management and to
reduce exposure to interest rate, currency and other market risks. Of
the total notional amount of derivatives held for purposes other than
trading at December 31, 1995, 16% were used by the Company to hedge
its investment portfolio to reduce interest rate, currency and other
market risks, and 84% were used to hedge interest rate risk related to
the Company's mortgage banking segment activities. Of those
derivatives held for purposes other than trading at December 31, 1995,
92% of notional consisted of interest rate derivatives and 8%
consisted of foreign currency derivatives.
B. Off-Balance Sheet Credit-Related Instruments
During the normal course of its business, the Company utilizes
financial instruments with off-balance sheet credit risk such as
commitments, financial guarantees, loans sold with recourse and
letters of credit. Commitments include commitments to purchase and
sell mortgage loans, the unfunded portion of commitments to fund
investments in private placement securities, and unused credit card
and home equity lines. The Company also provides financial guarantees
incidental to other transactions and letters of credit that guarantee
the performance of customers to third parties. These credit-related
financial instruments have off-balance sheet credit risk because only
their origination fees, if any, and accruals for probable losses, if
any, are recognized until the obligation under the instrument is
fulfilled or expires. These instruments can extend for several years
and expirations are not concentrated in any period. The Company seeks
to control credit risk associated with these instruments by limiting
credit, maintaining collateral where customary and appropriate, and
performing other monitoring procedures.
The notional amount of these instruments, which represents the
Company's maximum exposure to credit loss from other parties'
non-performance, was $15,498 million and $17,389 million at December
31, 1995 and 1994, respectively. Because many of these amounts expire
without being advanced in whole or in part, the notional amounts do
not represent future cash
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
flows. The above notional amounts include $6,001 million and $4,150
million of unused available lines of credit under credit card and home
equity commitments as of December 31, 1995 and 1994, respectively. The
Company has not experienced, and does not anticipate experiencing, all
of its customers exercising their entire available lines of credit at
any given point in time. The estimated fair value of off-balance sheet
credit-related instruments was $(67) million and $(91) million at
December 31, 1995 and 1994, respectively.
10. DIVESTITURES
In October 1995, the Company completed the sale of its reinsurance segment,
Prudential Reinsurance Holdings, Inc. ("Holdings"), through an initial
public offering of common stock. As a result of the sale, an after-tax gain
of $72 million was recorded in 1995.
In March 1995, the Company announced its intention to sell its mortgage
banking segment. On January 26, 1996, the Company entered into a definitive
agreement to sell substantially all the assets of Prudential Home Mortgage
Company, Inc. and it has also liquidated certain mortgage-backed securities
and extended warehouse loans. The Company recorded an after-tax loss of $98
million, which includes operating gains and losses, asset write downs, and
other costs directly related to the planned sale. The Company continues to
have discussions with prospective buyers for the sale of the remaining
assets.
A summary of the assets and liabilities of the mortgage banking segment at
December 31 follows:
ASSETS AND LIABILITIES OF MORTGAGE BANKING SEGMENT
1995 1994
------ ------
(In Millions)
Total assets ............................ $4,293 $4,357
Total liabilities ....................... 4,215 4,199
------ ------
Net assets .............................. $ 78 $ 158
====== ======
11. CONTINGENCIES
A. Aggregate Stop Loss Retrocession Agreement
As a result of the sale of Holdings, in 1995, Prudential Reinsurance
(a Holdings subsidiary) and Gibraltar Casualty Co. (a Prudential
subsidiary) entered into an Aggregate Stop Loss Agreement. The Stop
Loss Agreement is intended to mitigate the impact on Prudential
Reinsurance of adverse development of loss reserves as of June 30,
1995, of up to $375 million of the first $400 million of adverse
development. The Company has recorded a loss reserve of $230 million
as of December 31, 1995.
B. Environmental and Asbestos-Related Claims
The Company receives claims under expired contracts which assert
alleged injuries and/or damages relating to or resulting from toxic
torts, toxic waste and other hazardous substances. The liabilities for
such claims cannot be estimated by traditional reserving techniques.
As a result of judicial decisions and legislative actions, the
coverage afforded under these contracts may be expanded beyond their
original terms. Extensive litigation between insurers and insureds
over these issues continues and the outcome is not predictable. In
establishing the unpaid claim reserves for these losses, management
considered the available information. However, given the expansion of
coverage and liability by the courts and legislatures in the past, and
potential for other unfavorable trends in the future, the ultimate
cost of these claims could increase from the levels currently
established.
C. Lawsuits
Various lawsuits against the Company have arisen in the course of the
Company's business. In certain of these matters, large and/or
indeterminate amounts are sought.
Several purported class actions and individual actions have been
brought against the Company on behalf of those persons who purchased
life insurance policies allegedly because of deceptive sales practices
engaged in by the Company and its insurance agents in violation of
state and federal laws. The sales practices alleged to have occurred
are contrary to Company policy. Some of these cases seek very
substantial damages while others seek unspecified compensatory,
punitive and treble damages. The Company intends to defend these cases
vigorously.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
In response to this litigation, several state insurance departments
have initiated market conduct examinations relating to Prudential's
sales practices. The Attorney General of one state has conducted an
investigation and made its report to the state insurance commissioner.
Another Attorney General has also made inquiries. The New Jersey
Insurance Commissioner is leading a multi-state task force of
insurance commissioners to examine life insurance industry sales and
marketing practices. There are now approximately thirty insurance
departments participating in this effort. The Company is cooperating
fully in this examination.
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 the regulatory inquiries. It is possible
that the results of operations or the cash flows of the Company 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 the Company's financial position.
In 1993, Prudential Securities Incorporated (PSI), a subsidiary of
Prudential, entered into an agreement with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
state securities commissions whereby PSI agreed to pay $330 million
into a settlement fund to pay eligible claims on certain limited
partnership matters. Under this agreement, if partnership matter
claims exceed the established settlement fund, PSI is obligated to pay
such additional claims. The agreement also required PSI to take
measures to enhance the adequacy of its sales practices compliance
controls.
In October 1994, the United States Attorney for the Southern District
of New York (the "U.S. Attorney") filed a complaint against PSI in
connection with its sale of certain limited partnerships.
Simultaneously, PSI entered into an agreement to comply with certain
conditions for a period of three years, and to pay an additional $330
million into the settlement fund. At the end of the three year period,
assuming PSI has fully complied with the terms of the agreement, the
U.S. Attorney will institute no further action.
In the opinion of management, PSI is in compliance with all provisions
of the aforementioned agreements and, after consideration of
applicable accruals, the ultimate liability for litigation, including
partnership settlement matters, will not have a material adverse
effect on the Company's financial position.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying consolidated statements of financial position
of The Prudential Insurance Company of America and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations and
changes in surplus and asset valuation reserve and of cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Prudential Insurance Company of
America and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 1, 1996
F-17
<PAGE>
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
--------------------
(1) Financial Statements of The Prudential Individual Variable Contract
Account (Registrant) consisting of the Statements of Net Assets, as of
December 31, 1995; the Statements of Operations for the periods ended
December 31, 1995; the Statements of Changes in Net Assets for the
periods ended December 31, 1995 and 1994; and the Notes relating thereto
appear in the statement of additional information (Part B of the
Registration Statement).
(2) Consolidated Financial Statements of The Prudential Insurance Company of
America (Depositor) and subsidiaries consisting of the Consolidated
Statements of Financial Position as of December 31, 1995 and 1994; the
Consolidated Statements of Operations and Changes in Surplus and Asset
Valuation Reserve/Mandatory Securities Valuation Reserve and the
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993; and the Notes relating thereto appear in the
statement of additional information (Part B of the Registration
Statement).
(b) Exhibits
--------
(1) Resolution of the Board of Directors of The Prudential Insurance Company
of America establishing The Prudential Individual Variable Contract
Account. (Note 2)
(2) Agreements for custody of securities and similar investments--Not
Applicable.
(3) (a) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and The Prudential Insurance Company of America
(Depositor). (Note 3)
(b) Proposed form of Selected Broker Agreement between Pruco Securities
Corporation and brokers with respect to sale of the Contracts.
(Note 4)
(4) (a) The Prudential DISCOVERY Plus Contract. (Note 4)
(b) Endorsement ORD 86972-89 to the VAC-89 Contract for use in all
states when issuing a Contract to a juvenile. (Note 5)
(c) Endorsement COMB 84890-86 to the VAC-89 Contract for use in all
states when issuing a Contract in a qualified market. (Note 5)
(d) Limitation Provisions ORD 80445 Ed 8-88 to the VAC-89 Contract for
use in all states. (Note 6)
(e) Limitation Provisions VIP 7-88 to the VAC-89 Contract for use in all
states. (Note 6)
(f) Limitation Provisions WVQ 2-88 to the VAC-89 Contract for use in all
states. (Note 6)
(g) Waiver of Withdrawal Charges rider ORD 88753-92 to the VAC-89
Contract (at issue). (Note 9)
(h) Waiver of Withdrawal Charges rider ORD 88754-92 to the VAC-89
Contract (after issue). (Note 9)
(i) Spousal Continuance Rider ORD 89011-93. (Note 10)
(j) Endorsement altering the Assignment provision ORD 83921-95 (Note 11)
(k) Endorsement altering the Death of Annuitant provision ORD 89319-95
(at issue). (Note 11)
(5) (a) Application form for The Prudential DISCOVERY Plus Contract.
(Note 4)
(b) Application for an Annuity contract ORD 87348-92. (Note 10)
(c) Supplement to the Annuity application ORD 87454-92. (Note 10)
(6) (a) Charter of The Prudential Insurance Company of America, as amended
February 26, 1989. (Note 7)
(b) By-laws of The Prudential Insurance Company of America, as amended
August 8, 1995. (Note 13)
(7) Contract of reinsurance in connection with variable annuity
contract--Not Applicable.
(8) Other material contracts performed in whole or in part after the date
the registration statement is filed:
(a) Purchase Agreement between The Prudential Series Fund, Inc. and The
Prudential. (Note 3)
(9) Opinion of Counsel and consent to its use as to legality of the
securities being registered. (Note 1)
(10) Written consent of Deloitte & Touche LLP, independent auditors.
(Note 1)
(11) All financial statements omitted from Item 23, Financial Statements--Not
Applicable.
(12) Agreements in consideration for providing initial capital between or
among Registrant, Depositor, Underwriter, or initial Contract
owners--Not Applicable.
(13) Schedule of Performance Computations. (Note 1)
C-1
<PAGE>
(14) Powers of Attorney.
(a) F. Agnew, F. Becker, W. Boeschenstein
L. Carter, Jr., J. Cullen, C. Davis, R. Enrico
A. Gilmour, W. Gray, III, J. Hanson, C. Horner
A. Jacobson, G. Keith, B. Malkiel, J. Opel
A. Ryan, C. Sitter, D. Staheli, R. Thomson
P. Vagelos, S. Van Ness, P. Volcker, J. Williams (Note 12)
(b) M. Grier (Note 14)
(27) Financial Data Schedule (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form N-8B-2, Registration No. 2-80897,
filed December 15, 1982, on behalf of The Prudential Individual
Variable Contract Account.
(Note 3) Incorporated by reference to Pre-Effective Amendment No. 2 to Form
S-6, Registration No. 2-80897, filed March 10, 1983, on behalf of The
Prudential Individual Variable Contract Account.
(Note 4) Incorporated by reference to Registrant's Form N-4, filed November 8,
1988.
(Note 5) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed January 17, 1989.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 1 to this
Registration Statement, filed March 2, 1989.
(Note 7) Incorporated by reference to Form S-6 Registration Statement,
Registration No. 33-61079, filed July 17, 1995 on behalf of The
Prudential Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 4 to Form
S-6, Registration No. 33-20000, filed March 2, 1990, on behalf of The
Prudential Variable Appreciable Account.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 7 to this
Registration Statement, filed April 28, 1993.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 8 to Form
N-4, Registration No. 33-25434, filed April 28, 1994.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 9 to Form
N-4, Registration No. 33-25434, filed February 27, 1995.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 15 to Form
S-6, Registration No. 33-20000, filed May 1, 1995 on behalf of the
Prudential Variable Appreciable Account.
(Note 13) Incorporated by reference to Post-Effective Amendment No. 1 to Form
S-6, Registration No. 33-61079, filed April 25, 1996, on behalf of
The Prudential Variable Appreciable Account.
(Note 14) Incorporated by reference to Form S-6, Registration No. 33-61079,
filed July 17, 1995, on behalf of The Prudential Variable Appreciable
Account.
C-2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Incorporated by reference to The Prudential Individual Variable Contract Account
prospectus under "Directors and Officers" contained in Part A of this
registration statement.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Prudential Insurance Company of America ("The Prudential") is a mutual life
insurance company organized under the laws of New Jersey. The subsidiaries of
The Prudential are listed on the Organization Chart set forth on the following
pages.
The Prudential may be deemed to control the Prudential Series Fund, Inc., a
Maryland corporation which is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, all the shares of
which are held by The Prudential and the following separate accounts which are
registered as unit investment trusts under the Investment Company Act of 1940:
The Prudential Variable Appreciable Account, The Prudential Individual Variable
Contract Account (Registrant), The Prudential Qualified Individual Variable
Contract Account, The Prudential Variable Contract Account-24 (separate accounts
of The Prudential); the Pruco Life PRUvider Variable Appreciable Account, the
Pruco Life Variable Universal Account, the Pruco Life Variable Insurance
Account, the Pruco Life Variable Appreciable Account, the Pruco Life Single
Premium Variable Life Account, the Pruco Life Flexible Premium Variable Annuity
Account, the Pruco Life Single Premium Variable Annuity Account (separate
accounts of Pruco Life Insurance Company ["Pruco Life"]); the Pruco Life of New
Jersey Variable Insurance Account, the Pruco Life of New Jersey Variable
Appreciable Account, the Pruco Life of New Jersey Single Premium Variable Life
Account, and the Pruco Life of New Jersey Single Premium Variable Annuity
Account (separate accounts of Pruco Life Insurance Company of New Jersey ["Pruco
Life of New Jersey"]). Pruco Life, a corporation organized under the laws of
Arizona, is a direct wholly-owned subsidiary of The Prudential. Pruco Life of
New Jersey, a corporation under the laws of New Jersey, is a direct wholly-owned
subsidiary of Pruco Life, and an indirect wholly-owned subsidiary of The
Prudential.
The Prudential holds all of the shares of Prudential's Gibraltar Fund, a
Delaware corporation, in three of its separate accounts. Each of these separate
accounts is a unit investment trust registered under the Investment Company Act
of 1940. Prudential's Gibraltar Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940.
In addition, The Prudential may also be deemed to be under common control with
The Prudential Variable Contract Account-2, The Prudential Variable Contract
Account-10, and The Prudential Variable Contract Account-11, separate accounts
of The Prudential, all of which are registered as open-end, diversified,
management investment companies under the Investment Company Act of 1940.
The subsidiaries of The Prudential and short descriptions of each are listed
under Item 25 of Post-Effective Amendment No. 29 to the Form N-1A Registration
Statement for The Prudential Series Fund, Inc., Registration No. 2-80896, filed
May 1, 1995, the text of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 23, 1996, there were 36,696 Contract owners of qualified
Contracts offered by the Registrant, and 67,919 Contract owners of non-qualified
Contracts offered by the Registrant.
C-3
<PAGE>
ITEM 28. INDEMNIFICATION
The Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance Program, purchased by The Prudential from Aetna Casualty & Surety
Company, CNA Insurance Companies, Lloyds of London, Great American Insurance
Company, Reliance Insurance Company, Corporate Officers & Directors Assurance
Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and
Zurich-American Insurance Company, provides reimbursement for "Loss" (as defined
in the policies) which the Company pays as indemnification to its directors or
officers resulting from any claim for any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties in their capacities as directors or officers of
The Prudential, any of its subsidiaries, or certain investment companies
affiliated with The Prudential. Coverage is also provided to the individual
directors or officers for such Loss, for which they shall not be indemnified.
Loss essentially is the legal liability on claims against a director or officer,
including adjudicated damages, settlements and reasonable and necessary legal
fees and expenses incurred in defense of adjudicatory proceedings and appeals
therefrom. Loss does not include punitive or exemplary damages or the multiplied
portion of any multiplied damage award, criminal or civil fines or penalties
imposed by law, taxes or wages, or matters which are uninsurable under the law
pursuant to which the policies are construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or fraudulent acts or omissions or the willful violation of any law
by a director or officer, (2) claims based on or attributable to directors or
officers gaining personal profit or advantage to which they were not legally
entitled, and (3) claims arising from actual or alleged performance of, or
failure to perform, services as, or in any capacity similar to, an investment
adviser, investment banker, underwriter, broker or dealer, as those terms are
defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules
or regulations thereunder, or any similar federal, state or local statute, rule
or regulation.
The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text
of The Prudential's by-law 26, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit (6)(b) to this Registration
Statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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 29. PRINCIPAL UNDERWRITERS
(a) Pruco Securities Corporation also acts as principal underwriter for the
Pruco Life PRUvider Variable Appreciable Account, the Pruco Life Variable
Insurance Account, the Pruco Life Variable Appreciable Account, the Pruco
Life Variable Universal Account, the Pruco Life Single Premium Variable Life
Account, the Pruco Life Single Premium Variable Annuity Account, the Pruco
Life Flexible Premium Variable Annuity Account, the Pruco Life of New Jersey
Variable Insurance Account, the Pruco Life of New Jersey Variable
Appreciable Account, the Pruco Life of New Jersey Single Premium Variable
Life Account, the Pruco Life of New Jersey Single Premium Variable Annuity
Account, The Prudential Variable Appreciable Account, The Prudential
Qualified Individual Variable Contract Account, Prudential's Gibraltar Fund,
and The Prudential Series Fund, Inc.
C-4
<PAGE>
(b) NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ---------------------
E. Michael Caulfield * Director
Ira J. Kleinman * Director
Edward P. Baird * Director
Joseph Mahoney **** Director
Clifford E. Kirsch * Chief Legal Officer and Assistant Secretary
James Tignanelli *** Chairman of the Board and Director
Stephen Tooley *** Vice President and Comptroller
Martin Pfinsgraff * Treasurer
Thomas C. Castano ** Secretary
* Principal Business Address: Prudential Plaza, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ 07102
*** Principal Business Address: 1111 Durham Avenue, South Plainfield, NJ 07080
**** Principal Business Address: 477 Martinsville Road, Liberty Corner, NJ 07938
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by Section 31
(a) of the 1940 Act and the rules promulgated thereunder are maintained by the
Registrant through The Prudential Insurance Company of America, Prudential
Plaza, Newark, New Jersey 07102-3777.
ITEM 31. MANAGEMENT SERVICES
Summary of any contract not discussed in Part A or Part B of the registration
statement under which management-related services are provided to the
Registrant--Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post-effective amendment to this Registrant
Statement as frequently as is necessary to ensure that the audited financial
statements in the Registration Statement are never more than 16 months old
for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include either (1) 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, or (2) a postcard or
similar written communication affixed to or included in the prospectus that
the applicant can remove to send for a statement of additional information.
(c) Registrant undertakes to deliver any statement of additional information and
any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) 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.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent
Post-Effective Amendment to the Registration Statement which included a
prospectus and has caused this Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, and its seal hereunto affixed and
attested, all in the city of Newark and the State of New Jersey, on this 25th
day of April, 1996.
(Seal) THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(Registrant)
By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
------------------------ ------------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary
Vice President and Actuary
As required by the Securities Act of 1933, this Post-Effective Amendment No. 11
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE AND TITLE
/s/ * April 25, 1996
- --------------------------------
Arthur F. Ryan
Chairman of the Board, President,
and Chief Executive Officer
/s/ *
- --------------------------------
Garnett L. Keith, Jr.
Vice Chairman and Director
/s/ *
- --------------------------------
Mark B. Grier
Principal Financial Officer
/s/ * *By: /s/ THOMAS C. CASTANO
- -------------------------------- ----------------------------
Franklin E. Agnew Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- --------------------------------
Frederic K. Becker
Director
/s/ *
- --------------------------------
William W. Boeschenstein
Director
/s/ *
- --------------------------------
Lisle C. Carter, Jr.
Director
/s/ *
- --------------------------------
James G. Cullen
Director
C-6
<PAGE>
/s/ *
- -------------------------------- April 25, 1996
Carolyne K. Davis
Director
/s/ *
- --------------------------------
Roger A. Enrico
Director
/s/ *
- --------------------------------
Allan D. Gilmour
Director
/s/ * *By: /s/ THOMAS C. CASTANO
- -------------------------------- ----------------------------
William H. Gray, III Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- --------------------------------
Jon F. Hanson
Director
/s/ *
- --------------------------------
Constance J. Horner
Director
/s/ *
- --------------------------------
Allen F. Jacobson
Director
/s/ *
- --------------------------------
Burton G. Malkiel
Director
/s/ *
- --------------------------------
John R. Opel
Director
/s/ *
- --------------------------------
Charles R. Sitter
Director
/s/ *
- --------------------------------
Donald L. Staheli
Director
/s/ *
- --------------------------------
Richard M. Thomson
Director
/s/ *
- --------------------------------
P. Roy Vagelos, M.D.
Director
/s/ *
- --------------------------------
Stanley C. Van Ness
Director
/s/ *
- --------------------------------
Paul A. Volcker
Director
/s/ *
- --------------------------------
Joseph H. Williams
Director
C-7
<PAGE>
EXHIBIT INDEX
(9) Opinion of Counsel and consent to its use as to legality of
the securities being registered. Page C-9
(10) Written consent of Deloitte & Touche LLP, independent
auditors. Page C-10
(13) Schedule of Performance Computations Page C-11
(27) Financial Data Schedule Page C-14
C-8
Exhibit 9
April 25, 1996
The Prudential Insurance Company
of America
Prudential Plaza
Newark, New Jersey 07102-3777
Gentlemen:
In my capacity as Chief Counsel, Variable Products, Law Department of The
Prudential Insurance Company of America, I have reviewed the establishment of
The Prudential Individual Variable Contract Account (the "Account") on October
12, 1982 by the Board of Directors of The Prudential Insurance Company of
America ("The Prudential") as a separate account for assets applicable to
certain variable annuity contracts, pursuant to the provisions of Section
17B:28-7 of the Revised Statutes of New Jersey. I was responsible for oversight
of the preparation and review of the Registration Statements on Form N-4, as
amended, filed by The Prudential with the Securities and Exchange Commission
(Registration No. 33-25434 and Registration No. 2-80897) under the Securities
Act of 1933 and the Investment Company Act of 1940 for the registration of
certain variable annuity contracts issued with respect to the Account.
I am of the following opinion:
1. The Prudential was duly organized under the laws of New Jersey and is a
validly existing corporation.
2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provisions of New Jersey law.
3. The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable annuity
contracts is not chargeable with liabilities arising out of any other
business The Prudential may conduct.
4. The variable annuity contracts are legal and binding obligations of The
Prudential, in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law
and examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Clifford E. Kirsch
C-9
Exhibit (10)
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the use in this Post-Effective Amendment No. 11 to Registration
Statement No. 33-25434 on Form N-4 of The Prudential Individual Variable
Contract Account of The Prudential Insurance Company of America of our report
dated February 15, 1996, relating to the financial statements of The Prudential
Individual Variable Contract Account, and of our report dated March 1, 1996,
relating to the consolidated financial statements of The Prudential Insurance
Company of America and subsidiaries appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts", appearing in such Statement of
Additional Information.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 25, 1996
C-10
<TABLE>
ANNUALIZED RATES OF RETURN
<CAPTION>
PRU DISCO PLUS DI BOND EQUITY FLXMGD CONS BL EQ INC HY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 19.31% 29.74% 22.66% 15.89% 20.26% 16.17%
ERV(ENDING REDEEMABLE VALUE) 1193.05 1297.41 1226.63 1158.87 1202.64 1161.69
AMT SUBJ TO LOAD IF + RETURN 880.69 870.26 877.34 884.11 879.74 883.83
AMT SUBJ TO LOAD IF - RETURN 1073.75 1167.67 1103.96 1042.99 1082.38 1045.52
AMT SUBJ TO LOAD 880.69 870.26 877.34 884.11 879.74 883.83
1ST YEAR SALE LOAD 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 61.65 60.92 61.41 61.89 61.58 61.87
ERV LESS LOAD 1131.41 1236.49 1165.21 1096.99 1141.06 1099.82
RETURN W/SALES LOAD 13.14% 23.65% 16.52% 9.70% 14.11% 9.98%
5 YEAR % OF RETURN 51.29% 122.88% 76.66% 56.34% 99.71% 110.20%
ERV(ENDING REDEEMABLE VALUE) 1512.86 2228.85 1766.56 1563.39 1997.13 2101.99
ANNUALIZED RETURN W/O SALE LOAD 8.63% 17.39% 12.05% 9.35% 14.84% 16.02%
AMT SUBJ TO LOAD IF + RETURN 848.71 777.12 823.34 843.66 800.29 789.80
AMT SUBJ TO LOAD IF - RETURN 1361.57 2005.96 1589.90 1407.05 1797.41 1891.79
AMT SUBJ TO LOAD 848.71 777.12 823.34 843.66 800.29 789.80
5TH (OR INCEPTION) SALE LOAD 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
AMT OF LOAD 33.95 31.08 32.93 33.75 32.01 31.59
ERV LESS LOAD 1478.91 2197.77 1733.62 1529.64 1965.12 2070.40
YRS IN EXISTENCE 5 5 5 5 5 5
ANNUALIZED RETURN W/SALE LOAD 8.14% 17.06% 11.63% 8.87% 14.47% 15.67%
SINCE INCPT % OF RETURN 81.26% 157.47% 109.41% 84.68% 122.06% 72.99%
ERV(ENDING REDEEMABLE VALUE) 1812.58 2574.73 2094.06 1846.78 2220.62 1729.85
ANNUALIZED RETURN W/O SALE LOAD 9.09% 14.83% 11.41% 9.38% 12.37% 8.34%
AMT SUBJ TO LOAD IF + RETURN 818.74 742.53 790.59 815.32 777.94 827.01
AMT SUBJ TO LOAD IF - RETURN 1631.32 2317.26 1884.65 1662.10 1998.56 1556.87
AMT SUBJ TO LOAD 818.74 742.53 790.59 815.32 777.94 827.01
5TH (OR INCEPTION) SALE LOAD 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 0.00 0.00
ERV LESS LOAD 1812.58 2574.73 2094.06 1846.78 2220.62 1729.85
YRS IN EXISTENCE 6.83915 6.83915 6.83915 6.83915 6.83915 6.83915
ANNUALIZED RETURN W/SALE LOAD 9.09% 14.83% 11.41% 9.38% 12.37% 8.34%
</TABLE>
<TABLE>
<CAPTION>
PRU DISCO PLUS NTL RES STIX GLOBAL GVT INC PRU JEN SMCAP
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 25.42% 35.45% 14.51% 18.06% N/A N/A
ERV(ENDING REDEEMABLE VALUE) 1254.20 1354.47 1145.11 1180.61 N/A N/A
AMT SUBJ TO LOAD IF + RETURN 874.58 864.55 885.49 881.94 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 1128.78 1219.02 1030.60 1062.55 N/A N/A
AMT SUBJ TO LOAD 874.58 864.55 885.49 881.94 N/A N/A
1ST YEAR SALE LOAD 7.00% 7.00% 7.00% 7.00% N/A N/A
AMT OF LOAD 61.22 60.52 61.98 61.74 N/A N/A
ERV LESS LOAD 1192.98 1293.95 1083.12 1118.88 N/A N/A
RETURN W/SALES LOAD 19.30% 29.40% 8.31% 11.89% N/A N/A
5 YEAR % OF RETURN 69.50% 98.78% 59.89% 47.65% N/A N/A
ERV(ENDING REDEEMABLE VALUE) 1695.04 1987.78 1598.92 1476.51 N/A N/A
ANNUALIZED RETURN W/O SALE LOAD 11.13% 14.73% 9.84% 8.11% N/A N/A
AMT SUBJ TO LOAD IF + RETURN 830.50 801.22 840.11 852.35 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 1525.54 1789.00 1439.03 1328.85 N/A N/A
AMT SUBJ TO LOAD 830.50 801.22 840.11 852.35 N/A N/A
5TH (OR INCEPTION) SALE LOAD 4.00% 4.00% 4.00% 4.00% N/A N/A
AMT OF LOAD 33.22 32.05 33.60 34.09 N/A N/A
ERV LESS LOAD 1661.82 1955.73 1565.32 1442.41 N/A N/A
YRS IN EXISTENCE 5 5 5 5 0 0
ANNUALIZED RETURN W/SALE LOAD 10.69% 14.36% 9.38% 7.60% N/A N/A
SINCE INCPT % OF RETURN 93.14% 135.72% 55.48% 71.74% 23.43% 18.78%
ERV(ENDING REDEEMABLE VALUE) 1931.42 2357.21 1554.78 1717.43 1234.32 1187.84
ANNUALIZED RETURN W/O SALE LOAD 10.10% 13.36% 6.84% 8.45% 37.04% 29.39%
AMT SUBJ TO LOAD IF + RETURN 806.86 764.28 844.52 828.26 876.57 881.22
AMT SUBJ TO LOAD IF - RETURN 1738.28 2121.49 1399.30 1545.68 1110.89 1069.06
AMT SUBJ TO LOAD 806.86 764.28 844.52 828.26 876.57 881.22
5TH (OR INCEPTION) SALE LOAD 0.00% 0.00% 0.00% 0.00% 7.00% 7.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 61.36 61.69
ERV LESS LOAD 1931.42 2357.21 1554.78 1717.43 1172.96 1126.15
YRS IN EXISTENCE 6.83915 6.83915 6.66667 6.66667 0.66804 0.66804
ANNUALIZED RETURN W/SALE LOAD 10.10% 13.36% 6.84% 8.45% 26.97% 19.46%
</TABLE>
C-11
<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU DISCO PLUS PRODUCT
<CAPTION>
PRU DISCO PLUS DI BOND EQUITY FLX MGD CONS BL EQ INC HY
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89
WHOLE YEARS SINCE
INCEPTION 7 7 7 7 7 7
INCEPTION UNIT VALUE 1.59913 1.88358 1.65637 1.66611 1.13935 1.07811
31-Dec-89 1.79017 2.32328 1.94994 1.89226 1.33181 1.01855
31-Dec-90 1.91594 2.17588 1.96344 1.96812 1.26685 0.88724
31-Dec-91 2.20438 2.70927 2.43353 2.31570 1.59617 1.22019
31-Dec-92 2.33452 3.05622 2.58742 2.44709 1.73693 1.41713
31-Dec-93 2.54072 3.68057 2.95516 2.71321 2.09889 1.67012
30-Dec-94 2.42952 3.73800 2.82770 2.65511 2.10375 1.60540
31-Dec-95 2.89855 4.84971 3.46853 3.07694 2.53006 1.86497
</TABLE>
<TABLE>
<CAPTION>
PRU DISCO PLUS NTL RES STIX GLOBAL GVT INC PRU JEN SMCAP
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 27-Feb-89 27-Feb-89 01-May-89 01-May-89 01-May-95 01-May-95
WHOLE YEARS SINCE
INCEPTION 7 7 7 7 1 1
INCEPTION UNIT VALUE 1.13685 1.01838 0.98625 1.00062 1.00870 1.00160
31-Dec-89 1.39112 1.26833 1.11445 1.10787 N/A N/A
31-Dec-90 1.29539 1.20765 0.95902 1.16389 N/A N/A
31-Dec-91 1.41184 1.54800 1.05559 1.33535 N/A N/A
31-Dec-92 1.49691 1.63861 1.00733 1.39657 N/A N/A
31-Dec-93 1.85126 1.77569 1.42483 1.55337 N/A N/A
30-Dec-94 1.75071 1.77231 1.33909 1.45559 N/A N/A
31-Dec-95 2.19574 2.40054 1.53340 1.71849 1.24506 1.18974
</TABLE>
C-12
<PAGE>
MMKT SUBACCOUNT YIELD
For the 7 days ended 12/30/95
PRUDISCO + - NO FEE
UNIT VALUE MMKT
Mon. 12/25/95 1.92993
Tue. 12/26/95 1.92993
Wed. 12/27/95 1.93016
Thurs. 12/28/95 1.93043
Fri. 12/29/95 1.93131
Sat. 12/30/95 1.93154
Sun. 12/31/95 1.93154
---------
YIELD 0.0834227% * (365/7) = 4.3499%
EFFECTIVE YIELD ( 1.000834227 ^ (365/7))-1 = 4.4440%
C-13
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,897,022
<INVESTMENTS-AT-VALUE> 5,444,559
<RECEIVABLES> 113
<ASSETS-OTHER> (319)
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,444,672
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 347,456
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,444,353
<DIVIDEND-INCOME> 194,172
<INTEREST-INCOME> 0
<OTHER-INCOME> 150,359
<EXPENSES-NET> 58,459
<NET-INVESTMENT-INCOME> 135,713
<REALIZED-GAINS-CURRENT> 8,509
<APPREC-INCREASE-CURRENT> 606,951
<NET-CHANGE-FROM-OPS> 901,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 885,607
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
