As filed with the SEC on April 29, 1997.
Registration No. 33-25434
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 12 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 28 [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
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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 1996 was filedon
February 28, 1997 _________.
It is proposed that this filing will become effective (check appropriate space):
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
(date)
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] on __________ pursuant to paragraph (a)(1) of Rule 485
(date)
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(A) UNDER THE 1933 ACT)
----------
N-4 ITEM NUMBER AND CAPTION LOCATION
- --------------------------- --------
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
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
i
<PAGE>
N-4 ITEM NUMBER AND CAPTION LOCATION
- --------------------------- --------
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; Statutory
Financial Statements of The
Prudential Insurance Company of
America
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.
ii
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
PROSPECTUS CONTENTS
PAGE
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS ...................... 1
BRIEF DESCRIPTION OF THE CONTRACT ......................................... 2
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 ................... 18
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
QALIFIED PENSION AND PROFIT SHARING PLANS ............................ 22
MINIMUM DISTRIBUTION OPTION .......................................... 22
WITHHOLDING 22
TAXES ON PRUDENTIAL .................................................. 23
ERISA DISCLOSURE ..................................................... 23
ADDITIONAL ERISA REQUIREMENTS ........................................ 23
EFFECTING AN ANNUITY ...................................................... 24
1. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN ............................ 24
2. INTEREST PAYMENT OPTION ........................................... 24
3. OTHER ANNUITY OPTIONS ............................................. 24
4. OTHER OPTIONS ..................................................... 25
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES . 25
OTHER INFORMATION ......................................................... 25
<PAGE>
PAGE
VOTING RIGHTS ........................................................ 25
SALE OF THE CONTRACT AND SALES COMMISSIONS ........................... 26
SUBSTITUTION OF SERIES FUND SHARES ................................... 26
OWNERSHIP OF THE CONTRACT ............................................ 26
PERFORMANCE INFORMATION .............................................. 26
REPORTS TO CONTRACT OWNERS ........................................... 27
STATE REGULATION ..................................................... 27
LITIGATION ........................................................... 27
ADDITIONAL INFORMATION ............................................... 28
DIRECTORS AND OFFICERS ............................................... 29
<PAGE>
PROSPECTUS
MAY 1, 1997
THE PRUDENTIAL
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
DISCOVERY(R) PLUS
This prospectus describes the DISCOVERYR Plus Contract* (the "Contract"), an
individual variable annuity contract issued by The Prudential Insurance Company
of America ("Prudential").
The Contract is purchased by making a single payment of $10,000 or more.
Effective March 15, 1997, this contract will no longer be offered for sale in
New York. Subsequent payments of $1,000 or more ($10,000 or more when issued in
New York) are also accepted. Subsequent payments are not allowed in Oregon. 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 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 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 PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY ACCOUNT (the "Real Property Account"), a separate account
of 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 Prudential. With the consent of 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, 1997, 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 28 of
this prospectus.
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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 Prudential.
PIVC-1 Ed 5-97, Catalog #646956H
<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 Prudential's discretion, an additional 1% added to and invested
with the purchase payment. This Additional Amount or "bonus" will be recaptured
by 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 Prudential received the initial purchase payment and
certain required documentation.
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 Contract may be owned by joint owners. An owner will
usually also be an annuitant, but need not be. An 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 Prudential credits interest
to the amount allocated at a rate periodically declared in advance by 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 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 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. (Effective March 15, 1997, this contract will no
longer be offered for sale in New York.) Subsequent payments are not allowed in
Oregon. The Prudential Insurance Company of America ("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
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 is invested primarily in
high quality medium-term corporate and government debt securities; the
GOVERNMENT INCOME 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 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 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 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 is invested primarily in common stocks; the PRUDENTIAL JENNISON
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 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
Prudential's discretion, Prudential will add an Additional Amount, as a bonus,
of 1% to
2
<PAGE>
every purchase payment. 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
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
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.
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, 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.
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 24.
In the event that the annuitant dies prior to the annuity date or the surrender
of the Contract for its cash surrender value, 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. Currently, you may make
additional transfers without Prudential's consent. 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), 408(k), 408(p) 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%
-----
Total Separate Account Annual Expenses ........ 1.20%
=====
THE PRUDENTIAL SERIES FUND, INC. ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<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% .05% .05% .04% .04% .08%
---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses ...... .44% .45% .45% .59% .64% .63%
==== ==== ==== ==== ==== ====
<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 ........ .05% .05% .05% .06% .16% .17% .07%
---- ---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses ...... .40% .45% .50% .66% .56% .92% .52%
==== ==== ==== ==== ==== ==== ====
</TABLE>
4
<PAGE>
The purpose of the foregoing tables is to assist the Contract owners in
understanding the expenses of 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, 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.
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 overstated 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 Administrative Charge in this example is
calculated in a manner prescribed by the Securities and Exchange Commission.
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 Administrative 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
*Note that in this example, 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 ..................... $ 81 $119 $142 $213
DIVERSIFIED BOND PORTFOLIO ................. $ 81 $118 $140 $209
GOVERNMENT INCOME PORTFOLIO ................ $ 81 $118 $141 $210
CONSERVATIVE BALANCED PORTFOLIO ............ $ 88 $138 $173 $276
FLEXIBLE MANAGED PORTFOLIO ................. $ 85 $131 $161 $252
HIGH YIELD BOND PORTFOLIO .................. $ 82 $123 $149 $228
STOCK INDEX PORTFOLIO ...................... $ 82 $119 $143 $213
EQUITY INCOME PORTFOLIO .................... $ 84 $127 $154 $237
EQUITY PORTFOLIO ........................... $ 87 $135 $168 $264
PRUDENTIAL JENNISON PORTFOLIO .............. $ 82 $122 $149 $225
SMALL CAPITALIZATION STOCK PORTFOLIO ....... $ 80 $119 $142 $212
GLOBAL PORTFOLIO ........................... $ 86 $133 $166 $262
NATURAL RESOURCES PORTFOLIO ................ $ 80 $119 $142 $213
</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 ..................... $ 81 $119 $142 $213
DIVERSIFIED BOND PORTFOLIO ................. $ 81 $118 $140 $209
GOVERNMENT INCOME PORTFOLIO ................ $ 81 $118 $141 $210
CONSERVATIVE BALANCED PORTFOLIO ............ $ 88 $138 $173 $276
FLEXIBLE MANAGED PORTFOLIO ................. $ 85 $131 $161 $252
HIGH YIELD BOND PORTFOLIO .................. $ 82 $123 $149 $228
STOCK INDEX PORTFOLIO ...................... $ 82 $119 $143 $213
EQUITY INCOME PORTFOLIO .................... $ 84 $127 $154 $237
EQUITY PORTFOLIO ........................... $ 87 $135 $168 $264
PRUDENTIAL JENNISON PORTFOLIO .............. $ 82 $122 $149 $225
SMALL CAPITALIZATION STOCK PORTFOLIO ....... $ 80 $119 $142 $212
GLOBAL PORTFOLIO ........................... $ 86 $133 $166 $262
NATURAL RESOURCES PORTFOLIO ................ $ 80 $119 $142 $213
</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 ..................... $ 18 $57 $ 98 $213
DIVERSIFIED BOND PORTFOLIO ................. $ 18 $56 $ 96 $209
GOVERNMENT INCOME PORTFOLIO ................ $ 18 $56 $ 97 $210
CONSERVATIVE BALANCED PORTFOLIO ............ $ 25 $76 $129 $276
FLEXIBLE MANAGED PORTFOLIO ................. $ 22 $69 $117 $252
HIGH YIELD BOND PORTFOLIO .................. $ 20 $61 $105 $228
STOCK INDEX PORTFOLIO ...................... $ 19 $57 $ 99 $213
EQUITY INCOME PORTFOLIO .................... $ 21 $64 $110 $237
EQUITY PORTFOLIO ........................... $ 24 $73 $124 $264
PRUDENTIAL JENNISON PORTFOLIO .............. $ 20 $60 $104 $225
SMALL CAPITALIZATION STOCK PORTFOLIO ....... $ 18 $57 $ 98 $212
GLOBAL PORTFOLIO ........................... $ 23 $71 $122 $262
NATURAL RESOURCES PORTFOLIO ................ $ 18 $57 $ 98 $213
</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 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>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------
MONEY MARKET
-------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.931 $ 1.847 $ 1.796 $ 1.766
2. Accumulation unit value
at end of period ........... 2.008 1.931 1.847 1.796
3. Number of accumulation units
outstanding at end of period 133,461,350 132,240,079 137,690,220 98,824,301
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------
MONEY MARKET
-------------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.722 $ 1.641 $ 1.536 $ 1.440
2. Accumulation unit value
at end of period ........... 1.766 1.722 1.641 1.536
3. Number of accumulation units
outstanding at end of period 110,136,278 108,951,868 78,507,679 20,144,839
<CAPTION>
DIVERSIFIED BOND
-------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.899 $ 2.430 $ 2.541 $ 2.335
2. Accumulation unit value
at end of period ........... 2.990 2.899 2.430 2.541
3. Number of accumulation units
outstanding at end of period 63,529,814 62,,158,709 62,532,884 65,012,139
<CAPTION>
DIVERSIFIED BOND
-----------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.204 $ 1.916 $ 1.790 $ 1.596
2. Accumulation unit value
at end of period ........... 2.335 2.204 1.916 1.790
3. Number of accumulation units
outstanding at end of period 43,861,931 26,025,946 14,221,106 6,775,075
<CAPTION>
GOVERNMENT INCOME
---------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.719 $ 1.456 $ 1.553 $ 1.397
2. Accumulation unit value
at end of period ........... 1.736 1.719 1.456 1.553
3. Number of accumulation units
outstanding at end of period 122,312.126 131,063,592 148,872,947 161,058,905
<CAPTION>
GOVERNMENT INCOME
------------------------------------------------------
01/01/92 01/01/91 01/01/90 05/01/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $$ 1.335 $ 1.164 $ 1.108 $ 1.000
2. Accumulation unit value
at end of period ........... 1.397 1.335 1.164 1.108
3. Number of accumulation units
outstanding at end of period 103,111,144 35,607,897 8,957,406 3,570,059
<CAPTION>
CONSERVATIVE BALANCED
---------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 3.077 $ 2.655 $ 2.713 $ 2.447
2. Accumulation unit value
at end of period ........... 3.424 3.077 2.655 2.713
3. Number of accumulation units
outstanding at end of period 300,853,936 296,641,925 313,266,018 242,321,897
<CAPTION>
CONSERVATIVE BALANCED
------------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.316 $ 1.968 $ 1.892 $ 1.666
2. Accumulation unit value
at end of period ........... 2.447 2.316 1.968 1.892
3. Number of accumulation units
outstanding at end of period 133,530,065 59,165,985 29,438,662 10,559,021
</TABLE>
* Commencement of Business
The financial statements of the Account are in the statement of additional
information.
7
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------
FLEXIBLE MANAGED
----------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 3.469 $ 2.828 $ 2.955 $ 2.587
2. Accumulation unit value
at end of period ........... 3.895 3.469 2.828 2.955
3. Number of accumulation units
outstanding at end of period 140,908,132 135,760,708 140,860,169 111,136,044
<CAPTION>
SUBACCOUNTS
------------------------------------------------------
FLEXIBLE MANAGED
------------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.434 $ 1.963 $ 1.950 $ 1.656
2. Accumulation unit value
at end of period ........... 2.587 2.434 1.963 1.950
3. Number of accumulation units
outstanding at end of period 62,046,878 33,449,040 20,844,438 7,863,675
<CAPTION>
HIGH YIELD BOND
-----------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.865 $ 1.605 $ 1.670 $ 1.417
2. Accumulation unit value
at end of period ........... 2.053 1.865 1.605 1.670
3. Number of accumulation units
outstanding at end of period 84,625,385 86,497,155 82,161,785 68,503,233
<CAPTION>
HIGH YIELD BOND
--------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.220 $ 0.887 $ 1.019 $ 1.078
2. Accumulation unit value
at end of period ........... 1.417 1.220 0.887 1.019
3. Number of accumulation units
outstanding at end of period 31,814,404 9,103,642 3,962,676 2,636,013
<CAPTION>
STOCK INDEX
------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.401 $ 1.772 $ 1.776 $ 1.639
2. Accumulation unit value
at end of period ........... 2.907 2.401 1.772 1.776
3. Number of accumulation units
outstanding at end of period 118,928,560 99,553,628 89,080,644 91,215,676
<CAPTION>
STOCK INDEX
----------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.548 $ 1.208 $ 1.268 $ 1.018
2. Accumulation unit value
at end of period ........... 1.639 1.548 1.208 1.268
3. Number of accumulation units
outstanding at end of period 71,404,267 38,553,592 17,965,337 5,881,105
<CAPTION>
EQUITY INCOME
---------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.530 $ 2.104 $ 2.099 $ 1.737
2. Accumulation unit value
at end of period ........... 3.044 2.530 2.104 2.099
3. Number of accumulation units
outstanding at end of period .... 212,322,247 220,184,990 218,661,165 155,205,890
<CAPTION>
EQUITY INCOME
------------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.596 $ 1.267 $ 1.332 $ 1.139
2. Accumulation unit value
at end of period ........... 1.737 1.596 1.267 1.332
3. Number of accumulation units
outstanding at end of period .... 68,252,437 28,475,526 16,439,709 9,230,667
</TABLE>
* Commencement of Business
The financial statements of the Account are in the statement of additional
information.
8
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------
EQUITY
---------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 4.850 $ 3.738 $ 3.681 $ 3.056
2. Accumulation unit value
at end of period ........... 5.680 4.850 3.738 3.681
3. Number of accumulation units
outstanding at end of period 176,617,231 187,580,951 144,081,975 109,315,212
<CAPTION>
SUBACCOUNTS
----------------------------------------------------
EQUITY
----------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.709 $ 2.176 $ 2.323 $ 1.884
2. Accumulation unit value
at end of period ........... 3.056 2.709 2.176 2.323
3. Number of accumulation units
outstanding at end of period 64,109,169 35,797,392 13,870,625 5,468,614
</TABLE>
PRUDENTIAL JENNISON
-------------------------
01/01/96 05/01/95*
TO TO
12/31/96 12/31/95
-------- --------
1. Accumulation unit value
at beginning of period ..... $ 1.245 $ 1.009
2. Accumulation unit value
at end of period ........... 1.408 1.245
3. Number of accumulation units
outstanding at end of period 54,259,732 19,918,994
SMALL CAPITALIZATION STOCK
--------------------------
01/01/96 05/01/95*
TO TO
12/31/96 12/31/95
-------- --------
1. Accumulation unit value
at beginning of period ..... $ 1.190 $ 1.002
2. Accumulation unit value
at end of period ........... 1.408 1.190
3. Number of accumulation units
outstanding at end of period 34,325,331 15,303,395
<TABLE>
GLOBAL
--------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.533 $ 1.339 $ 1.425 $ 1.007
2. Accumulation unit value
at end of period ........... 1.814 1.533 1.339 1.425
3. Number of accumulation units
outstanding at end of period 131,910,848 212,272,476 127,945,906 51,691,984
<CAPTION>
GLOBAL
--------------------------------------------------
01/01/92 01/01/91 01/01/90 05/01/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.056 $ 0.959 $ 1.115 $ 1.015
2. Accumulation unit value
at end of period ........... 1.007 1.056 0.959 1.115
3. Number of accumulation units
outstanding at end of period 12,211,247 6,345,863 5,058,856 1,221,795
<CAPTION>
NATURAL RESOURCES
-----------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.196 $ 1.751 $ 1.851 $ 1.497
2. Accumulation unit value
at end of period ........... 2.840 2.196 1.751 1.851
3. Number of accumulation units
outstanding at end of period 43,858,984 37,663,872 38,719,527 21,404,880
<CAPTION>
NATURAL RESOURCES
-------------------------------------------------
01/01/92 01/01/91 01/01/90 02/27/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.412 $ 1.295 $ 1.391 $ 1.137
2. Accumulation unit value
at end of period ........... 1.497 1.412 1.295 1.391
3. Number of accumulation units
outstanding at end of period 9,178,489 7,245,895 7,525,168 2,095,818
</TABLE>
*Commencement of Business
The financial statements of the Account are in the statement of additional
information.
9
<PAGE>
GENERAL INFORMATION ABOUT 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 ("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.
Prudential's financial statements appear in the statement of additional
information and should be considered only as bearing upon 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 Prudential's other assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Prudential. Prudential is also the legal
owner of the assets in the Account. 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
Prudential conducts. In addition to these assets, the Account's assets may
include funds contributed by Prudential to commence operation of the Account and
may include accumulations of the charges Prudential makes against the Account.
From time to time these additional assets will be transferred to Prudential's
general account. Before making any such transfer, 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 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 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 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.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is Prudential Plaza,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corp. ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio. Further detail is provided in
the prospectus and statement of additional information for the Series Fund.
Prudential, PIC and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
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As an investment advisor, 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
MANAGEMENT FEE AS
PORTFOLIO 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 Prudential that, through a general
partnership formed by 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
Prudential, under which Prudential selects the properties and other investments
held by the partnership. 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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<PAGE>
DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The minimum initial purchase payment is $10,000. Effective March 15, 1997, this
contract will no longer be offered for sale in New York. The Contract may
generally be issued on proposed annuitants below the age of 86. Before issuing
any Contract, Prudential requires submission of certain information. Following
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 Prudential and mailed to a Prudential Home
Office, accompanied by forms that will be provided for this purpose. Subsequent
payments are not allowed in Oregon.
The Contract date will be the date the initial purchase payment and certain
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
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
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 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 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 Prudential's discretion. After
DCA has been established and as
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<PAGE>
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, 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 Prudential's discretion, 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. 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. 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 Prudential an
additional purchase payment of $6,000, but fails to indicate how it should be
applied. 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 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. Currently,
the Contract owner may make additional transfers without 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.
Prudential has adopted procedures designed to ensure that requests by telephone
are genuine and will require appropriate identification for that purpose.
Prudential will not be liable for following telephone instructions that it
reasonably believes to be genuine. 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
permitted once each Contract year during a 30-day period. Currently that period
begins on the Contract anniversary. Prudential reserves the right to change the
beginning date of the transfer period. 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 Prudential's present practice to do so,
it may in the future permit transfers outside of the 30-day period referred to
above 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
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<PAGE>
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
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, 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 591/2 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 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.
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. 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,
Prudential expects to pay the withdrawal promptly upon request. However,
Prudential has the right to delay payment of such withdrawal for up to 6 months
(or a shorter period if required by applicable law).
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).
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 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 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 savings incentive match
plan for employees under section 408(p) of the Code ("SIMPLE"), or tax-deferred
annuity under section 403(b) of the Code, your entire death benefit generally
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
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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 retirement plan, IRA, SEP, SIMPLE 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 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, 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 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. In New York and Texas, the death benefit
will be the greater of (1) or (2) above.
Under certain types of retirement arrangements, in the case of a married
Participant, a pre-retirement survivor annuity is 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, 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 . 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
Prudential. If 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. Currently, no such deduction is made from purchase payments in
any state. In some states, however, 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%. Prudential also reserves the
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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.
2. SALES CHARGES ON WITHDRAWALS
A contingent deferred sales charge may be imposed on the withdrawal of purchase
payments. The charge compensates Prudential for paying all of the expenses of
selling and distributing the Contracts, including sales commissions, printing of
prospectuses, sales administration, preparation of sales literature, and other
promotional activities. 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:
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
FOR WITHDRAWALS OF PURCHASE THE SALES CHARGE WILL BE EQUAL TO
PAYMENTS DURING THE CONTRACT YEAR TO 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 Contact 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.
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 . However, this charge will not be deducted if a life annuity or
fixed period annuity of 10 years or greater is effected after the first Contract
year.
3. RECAPTURE OF ADDITIONAL AMOUNTS
If an owner makes a withdrawal which consists partially or wholly of purchase
payments, 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).
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
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 . 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.
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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
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.
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
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
Prudential's general assets. Sometimes this is referred to as Prudential's
general account, which consists of all assets owned by Prudential other than
those in the Account and in other separate accounts that have been or may be
established by Prudential. Subject to applicable law, 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, 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 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. Prudential reserves the right to change this practice.
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 . 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
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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. 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, 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 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 Prudential believes that the Contract will be treated as an
annuity for federal income tax purposes and that the issuing insurance company,
Prudential, and not the Contract owner, will be treated as the owner of the
underlying investments for the Contract. Accordingly, generally 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. To the extent
the assignment is authorized by the Contract, 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. 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.
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.
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)).
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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.
Election of the interest payment option is not considered an annuity payment for
tax purposes. Accordingly, unless the Contract is held by an individual
retirement annuity, such election will cause investment income under the
Contract to be taxable.
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. 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 26.
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, saving incentive match plans for
employees ("SIMPLEs") under Section 408(p) of the Code, tax deferred annuitities
("TDAs") 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. This Contract is not available in the TDA and pension markets in
Oregon.
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 these plans, payments are subject to certain minimum distribution
requirements, and generally must begin by April 1 of the calendar year following
the later of the calendar year in which the employee: (1) attains age 70 1/2; or
(2) retires.
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
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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.
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 (or a rider made a part
of the Contract) must contain certain additional 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) the Contract
may not be sold, assigned, discounted or pledged for any purpose to any person
except 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) 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. New Salary Reduction SEPs
may not be established after 1996.
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 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 a free look after making an
initial contribution in which to affirm or reverse their decision to
participate. Therefore, within the free look period, a person may cancel his or
her Contract by notifying Prudential in writing, and 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
Prudential receives the notice for cancellation. See 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" or
"TDA"). 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 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.
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In imposing the restrictions on withdrawals as described above, 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 generally must commence by April
1 of the calendar year following the later of: (1) the calendar year in which
the employee attains age 70 1/2; or (2) the calendar year in which the employee
retires. 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. Although assets of deferred compensation plans are generally
part of the employer's general assets, subject to certain transition rules,
governmental plans must hold assets in a trust, annuity contract or custodial
account. Contributions generally may not exceed the lesser of $7,500 (as
indexed) 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 or 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 in
addition to the minimum distribution requirements for qualified plans. Rollovers
are not permitted (other than between Section 457 plans).
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) 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 or 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. Prudential will send the Contract owner a check for the
minimum distribution amount less any partial withdrawals made during the year.
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 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 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 on annuity payments, 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, Prudential will
withhold from every withdrawal or annuity payment the appropriate percentage of
the amount of the payment that is taxable. Prudential will provide the Contract
owner with forms and instructions concerning the right to elect that no amount
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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. Special
withholding rules apply to nonresident aliens. 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.
TAXES ON PRUDENTIAL
Although the Account is registered as an investment company, it is not a
separate taxpayer for purposes of the Code. The earnings of the Account are
taxed as part of the operations of Prudential. No charge is being made currently
against the Account for Company federal income taxes (excluding any charge for
taxes attributable to premiums.) 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, 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 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 . Information about sales representatives and commissions may
be found under SALE OF THE CONTRACT AND SALES COMMISSIONS, page . 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 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 part of a plan governed by ERISA, additional
requirements such as spousal consent to distributions may be necessary. Consult
the terms of your retirement arrangement.
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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 0.5% to 5% of the amount applied to
effect an annuity. See PREMIUM TAXES, page . Some local jurisdictions also
impose a tax. The amount remaining is applied to effect an annuity. This amount
becomes part of 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 Prudential guarantees will be
used even if longevity has significantly improved since the Contract date. If,
however, Prudential at the time is offering more favorable rates, then those
will be used.
The annuity will be in one of the forms listed below. 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
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. 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, 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 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. 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.
Generally, this option will not satisfy IRS minimum distribution requirements.
3. OTHER ANNUITY OPTIONS
Currently, you may choose to receive the proceeds of your Contract fund in the
form of payments like those of any annuity or life annuity then regularly
offered by Prudential or by Pruco Life Insurance Company that (1) is based on
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<PAGE>
United States Currency; (2) is bought by a single sum; (3) does not provide for
dividends; and (4) does not normally provide for deferral of the first payment.
Under Option 3, unless a fixed period annuity or less than 10 years is selected,
Prudential will waive withdrawal charges that might be applicable under other
annuity options. Further, if you select Option 1 without a right of withdrawal,
Prudential will effect that option under Option 3 if doing so provides greater
monthly payments.
4. OTHER OPTIONS
You may choose to receive the proceeds of your Contract fund in the form of
payments like those of any annuity or life annuity then regularly offered by
Prudential or by Pruco Life Insurance Company that (1) is based on United States
Currency; (2) is bought by a single sum; (3) does not provide for dividends; and
(4) does not normally provide for deferral of the first payment.
Under Option 3, Prudential will waive withdrawal charges that might be
applicable under other annuity options. Instead, under Option 3, pursuant to
Prudential's regular method of determining immediate annuity payments,
Prudential will deduct $200 from your maturity proceeds when calculating your
annuity payments. Further, if you select Option 1 without a right of withdrawal,
Prudential will effect that option under the Supplemental Life Annuity Option if
you would be better off, which is the case where applicable withdrawal charges
under Option 1 would be greater than $200.
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. 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.
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, Prudential
will, as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings 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. Series Fund shares for which no timely instructions from Contract owners
are received, and any shares attributable to general account investments of
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 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.
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
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<PAGE>
share in the corresponding portfolio of the Series Fund. The number of votes for
which each Contract owner may give Prudential instructions will be determined as
of the record date chosen by the Board of Directors of the Series Fund.
Prudential will furnish Contract owners with proper forms and proxies to enable
them to give these instructions. 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
Prudential.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
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 213 Washington
Street, Newark, N.J. 07102-2992. 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 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. 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 Prudential's surplus.
SUBSTITUTION OF SERIES FUND SHARES
Although Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the 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, 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 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 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.
26
<PAGE>
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
Prudential may limit the number of such requests or impose a reasonable charge
if such requests are made too frequently.
Contract owners will be sent annual and semi-annual reports of the Series Fund
showing the financial condition of the portfolios and the investments held in
each.
If a single individual or company invests in the Series Fund through more than
one variable insurance contract, then the individual or company will receive
only one copy of each annual and semi-annual report issued by the Series Fund.
However, if such individual or company wishes to receive multiple copies of any
such report, a request may be made by calling the toll-free telephone number
listed on the cover page of this prospectus.
STATE REGULATION
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.
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, 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
On October 28, 1996, the Company entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to the
Company's life insurance sales practices. (In re Prudential Insurance Company of
America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate.
Pursuant to the Settlement, the Company has agreed to provide an alternative
dispute resolution process for class members who believe they were misled
concerning the sale or performance of their life insurance policies. The
Settlement also provides certain no-fault relief. The ultimate cost of the
Settlement will depend on a variety of factors, including the number of
policyowners who participate in the Settlement, the number of policyowners who
are afforded relief and the remediation option they select. The administrative
costs of implementing the Settlement are also subject to a number of complex
uncertainties. In light of the uncertainties attendant to these and other
factors, it is difficult at this time to estimate the ultimate cost of the
Settlement to the Company.
In addition, a number of actions have been filed against the Company by
policyowners who have excluded themselves from the settlement; the Company
anticipates that additional suits may be filed by other policyowners.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on the Company's activities. As of February 24, 1997, the Company had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, which terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million.
27
<PAGE>
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted.
Accordingly, management is unable to make a meaningful estimate of the amount of
range of loss that could result from an unfavorable outcome of all pending
litigation. It is possible that the results of operations or the cash flow 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.
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 Prudential, may also be obtained from Prudential's office. The address and
telephone number are set forth on the cover of this prospectus.
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
STATUTORY FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DETERMINATION OF SUBACCOUNT UNIT VALUES
A. SUBACCOUNT UNIT VALUES
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT
28
<PAGE>
DIRECTORS AND OFFICERS OF PRUDENTIAL
The directors and certain officers of Prudential, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUDENTIAL
FRANKLIN E. AGNEW. Director.--Business Consultant. Address: USX Tower, Suite
660, 600 Grant Street, Pittsburgh, PA 15219.
FREDERIC K. BECKER, Director.--President, Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
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.--National and International Health Care Advisor,
Ernst & Young LLP. Address: 1225 Connecticut Avenue, N.W., Washington, D.C.
20036.
ROGER A. ENRICO, Director.--Vice Chairman and Chief Executive Officer, Pepsico
Inc. since 1996; Vice Chairman, Pepsico, Inc., from 1993 to 1996; Chairman and
Chief Executive Officer, Pepsi Co. Worldwide Food, from 1991 to 1993. Address:
14841 North Dallas Parkway, Dallas, TX 75240.
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, The
College Fund/UNCF. Address: 8260 Willow Oaks Corporate Drive, Fairfax, VA 22031.
JON F. HANSON, Director.--Chairman, Hampshire Management Company. Address: 235
Moore Street, Suite 200, Hackensack, NJ 07601.
GLEN H. HINER, JR., Director.--Chairman and Chief Executive Officer, Owens
Corning. Address: One Owens Corning Parkway, Toledo, OH 43659.
CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since
1993; Assistant to the President and Director of Presidential Personnel, U.S.
Government, from 1991 to 1992. Address: 1775 Massachusetts Avenue, N.W.,
Washington, DC 20036-2188.
GAYNOR N. KELLEY, Director.--Former Chairman and Chief Executive Officer, The
Perkins Elmer Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.
BURTON G. MALKIEL, Director.--Professor, Princeton University. Address:
Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton, NJ
08544-1021.
ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.
- -- Chairman, President, and Chief Executive Officer, Prudential since 1994;
Prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.
IDA F.S. SCHMERTZ, Director.--Principal, Investment Strategies International
since 1994. Prior to 1994: Senior Vice President of Corporate Affairs, American
Express Company. Address: 90 Riverside Drive, New York, NY 10024.
CHARLES R. SITTER, Director.--Former President, Exxon Corporation. Address: 5959
Las Colinas Boulevard, Irving, TX 75039-2298.
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 and Chief Executive Officer, The
Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1A2, Canada.
29
<PAGE>
JAMES A. UNRUH, Director.--Chairman and Chief Executive Officer, Unisys
Corporation. Address: P.O. Box 500, Blue Bell, PA 19424-0001.
P. ROY VAGELOS, M.D., Director.--Former Chairman, and Chief Executive Officer,
Merck & Co., Inc. Address: One Crossroads Drive, Bedminster, NJ 07921.
STANLEY C. VAN NESS, Director.--Attorney, Picco Herbert Kennedy (law firm).
Address: One State Street Square, Suite 1000, Trenton, NJ 08607-1388.
PAUL A. VOLCKER, Director.--Business Consultant since 1996; Prior to 1996:
Chairman, Wolfensohn & Co., 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: One Williams Center, Tulsa, OK 74172.
OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MARTIN A. BERKOWITZ, Senior Vice President and Comptroller.--Senior Vice
President and Chief Financial Officer of Prudential Investment Company since
1991.
SUSAN L. BLOUNT, Vice President and Secretary.--Vice President and Secretary of
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 Prudential since 1995; 1993 to 1995: Managing Director and Assistant
Treasurer of Prudential; 1992 to 1993: Vice President and Assistant Treasurer,
Banking and Cash Management for Prudential.
MARK B. GRIER, Chief Financial Officer.--Chief Financial Officer of Prudential
since 1995; Prior to 1995: Executive Vice President and Head of Global Markets,
Chase Manhattan Corporation.
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<PAGE>
THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
Prudential Discovery(R) Plus is offered through
Pruco Securities, a subsidiary of The Prudential.
213 Washington Street
Newark, New Jersey 07102-2992
PIVC-1 Ed. 5-97, Catalog #646956H
PRUDENTIAL [Logo]
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
THE PRUDENTIAL
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
The DISCOVERY(R) Plus Contract* (the "Contract") is a variable annuity
contract issued by The Prudential Insurance Company of America ("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). (Effective March 15, 1997, this contract will no
longer be offered for sale in New York.) Subsequent payments are not allowed in
Oregon.
This statement of additional information is not a prospectus and should be read
in conjunction with the Contract's prospectus, dated May 1, 1997, 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 Prudential.
PIVC-1B Ed 5-97
Catalog #64M101W
<PAGE>
CONTENTS
PAGE
----
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
STATUTORY FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA ................................................................... B1
<PAGE>
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
The financial statements included in this prospectus for the year ended December
31, 1996 have been audited by Price Waterhouse LLP, independent accountants, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Price Waterhouse LLP's principal business address is 1177 Avenue of
the Americas, New York, New York, 10036.
The financial statements included in this prospectus for years ended December
31, 1995 and December 31, 1994, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included 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 Prudential. Therehave 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 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, such portion of 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 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 Prudential, according to an annual determination of 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, 1996. The performance information is based on historical
experience and does not indicate or represent future performance.
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, 1996 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 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS ESTABLISHED
DATE ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/96 12/31/96 12/31/96
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
Diversified Bond ...................... 2/89 -3.12 5.74 8.31
Government Income ..................... 5/89 -5.29 4.81 7.45
Conservative Balanced ................. 2/89 5.07 7.63 9.62
Flexible Managed ...................... 2/89 6.07 9.40 11.52
High Yield Bond ....................... 2/89 3.83 10.52 8.56
Stock Index ........................... 2/89 14.96 13.04 14.31
Equity Income ......................... 2/89 14.14 13.39 13.35
Equity ................................ 2/89 10.93 15.60 15.11
Prudential Jennison ................... 5/95 6.84 N/A 18.90
Small Capitalization Stock ............ 5/95 12.18 N/A 19.45
Global ................................ 5/89 12.10 11.00 7.92
Natural Resources ..................... 2/89 23.22 14.63 12.38
</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.
2
<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 2
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS ESTABLISHED
DATE ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/96 12/31/96 12/31/96
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
Diversified Bond .................... 2/89 3.15 6.29 8.31
Government Income ................... 5/89 1.00 5.38 7.45
Conservative Balanced ............... 2/89 11.29 8.14 9.62
Flexible Managed .................... 2/89 12.29 9.86 11.52
High Yield Bond ..................... 2/89 10.06 10.96 8.56
Stock Index ......................... 2/89 21.11 13.43 14.31
Equity Income ....................... 2/89 20.29 13.78 13.35
Equity .............................. 2/89 17.11 15.96 15.11
Prudential Jennison ................. 5/95 13.05 N/A 22.08
Small Capitalization Stock .......... 5/95 18.35 N/A 22.62
Global .............................. 5/89 18.27 11.43 7.92
Natural Resources ................... 2/89 29.32 15.00 12.38
</TABLE>
Table 3 shows the cumulative total return for the subaccounts, assuming no
withdrawal.
TABLE 3
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS ESTABLISHED
DATE ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/96 12/31/96 12/31/96
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
Diversified Bond .................... 2/89 3.15 35.64 86.97
Government Income ................... 5/89 1.00 29.98 73.47
Conservative Balanced ............... 2/89 11.29 47.87 105.52
Flexible Managed .................... 2/89 12.29 60.04 135.13
High Yield Bond ..................... 2/89 10.06 68.23 90.40
Stock Index ......................... 2/89 21.11 87.81 185.48
Equity Income ....................... 2/89 20.29 90,68 167.13
Equfty .............................. 2/89 17.11 109.63 201.53
Prudential Jennison ................. 5/95 13.05 N/A 39.54
Small Capitalization Stock .......... 5/95 18.35 N/A 40.58
Global .............................. 5/89 18.27 71.81 79.38
Natural Resources ................... 2/89 29.32 101.12 149.77
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1996 were 3.9755% and 4.0540%, 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
3
<PAGE>
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.
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 Statutory financial statements of Prudential included herein should be
distinguished from the financial statements of the Account, and should be
considered only as bearing upon the ability of Prudential to meet its
obligations under the Contracts.
4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value
[NOTE 3]...................................... $ 312,718,643 $ 244,240,192 $1,293,758,895 $ 862,010,706 $1,490,131,271
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 310,138,332 $ 243,719,390 $1,292,726,764 $ 861,131,792 $1,483,114,311
Equity of annuitants............................ 72,683 461,684 0 92,547 102,065
Equity of The Prudential Insurance Company of
America....................................... 2,507,628 59,118 1,032,131 786,367 6,914,895
-------------- -------------- -------------- -------------- --------------
$ 312,718,643 $ 244,240,192 $1,293,758,895 $ 862,010,706 $1,490,131,271
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value
[NOTE 3]...................................... $ 207,982,243 $ 440,682,218 $ 735,930,407 $ 154,817,548 $ 277,255,705
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 207,617,811 $ 439,633,915 $ 735,568,228 $ 154,283,239 $ 277,327,145
Equity of annuitants............................ 0 0 0 0 0
Equity of The Prudential Insurance Company of
America....................................... 364,432 1,048,303 362,179 534,309 (71,440)
-------------- -------------- -------------- -------------- --------------
$ 207,982,243 $ 440,682,218 $ 735,930,407 $ 154,817,548 $ 277,255,705
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value
[NOTE 3]...................................... $ 272,936,334 $ 89,912,495 $ 56,282,418
-------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 268,025,594 $ 88,911,644 $ 55,612,005
Equity of annuitants............................ 0 0 0
Equity of The Prudential Insurance Company of
America....................................... 4,910,740 1,000,851 670,413
-------------- -------------- --------------
$ 272,936,334 $ 89,912,495 $ 56,282,418
============== ============== ==============
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 15,714,459 $ 15,358,204 $ 29,289,336 $ 25,142,579 $ 58,387,324
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [NOTE 5A].................. 3,588,779 2,813,702 13,978,563 9,613,399 16,795,360
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 12,115,680 12,544,502 15,310,773 15,529,180 41,591,964
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 0 114,264,566 81,058,661 91,075,317
Realized gain on shares redeemed
[average cost basis].......................... 0 174,400 5,444,130 2,079,840 2,546,226
Net unrealized gain (loss) on investments....... 0 (4,953,596) 51,568,436 (4,416,389) 17,056,572
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 0 (4,779,196) 171,277,132 78,722,112 110,678,115
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 12,115,680 $ 7,765,306 $ 186,587,905 $ 94,251,292 $ 152,270,079
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 19,846,509 $ 7,098,648 $ 23,494,869 $ 921,396
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [NOTE 5A].................. 2,408,573 4,447,341 8,040,293 1,553,107
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 17,437,936 2,651,307 15,454,576 (631,711)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 4,966 520 23,234,609 17,991,345
Realized gain on shares redeemed
[average cost basis].......................... 169,760 3,738,352 4,894,670 659,033
Net unrealized gain (loss) on investments....... 1,864,874 60,376,871 82,705,905 13,421,277
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 2,034,634 69,081,743 110,835,184 32,071,655
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 19,472,570 $ 71,733,050 $ 126,289,760 $ 31,439,944
============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 6,801,199 $ 17,655,896 $ 160,210 $ 324,366
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk and
for administration [NOTE 5A].................. 2,977,185 3,303,337 718,111 434,616
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 3,824,014 14,352,559 (557,901) (110,250)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 4,275,097 0 0 991,049
Realized gain on shares redeemed
[average cost basis].......................... 2,514,488 254,071 65,488 207,931
Net unrealized gain (loss) on investments....... 31,571 540 (11,980,070) 8,010,502 5,018,004
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 38,361 125 (11,725,999) 8,075,990 6,216,984
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 42,185,139 $ 2,626,560 $ 7,518,089 $ 6,106,734
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13.
A1 - A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
----------------------------- ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995
------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 12,115,680 $ 13,611,237 $ 12,544,502 $ 11,934,846 $ 15,310,773 $ 9,097,566
Capital gains distributions
received........................ 0 0 0 502,131 114,264,566 36,304,982
Realized gain (loss) on shares
redeemed [average cost basis]... 0 0 174,400 (575,793) 5,444,130 1,787,973
Net unrealized gain (loss) on
investments..................... 0 0 (4,953,596) 25,152,294 51,568,436 177,526,174
------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 12,115,680 13,611,237 7,765,306 37,013,478 186,587,905 224,716,695
------------- -------------- -------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in, (net)....................... 402,058,692 411,591,864 54,070,756 38,739,795 270,448,114 288,749,556
Withdrawals and transfers out,
(net)........................... (400,340,779) (419,028,549) (48,533,560) (43,822,166) (211,316,885) (169,137,106)
Annuity benefit payments, (net)... (11,297) (5,622) (70,588) (34,728) (12,848) (13,346)
------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 7].......................... 1,706,616 (7,442,307) 5,466,608 (5,117,099) 59,118,381 119,599,104
------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8].......................... (2,978,837) (4,638,255) 45,114 (1,911,305) (2,969,818) (3,431,783)
------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 10,843,459 1,530,675 13,277,028 29,985,074 242,736,468 340,884,016
NET ASSETS:
Beginning of year................. 301,875,184 300,644,509 230,963,164 200,978,090 1,051,022,427 710,138,411
------------- -------------- -------------- -------------- -------------- --------------
End of year....................... $ 312,718,643 $ 301,875,184 $ 244,240,192 $ 230,963,164 $1,293,758,895 $1,051,022,427
============= ============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
----------------------------- ------------------------------
1996 1995 1996 1995
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 15,529,180 $ 13,835,396 $ 41,591,964 $ 37,219,068
Capital gains distributions
received........................ 81,058,661 31,019,792 91,075,317 44,897,730
Realized gain (loss) on shares
redeemed [average cost basis]... 2,079,840 2,338,699 2,546,226 2,363,488
Net unrealized gain (loss) on
investments..................... (4,416,389) 92,545,862 17,056,572 99,860,016
------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 94,251,292 139,739,749 152,270,079 184,340,302
------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in, (net)....................... 123,248,520 87,022,392 194,925,643 145,643,727
Withdrawals and transfers out,
(net)........................... (105,209,594) (121,137,946) (186,643,720) (222,721,330)
Annuity benefit payments, (net)... (12,939) (6,854) (13,426) (8,066)
------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 7].......................... 18,025,987 (34,122,408) 8,268,497 (77,085,669)
------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8].......................... (290,507) (7,106,153) 6,028,831 (12,105,790)
------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 111,986,772 98,511,188 166,567,407 95,148,843
NET ASSETS:
Beginning of year................. 750,023,934 651,512,746 1,323,563,864 1,228,415,021
------------- -------------- -------------- --------------
End of year....................... $ 862,010,706 $ 750,023,934 $1,490,131,271 $1,323,563,864
============= ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
----------------------------- ------------------------------
1996 1995 1996 1995
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 17,437,936 $ 16,644,510 $ 2,651,307 $ 2,599,471
Capital gains distributions
received........................ 0 0 4,966,520 2,163,961
Realized gain (loss) on shares
redeemed [average cost basis]... 169,760 (257,168) 3,738,352 1,244,308
Net unrealized gain (loss) on
investments..................... 1,864 874 9,519,030 60,376,871 67,650,481
------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 19,472,570 25,906,372 71,733,050 73,658,221
------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in, (net)....................... 111,211,428 122,765,949 146,710,513 76,847,881
Withdrawals and transfers out,
(net)........................... (113,608,730) (114,608,028) (82,146,740) (50,233,802)
Annuity benefit payments, (net)... 0 0 0 0
------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 7].......................... (2,397,302) 8,157,921 64,563,773 26,614,079
------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8].......................... (1,171,126) (1,062,663) (780,432) 867,445
------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 15,904,142 33,001,630 135,516,391 101,139,745
NET ASSETS:
Beginning of year................. 192,078,101 159,076,471 305,165,827 204,026,082
------------- -------------- -------------- --------------
End of year....................... $.207,982,243 $ 192,078,101 $ 440,682,218 $ 305,165,827
============= ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13.
A3 - A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 15,454,576 $ 15,296,166 $ (631,711) $ 76,590 $ 3,824,014 $ 802,217
Capital gains distributions
received........................ 23,234,609 26,532,315 17,991,345 4,657,784 4,275,097 4,103,547
Realized gain (loss) on shares
redeemed [average cost basis]... 4 894,670 921,914 659,033 661,765 2,514,488 1,484,297
Net unrealized gain (loss) on
investments..................... 82,705,905 62,603,120 13,421,277 15,537,556 31,571,540 21,601,985
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 126,289,760 105,353,515 31,439,944 20,933,695 42,185,139 27,992,046
-------------- -------------- -------------- -------------- -------------- -------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in, (net)....................... 96,672,768 110,509,968 61,330,655 31,004,748 137,020,755 113,094,450
Withdrawals and transfers out,
(net)........................... (115,688,590) (102,680,260) (40,499,717) (33,046,525) (116,302,957) (124,676,870)
Annuity benefit payments, (net)... 0 0 0 0 0 0
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[NOTE 7].......................... (19,015,822) 7,829,708 20,830,938 (2,041,777) 20,717,798 (11,582,420)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8].......................... (1,632,886) (3,066,591) (69,831) (921,930) (770,614) (7,087,547)
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 105,641,052 110,116,632 52,201,051 17,969,988 62,132,323 9,322,079
NET ASSETS:
Beginning of year................. 630,289,355 520,172,723 102,616,497 84,646,509 215,123,382 205,801,303
-------------- -------------- -------------- -------------- -------------- -------------
End of year....................... $ 735,930,407 $ 630,289,355 $ 154,817,548 $ 102,616,497 $ 277,255,705 $ 215,123,382
============== ============== ============== ============== ============== =============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON*
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 14,352,559 $ 14,706,023 $ (557,901) $ (88,527)
Capital gains distributions
received........................ 0 0 0 0
Realized gain (loss) on shares
redeemed [average cost basis]... 254,071 (1,549,875) 65,488 67,696
Net unrealized gain (loss) on
investments..................... (11,980,070) 33,262,626 8,010,502 945,643
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 2,626,560 46,418,774 7,518,089 924,812
-------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in, (net)....................... 36,214,325 33,801,087 85,028,392 62,276,197
Withdrawals and transfers out,
(net)........................... (57,875,563) (71,305,548) (32,514,193) (34,172,583)
Annuity benefit payments, (net)... 0 0 0 0
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[NOTE 7].......................... (21,661,238) (37,504,461) 52,514,199 28,103,614
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8].......................... 3,578,576 (14,155,348) (2,467,088) 3,318,869
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ (15,456,102) (5,241,035) 57,565,200 32,347,295
NET ASSETS:
Beginning of year................. 288,392,436 293,633,471 32,347,295 0
-------------- -------------- -------------- --------------
End of year....................... $ 272,936,334 $ 288,392,436 $ 89,912,495 $ 32,347,295
============== ============== ============== ==============
*Commenced Business on 5/1/95
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------
SMALL
CAPITALIZATION
STOCK*
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ (110,250) $ (21,294)
Capital gains distributions
received........................ 991,049 176,658
Realized gain (loss) on shares
redeemed [average cost basis]... 207,931 22,088
Net unrealized gain (loss) on
investments..................... 5,018,004 746,554
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 6,106,734 924,006
-------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in, (net)....................... 57,664,261 36,591,006
Withdrawals and transfers out,
(net)........................... (27,849,484) (17,675,799)
Annuity benefit payments, (net)... 0 0
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[NOTE 7].......................... 29,814,777 18,915,207
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8].......................... (530,162) 1,051,856
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 35,391,349 20,891,069
NET ASSETS:
Beginning of year................. 20,891,069 0
-------------- --------------
End of year....................... $ 56,282,418 $ 20,891,069
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13.
A5 - A6
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
For the Year Ended December 31, 1996
NOTE 1: GENERAL
The Prudential Individual Variable Contract Account (the "Account") of
The Prudential Insurance Company of America ("Prudential") was
established on October 12, 1982 by a resolution of Prudential's Board
of Directors in conformity with insurance laws of the State of New
Jersey. The assets of the Account are segregated from Prudential's
other assets. The two products that invest in the Account are The
Prudential Variable Investment Plan ("VIP") and The Prudential
Discovery Plus ("PDISCO+").
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 Prudential.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
the financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
Investments-The investments in shares of the Series Fund are stated at
the net asset value of the respective portfolio.
Security Transactions-Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received-Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.
Equity of The Prudential Insurance Company of America-Prudential
maintains a position in the Account for the purpose of administering
activity in the Account. The activity includes unit transactions, fund
share transactions, and expense processing. Prudential monitors the
balance daily and transfers funds based upon anticipated activity. At
times, Prudential may owe an amount to the Account, which is reflected
in Prudential's equity as a negative balance. The position does not
have an effect on the Contract owner's account or the related unit
value.
Equity of Annuitants-Equity of annuitants is the reserve for currently
payable Contracts and is computed using the following: the 1983 A
Mortality Table, the investment results of annuitants' subaccounts, an
assumed investment result of 3.5% and various valuation interest rates
ranging from 6.5% to 11%, depending on the Contract's year of issue.
A7
<PAGE>
NOTE 3: 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, 1996 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of shares: 31,271,864 22,072,365 47,979,387 48,461,246 96,031,806
Net asset value per
share: $ 10.00000 $ 11.06543 $ 26.96489 $ 17.78763 $ 15.51706
Cost: $ 312,718,643 $ 241,260,495 $ 1,034,131,141 $ 787,682,930 $ 1,402,977,835
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 26,435,654 18,559,175 39,758,918 7,832,752
Net asset value per
share: $ 7.86749 $ 23.74471 $ 18.50982 $ 19.76541
Cost: $ 210,830,476 $ 292,039,106 $ 603,038,609 $ 127,857,845
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 15,528,407 24,323,513 6,277,407 4,080,840
Net asset value per
share: $ 17.85474 $ 11.22109 $ 14.32319 $ 13.79187
Cost: $ 222,681,557 $ 274,185,885 $ 80,956,350 $ 50,517,860
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of
Contract owner equity for the year ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VIP): .... 20,966,169.636 17,983,051.115 50,992,740.019 80,196,500.821 132,264,454.371
Unit value (VIP): ....... $ 2.00831 $ 2.98995 $ 5.67957 $ 3.89468 $ 3.42427
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VIP): ................ $ 42,106,568 $ 53,768,424 $ 289,616,836 $ 312,339,708 $ 452,909,203
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Units
Outstanding (PDISCO +): 133,461,350.193 63,529,813.629 176,617,231.141 140,908,132.139 300,853,936.030
Unit value (PDISCO+): ... $ 2.00831 $ 2.98995 $ 5.67957 $ 3.89468 $ 3.42427
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(PDISCO+): ............. $ 268,031,764 $ 189,950,966 $ 1,003,109,927 $ 548,792,084 $ 1,030,205,108
---------------- ---------------- ---------------- ---------------- ----------------
TOTAL CONTRACT OWNER
EQUITY: ................. $ 310,138,332 $ 243,719,390 $ 1,292,726,763 $ 861,131,792 $ 1,483,114,311
================ ================ ================ ================ ================
</TABLE>
A8
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VIP): .... 16,519,860.905 32,289,211.808 29,360,348.020 10,476,240.137
Unit value (VIP): ....... $ 2.05267 $ 2.90729 $ 3.04353 $ 2.83947
---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VIP): ................ $ 33,909,823 $ 93,874,103 $ 89,359,100 $ 29,746,970
---------------- ---------------- ---------------- ----------------
Contract Owner Units
Outstanding (PDISCO +): 84,625,384.713 118,928,559.625 212,322,247.023 43,858,983.911
Unit value (PDISCO+): ... $ 2.05267 $ 2.90729 $ 3.04353 $ 2.83947
---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(PDISCO+): ............. $ 173,707,988 $ 345,759,812 $ 646,209,128 $ 124,536,269
---------------- ---------------- ---------------- ----------------
TOTAL CONTRACT OWNER
EQUITY: ................. $ 207,617,811 $ 439,633,915 $ 735,568,228 $ 154,283,239
================ ================ ================ ================
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VIP): .... 21,007,800.889 32,103,623.858 8,907,930.165 5,169,867.996
Unit value (VIP): ....... $ 1.81356 $ 1.73574 $ 1.40755 $ 1.40807
---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VIP): ................ $ 38,098,907 $ 55,723,544 $ 12,538,357 $ 7,279,536
---------------- ---------------- ---------------- ----------------
Contract Owner Units
Outstanding (PDISCO +): 131,910,848.276 122,312,126.374 54,259,732.494 34,325,331.142
Unit value (PDISCO+): ... $ 1.81356 $ 1.73574 $ 1.40755 $ 1.40807
---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(PDISCO+): ............. $ 239,228,238 $ 212,302,050 $ 76,373,287 $ 48,332,469
---------------- ---------------- ---------------- ----------------
TOTAL CONTRACT OWNER
EQUITY: ................. $ 277,327,145 $ 268,025,594 $ 88,911.644 $ 55,612,005
================ ================ ================ ================
</TABLE>
NOTE 5: 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 against the net assets representing equity of
VIP Contract owners and annuitants held in each subaccount.
Mortality risk is that annuitants may live longer than estimated
and expense risk is that the cost of issuing and administering
the policies may exceed the estimated expenses. For 1996, the
amount of these charges paid to Prudential was $16,677,108.
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 PDISCO+ Contract owners held in
each subaccount. Administrative charges include costs associated
with issuing the Contract, establishing and maintaining records,
and providing reports to Contract owners. For 1996, the amount of
these charges paid to Prudential was $53,986,259.
B. Deferred Sales Charge
Subsequent to a Contract owner redemption, a deferred sales
charge is imposed upon the withdrawal of certain purchase
payments to compensate 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
A9
<PAGE>
certain. No sales charge is imposed upon death benefit payments
or upon transfers made between subaccounts. For 1996, the amount
of charges paid to Prudential for VIP was $1,658,327. For 1996,
the amount of charges paid to Prudential for PDISCO + was
$6,557,620.
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. For 1996, the amount of charges paid to Prudential for
VIP was $1,011,198. For 1996, the amount of charges paid to
Prudential for PDISCO + was $30,606.
NOTE 6: TAXES
Prudential is taxed as a "life insurance company" under the Internal
Revenue Code and the operations of the Account form a part of and are
taxed with those of Prudential. Under current federal law, no federal
income taxes are payable by the Account. As such, no provision for tax
liability has been recorded.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM ACCUMULATION AND
ANNUITY UNIT TRANSACTIONS
Contract owner activity in the subaccounts of the Account, for the
year ended December 31, 1996, was as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions, net: $ 76,251,881 $ 29,933,514 $ 140,025,936 $ 91,331,345 $ 152,225,077
Contract Owner
Redemptions: $ (53,086,663) $ (22,065,398) $ (86,222,274) $ (65,868,357) $ (120,186,011)
Net Transfers from(to)
other subaccounts or
fixed rate option: $ (21,447,306) $ (2,330,919) $ 5,327,567 $ (7,424,061) $ (23,757,143)
Annuity Benefit
Payments: $ (11,297) $ (70,588) $ (12,848) $ (12,939) $ (13,426)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions, net: $ 20,365,183 $ 64,303,039 $ 49,592,189 $ 14,918,231
Contract Owner
Redemptions: $ (18,722,424) $ (29,576,389) $ (55,747,050) $ (11,179,695)
Net Transfers from(to)
other subaccounts or
fixed rate option: $ (4,040,062) $ 29,837,122 $ (12,860,960) $ 17,092,402
Annuity Benefit
Payments: $ 0 $ 0 $ 0 $ 0
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions, net: $ 23,798,835 $ 21,868,943 $ 34,183,682 $ 18,256,303
Contract Owner
Redemptions: $ (18,080,348) $ (27,166,472) $ (3,977,744) $ (2,327,837)
Net Transfers from(to)
other subaccounts or
fixed rate option: $ 14,999,311 $ (16,363,709) $ 22,308,261 $ 13,886,311
Annuity Benefit
Payments: $ 0 $ 0 $ 0 $ 0
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Prudential to (from)
the Account.
A10
<PAGE>
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 204,176,098.887 18,808,605.407 52,452,881.251 34,099,351.741 60,831,409.999
Contract Owner
Redemptions: (203,372,346.067) (16,855,605.935) (40,780,551.495) (28,891,707.325) (57,910,760.377)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions: 56,857,168.302 56,115,653.050 35,809,207.178 23,441,600.252
Contract Owner
Redemptions: (58,078,219.169) (31,307,337.011) (42,629,464.634) (15,563,220.683)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions: 82,615,204.129 21,444,007.615 64,681,355.330 44,313,958.907
Contract Owner
Redemptions: (69,813,177.075) (34,280,566.051) (24,764,578.595) (21,613,269.945)
</TABLE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund, Inc. were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases.......... $ 75,729,000 $ 10,909,000 $ 66,232,000 $ 22,584,000 $ 24,796,000
Sales.............. $(80,590,000) $ (8,098,000) $(24,062,000) $(14,526,000) $(27,549,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases.......... $ 8,282,000 $ 71,403,000 $ 4,967,000 $ 22,101,000
Sales.............. $(14,259,000) $(12,067,000) $(33,656,000) $ (2,893,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases.......... $ 32,547,000 $ 1,270,000 $ 52,645,000 $ 32,323,000
Sales.............. $(15,577,000) $(22,656,000) $ (3,316,000) $ (3,473,000)
</TABLE>
A11
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
-------- --------
(In Millions)
<S> <C> <C>
ASSETS
Bonds ............................................................................ $ 75,006 $ 77,494
Preferred stock .................................................................. 239 396
Common stock ..................................................................... 7,076 6,133
Mortgage loans on real estate .................................................... 17,039 20,280
Real estate ...................................................................... 2,094 2,488
Policy loans and premium notes ................................................... 6,023 6,208
Cash and short-term investments .................................................. 5,982 4,803
Other invested assets ............................................................ 2,591 3,304
-------- --------
TOTAL CASH AND INVESTED ASSETS ................................................... 116,050 121,106
Premiums due and deferred ........................................................ 1,925 1,917
Accrued investment income ........................................................ 1,640 1,688
Other assets ..................................................................... 1,208 1,120
Assets held in separate accounts ................................................. 57,797 53,903
-------- --------
TOTAL ASSETS ..................................................................... $178,620 $179,734
======== ========
LIABILITIES AND SURPLUS
LIABILITIES
Policy liabilities and insurance reserves:
Future policy benefits and claims ............................................ $ 87,582 $ 93,346
Unearned premiums ............................................................ 619 624
Policy dividends ............................................................. 1,878 1,893
Policyholder account balances ................................................ 7,968 7,966
Notes payable and other borrowings ............................................... 763 807
Asset valuation reserve .......................................................... 2,682 2,705
Federal income tax payable ....................................................... 729 1,278
Other liabilities ................................................................ 9,588 9,191
Liabilities related to separate accounts ......................................... 57,436 53,256
-------- --------
TOTAL LIABILITIES ................................................................ 169,245 171,066
-------- --------
CONTINGENCIES (NOTE 11)
SURPLUS
Capital notes .................................................................... 985 984
Special surplus fund ............................................................. 1,268 1,274
Unassigned surplus ............................................................... 7,122 6,410
-------- --------
TOTAL SURPLUS .................................................................... 9,375 8,668
-------- --------
TOTAL LIABILITIES AND SURPLUS .................................................... $178,620 $179,734
======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN SURPLUS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
(In Millions)
<S> <C> <C> <C>
REVENUE
Premiums and annuity considerations .................................... $ 20,674 $ 21,088 $ 23,612
Net investment income .................................................. 8,677 8,637 7,387
Other income ........................................................... 571 363 367
-------- -------- --------
TOTAL REVENUE .......................................................... 29,922 30,088 31,366
-------- -------- --------
BENEFITS AND EXPENSES
Death benefits ......................................................... 2,943 2,858 2,798
Annuity benefits ....................................................... 3,582 3,495 3,354
Disability benefits .................................................... 5,630 5,765 5,201
Other benefits ......................................................... 806 853 845
Surrender benefits and fund withdrawals ................................ 11,844 12,538 11,714
Net (decrease) increase in reserves .................................... (1,572) (2,178) 1,251
Commissions ............................................................ 477 535 610
Other expenses ......................................................... 2,690 2,650 3,727
-------- -------- --------
TOTAL BENEFITS AND EXPENSES ............................................ 26,400 26,516 29,500
-------- -------- --------
Operating income before dividends and income taxes ..................... 3,522 3,572 1,866
Dividends to policyholders ............................................. 2,526 2,464 2,290
-------- -------- --------
Operating income (loss) before income taxes ............................ 996 1,108 (424)
Income tax provision ................................................... 51 590 453
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS .......................................... 945 518 (877)
NET REALIZED CAPITAL GAINS (LOSSES) .................................... 457 (183) (24)
-------- -------- --------
NET INCOME (LOSS) ..................................................... $ 1,402 $ 335 $ (901)
======== ======== ========
SURPLUS
SURPLUS, BEGINNING OF YEAR ............................................. 8,668 7,449 8,004
Net income (loss) ...................................................... 1,402 335 (901)
Change in net unrealized capital gains (losses) ........................ 191 661 (51)
Change in non-admitted assets .......................................... (206) 717 82
Change in asset valuation reserve ...................................... 11 (694) 653
Other changes, net ..................................................... (691) 200 (338)
-------- -------- --------
SURPLUS, END OF YEAR ................................................... $ 9,375 $ 8,668 $ 7,449
======== ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
- 1 -
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums and annuity considerations ...................................... $ 20,669 $ 21,030 $ 23,635
Net investment income .................................................... 8,629 8,511 7,261
Other income received .................................................... 599 479 502
Separate account transfers ............................................... 1,183 1,002 (494)
Benefits and claims paid ................................................. (24,952) (25,524) (24,403)
Policyholders' dividends paid ............................................ (2,453) (2,393) (2,594)
Federal income taxes (paid) received ..................................... (230) (847) 179
Other operating expenses ................................................. (4,224) (3,738) (3,636)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ...................... (779) (1,480) 450
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold, matured, or repaid
Bonds ............................................................... 119,195 93,178 80,668
Stocks .............................................................. 4,328 2,985 4,263
Mortgage loans on real estate ....................................... 3,140 4,997 4,205
Real estate ......................................................... 537 573 935
Net gains (losses) on cash and short-term investments ............... 13 (9) (5)
Miscellaneous proceeds .............................................. 2,128 3,707 2,671
Payments for investments acquired
Bonds ............................................................... (118,009) (101,018) (81,677)
Stocks .............................................................. (6,029) (2,199) (2,312)
Mortgage loans on real estate ....................................... (1,841) (2,810) (3,282)
Real estate ......................................................... (120) (425) (194)
Miscellaneous applications .......................................... (718) (1,213) (1,275)
Net (tax) benefit on capital gains and losses ............................ (622) 107 (275)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...................... 2,002 (2,127) 3,722
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) proceeds from borrowed money ......................... (44) 123 1
Net proceeds from the issuance of capital notes .......................... 0 686 0
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ..................... (44) 809 1
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS ............... 1,179 (2,798) 4,173
Cash and short-term investments, beginning of year ....................... 4,803 7,601 3,428
--------- --------- ---------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR ............................. $ 5,982 $ 4,803 $ 7,601
========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments of $253 million, $144 million and $85 million were made during
1996, 1995 and 1994, respectively.
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
- 2 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ACCOUNTING POLICIES AND PRINCIPLES
A. Business and basis of presentation - The statutory financial
statements include the accounts of The Prudential Insurance Company of
America ("the Company"), a mutual life insurance company. The
activities of the Company include a broad range of financial services,
including life and health insurance, asset management, and investment
advisory services.
These financial statements were prepared on an unconsolidated
statutory basis of accounting, which differs from the 1995 and 1994
financial statements prepared for general distribution on a
consolidated statutory basis of accounting, both of which differ from
generally accepted accounting principles ("GAAP"). The financial
statements for 1995 and 1994 have been restated on an unconsolidated
statutory basis of accounting adopted in 1996 for purposes of general
distribution. Certain reclassifications have been made to the 1995 and
1994 financial statement amounts to conform to the 1996 presentation.
The Company, domiciled in the State of New Jersey, prepares its
statutory financial statements in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Banking and
Insurance ("the Department"). Prescribed statutory accounting
practices include publications of the National Association of
Insurance Commissioners ("NAIC"), state laws, regulations, and general
administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The financial
statements are substantially the same as those included in the
Statutory Annual Statement except for certain reclassifications and
adjustments. These financial statements differ from those filed with
the Department in that changes to estimated income and premium taxes
applicable to prior periods, which are recorded as direct charges or
credits to surplus in the Annual Statement, have been included in the
"Income tax provision" and "Other expenses" in the Statements of
Operations and Changes in Surplus. This item has the net effect of
increasing (decreasing) net income by $396 million, ($143) million and
$6 million in 1996, 1995 and 1994, respectively.
Pursuant to the Financial Accounting Standards Board Interpretation
No. 40 "Applicability of Generally Accepted Accounting Principles to
Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 financial statements, statutory accounting
practices ("SAP") are no longer considered GAAP for mutual life
insurance companies. SAP differs from GAAP primarily as follows:
(a) the Commissioner's Reserve Valuation Method ("CRVM") is used for the
majority of individual insurance reserves under SAP, whereas for
individual insurance, policyholder liabilities are generally
established using the net level premium method under GAAP. Policy
assumptions used in the estimation of policyholder liabilities are
generally prescribed under SAP, but are based upon actual company
experience under GAAP;
(b) for investment-type contracts that do not contain mortality or
morbidity risk and universal life-type contracts, cash receipts are
recorded as premiums and reserves are established using prescribed
reserving methods under SAP. Under GAAP, premium from investment-type
and universal life-type contracts are generally recognized as
deposits. Revenues from these contracts represent amounts assessed
against policyholders and are reported in the period of assessment;
(c) policy acquisition costs are expensed when incurred under SAP rather
than being deferred and charged against earnings over the periods
covered by the related policies;
(d) deferred income taxes are not recorded for the tax effect of temporary
differences between book and tax basis of assets and liabilities under
SAP;
(e) certain "non-admitted assets" must be excluded under SAP through a
charge against surplus, e.g. fixed assets, prepaid pensions and
impaired investments;
(f) investments in the common stock of the Company's wholly-owned
subsidiaries are accounted for using the equity method under SAP
rather than consolidated;
(g) bonds are carried at amortized cost under SAP rather than categorized
as "held to maturity", "available for sale", or "trading". Under GAAP,
bonds classified as "available for sale" and "trading" are carried at
market value;
(h) certain reclassifications would be required with respect to the
balance sheet and statement of cash flows under SAP;
(i) the Asset Valuation Reserve ("AVR") and Interest Maintenance Reserve
("IMR") are required for life insurance companies under SAP.
The following is a summary of accounting practices permitted by the
state of New Jersey and reflected in these financial statements:
o Prescribed statutory accounting practices require Department
approval of each and every interest payment at the time of
payment in order to classify the Company's Capital Notes as a
component of surplus. Otherwise, such notes are required to be
classified as a liability. Interest payments on $300 million in
Capital Notes issued in 1993 are pre-approved by the Department,
and permitted to be classified in surplus.
o The Company sells synthetic guaranteed interest contracts
("GICs") containing minimum investment related guarantees on
qualified pension plan assets. The assets are owned by the
trustees of such plans, who invest the assets
- 3 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
under the terms of investment guidelines agreed to with the
Company. The investment related guarantees may include a minimum
rate of return on the underlying assets and/or a guarantee of
liquidity to meet plan cash flow requirements. The Company, with
the approval of the Department, reports both the plan liabilities
associated with the synthetic GICs and the trust assets
supporting this potential liability. In addition, the Company
files detailed schedules of trust assets and related statements
with the Department. Currently, prescribed statutory accounting
practices do not address accounting for synthetic GICs.
o The Company establishes guaranty fund liabilities for the
insolvencies of certain life insurance companies. The liabilities
are established net of estimated premium tax credits and federal
income tax. Prescribed statutory accounting practices do not
address the establishment of liabilities for guaranty fund
assessments.
B. Divestiture - On July 31, 1996, Prudential sold a substantial portion
of its Canadian Branch business to the London Life Insurance Company
("London Life"). The transaction was structured as an assumption
reinsurance transaction, whereby London Life assumed total liabilities
of the Canadian Branch equal to $3,146 million as well as a related
amount of total assets equal to $3,040 million. A net gain of $138
million was recorded for this transaction.
C. Use of estimates - The preparation of financial statements in
conformity with SAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from those
estimates.
D. Investments - Bonds, which consist of long-term bonds, are stated
primarily at amortized cost.
Preferred stock is generally valued at amortized cost.
Common Stock is carried at fair value. Investments in subsidiaries,
which are included in "Common stock", are accounted for using the
equity method. The subsidiaries' change in net assets, excluding
capital contributions and distributions, is included in "Net
investment income." The subsidiaries are engaged principally in the
businesses of life and health insurance, property and casualty
insurance, group health care, securities brokerage, asset management,
investment advisory services, retail banking and real estate and
brokerage.
Mortgage loans on real estate are stated primarily at unpaid principal
balances.
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. Properties acquired
in satisfaction of debt are valued at lower of depreciated cost or
fair value less disposition costs.
Policy loans and premium notes are stated at unpaid principal
balances.
Cash includes cash on hand, amounts due from banks and money market
instruments. Short term investments, including highly liquid debt
instruments purchased with an original maturity of twelve months or
less, are stated at amortized cost, which approximates fair value.
Other invested assets primarily include the Company's investment in
joint ventures and other forms of partnerships. These investments are
accounted for using the equity method where the Company has the
ability to exercise significant influence over the operating and
financial policies of the entity. The cost method is used for all
other assets.
Derivatives used in asset/liability risk management activities, which
support life and health insurance and annuity contracts, are recorded
at either fair value or statement value, depending upon the underlying
instrument, with unrealized gains and losses recorded in "Change in
net unrealized capital gains (losses)." Upon termination of
derivatives, the interest-related gains and losses are amortized
through the IMR.
E. Separate accounts - These assets and liabilities, reported at
estimated fair value, represent segregated funds invested for pension
and other clients. Investment risks associated with fair value changes
are generally borne by the clients, except to the extent of minimum
guarantees made by the Company with respect to certain accounts.
F. Revenue recognition of insurance income and related expenses - Life
premiums are recognized as income over the premium paying period of
the related policies. Annuity considerations are recognized as revenue
when received. Health 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.
- 4 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
G. Policyholder dividends - Substantially all of the policies issued by
the Company are participating. The amount of dividends to be paid to
policyholders is determined annually by the Company's Board of
Directors. The aggregate amount of policyholders' dividends is related
to actual interest, mortality, morbidity, and expense experience for
the year and judgment as to the appropriate level of statutory surplus
to be retained by the Company. Dividends declared by the Board of
Directors which have not been paid are included in "Policy dividends".
2. POLICY LIABILITIES AND INSURANCE RESERVES
A. For life insurance and annuities, future policy benefits and claims
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 for accident and health business, which is included in
"Future policy benefits and claims", is as follows:
1996 1995 1994
------- ------- -------
(In Millions)
Balance at January 1 $ 2,636 $ 2,440 $ 2,416
Less reinsurance recoverables 15 23 15
------- ------- -------
Net balance at January 1 2,621 2,417 2,401
------- ------- -------
Incurred related to:
Current year 5,734 5,759 5,398
Prior years (87) 42 (87)
------- ------- -------
Total incurred 5,647 5,801 5,311
------- ------- -------
Paid related to:
Current year 4,135 4,028 3,856
Prior years 1,467 1,569 1,439
------- ------- -------
Total paid 5,602 5,597 5,295
------- ------- -------
Net balance at December 31 2,666 2,621 2,417
Plus reinsurance recoverables 10 15 23
------- ------- -------
Balance at December 31 $ 2,676 $ 2,636 $ 2,440
======= ======= =======
As a result of changes in reserve estimates for insured events of
prior years, the provision for claims and claim adjustment expenses
changed by ($87) million and $42 million in 1996 and 1995,
respectively, due to changes in claim cost trends and changed by ($87)
million in 1994 because of faster-than-expected shrinkage in the
indemnity health business.
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 52% of
individual life insurance reserves are calculated according to 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.
Accident and health reserves represent the present value of the future
potential payments, adjusted 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.
- 5 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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.
Policyholders, at their discretion, may withdraw funds from their
annuity policies. At December 31, 1996 and 1995, approximately 55% of
total annuity actuarial reserves and deposit liabilities of $92,536
million and $95,092 million, respectively, were not subject to
discretionary withdrawal.
3. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Internal Revenue Code (the "Code") taxes the Company on its
operating income 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
which, in effect, imposes an additional amount of taxable income to the
Company. "Income tax provision" includes an estimate for the total equity tax
to be paid with respect to the year. Income from sources outside the United
States is taxed under applicable foreign statutes.
The Internal Revenue Service (the "Service") has completed an examination of
the consolidated federal income tax return through 1989. The Service is
examining the years 1990 through 1992. Discussions are being held with the
Service with respect to proposed adjustments. However, management believes
there are adequate defenses against, or sufficient reserves to provide for,
such adjustments.
4. INVESTED ASSETS
A. Bonds and stocks - The Company invests in both investment grade and
non-investment grade public and private bonds. The Securities
Valuation Office of the NAIC rates the bonds held by insurers for
regulatory purposes and classifies 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. Securities in these
lowest three categories approximated 2.8% and 1.0%, of the Company's
bonds at December 31, 1996, 1995, respectively.
The following tables provide additional information relating to bonds
and preferred stock as of December 31:
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------- ------- ------ -------
Bonds (In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 9,504 $ 353 $ 74 $ 9,783
Obligations of U.S. states and their
political subdivisions 206 7 6 207
Foreign government bonds 2,420 133 11 2,542
Corporate securities 57,282 2,625 323 59,584
Mortgage-backed securities 5,594 131 15 5,710
------- ------- ------- -------
Total $75,006 $ 3,249 $ 429 $77,826
======= ======= ======= =======
Preferred Stock
Redeemable $ 142 $ 3 $ 6 $ 139
Non-redeemable 97 23 0 120
------- ------- ------- -------
Total $ 239 $ 26 $ 6 $ 259
======= ======= ======= =======
</TABLE>
- 6 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------- ------- ------- -------
Bonds (In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $15,715 $ 1,392 $ 1 $17,106
Obligations of U.S. states and their
political subdivisions 214 22 1 235
Foreign government bonds 3,196 260 1 3,455
Corporate securities 54,411 4,609 97 58,923
Mortgage-backed securities 3,958 241 8 4,191
------- ------- ------- -------
Total $77,494 $ 6,524 $ 108 $83,910
======= ======= ======= =======
Preferred Stock
Redeemable $ 304 $ 16 $ 4 $ 316
Non-redeemable 92 2 0 94
------- ------- ------- -------
Total $ 396 $ 18 $ 4 $ 410
======= ======= ======= =======
</TABLE>
The carrying amount and estimated fair value of bonds at December 31,
1996, 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.
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(In Millions)
Due in one year or less $ 1,999 $ 2,012
Due after one year through five years 19,125 19,445
Due after five years through ten years 19,406 20,081
Due after ten years 28,882 30,578
------- -------
69,412 72,116
------- -------
Mortgage-backed securities 5,594 5,710
------- -------
Total $75,006 $77,826
======= =======
Proceeds from the sale and maturity of bonds during 1996, 1995 and
1994 were $119,195 million, $93,178 million and $80,668 million,
respectively. Gross gains of $1,516 million, $1,913 million and $618
million and gross losses of $988 million, $782 million and $1,841
million were realized on such sales during 1996, 1995 and 1994,
respectively. Realized gains and losses are determined using the
specific identification method.
B. Mortgage loans on real estate - Mortgage loans on real estate at
December 31 are as follows:
1996 1995
------------------ ------------------
CARRYING PERCENT CARRYING PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------
(In Millions)
Commercial and agricultural loans:
In good standing $15,546 91.3% $17,649 87.0%
In good standing
with structured terms 809 4.7% 966 4.8%
Past due 90 days or more 229 1.3% 144 0.7%
In process of foreclosure 68 0.4% 157 0.8%
Residential loans 387 2.3% 1,364 6.7%
------- ----- ------- -----
Total $17,039 100.0% $20,280 100.0%
======= ===== ======= =====
At December 31, 1996, the Company's mortgage loans on real estate were
collateralized by the following property types: office buildings
(34%), retail stores (22%), residential properties (2%), apartment
complexes (18%), industrial buildings (11%), agricultural properties
(9%) and other commercial properties (4%). The maximum percentage of
any one loan to the value of collateral at the time of the loan,
exclusive of insured, guaranteed, purchase money mortgages or
mortgages supported by high credit leases is 80%. The mortgage loans
are geographically dispersed throughout the United States and
- 7 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Canada with the largest concentrations in California (26%) and New
York (8%). Included in these balances are mortgage loans with
affiliated joint ventures of $560 million and $653 million at December
31, 1996 and 1995, respectively.
C. Real estate - Real estate at December 31 was as follows:
1996 1995
------ ------
(In Millions)
Investment real estate $1,201 $1,484
Properties occupied by the Company 525 533
Properties acquired in
satisfaction of debt 368 471
------ ------
Total $2,094 $2,488
====== ======
Accumulated depreciation on real estate was $808 million and $853
million at December 31, 1996 and 1995, respectively.
D. Other invested assets - Other invested assets of $2,591 million and
and $3,304 million as of December 31, 1996 and 1995, respectively,
principally include the Company's net equity in joint ventures and
other forms of partnerships. The Company's share of net income from
other invested assets was $283 million, $240 million and $348 million
for 1996, 1995 and 1994, respectively.
E. Investment in subsidiaries - Included in "Common stock" is the
Company's investment in subsidiaries of $4,610 million and $4,328
million at December 31, 1996 and 1995, respectively. Included in "Net
investment income" for 1996, 1995 and 1994 is $370 million, $143
million and $(936) million, respectively, attributable to
undistributed income (loss) of subsidiaries.
In October 1995, the Company completed the sale of Prudential
Reinsurance Holdings, Inc., 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 unit. On January 26, 1996, the Company entered into a
definitive agreement to sell substantially all the assets of
Prudential Home Mortgage Company, Inc. ("PHMC") and it also
liquidated certain mortgage-backed securities and extended warehouse
loans. In 1995, PHMC recorded an after-tax loss of $98 million which
includes operating gains and losses, asset write downs, and other
costs directly related to the sale. The Company continues to have
discussions with prospective buyers for the sale of the remaining
assets.
F. Net unrealized capital gains (losses) - Changes in net unrealized
capital gains (losses), which result principally from changes in the
differences between cost and carrying amounts of invested assets, were
$191 million and $661 million for the years ended December 31, 1996
and 1995, respectively, and are reflected in "Unassigned surplus."
G. Asset valuation reserve and interest maintenance reserve - These
reserves are required for life insurance companies under NAIC
requirements. 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 realized capital gains
and losses, net of tax, resulting from changes in the general level of
interest rates. These gains and losses are amortized into net
investment income utilizing grouped amortization schedules over the
expected remaining life of the investments sold. At December 31, 1996,
AVR is comprised of 68% for bonds, stocks, and short-term investments;
17% for mortgage loans on real estate; and 15% for real estate and
other invested assets. The IMR balance at December 31, 1996 and 1995
was $1,365 million and $1,163 million, respectively, and is recorded
in "Other liabilities". During 1996, 1995 and 1994, $327 million, $766
million and ($910) million, respectively, of net realized capital
gains (losses) were deferred and $126 million, $82 million and $102
million, respectively, was amortized and included in income.
H. Restricted assets and special deposits - Assets in the amounts of $941
million and $5,072 million at December 31, 1996 and 1995,
respectively, were on deposit with governmental authorities or
trustees as required by law. Assets valued at $2,994 million and
$3,121 million at December 31, 1996 and 1995, respectively, were
maintained as compensating balances or pledged as collateral for bank
loans and other financing agreements. Letter stock or other securities
restricted as to sale amounted to $720 million in 1996 and $354
million in 1995.
I. Loan backed and structured securities - A retrospective method is
employed to recalculate the values of the loan backed and structured
securities holdings with the exception of interest only bonds. Each
acquisition lot was reviewed to recalculate the effective yield. The
recalculated effective yield was used to derive a book value as if the
new yield were applied at the time of acquisition. Outstanding
principal
- 8 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
factors from the time of acquisition to adjustment date were used to
calculate the prepayment history for all applicable securities.
Conditional prepayment rates, computed with life to date factor
histories and weighted average maturities, were used to affect the
calculation of projected payments for pass through, interest only and
principal only security types. Interest only bond adjustments are
developed on a prospective basis with adjustments made for permanent
impairments if needed.
J. Securities lending is a program whereby the Company loans securities
to third parties, primarily major brokerage firms. As of December 31,
1996 and 1995, the estimated fair values of loaned securities were
$6,362 million and $5,939 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, 1996 and 1995 is $4,813 million and
$3,625 million, respectively. Non-cash collateral is not reflected in
the Statements of Admitted Assets, Liabilities and Surplus.
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:
1996 1995
------- -------
(In Millions)
Actuarial present value of benefit obligation:
Vested benefit obligation $(3,878) $(3,270)
======= =======
Accumulated benefit obligation $(4,174) $(3,572)
======= =======
Projected benefit obligation $(4,989) $(4,330)
Plan assets at fair value 7,326 6,688
------- -------
Plan assets in excess of projected
benefit obligation 2,337 2,358
Unrecognized transition amount (769) (904)
Unrecognized prior service cost 356 199
Unrecognized net gain (916) (753)
------- -------
Prepaid pension cost $ 1,008 $ 900
======= =======
Plan assets consist primarily of equity securities, bonds, real estate
and short-term investments, of which $5,668 million and $4,788 million
are included in separate account assets and liabilities at December
31, 1996 and 1995, respectively.
The components of the net periodic pension benefit for 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Service cost $ 119 $ 110 $ 141
Interest cost 336 371 293
Actual return on assets (720) (1,249) 62
Net amortization and deferral 57 604 (633)
Net curtailment gains and special termination benefits 63 0 156
------ ------ ------
Net periodic pension benefit $ (145) $ (164) $ 19
====== ====== ======
</TABLE>
The net increase to surplus relating to the Company's pension plans is
$37 million, $30 million and $0 million in 1996, 1995 and 1994,
respectively, which considers the changes in the non-admitted prepaid
pension asset of $108 million, $134 million and ($19) million,
respectively.
The accounting assumptions used by the Company were:
AS OF SEPTEMBER 30,
------------------------
1996 1995 1994
------ ------ ------
Discount rate 7.75% 7.50% 8.50%
Rate of increase in compensation levels 4.50% 4.50% 5.50%
Expected long-term rate of return on assets 9.50% 9.00% 9.00%
The Company maintains non-qualified supplemental retirement plans
providing benefits that may not be paid from the Company's two
qualified plans since qualified plans have limits imposed by Section
415 and 401(a)(17) of the Code. One of these plans also provides
certain participants with a subsidized early retirement benefit.
- 9 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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 these
benefits if they retire after age 55 with at least 10 years of
service.
Postretirement benefits are accounted for in accordance with
prescribed NAIC policy. The Company has elected to amortize its
transition obligation over 20 years. During 1996, 1995 and 1994,
funding of its postretirement benefit obligations totaled $35 million,
$47 million and $31 million, respectively.
The postretirement benefit plan status is as follows:
SEPTEMBER 30,
------------------
1996 1995
---- ----
(In Millions)
Accumulated postretirement benefit obligation for:
Retirees $(1,418) $(1,465)
Fully eligible active plan participants (35) (103)
Plan assets at fair value 1,341 1,309
------- -------
Funded status (112) (259)
Unrecognized transition amount 355 378
Unrecognized net gain (177) (19)
------- -------
Prepaid postretirement benefit cost $ 66 $ 100
======= =======
Plan assets consist of group and individual variable life insurance
policies, group life and health contracts and short-term investments,
of which $1,003 million and $990 million are included in the separate
account assets and liabilities at December 31, 1996 and 1995,
respectively.
Net periodic postretirement benefit cost for 1996, 1995 and 1994
includes the following components:
1996 1995 1994
----- ----- -----
(In Millions)
Service cost $ 24 $ 30 $ 36
Interest cost 115 117 107
Actual return on plan assets (104) (144) (98)
Amortization of transition obligation 22 22 23
Other 12 49 52
----- ----- -----
Net periodic postretirement benefit cost $ 69 $ 74 $ 120
===== ===== =====
The net reduction to surplus relating to the Company's postretirement
benefit plans is $35 million, $46 million, and $30 million in 1996,
1995 and 1994, respectively, which considers the changes in the
prepaid postretirement benefit cost of $34 million, $28 million and
$90 million in 1996 , 1995 and 1994, respectively.
The assumptions used for the postretirement benefit plan were:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.75% 7.50% 8.50%
Expected long-term rate of return on plan assets 9.00% 8.00% 9.00%
Rate of increase in compensation levels 4.50% 4.50% 5.50%
Health care cost trend rates 8.50-12.50% 8.90-13.30% 9.10-13.90%
Ultimate health care cost trend rate at 2006 5.00% 5.00% 6.00%
</TABLE>
A 1% increase in health care cost trend rates would increase the
September 30, 1996 accumulated postretirement benefit obligation and
service/interest costs by $115 million and $12 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, 1996 and 1995 was $99 million and
$96 million, respectively.
- 10 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following at December
31:
Short-term: 1996 1995
---- ----
(In Millions)
Notes payable to affiliate $ 99 $ 0
Current portion of long term
notes payable 11 128
---- ----
$110 $128
Long-Term: 1996 1995
---- ----
8.173% note due 2002 $249 $249
7.501% note due 1999 248 248
5.0819% note due 2004 56 66
12.00% note due 1999 0 16
Secured demand note
due 1998 100 100
---- ----
653 679
---- ----
Total principal repayments and accrued interest $763 $807
==== ====
Scheduled principal repayments as of December 31, 1996, are as
follows: $110 million in 1997, $100 million in 1998, $239 million in
1999, $0 in 2000, $0 in 2001 and $294 million thereafter.
7. SURPLUS
A. Capital notes - The Company issues Capital Notes that are subordinate
in right of payment to policy claims, prior claims and senior
indebtedness. A summary of the outstanding Capital Notes as of
December 31, 1996 is as follows:
PRINCIPAL CARRYING INTEREST MATURITY
ISSUE DATE (PAR) AMOUNT RATE DATE
- ---------- --------- -------- -------- --------
(In Millions)
April 28, 1993 $ 300 $ 299 6.875% April 15, 2003
July 1, 1995 350 340 8.300% July 1, 2025
July 1, 1995 250 246 7.650% July 1, 2007
July 15, 1995 100 100 8.100% July 15, 2015
------- -----
Total $ 1,000 $ 985
======= =====
B. Special surplus fund - In accordance with the requirements of various
states, a special surplus fund has been established for contingency
reserves of $1,268 million and $1,274 million as of December 31, 1996
and 1995, respectively.
C. Non-admitted assets - Non-admitted assets were $1,367 million and
$1,167 million as of December 31, 1996 and 1995, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below 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 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, the carrying value is a
reasonable estimate of fair value.)
Bonds and preferred stock - Fair values for bonds and preferred stock,
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.
Common stock - Fair value of unaffiliated common stock is based on
quoted market prices, where available, or prices provided by state
regulatory authorities.
- 11 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Mortgage loans on real estate - 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 and premium notes - 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, futures and options is
estimated based on market quotes for a transaction with similar terms.
The fair value of loan commitments is derived by comparing the
contractual future stream of fees with such fee streams adjusted to
reflect current market rates that would be applicable to instruments
of similar type, maturity and credit standing.
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. Carrying amounts are included in
"Future policy benefits and claims."
Notes payable and other borrowings - The estimated fair value of notes
payable is derived using discount rates based on the borrowing rates
currently available to the Company for debt with similar terms and
remaining maturities.
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
(In Millions)
FINANCIAL ASSETS:
<S> <C> <C> <C> <C>
Bonds $75,006 $77,826 $77,494 $83,910
Preferred stock 239 259 396 410
Common stock * 2,466 2,466 1,805 1,805
Mortgage loans on real estate 17,039 17,364 20,280 20,839
Policy loans and premium notes 6,023 5,942 6,208 6,452
Short-term investments 5,817 5,817 4,633 4,633
Cash 165 165 170 170
Assets held in separate accounts 57,797 57,797 53,903 53,903
Derivative financial instruments 9 16 15 64
FINANCIAL LIABILITIES:
Investment-type insurance
contracts 30,194 30,328 34,799 35,720
Notes payable and other borrowings 763 794 807 829
Liabilities related to separate accounts 57,436 57,436 53,256 53,256
Derivative financial instruments 60 63 94 108
</TABLE>
* Excludes investments in subsidiaries of $4,610 million and $4,328 million
at December 31, 1996 and 1995, respectively.
- 12 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
A. Derivative financial instruments - Derivatives include swaps,
forwards, futures, options and fixed-rate loan commitments subject to
market risk, all of which are used by the Company in the normal course
of business in activities other than trading. The Company does not
issue or hold derivatives for trading purposes. This classification is
based on management's intent at the time of contract inception and
throughout the life of the contract. The Company uses derivatives
primarily for asset/liability risk management and to reduce exposure
to interest rate, currency and other market risks. Of those
derivatives held at December 31,1996, 35% of the notional amounts
consisted of interest rate derivatives and 65% consisted of foreign
currency derivatives.
The tables below 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 at December 31:
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENTS
1996 1995
---- ----
(In Millions)
CARRYING ESTIMATED CARRYING ESTIMATED
NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
-------- ------ ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Swaps:
Assets $ 159 $ 1 $ 6 $ 418 $ (1) $ 32
Liabilities 479 50 53 371 76 79
Forwards:
Assets 453 8 8 235 13 17
Liabilities 980 9 9 1,074 13 13
Futures:
Assets 0 0 0 683 5 5
Liabilities 399 1 1 864 5 7
Options:
Assets 175 0 0 195 0 0
Liabilities 0 0 0 3 0 0
Loan Commitments:
Assets 164 0 2 122 (2) 10
Liabilities 9 0 0 532 0 9
------ ------ ------ ------ ------ ------
Total:
Assets $ 951 $ 9 $ 16 $1,653 $ 15 $ 64
====== ====== ====== ====== ====== ======
Liabilities $1,867 $ 60 $ 63 $2,844 $ 94 $ 108
====== ====== ====== ====== ====== ======
</TABLE>
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 and letters of credit. Commitments include variable rate
commitments to purchase and sell mortgage loans and the unfunded
portion of commitments to fund investments in private placement
securities. 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 $785 million and $1,254 million at December 31,
1996 and 1995, respectively. Because many of these amounts expire
without being advanced in whole or in part, the notional amounts do
not represent future cash flows.
The estimated fair value of these instruments, which represents the
Company's current exposure to credit loss from other parties'
non-performance, was $8 million and $56 million at December 31, 1996
and 1995, respectively.
10. RELATED PARTY TRANSACTIONS
A. Service agreements - The Company has entered into service agreements
with various subsidiaries. Under these agreements, the Company
furnishes services of officers and employees and provides supplies,
use of equipment, office space, and makes payment to
- 13 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
third parties for general expenses, state and local taxes. The
agreements obligate the subsidiaries to reimburse the Company for the
approximate cost of providing such services. The amounts receivable
from subsidiaries, reported in "Other assets" at December 31, 1996 and
1995, were $490 million and $509 million, respectively. The
subsidiaries also furnish similar services to the Company in
connection with such agreements. The amount payable to subsidiaries,
reported in "Other liabilities" at December 31, 1996 was $87 million.
There was no outstanding balance at December 31, 1995.
Certain of the Company's group health care subsidiaries provide health
insurance to certain employees of the Company. Enrollment contract
costs reported in "Other expenses" were $126 million, $111 million and
$104 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company purchases corporate owned life insurance policies from one
of its life insurance subsidiaries for certain employees. The premium
charged for these policies reported in "Other expenses" was $3
million, $12 million and $12 million for the years ended December 31,
1996, 1995 and 1994, respectively. The cash value associated with
these policies was $118 million and $102 million at December 31,
1996 and 1995, respectively.
Certain of the Company's subsidiaries perform services for the Company
in connection with the Company's obligations under investment advisory
or subadvisory agreements. The costs incurred in connection with
performing such services, primarily reported in "Other expenses," were
$145 million, $327 million and $342 million for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company also
provides these services to subsidiaries in connection with such
agreements. The investment advisory fees received from affiliates by
the Company, reported in "Other income" were $161 million, $92 million
and $110 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company borrows short-term funds from Prudential Funding
Corporation ("Funding"), a wholly owned subsidiary. The interest
expense for these borrowings was $131 million, $66 million and $21
million for the years ended December 31, 1996, 1995 and 1994,
respectively. The outstanding balance at December 31, 1996 was $99
million. There was no outstanding balance at December 31, 1995.
B. Net worth maintenance agreement - The Company has entered into a
support agreement with Funding under which it agrees to maintain
Funding's tangible net worth, including subordinated debt, at not less
than $1.00. As of December 31, 1996, the tangible net worth of Funding
was $44 million. Since the inception of the agreement, no support
payments have been required.
11. CONTINGENCIES
The Company is reviewing its obligations under certain managed care
arrangements for possible failure to comply with contractual and regulatory
requirements. It is the opinion of management that appropriate reserves
have been established in accordance with applicable accounting standards to
provide for appropriate reimbursements to customers.
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.
Twenty-six purported class actions and over 280 individual actions are
pending 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 Company anticipates additional suits may be filed by
individuals who opted out of the class action settlement described below.
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.
A Multi-State Life Insurance Task Force (the "Task Force"), comprised of
insurance regulators from 29 states and the District of Columbia, was
created to conduct a review of sales and marketing practices throughout the
life insurance industry. As the largest life insurance company in the
United States, the Company was the initial focus of the Task Force
examination. On July 9, 1996, the Task Force released its report on the
Company's activities. In it, the Task Force found that some sales of life
insurance policies made by the Company were improper. The report criticizes
the Company's training, oversight, discipline and compliance programs
related to insurance sales. Based on these findings, the Task Force
recommended, and the Company agreed to, a series of fines allocated to all
50 states and the District of Columbia amounting to a total of $35 million.
In addition, the Task Force recommended a remediation program pursuant to
which the Company would offer relief to policyowners who purchased 10.7
million whole life insurance policies in the United States from the Company
from 1982 through 1995. In subsequent negotiations with several states, the
Company agreed to pay additional amounts aggregating approximately $30
million by way of fine, reimbursement of investigation expenses and costs
associated with outreach to residents of Florida and California.
On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in the class actions consolidated in a
Multi-District Litigation involving alleged improprieties in connection
with the Company's sale of whole life
- 14 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
insurance policies from 1982 through 1995. Pursuant to the proposed
settlement, the Company has agreed to provide certain enhancements and
changes to the remediation program previously accepted by the Multi-State
Task Force, including some additional remedies. In addition, the Company
agreed that a minimum cost of $410 million (which was recorded in the
Statement of Operations and Changes in Surplus) would be incurred in
providing remedies to policyowners under the program, and agreed to certain
other payments and guarantees. Under the terms of the guarantees, the
Company has agreed that the average cost per remedy will not be less than
$2,364 for up to 330,000 claims remedied. For claims remedied in excess of
330,000, the Company has not guaranteed an average cost per remedy. The
Company has also agreed to provide additional compensation to be
distributed by formula that will range in an aggregate amount from $50
million to $300 million depending on the total number of claims remedied.
The Company cannot predict how many claims ultimately will be remedied. The
Company has also recorded in the Statement of Operations and Changes in
Surplus, its estimate of the minimum administrative costs related to the
remediation program. As of March 5, 1997, all 50 states and the District of
Columbia have directed the Company to offer a remediation plan based on the
program accepted by the Task Force and containing many of the enhancements
of the class action settlement.
Also on October 28, 1996, the U.S. District Court of the District of New
Jersey, in which the Multi-District Litigation is pending, conditionally
certified a class for settlement purposes and scheduled a hearing on the
fairness, reasonableness and adequacy of the proposed settlement. This
hearing was held on February 24, 1997. On March 7, 1997, the Court
rendered its decision approving the settlement. The owners of approximately
23,000 policies have taken steps to exclude themselves from the class
action and are not bound by the settlement.
To date, the Company has mailed packages to 8.5 million policyowners
eligible for the remediation program, informing policyowners in all 50
states and the District of Columbia of their rights under the program. The
deadline for electing to participate in the Alternative Dispute Resolution
Process ("ADR") or Basic Claim Relief is June 1, 1997. Policyowners who
believe that they were misled can file a claim through the ADR.
Policyowners who do not believe they were misled, or who do not wish to
file a claim under the ADR, may choose from several options available under
Basic Claim Relief, such as preferred rate premium loans, or the purchase
of enhanced annuities, mutual fund shares or life insurance policies.
It is not possible on any reliable basis to estimate how many policyowners
will participate in the settlement. The cost of the settlement is dependent
upon complex and varying factors, including the number of policyowners that
participate in the settlement, the relief options chosen and the ultimate
dollar value of the settlement. The administrative costs to the Company of
remediation of policyowner claims are also subject to a number of complex
uncertainties in addition to the unknown quantity and cost of policyowner
claims. In light of the uncertainties attendant to these and other factors,
management is unable to make a reasonable estimate of the ultimate cost of
the remediation program to the Company.
A purported class action was brought against the Company and certain
subsidiaries alleging common law fraud, negligent misrepresentation and
violations of the New Jersey RICO statute arising out of the plaintiffs'
purchase of certain subordinated mortgage pass-through securities and
seeking compensatory and punitive damages and injunctive relief. The
Company will deny the substantive allegations of the complaint in its
answer and will vigorously defend the suit. The case is at a preliminary
stage, and management is not now in a position to predict the outcome or
effect of the litigation.
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 flow
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, after consideration of applicable reserves.
In 1993, Prudential Securities, Inc. ("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.
- 15 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Company has entered into a reinsurance agreement with The Prudential
Life Insurance Company, Ltd., a wholly owned subsidiary, under which it has
agreed to reinsure certain individual life insurance policies through a
yearly renewable term contract. The reinsurance assumed premiums and
reserves for 1996 were $27 million and $17 million, respectively.
The Company as a result of the sale of Prudential Reinsurance Inc. (a PRUCO
Inc. subsidiary), agreed to guarantee up to $775 million of Gibraltar
Casualty Company (a Prudential subsidiary) obligations with respect to a
Stop Loss Agreement and PRUCO Inc.'s (a Prudential subsidiary) payment
obligations under an Indemnity Agreement, subject to maximum aggregate
payments of $400 million. The maximum aggregate payments under the
Prudential Guarantee of the Gibraltar Casualty Company obligations will be
reduced in certain circumstances to take account of payments made and
collateral provided in respect of the guaranteed obligations. The Stop Loss
Agreement is intended to mitigate the impact on Prudential Reinsurance Inc.
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 $175 million as of December 31, 1996.
Gibraltar Casualty Company and other property and casualty insurance
subsidiaries receive 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 and
established these reserves in accordance with applicable accounting
standards. 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.
The Company and a number of other insurers (the "Consortium") entered into
a Reinsurance and Participation Agreement ("the Agreement") with MBL Life
Assurance Corporation ("MBLLAC") and others, under which the Company and
the other insurers agreed to reinsure certain payments to be made to
contractholders by MBLLAC in connection with the plan of rehabilitation of
Mutual Benefit Life Insurance Company. Under the Agreement, the Consortium,
subject to certain terms and conditions, will indemnify MBLLAC for the
ultimate net loss sustained by MBLLAC on each contract subject to the
Agreement. The ultimate net loss represents the amount by which the
aggregate required payments exceed the fair market value of the assets
supporting the covered contracts at the time such payments are due. The
Company's share of any net loss is 30.55%. The Company has determined that
it does not expect to make any payments to MBLLAC under the agreement. The
Company concluded this after testing a wide range of potentially adverse
scenarios during the rehabilitation period for MBLLAC.
******
- 16 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Policyholders of
The Prudential Insurance Company of America
We have audited the accompanying statement of admitted assets, liabilities and
surplus (statutory basis) of The Prudential Insurance Company of America as of
December 31, 1996, and the related statements of operations and changes in
surplus (statutory basis), and of cash flows (statutory basis) for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the New Jersey Department
of Insurance, which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matters referred to in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of The Prudential Insurance Company of America at December
31, 1996, and the results of its operations and its cash flows for the year then
ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and surplus of The
Prudential Insurance Company of America at December 31, 1996, and the results of
its operations and its cash flows for the year then ended, on the basis of
accounting described in Note 1.
/s/ PRICE WATERHOUSE, LLP
New York, New York
March 10, 1997
- 17 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying statement of admitted assets, liabilities and
surplus--statutory basis of The Prudential Insurance Company of America as of
December 31, 1995, and the related statements of operations and changes in
surplus--statutory basis, and cash flows--statutory basis for each of the two
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 report dated March 1, 1996, we expressed an opinion that the 1995 and
1994 financial statements, prepared using accounting practices prescribed and
permitted by the New Jersey Department of Insurance, presented fairly, in all
material respects, the financial position of The Prudential Insurance Company of
America as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. As described in Note 1 to these financial statements,
pursuant to the pronouncements of the Financial Accounting Standards Board, the
1995 and 1994 financial statements of The Prudential Insurance Company of
America, prepared using accounting practices prescribed or permitted by
insurance regulators (statutory financial statements) are no longer considered
presentations in conformity with generally accepted accounting principles. The
effects on the financial statements of the differences between the statutory
basis of accounting and generally accepted accounting principles are material
and are also described in Note 1. Accordingly, our present opinion on the
presentation of the 1995 and 1994 financial statements in accordance with
generally accepted accounting principles, as presented herein, is different from
that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the admitted assets,
liabilities and surplus of the Company as of December 31, 1995, and its
operations, changes in surplus and its cash flows for each of the two years in
the period ended December 31, 1995.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities and surplus
of The Prudential Insurance Company of America as of December 31, 1995, and the
results of its operations, changes in surplus and its cash flows for each of the
two years in the period then ended, on the basis of accounting described in Note
1.
Also, as described in Note 1 to the financial statements, these financial
statements were prepared on an unconsolidated statutory basis of accounting,
which differs from the 1995 and 1994 financial statements prepared for general
distribution on a consolidated statutory basis of accounting, both of which
differ from generally accepted accounting principles. The financial statements
for 1995 and 1994 have been restated on an unconsolidated statutory basis of
accounting adopted in 1996 for purposes of general distribution. Further, these
financial statements differ from the previously issued unconsolidated statutory
financial statements because certain permitted financial statement presentation
practices are no longer being used.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 1, 1996, except for Note 1A,
as to which the date is March 10, 1997
- 18 -
<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,
1996; the Statements of Operations for the period ended December 31, 1996;
the Statements of Changes in Net Assets for the periods ended December 31,
1996 and 1995; and the Notes relating thereto appear in the statement of
additional information (Part B of the Registration Statement).
(2) Statutory Financial Statements of The Prudential Insurance Company of
America (Depositor) consisting of the Statements of Admitted Assets,
Liabilities and Surplus (Statutory Basis) as of December 31, 1996 and 1995;
the Statements of Operations and Changes in Surplus (Statutory Basis)
Statements of Cash Flows (Statutory Basis) for the years ended December 31,
1996, 1995 and 1994; 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
November 14, 1995. (Note 7)
(b) By-laws of The Prudential Insurance Company of America, as amended
April 8, 1997. (Note 11)
(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
Prudential. (Note 3)
(9) Opinion of Counsel and consent to its use as to legality of the securities
being registered. (Note 15)
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<PAGE>
(10) (a) Written consent of Price Waterhouse LLP, independent accountants.
(Note 1)
(b) 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)
(14) Powers of Attorney.
(a) F. Agnew, F. Becker, M. Berkowitz, J. Cullen, C. Davis, R. Enrico, A.
Gilmour, W. Gray, Ill, M. Grier, J. Hanson, C. Horner, B. Malkiel, A.
Ryan, C. Sitter, D. Staheli, R. Thompson, J. Unruh, P. Vagelos, S. Van
Ness, P. Volcker, J. Williams. (Note 12)
(b) Glen H. Hiner (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 Post-Effective Amendment No 9 to Form
S-1, Registration No. 33-20083, filed April 9, 1997 on behalf of The
Prudential Variable Contract Real Property Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No.4 to Form
S-6, Registration No. 33-20000, filed March 2, 1 990, 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.1 to Form
S-6, Registration No. 333-01031, filed August 22, 1996 on behalf of
The Prudential Variable Contact GI-2.
(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.
(Note 15) Incorporated by reference to Post-Effective Amendment No. 11 to
this Registration Statement filed May 1, 1996 and to the Rule 24f-2
filing for this Registration Statement for fiscal year 1995 filed
February 29, 1996.
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<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 DEPOSITOR OR
REGISTRANT
The Prudential Insurance Company of America ("Prudential") is a mutual life
insurance company organized under the laws of New Jersey. The subsidiaries of
Prudential are listed on the Organization Chart set forth on the following
pages.
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 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 Prudential); the Prudential 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 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 Prudential.
Prudential holds all of the shares of Prudential's Gibraltar Fund, Inc., a
Maryland 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, 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 Prudential, all of which are registered as open-end, diversified, management
investment companies under the Investment Company Act of 1940.
The subsidiaries of Prudential and short descriptions of each are listed under
Item 25 of Post-Effective Amendment No. 32 to the Form N-1A Registration
Statement for The Prudential Series Fund, Inc., Registration No. 2-80896, filed
February 28, 1997, the text of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 25, 1997 there were 40,021 Contract owners of qualified Contracts
offered by the Registrant, and 68,113 Contract owners of non-qualified Contracts
offered by the Registrant.
ITEM 28. INDEMNIFICATION
Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance program, purchased by 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
C-3
<PAGE>
breach of duty by persons in the discharge of their duties in their capacities
as directors or officers of Prudential, any of its subsidiaries, or certain
investment companies affiliated with 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 or adjudicatory
proceedings and appeals therefrom. Loss does not include punitive or exemplary
damages or the multiplied portion of any multiplied damage awarded, 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, dishonest or fraudulent acts or omissions or the willful violation
of any law by a director or officer, (2) claims based on or attributed 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 1 933, 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 of 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 Prudential, can
be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of
Prudential's by-law 26, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 1.A.(6)(b) of 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.
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 UNDERWRITER
(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 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 Pruco Life of New Jersey Flexible Premium
Variable Annuity Account, The Prudential Variable Appreciable Account, The
Prudential Individual Variable Contract Account, The Prudential Qualified
Individual Variable Contract Account, Prudential's Annuity Plan Account,
Prudential's Investment Plan Account, Prudential's Annuity Plan Account-2,
Prudential's Gibraltar Fund, and The Prudential Series Fund, Inc.
C-4
<PAGE>
(b) NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ----------------
William Frisby Yelverton* Chairman and Director
Richard Topp* President and Director
E. Michael Caulfield* Director
Joseph Mahoney* Director
James Avery Jr.* Director
Richard Painter** Director
Lisa Ramaswamy * Chief Financial Officer and Comptroller
Clifford E. Kirsch** Chief Legal Officer and Secretary
* Principal Business Address: Prudential Plaza, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ 07102
(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.
(e) The Prudential Insurance Company of America ("Prudential") hereby
represents that the fees and charges deducted under the Contract, in the
aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred and the risks assumed by Prudential.
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
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 25 day of April, 1997.
(Seal) THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(Registrant)
BY: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: /s/ THOMAS C. CASTONO *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, 1997
- ------------------------------------
ARTHUR F. RYAN
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
/s/ *
- ------------------------------------
MARK B. GRIER
CHIEF FINANCIAL OFFICER
/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------ -----------------------------
FRANKLIN E. AGNEW THOMAS C. CASTANO
DIRECTOR (ATTORNEY-IN-FACT)
/s/ *
- ------------------------------------
FREDERIC C. BECKER
DIRECTOR
/s/ *
- ------------------------------------
JAMES G. CULLEN
DIRECTOR
/s/ * _____________________, 1997
- ------------------------------------
CAROLYNE K. DAVIS
DIRECTOR
/s/ *
- ------------------------------------
ROGER A. ENRICO
DIRECTOR
C-6
<PAGE>
SIGNATURE AND TITLE
-------------------
/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/ *
- ------------------------------------
GLEN H. HINER, JR.
DIRECTOR
/s/ *
- ------------------------------------
CONSTANCE J. HORNER
DIRECTOR
- ------------------------------------
GAYNOR N. KELLEY
DIRECTOR
/s/ *
- ------------------------------------ April 25, 1997
BURTON G. MALKIEL
DIRECTOR
- ------------------------------------
IDA F.S. SCHMERTZ
DIRECTOR
/s/ *
- ------------------------------------
CHARLES R. SITTER
DIRECTOR
/s/ *
- ------------------------------------
DONALD L. STAHELI
DIRECTOR
/s/ *
- ------------------------------------
RICHARD M. THOMSON
DIRECTOR
/s/ *
- ------------------------------------
JAMES A. UNRUH
DIRECTOR
/s/ *
- ------------------------------------
P. ROY VAGELOS, M.D.
DIRECTOR
C-7
<PAGE>
SIGNATURE AND TITLE
-------------------
/s/ * April 25, 1997
- -----------------------------------
STANLEY C. VAN NESS
DIRECTOR
/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------ ---------------------------
PAUL A. VOLCKER THOMAS C. CASTANO
DIRECTOR (ATTORNEY-IN-FACT)
/s/ *
- ------------------------------------
JOSEPH H. WILLIAMS
DIRECTOR
C-8
<PAGE>
EXHIBIT INDEX
(6)(b) By-laws of The Prudential Insurance Company of America, as
amended April 8, 1997 ........................................ Page C-
(10)(a) Written consent of Price Waterhouse LLP, independent
accountants .................................................. Page C-
(10)(b) Written consent of Deloitte & Touche LLP, independent
auditors ..................................................... Page C-
(13) Schedule of Performance Computations ......................... Page C-
(14)(b) Power of Attorney of Glen H. Hiner ........................... Page C-
April 8, 1997
I hereby certify that the following "By-laws" numbered 1 to 28, inclusive, is a
true copy of the By-laws of the Prudential Insurance Company of America adopted
by the Directors August 10, 1943 as amended to and including pril 8, 1997.
BY-LAWS
OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
1. The business of the corporation shall be the making of insurance upon
the lives or health of persons and every insurance appertaining
thereto, the granting, purchasing and disposing of annuities, the
making of insurance against bodily injury or death by accident, the
making of legal services insurance, the assuming of risks through
extended reinsurance, and the providing of those kinds of services
that a domestic insurer is permitted to provide by Subtitle 3 of Title
17B, of the New Jersey Statutes; and, as incidental to such primary
objects and purposes, the investment and reinvestment from time to
time of its capital, surplus and other funds or any part thereof and
the funds of other persons in such manner as may be authorized or
permitted by law.
2. The business of the corporation shall be managed by a board of
twenty-three directors, except when different persons hold the offices
of Chairman of the Board and President and the Chairman of the Board
and not the President is the Chief Executive Officer of the
corporation in which case the number shall be twenty-four. All of the
directors shall be policyholders of the corporation. Six directors
shall be such persons as may be appointed by the Chief Justice of the
Supreme Court of New Jersey as public directors pursuant to the
provisions of Subtitle 3 of Title 17B, of the New Jersey Statutes,
sixteen directors shall be elected by the policyholders as provided by
Subtitle 3 of Title 17B, of the New Jersey Statutes; and in addition
the Chairman of the Board and Chief Executive Officer and the
President elected and holding office as such from time to time shall
be ex officio directors.
The public directors and elected directors shall be classified as
provided by law. If the office of any elected director shall become
vacant by reason of death, resignation, or any other cause, the Board
shall by a majority vote of its entire number as then constituted,
elect a successor who shall hold office for the unexpired term to
which such vacancy relates.
3. Directors of the corporation shall be elected by a majority of the
votes cast at the annual election of directors held at the principal
office of the corporation in the City of Newark, New Jersey on the
first Tuesday in April of each year conducted in the manner provided
by Subtitle 3 of Title 17B, of the New Jersey Statutes.
4. Regular meetings of the Board of Directors shall be held at such times
as may be fixed from time to time by resolution of the Board of
Directors. All meetings of the Board of Directors whether regular or
special shall be held at the principal office of the corporation in
the City of Newark, New Jersey, or at such other place as the Chairman
of the Board and Chief Executive Officer may direct upon notice as
prescribed by By-law 5. Eleven directors shall be necessary to
constitute a quorum for the transaction of business at any regular or
special meeting of the Board of Directors.
Where appropriate communication facilities are reasonably available,
any or all directors shall have the right to participate in all or any
part of a meeting of the Board or a Committee of the Board by means of
conference telephone or any other means of communication by which all
persons participating in the meeting are able to hear each other.
Any action required or permitted to be taken pursuant to authorization
voted at a meeting of the Board or any Committee thereof may be taken
without a meeting if, prior or subsequent to the
<PAGE>
action, all members of the Board or such Committee, as the case may
be, consent thereto in writing and the written consents are filed with
the minutes of the proceedings of the Board or Committee. Such consent
shall have the same effect as a unanimous vote of the Board or
Committee for all purposes.
5. Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board and Chief Executive Officer, or may be
called at any time by five or more directors. Notice of any such
special meeting shall be given to each director either orally, by
mail, telephone, telegraph or otherwise, in time to afford to each
director time to attend such meeting if at the time of giving such
notice that director were at the place in which he or she usually
resides or does business. Such notice shall state the purpose of any
such special meeting.
6. (a) The officers of the corporation shall be a Chairman of the
Board and Chief Executive Officer, a President, one or more Vice
Chairmen, one or more Vice Presidents, one or more Secretaries,
one or more Assistant Secretaries, a Treasurer, a Deputy
Treasurer, one or more Assistant Treasurers, a Comptroller, one
or more Assistant Comptrollers, a Company Actuary, and one or
more Actuaries. Any Vice President may, in the discretion of the
Board of Directors, be designated at "Executive", "Senior" or
such other designation as may be deemed appropriate and, in the
case of any appointed Vice President, may be designated by the
proper officer of the corporation as "Departmental" or
"Functional" classification or such other designation as may be
deemed appropriate; and any assistant officer may, in the
discretion of the Board of Directors, be designated as
"Associate", "Assistant" or such other designation as may be
deemed appropriate. Also, any Vice President, whether elected by
the Board of Directors or appointed by the proper officers of the
corporation, may be designated as the "President", "Secretary",
"Treasurer" or "Comptroller" or such other title or designation
with respect to a business unit of the corporation as may be
deemed appropriate by the Board of Directors or the proper
officers of the corporation, as the case may be.
(b) The officers at the level of Vice President and above, except
those designated by "Corporate", "Departmental" or "Functional"
classification or by "Second" or any succeeding ordinal number,
shall be elected by the Board of Directors. An elected officer
shall hold office for the term for which he or she is elected as
determined by the Board, subject, however to the power of removal
by the Board as hereinafter set forth. The Board of Directors may
at any time fill vacancies in the elective offices, may at any
time and from time to time elect such additional persons as
officers as it shall deem necessary, and may, at its pleasure and
in its absolute discretion, by a vote of not less than fourteen
of its members remove any officer with or without cause and
without notice. All other officers of the corporation including
those who are named officers for signatory purposes only shall be
appointed by the proper officer of the corporation. An appointed
officer shall hold office until his or her resignation or until
revocation of his or her appointment, with or without cause, by
such proper officer. No person shall be deemed to be an officer
of the corporation, except such as shall have been elected or
appointed and is holding office pursuant to the provisions of
this By-law. If the Board of Directors or a proper officer of the
corporation, as the case may be, shall deem it appropriate, any
one person may hold more than one of the foregoing offices
simultaneously ; provided, however that no single person can hold
the offices of President and Secretary simultaneously.
(c) The several officers shall have such powers and authority and
perform such duties as commonly pertain to their respective
offices and as may be prescribed by the Board of Directors either
by virtue of these By-laws or otherwise or by the Chairman of the
Board and Chief Executive Officer, and the exercise of their
powers shall likewise be subject to such limitations as may be
imposed by the Board or by these By-laws or by the Chairman of
the Board and Chief Executive Officer, subject in all cases to
the authority of the Board. The Board of Directors shall fix the
compensation of all officers of the
<PAGE>
corporation at or above the level of Executive Vice President.
The Compensation Committee of the Board of Directors shall
establish the compensation for all officers at the level of
Senior Vice President. The compensation of all other officers
shall be fixed by the proper officer of the corporation in
accordance with the corporation's compensation plans.
7. The Chairman of the Board and Chief Executive Officer shall preside at
all meetings of the Board of Directors. In case of the absence or
disability of the Chairman of the Board and Chief Executive Officer,
the President or a Vice Chairman designated by the Chairman of the
Board and Chief Executive Officer shall preside. In the case of a
vacancy in the office of the Chairman of the Board and Chief Executive
Officer, the Board shall make such designation and in case of a
vacancy in the offices of the Chairman of the Board and Chief
Executive Officer, the President, and all Vice Chairmen, the Board
shall choose its presiding officer. The Chairman of the Board and
Chief Executive Officer shall be ex officio a member of all standing
committees except the Compensation Committee and the Auditing
Committee. The Chairman of the Board and Chief Executive Officer shall
have absolute power to supervise and direct the business of the
corporation, subject only to the power and authority of the Board of
Directors. He or she also shall have power, subject to the power of
the Board, to appoint or remove all persons employed or to be employed
by the corporation in any capacity whatsoever except the officers
elected by the Board of Directors and shall have power to fix the
compensation of all persons employed or to be employed by the
corporation other than the compensation of officers whose compensation
shall be fixed by the Board of Directors as provided in these By-laws;
provided, however, that the payment of such compensation must be first
authorized by the Board of Directors when the amount to be paid any
person in any year is such that approval by the Board of Directors is
required under the laws of New Jersey or these By-laws.
8. The Chairman of the Board and Chief Executive Officer shall, with the
approval of the Board of Directors, designate the President, a Vice
Chairman or any other officer at or above the level of Senior Vice
President who, in the absence or disability of the Chairman of the
Board and Chief Executive Officer shall be vested with the powers and
required to perform the duties of the Chairman of the Board and Chief
Executive Officer except those pertaining to ex officio membership on
the Board of Directors and on standing committees thereof. Such
designation shall be made in writing, presented to the Board of
Directors at the stated meeting in January of each year and shall be
filed with the Secretary. When so acting in the place of the Chairman
of the Board and Chief Executive Officer such person shall be
designated as "Acting Chairman of the Board and Chief Executive
Officer". The Chairman of the Board and Chief Executive Officer may at
any time in like manner and with like approval, change such
designation and may also designate one or more Vice Presidents to act
in succession in the order designated by him or her in the place of
any acting Chairman of the Board and Chief Executive Officer in case
of the latter's absence, disability or death. During a vacancy in the
office of Chairman of the Board and Chief Executive Officer, the Board
shall make such designation. In other respects, the President, each
Vice Chairman and each Vice President shall exercise such powers and
perform such duties as may be prescribed by the Chairman of the Board
and Chief Executive Officer or by the Board of Directors. The Chairman
of the Board and Chief Executive Officer, the President, each Vice
Chairman, and any one of the Vice Presidents shall have power to
execute on behalf of the corporation all instruments, deeds, contracts
and other corporate acts and papers, subject only to the provisions of
By-law 2 5.
9. The Secretary shall be ex officio secretary of the Board of Directors
and of each of the standing committees except the Auditing Committee.
The Secretary shall attend all sessions of the Board of Directors and
of the Executive Committee and of the Finance Committee and, when
requested, any other committees of the Board. The Secretary shall keep
full and accurate minutes of the proceedings of the Board and of the
Executive Committee and Finance Committee and shall enter such minutes
in books provided for that purpose. The Secretary shall furnish to the
Board of Directors and to all committees such corporate accounts and
papers as may be required by them. The Secretary shall have charge of
the corporate seal of the corporation and shall have
<PAGE>
power to affix the same to corporate instruments and to attest the
same. The Secretary shall have power to execute on behalf of the
corporation such instruments as may be required to be executed by him
or her. The Secretary shall have custody of the books, papers and
records of the corporation, shall give all notices on behalf of the
corporation except such as may by any provision of the law be required
to be given by any other officer and shall conduct such correspondence
and perform such other duties as may be assigned to him or her by the
Chairman of the Board and Chief Executive Officer or by the Board of
Directors.
10. The corporation shall have a common seal making the following
impression:
11. Each Assistant Secretary shall have power to execute on behalf of the
corporation such instruments as may be required to be executed by the
Secretary and to affix the seal of the corporation to corporate
instruments and to attest the same, subject, however, to the
provisions of By-law 25. Each Assistant Secretary shall perform such
duties as may be assigned to him or her from time to time by the
Chairman of the Board and Chief Executive Officer or the Secretary,
subject, however, to the power of the Board of Directors in the
premises.
12. The Treasurer shall have custody of such funds of the corporation as
shall be placed in his or her keeping, shall open and maintain
accounts in banking institutions in the name of the corporation for
the deposit of such funds and may open and maintain accounts in the
names or titles of representatives of the corporation under such
conditions as he or she may deem appropriate, subject to supervision
by the Finance Committee. All funds shall be disbursed only by
instruments signed by two or more officials to be designated by the
Finance Committee or pursuant to procedures approved by the Treasurer
and the Comptroller. The Treasurer shall have custody of such of the
securities of the corporation as shall be placed in his or her keeping
and shall open and maintain accounts in banking institutions in the
name of the corporation for the custody of other securities, including
accounts maintained for the purpose of participating in one or more
securities systems designed to permit the transfer of a security
without physical delivery of the certificate or other evidence of such
security, subject to supervision by the Finance Committee.
The Treasurer shall have the power to sell, assign or transfer
securities of the corporation on the authorization or direction of the
Finance Committee or to take such other action in connection therewith
as may be authorized or directed by the Finance Committee, and shall
have power to execute, on behalf of the corporation, all instruments
necessary or appropriate in the premises. The Treasurer shall have the
power to borrow funds on behalf of the corporation on the
authorization of the Finance Committee and perform such other duties
as may be assigned to him or her by the Chairman of the Board and
Chief Executive Officer or the Board of Directors. The Deputy
Treasurer and each Assistant Treasurer shall have power to perform, on
behalf of the corporation, such duties as are or may be required to be
performed by the Treasurer, and shall perform such other duties as may
be assigned to him or her from time to time by the Chairman of the
Board and Chief Executive Officer or the Treasurer.
13. The Comptroller shall supervise the accounts of the corporation, shall
have supervision over and responsibility for the books, records,
accounting and system of accounting and auditing in each business unit
of the corporation, and shall perform such other duties as may be
assigned to him or her by the Chairman of the Board and Chief
Executive Officer or the Board of Directors.
14. The Company Actuary shall represent the corporation in all actuarial
matters affecting the corporation's business not otherwise delegated
to a specific business unit, and shall have the authority to execute
on behalf of the corporation the statements that are filed annually
with the
<PAGE>
insurance regulators that describe the financial condition of the
corporation at the end of the year, and its business for that year.
The Company Actuary shall also perform such other duties as may be
assigned to him or her by the Chairman of the Board and Chief
Executive Officer, the Board of Directors or any of the committees.
Each business unit shall designate an Actuary who shall supervise the
designing and pricing of insurance and annuity products for such
Actuary's business unit, the valuation of the liabilities of the
corporation with respect to such products, the making of estimates as
may be required of the future financial results of the corporation,
and the conduct of research relevant to these duties.
15. The standing committees shall be:
i. An Executive Committee consisting of a Chairman to be appointed
by the Board of Directors, the Chairman of each of the other
standing committees, the Chairman of the Board and Chief
Executive Officer and such other members as the Board shall
appoint.
ii. A Finance Committee consisting of no fewer than five directors in
addition to the Chairman of the Board and Chief Executive
Officer.
iii. A Committee on Dividends consisting of no fewer than five
directors in addition to the Chairman of the Board and Chief
Executive Officer.
iv. A Committee on Nominations consisting of no fewer than five
directors in addition to the Chairman of the Board and Chief
Executive Officer.
v. A Corporate Governance Committee consisting of the members of the
Committee on Nominations and two public directors and the
Chairman of the Board and Chief Executive Officer.
vi. A Compensation Committee consisting of no fewer than five
non-officer directors.
vii. An Auditing Committee consisting of no fewer than five
non-officer directors.
viii. A Committee on Business Ethics consisting of no fewer than three
directors in addition to the Chairman of the Board and Chief
Executive Officer.
The Board of Directors shall determine the number and appoint the
members of each of the standing committees. All appointments to any
one of the standing committees shall be for such period as the Board
shall determine.
The Chairman of the Board and Chief Executive Officer may, in his or
her discretion from time to time, appoint any member of the Board to
serve temporarily upon any standing or special committee during the
absence or disability of any regular member thereof.
16. The Executive Committee shall have general supervision over the
business of the corporation and, in the intervals between meetings of
the Board of Directors, shall exercise the corporate powers of the
corporation including those delegated to other committees, except to
the extent that such powers are reserved to the Board of Directors
either by virtue of these By-laws or otherwise; provided, however,
that the Executive Committee may fill all vacancies in the elective
offices of the corporation except the office of the Chairman of the
Board and Chief Executive Officer, the President, and any Vice
Chairman until such time as the Board shall act thereon; and provided
further, the Executive Committee shall not exercise powers delegated
to any other committee unless the Chairman and Chief Executive Officer
shall determine that it is not possible or convenient to convene such
other committee within the time required for taking action. All action
of the Executive Committee shall be reported to the Board of Directors
and shall, except in
<PAGE>
cases in which the rights or acts of third parties would be affected,
be subject to the direction of the Board.
17. The Finance Committee shall have supervision of the custody of the
funds and securities of the corporation and shall direct and control
the making, management and disposition of its investments. The Finance
Committee shall have full power to authorize the Treasurer of the
corporation to borrow funds, both on a secured or unsecured basis, on
behalf of the corporation. The Committee shall examine into the state
of the cash, funds and investments of the corporation as often as it
deems necessary or when so required to do by the Board of Directors.
All action of the Finance Committee shall be reported to the Board of
Directors and shall, except in cases in which the rights or acts of
third parties would be affected, be subject to the direction of the
Board.
18. The Committee on Dividends shall from time to time submit to the Board
of Directors recommendations and resolutions for the disposition of
the surplus earnings of the corporation, having regard to the
requirements of the business, the security and adequacy of the
reserves held for the performance of the corporation's contracts and
the contract rights of policyholders to share in such earnings.
19. The Auditing Committee shall assist the Board of Directors in
fulfilling its fiduciary responsibilities relating to the accounting,
reporting and control practices of the corporation. In so doing, the
Committee shall: review the adequacy of the corporation's system of
internal control; recommend to the Board the appointment of
independent auditors; review the independent auditors' annual audit
plan, its control comments and recommendations, and management's
response to the recommendations; review the effectiveness of the
internal audit function, approve the scope of the internal audit
program and review internal audit findings; and conduct such other
inquiries and review such other materials as the Committee deems
appropriate. In carrying out its responsibilities, the Committee may
employ such auditors or accountants as it deems advisable or may avail
itself of the services of the regular auditors or accountants of the
corporation.
The Committee shall submit a report to the Board of Directors annually
describing the Committee's activities and containing any
recommendations which the Committee may have. The Committee shall
discharge any additional responsibilities as may be specified from
time to time by the Board of Directors.
20. The Committee on Nominations shall annually not later than the regular
June meeting of the Board of Directors recommend to the Board for
nomination as directors the names of four persons to succeed the
directors whose terms of office shall expire at the time of the next
annual election. Whenever a vacancy occurs in the Board of Directors,
the Committee on Nominations shall recommend a suitable person to fill
such vacancy, except that whenever a vacancy results from the failure
of a candidate for election to the Board of Directors to be elected by
a majority of votes cast, the public directors then serving on the
Board of Directors shall be constituted as a special nominating
committee to recommend a suitable person to fill such vacancy.
21. The Corporate Governance Committee shall oversee and make
recommendations to the Board regarding corporate governance, review
and make recommendations with respect to the composition of the
standing committees of the Board, and make recommendations to the
Board for the appointment of chairpersons for the respective standing
committees and any committees appointed ad hoc.
22. The Compensation Committee shall recommend to the Board of Directors
the compensation to be paid to officers of the corporation at or above
the level of Executive Vice President. The Committee shall fix the
compensation of all officers at the level of Senior Vice President.
The Compensation Committee also shall have the authority to approve,
modify and rescind the corporation's compensation and employee
benefits plans and to make such decisions as are necessary to effect
their administration. The Committee shall have oversight
responsibility with
<PAGE>
respect to compensation and benefit plan administration, and will
review other human resources matters pertaining to executive
succession and such other policies and procedures as may be relevant
to examine periodically. The Committee shall further discharge any
additional responsibilities as may be specified from time to time by
the Board of Directors.
23. The Committee on Business Ethics shall have responsibility to review
the corporation's policies on business ethics and from time to time
make recommendations to the Board of Directors concerning the adoption
and amendment of the corporation's published statement on business
ethics. The Committee shall have responsibility for monitoring and
enforcing compliance with By-law 28 and the corporation's published
statement on business ethics. It shall have the authority to make
determinations of all questions that may arise thereunder, and to
interpret and enforce the requirements thereof by appropriate action.
The Committee shall also have the authority to grant exceptions
thereunder which in the Committee's judgment are appropriate or
desirable under the circumstances. The Committee shall further
discharge any additional responsibilities as may be specified from
time to time by the Board of Directors.
24. The fiscal year of the corporation shall commence on the first day of
January and end on the thirty-first day of December in each year.
25. Either the Chairman of the Board and Chief Executive Officer and the
Secretary or the President and the Secretary shall, except as
otherwise provided in the following sentence, execute all contracts of
insurance and annuity either by signing such contracts manually or by
causing to be thereto affixed their respective facsimile signatures
duly adopted by each of them for the purpose with the approval of the
Board of Directors. The Board of Directors, in its discretion, may
authorize the execution in the same manner of any such contracts
issued out of any office outside of the United States of America by
the proper officers of such office. In case any officer, as aforesaid,
who shall have signed a contract form or whose facsimile signature
shall have been affixed thereto shall cease to be such officer by
reason of death or otherwise before such contract shall have been
issued and delivered, such contract may nevertheless be issued and
delivered unless the Board of Directors shall otherwise determine, and
any such contract so issued and delivered shall be as binding upon the
corporation as though every officer who signed the same or whose
facsimile signature was affixed thereto, as aforesaid, had continued
to be such officer of the corporation.
26. These By-laws may be altered, amended or rescinded without notice at
any regular meeting of the Board of Directors, or, upon such notice as
is prescribed by By-law 5, at any special meeting of the Board of
Directors, but in either case only by the vote of not less than twelve
members of the Board of Directors.
27. Except as otherwise provided in this By-law, the corporation shall
have the power conferred by Section 14A:3-5 of the New Jersey Statutes
to indemnify directors, officers, employees, and all other corporate
agents defined therein.
Any indemnification under this By-law pursuant to Section 14A:3-5, New
Jersey Statutes, shall be made by the corporation as authorized in a
specific case upon its being determined that (A) the costs,
disbursements and counsel fees included in any expenses for which
indemnification is made are reasonable, (B) except for indemnification
required by subsection 14A:3-5(4), indemnification is proper in the
circumstances because the corporate agent (i) met the applicable
standard of conduct set forth in subsection 14A:3-5(2) or subsection
14A:3-5(3), as the case may be, and (ii) acted within what such agent
reasonably believed to be the scope of his or her employment and
authority, and (C) any necessary court order has been obtained.
Such determinations shall be made:
(a) With respect to a corporate agent who is or was a director or
officer of the corporation at or above the level of Senior Vice
President, or with respect to any other corporate agent if the
amount to be paid in indemnification to such corporate agent
exceeds $1 million:
<PAGE>
(i) By the Board of Directors of the corporation, or a committee
thereof, acting by a majority vote of a quorum comprised of
directors who are not parties to or otherwise involved in
the proceedings;
(ii) If such a quorum is not obtainable, or, even if obtainable
and such quorum of the Board of Directors or committee by
majority vote of the disinterested directors so directs, by
independent legal counsel, in a written opinion, such
counsel to be designated by the Board of Directors.
(b) With respect to any determinations not required to be made
pursuant to (a), by the general counsel of the corporation.
Expenses reasonably incurred by a corporate agent in connection with a
proceeding may be paid by the corporation in advance of the final
disposition of the proceeding. In the case of a director, such
expenses shall be paid when incurred; in the case of any other
corporate agent, such expenses may be paid if authorized in the manner
provided above for determination that indemnification is proper. No
such expenses shall be paid until the corporate agent provides an
undertaking to repay any amount so advanced if it shall ultimately be
determined that he or she is not entitled to be indemnified as
provided in this By-law.
Any right to indemnification provided by or pursuant to the foregoing
provisions of this By-law shall not be exclusive of any other rights
to which a corporate agent may be entitled as a matter of law, by
agreement or otherwise.
28. No director or employee of the corporation shall have any position
with, a substantial interest in or significant borrowing from any
other enterprise operated for profit, the existence of which would
conflict or might reasonably be supposed to conflict with the proper
performance of his or her responsibilities to the corporation, or
which might tend to affect his or her independence of judgment with
respect to transactions between the corporation and such other
enterprise.
Susan Blount
Secretary
CONSENT OF INEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 12 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated
March 31, 1997, relating to the financial statements of Prudential Individual
Variable Contract Account, which appears in such Statement of Additional
Information.
We also consent to the use in the Statement of Additional Information
constituting part of this Registration Statement of our report dated March 10,
1997, relating to the statutory financial statements of Prudential Insurance
Company of America, which appears in such Statement of Additional Information.
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 24, 1997
INEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 12 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,
except for Note 1A as to which the date is March 10, 1997, relating to the
statutory financial statements of The Prudential Insurance Company of America in
the Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts", also appearing in the Statement of
Additional Information.
/s/ Deloitte & Touche
Parsippany, New Jersey
April 25, 1997
<TABLE>
<CAPTION>
PRU DISCO PLUS POLICY SIZE: $1,000
DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 3.15% 17.11% 12.29% 11.29% 20.29% 4.41% 10.06%
ERV(ENDING REDEEMABLE VALUE) 1031.53 1171.12 1122.86 1112.88 1202.95 1044.11 1100.65
AMT SUBJ TO LOAD IF + RETURN 896.85 882.89 887.71 888.71 879.71 895.59 889.94
AMT SUBJ TO LOAD IF - RETURN 928.38 1054.00 1010.58 1001.59 1082.65 939.70 990.58
AMT SUBJ TO LOAD 896.85 882.89 887.71 888.71 879.71 895.59 889.94
1ST YEAR SALE LOAD 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.78 61.80 62.14 62.21 61.58 62.69 62.30
ERV LESS LOAD 968.75 1109.31 1060.72 1050.67 1141.37 981.42 1038.35
RETURN W/SALES LOAD -3.12% 10.93% 6.07% 5.07% 14.14% -1.86% 3.83%
5 YEAR % OF RETURN 35.64% 109.63% 60.04% 47.87% 90.68% 21.71% 68.23%
ERV(ENDING REDEEMABLE VALUE) 1356.37 2096.35 1600.42 1478.72 1906.77 1217.14 1682.25
ANNUALIZED RETURN W/O SALE LOAD 6.29% 15.96% 9.86% 8.14% 13.78% 4.01% 10.96%
AMT SUBJ TO LOAD IF + RETURN 864.36 790.37 839.96 852.13 809.32 878.29 831.77
AMT SUBJ TO LOAD IF - RETURN 1220.73 1886.71 1440.38 1330.85 1716.09 1095.42 1514.03
AMT SUBJ TO LOAD 864.36 790.37 839.96 852.13 809.32 878.29 831.77
5TH (OR INCEPTION) SALE LOAD 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
AMT OF LOAD 34.57 31.61 33.60 34.09 32.37 35.13 33.27
ERV LESS LOAD 1321.79 2064.73 1566.83 1444.63 1874.40 1182.01 1648.98
YRS IN EXISTENCE 5 5 5 5 5 5 5
ANNUALIZED RETURN W/SALE LOAD 5.74% 15.60% 9.40% 7.63% 13.39% 3.40% 10.52%
SINCE INCPT % OF RETURN 86.97% 201.53% 135.13% 105.52% 167.13% 34.49% 90.40%
ERV(ENDING REDEEMABLE VALUE) 1,869.74 3,015.31 2,351.33 2,055.25 2,671.29 1,344.91 1,903.95
ANNUALIZED RETURN W/O SALE LOAD 8.31% 15.11% 11.52% 9.62% 13.35% 3.85% 8.56%
AMT SUBJ TO LOAD IF + RETURN 813.03 698.47 764.87 794.48 732.87 865.51 809.60
AMT SUBJ TO LOAD IF - RETURN 1682.76 2713.78 2116.20 1849.72 2404.16 1210.41 1713.56
AMT SUBJ TO LOAD 813.03 698.47 764.87 794.48 732.87 865.51 809.60
SINCE INCEPTION SALES LOAD * 0.00% 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 0.00
ERV LESS LOAD 1869.74 3015.31 2351.33 2055.25 2671.29 1344.91 1903.95
YRS IN EXISTENCE 7.84120 7.84120 7.84120 7.84120 7.84120 7.84120 7.84120
ANNUALIZED RETURN W/SALE LOAD 8.31% 15.11% 11.52% 9.62% 13.35% 3.85% 8.56%
<CAPTION>
PRU DISCO PLUS DATE: 29-Apr-97
NATR STIX GLOBAL GVTINC PRUJEN SMCAP
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 29.32% 21.11% 18.27% 1.00% 13.05% 18.35% 183.70% W/OUT
ERV(ENDING REDEEMABLE VALUE) 1293.17 1211.10 1182.71 1010.04 1130.51 1183.51
AMT SUBJ TO LOAD IF + RETURN 870.68 878.89 881.73 899.00 886.95 881.65
AMT SUBJ TO LOAD IF - RETURN 1163.86 1089.99 1064.43 909.03 1017.46 1065.16
AMT SUBJ TO LOAD 870.68 878.89 881.73 899.00 886.95 881.65
1ST YEAR SALE LOAD 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 60.95 61.52 61.72 62.93 62.09 61.72
ERV LESS LOAD 1232.22 1149.58 1120.98 947.11 1068.42 1121.80
RETURN W/SALES LOAD 23.22% 14.96% 12.10% -5.29% 6.84% 12.18% 96.79% WITH
5 YEAR % OF RETURN 101.12% 87.81% 71.81% 29.98% N/A N/A
ERV(ENDING REDEEMABLE VALUE) 2011.18 1878.09 1718.05 1299.84 N/A N/A
ANNUALIZED RETURN W/O SALE LOAD 15.00% 13.43% 11.43% 5.38% N/A N/A 117.37% W/OUT
AMT SUBJ TO LOAD IF + RETURN 798.88 812.19 828.19 870.02 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 1810.07 1690.28 1546.25 1169.86 N/A N/A
AMT SUBJ TO LOAD 798.88 812.19 828.19 870.02 N/A N/A
5TH (OR INCEPTION) SALE LOAD 4.00% 4.00% 4.00% 4.00% N/A N/A
AMT OF LOAD 31.96 32.49 33.13 34.80 N/A N/A
ERV LESS LOAD 1979.23 1845.61 1684.93 1265.04 N/A N/A
YRS IN EXISTENCE 5 5 5 5 0 0
ANNUALIZED RETURN W/SALE LOAD 14.63% 13.04% 11.00% 4.81% N/A N/A 111.66% WITH
SINCE INCPT % OF RETURN 149.77% 185.48% 79.38% 73.47% 39.54% 40.58%
ERV(ENDING REDEEMABLE VALUE) 2,497.66 2,854.82 1,793.85 1,734.66 1,395.41 1,405.82
ANNUALIZED RETURN W/O SALE LOAD 12.38% 14.31% 7.92% 7.45% 22.08% 22.62% 161.42% W/OUT
AMT SUBJ TO LOAD IF + RETURN 750.23 714.52 820.62 826.53 860.46 859.42
AMT SUBJ TO LOAD IF - RETURN 2247.90 2569.34 1614.46 1561.20 1255.87 1265.24
AMT SUBJ TO LOAD 750.23 714.52 820.62 826.53 860.46 859.42
SINCE INCEPTION SALES LOAD * 0.00% 0.00% 0.00% 0.00% 7.00% 7.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 60.23 60.16
ERV LESS LOAD 2497.66 2854.82 1793.85 1734.66 1335.18 1345.66
YRS IN EXISTENCE 7.84120 7.84120 7.66872 7.66872 1.67009 1.67009
ANNUALIZED RETURN W/SALE LOAD 12.38% 14.31% 7.92% 7.45% 18.90% 19.45% 155.07% WITH
<FN>
* Sales Load percentage should change after each year. Check prospectus and update as necessary.
Rate of Return (ROR) = (Current UV - Prior UV)/(Prior UV) Ending Redeemable Value (ERV) = ((ROR+1)*1000) Prepared By:
Annualized Rate of Return = (ERV/1000)^(1/N)-1, N = # OF YEARS Reviewed By:
</FN>
</TABLE>
<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST BUSINESS DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU DISCO PLUS PRODUCT Filename:
<CAPTION>
PRU DISCO PLUS MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD NATR STIX
----------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE ######### ######### ######### ######### ######### ######### ######### ######### ######### 27-Feb-89
WHOLE YEARS SINCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION 5.00000 5.00000 5.00000 5.00000 5.00000 5.00000 5.00000 5.00000 5.00000 5.00000
INITIAL UNIT VALUE 1.43998 1.59913 1.88358 1.65637 1.66611 1.13935 1.00329 1.07811 1.13685 1.01838
1989 31-Mar-89 1.44979 1.60677 1.91512 1.67575 1.68042 1.15617 1.00801 1.06878 1.14595 1.04491
30-Jun-89 1.47974 1.72914 2.07947 1.80804 1.76639 1.25045 1.03733 1.09308 1.20265 1.13189
30-Sep-89 1.50774 1.73731 2.27225 1.89836 1.83900 1.32945 1.04684 1.06706 1.30914 1.24716
31-Dec-89 1.53581 1.79017 2.32328 1.94994 1.89226 1.33181 1.06798 1.01855 1.39112 1.26833
1990 31-Mar-90 1.56157 1.76305 2.26411 1.89201 1.87649 1.27764 1.07731 0.97265 1.36906 1.22524
30-Jun-90 1.58799 1.81856 2.31918 1.97655 1.94414 1.31537 1.09102 1.02401 1.34845 1.29438
30-Sep-90 1.61429 1.83157 1.95179 1.82538 1.88034 1.17152 1.10563 0.92218 1.32540 1.11345
31-Dec-90 1.64133 1.91594 2.17588 1.96344 1.96812 1.26685 1.11478 0.88724 1.29539 1.20765
1991 31-Mar-91 1.66497 1.96084 2.58450 2.12974 2.09088 1.40599 1.10959 1.02526 1.35148 1.37708
30-Jun-91 1.68544 1.99025 2.60830 2.12168 2.11635 1.43223 1.11762 1.10641 1.38324 1.36795
30-Sep-91 1.70425 2.09827 2.60343 2.25339 2.19644 1.50276 1.11776 1.16647 1.43378 1.43459
31-Dec-91 1.72182 2.20438 2.70927 2.43353 2.31570 1.59617 1.10861 1.22019 1.41184 1.54800
1992 31-Mar-92 1.73586 2.16912 2.85556 2.34998 2.29284 1.57543 1.09354 1.30324 1.42913 1.50315
30-Jun-92 1.74730 2.25069 2.87122 2.36693 2.32268 1.60774 1.05510 1.34331 1.50681 1.52522
30-Sep-92 1.75701 2.33922 2.89727 2.47154 2.37266 1.67452 1.06000 1.39449 1.54098 1.56677
31-Dec-92 1.76575 2.33452 3.05622 2.58742 2.44709 1.73693 1.07040 1.41713 1.49691 1.63861
1993 31-Mar-93 1.77362 2.42875 3.32862 2.72488 2.56017 1.92882 1.07877 1.49992 1.65960 1.70368
30-Jun-93 1.78090 2.48888 3.42357 2.80169 2.62331 1.99606 1.09458 1.56897 1.81109 1.70478
30-Sep-93 1.78846 2.56012 3.54449 2.94155 2.70625 2.06034 1.11619 1.58829 1.81080 1.74178
31-Dec-93 1.79633 2.54072 3.68057 2.95516 2.71321 2.09889 1.12217 1.67012 1.85126 1.77569
1994 31-Mar-94 1.80430 2.46157 3.57550 2.80289 2.63248 2.05769 1.12660 1.66214 1.79392 1.70182
30-Jun-94 1.81484 2.42965 3.58857 2.77774 2.63448 2.06517 1.14052 1.64217 1.79521 1.70292
30-Sep-94 1.82928 2.43504 3.78210 2.86672 2.68727 2.18204 1.15929 1.63973 1.98188 1.77910
30-Dec-94 1.84692 2.42952 3.73800 2.82770 2.65511 2.10375 1.20195 1.60540 1.75071 1.77231
1995 31-Mar-95 1.86773 2.52991 4.05731 2.95141 2.76933 2.22908 1.20958 1.68499 1.91776 1.93725
30-Jun-95 1.88943 2.70702 4.33227 3.15285 2.89912 2.38653 1.23749 1.74803 2.01860 2.11369
30-Sep-95 1.91033 2.76447 4.70277 3.34246 2.99686 2.51048 1.27929 1.79379 2.10210 2.27331
31-Dec-95 1.93131 2.89855 4.84971 3.46853 3.07694 2.53006 1.29232 1.86497 2.19574 2.40054
1996 ######### 1.95034 2.83333 5.09322 3.54782 3.17730 2.67539 1.31111 1.92154 2.52219 2.52124
######### 1.96919 2.83716 5.17367 3.62417 3.21302 2.69254 1.32409 1.94263 2.60714 2.62380
######### 1.98847 2.89272 5.23847 3.72708 3.25693 2.75868 1.33385 2.02568 2.64028 2.69421
######### 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267 2.83947 2.90729
</TABLE>
POWER OF ATTORNEY
Know all men by these presents:
That I, GLEN H. HINER, of Toledo, OH, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact SUSAN L. BLOUNT,
THOMAS C. CASTANO, THOMAS A. EARLY, THOMAS J. LOFTUS, BERNARD V. PETERSON,
CLIFFORD KIRSCH, PETER T. SCOTT and C. CHRISTOPHER SPRAGUE or any of them
severally for me and in my name, place and stead to sign, where applicable:
Annual Reports of Form 10-K, registration statements on the appropriate forms
prescribed by the Securities and Exchange Commission, and any other periodic
documents and reports required under the Investment Company Act of 1940, the
Securities Act of 1933 and all amendments thereto executed on behalf of The
Prudential Insurance Company of America and filed with the Securities and
Exchange Connnission for the following:
The Prudential Variable Contract Account-2 and group variable annuity
contracts, to the extent they represent participating interests in said
Account;
The Prudential Variable Contract Account-10 and group annuity contracts,
to the extent they represent participating interests in said Account;
The Prudential Variable Contract Account-11 and group annuity contracts,
to the extent they represent participating interests in said Account;
The Prudential Variable Contract Account-24 and group annuity contracts, to
the extent they represent participating interests in said Account;
The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;
Prudential's Investment Plan Account and Systematic Investment Plan
Contracts, to the extent they represent participating interests in said
Account, and Shares of the Common Stock of Prudential's Gibraltar Fund;
<PAGE>
Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund; The Prudential
Individual Variable Contract Account and Individual Variable Annuity
Contracts, to the extent they represent participating interests in said
Account;
The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;
The Prudential Variable Appreciable Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account;
The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account;
The Prudential Variable Contract Account GI-2 and Group Variable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and
The Prudential Discovery Select Group Variable Contract Account and group
annuity contracts, to the extent they represent participating interests in
said Account.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of March, 1997.
/s/
--------------------------
Signature
State of Ohio )
)
County of Lucas )
On this 19th day of March, 1997, before me personally appeared Glen H.
Hiner, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.
My commission expires: June 27, 1998
/s/
----------------------------
Notary Public
State of Ohio
