AS FILED WITH THE SECURITIES ON APRIL 24, 1998 REGISTRATION NO. 2-80897
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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. 24 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 29 [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)
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(888) PRU-2888
(Address and telephone number of principal executive offices)
THOMAS C. CASTANO
ASSISTANT SECRETARY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(Name and address of agent for service)
Copies to:
LEE AUGSBURGER CHRISTOPHER E. PALMER
ASSISTANT GENERAL COUNSEL SHEA & GARDNER
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 1800 MASSACHUSETTS AVENUE, N.W.
751 BROAD STREET WASHINGTON, D.C. 20036
NEWARK, NEW JERSEY 07102-3777
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It is proposed that this filing will become effective (check appropriate space)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485 on
May 1, 1998 pursuant to paragraph (b) of Rule 485
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(date)
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on pursuant to paragraph (a)(1) of Rule 485
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(date)
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Interests in Individual Variable Annuity
Contracts
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(a) UNDER THE 1933 ACT)
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N-4 ITEM NUMBER AND CAPTION LOCATION
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PART A
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1. Cover Page....................................... Cover Page
2. Definitions...................................... Definition of Special Terms Used in This Prospectus
3. Synopsis or Highlights........................... Brief Description of the Contract; Fee Table
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
Contracts; The Fixed-Rate Option
6. Deductions and Expenses.......................... Brief Description of the Contract; Charges, Fees and
Deductions; Differences Under the WVA-83 Contract
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; Differences Under the WVA-83
Contract; Voting Rights; Ownership of the Contract;
State Regulation
Part B: Participation in Divisible Surplus
8. Annuity Period................................... Part A: Brief Description of the Contract; Effecting an
Annuity; Differences Under the WVA-83 Contract
Part B: Item 22, Determination of Subaccount Unit
Values and of the Amount of Monthly Variable Annuity
Payment
9. Death Benefit.................................... Death Benefit; Effecting an Annuity; Differences Under
the WVA-83 Contract
10 Purchases and Contract Value..................... Brief Description of the Contract; The Prudential
Insurance Company of America; Requirements for Issuance
of a Contract; Valuation of Contract Owners' Contract
Funds
11. Redemptions...................................... Brief Description of the Contract; Short-Term
Cancellation Right or "Free Look"; Withdrawals;
Charges, Fees and Deductions; Differences Under the
WVA-83 Contract; 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
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N-4 ITEM NUMBER AND CAPTION LOCATION
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20. Underwriters..................................... Part A: Sale of the Contract and Sales Commissions
Part B: Principal Underwriter
21. Calculation of Performance Data................... Financial Statements of The Prudential Individual
Variable Contract Account
22. Annuity Payments.................................. Part A: Valuation of Contract Owner's Contract Fund;
Effecting an Annuity; Differences Under the WVA-83
Contract
Part B: Determination of Subaccount Unit Values and of
the Amount of Monthly Variable Annuity Payment
23. Financial Statements............................. Part B: Financial Statements of The Prudential Individual
Variable Contract Account; Consolidated Financial
Statements of The Prudential Insurance Company of
America and Subsidiaries
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
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PROSPECTUS
MAY 1, 1998
INDIVIDUAL VARIABLE ANNUITY CONTRACTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE INVESTMENT PLAN/(R)/
This prospectus describes Individual Variable Annuity Contracts (the "Contract")
issued by The Prudential Insurance Company of America ("Prudential"). These
Contracts provide for the accumulation of purchase payments and for the payment
of benefits, either in the form of a monthly annuity after retirement or in a
lump sum at retirement or at an earlier time.
The Contract is purchased by making an initial payment of $1,000 or more;
subsequent payments must be $100 or more. Your accumulated purchase payments
will be allocated as you direct in one or more of the following ways: 1) in one
or more of thirteen subaccounts of The Prudential Individual Variable Contract
Account (the "Account"); 2) under a FIXED-RATE OPTION; and 3) in a real estate
investment option. 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 the risks of
investing in the thirteen portfolios of the Series Fund currently available to
Contract owners: 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. Selection of the real estate investment option involves
allocation of part or all of your purchase payments to THE PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY ACCOUNT (the "Real Property Account"), a separate account
of Prudential that, 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.
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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, 1998, which information is incorporated herein by reference, and is
available without charge upon written request to The Prudential Insurance
Company of America, 751 Broad Street, Newark, New Jersey, 07102-3777, or by
telephoning (888) PRU-2888.
The Contents of the statement of additional information appear on page 29 of the
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 ANNUITY SERVICE CENTER
751 BROAD STREET P.O. BOX 14205
NEWARK, NEW JERSEY 07102-3777 NEW BRUNSWICK, NEW JERSEY 08906-4205
TELEPHONE: (888) PRU - 2888 TELEPHONE: (888) PRU - 2888
VARIABLE INVESTMENT PLAN is a registered mark of Prudential.
VIP-1 Ed 5-98
Catalog #64696D2
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PROSPECTUS CONTENTS
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PAGE
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DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS............................ 1
BRIEF DESCRIPTION OF THE CONTRACT............................................... 2
THE PRUDENTIAL INDIVIDUAL VARIABLE ANNUITY CONTRACT..................... 2
CHARGES UNDER THE CONTRACTS............................................. 3
TRANSFERS AMONG INVESTMENT OPTIONS...................................... 4
FREE LOOK............................................................... 4
HOW TO CONTACT THE PRUDENTIAL........................................... 4
FEE TABLE....................................................................... 5
EXAMPLES OF FEES AND EXPENSES........................................... 6
ACCUMULATION UNIT VALUES........................................................ 8
GENERAL INFORMATION ABOUT THE PRUDENTIAL, THE PRUDENTIAL INDIVIDUAL VARIABLE
CONTRACT ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT.......................................................... 11
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA............................. 11
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT..................... 11
THE PRUDENTIAL SERIES FUND, INC......................................... 11
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT.................. 12
DETAILED INFORMATION ABOUT THE CONTRACT......................................... 13
REQUIREMENTS FOR ISSUANCE OF A CONTRACT................................. 13
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"............................ 13
ALLOCATION OF PURCHASE PAYMENTS......................................... 13
ADDITIONAL AMOUNTS...................................................... 14
TRANSFERS............................................................... 14
WITHDRAWALS............................................................. 15
DEATH BENEFIT........................................................... 15
VALUATION OF CONTRACT OWNER'S CONTRACT FUND............................. 15
CHARGES, FEES, AND DEDUCTIONS................................................... 16
1. PREMIUM TAXES........................................................ 16
2. SALES CHARGES ON WITHDRAWALS......................................... 16
3. RECAPTURE OF ADDITIONAL AMOUNTS...................................... 18
4. ANNUAL MAINTENANCE CHARGE............................................ 18
5. CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS...................... 18
6. EXPENSES INCURRED BY THE SERIES FUND................................. 19
THE FIXED-RATE OPTION........................................................... 19
FEDERAL TAX STATUS.............................................................. 20
TAXES PAYABLE BY CONTRACT OWNERS........................................ 20
WITHHOLDING............................................................. 21
TAXES ON THE PRUDENTIAL................................................. 21
EFFECTING AN ANNUITY............................................................ 21
ANNUITY OPTIONS UNDER THE VIP-86 CONTRACT............................... 22
ANNUITY OPTIONS UNDER THE WVA-83 AND VIP-84 CONTRACTS................... 23
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES.... 24
OTHER INFORMATION............................................................... 24
VOTING RIGHTS........................................................... 24
SALE OF THE CONTRACT AND SALES COMMISSIONS.............................. 25
OWNERSHIP OF THE CONTRACT............................................... 25
REPORTS TO CONTRACT OWNERS.............................................. 25
PERFORMANCE INFORMATION................................................. 25
SUBSTITUTION OF SERIES FUND SHARES...................................... 26
DIFFERENCES UNDER THE WVA-83 CONTRACT................................... 26
STATE REGULATION........................................................ 27
LITIGATION.............................................................. 27
YEAR 2000 COMPLIANCE.................................................... 27
ADDITIONAL INFORMATION.................................................. 28
DIRECTORS AND OFFICERS.......................................................... 30
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DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
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 8 Contract years after it is
made.
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 OR ANNUITY--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.
CONTRACT ANNIVERSARY DATE--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
the sum of all the amounts in the Variable Account (defined below), the Real
Property Account (defined below), and the fixed-rate option (defined below).
CONTRACT OWNER--A person who purchases an Individual Variable Annuity Contract
of the VARIABLE INVESTMENT PLAN(R) 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,
including 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 variable
investment options and the fixed-rate option, 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%.
SUBACCOUNT--A division of the Account, the assets of which are invested in the
shares of the corresponding portfolio of the Series Fund.
SUBACCOUNT ANNUITY UNIT--When a Contract owner elects to convert his or her
Variable Account into monthly variable annuity payments, the number of
Subaccount Units (defined below) credited to him or her in each subaccount is
first reduced to take into account any applicable sales charge and any state
premium taxes that may be payable. The remaining Subaccount Units are then
converted into a number of Subaccount Annuity Units of equal aggregate value. As
with Subaccount Units, the value of each Subaccount Annuity Unit also changes
each day to reflect investment results and expenses of and deductions of charges
from the underlying Series Fund portfolio, after deduction of the daily
equivalent of the annual charge of up to 1.2% for assuming expense and mortality
risks. For further discussion, see page C1 of the statement of additional
information.
SUBACCOUNT UNIT--The Contract owner's Variable Account is credited with Units in
each subaccount in which he or she invests. The value of these Units changes
each day to reflect the investment results and expenses of and deductions of
charges from the Series Fund portfolios in which the assets of the subaccount
are invested, in much the same way that the share values of a mutual fund change
each day. The value of the Contract owner's Variable Account is the sum of the
value of Subaccount Units in each subaccount.
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 ACCOUNT--The value attributable to a specific Contract representing
amounts in all the subaccounts.
VARIABLE INVESTMENT OPTIONS--The subaccounts and the Real Property Account.
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BRIEF DESCRIPTION OF THE CONTRACT
THE PRUDENTIAL INDIVIDUAL VARIABLE ANNUITY CONTRACT
The Prudential Individual Variable Annuity Contract (the "Contract") provides
one way--there are many others--of accumulating your savings, having them
invested in one or more securities portfolios with different investment
objectives, and withdrawing them (subject to any applicable withdrawal charges
and taxes) when you need them, preferably to supplement your monthly income
after you retire but at any earlier time if you wish. [The words "you" and
"your" as used in this prospectus refer to the owner of the Contract. See
OWNERSHIP OF THE CONTRACT, page 25. The word "we" refers to The Prudential
Insurance Company of America ("Prudential").] For many persons, a variable
annuity contract may offer substantial advantages as a long-term financial
planning device over alternative forms of investment (other than alternative
tax-favored investments such as Individual Retirement Accounts), primarily due
to the manner in which the earnings on your accumulating funds are taxed. See
FEDERAL TAX STATUS, page 20.
This prospectus describes three forms of the Contract. One form, which was first
offered in 1983, is called the WVA-83 Contract (persons holding this Contract
can identify it by the WVA-83 designation which appears in the lower left corner
of the Contract cover page). A second form, which is a revised edition of the
WVA-83 Contract, is called the VIP-84 Contract (persons holding this Contract
can identify it by the VIP-84 designation which appears in the lower left corner
of the Contract cover page). The third form, which is a revised edition of the
VIP-84 Contract, is called the VIP-86 Contract (except as described below,
persons holding this Contract can identify it by the VIP-86 designation which
appears in the lower left corner of the Contract cover page). In Texas, this
Contract bears a VIP-89 designation; however, it will be referred to as the
VIP-86 Contract throughout this prospectus. Currently, only the VIP-86 Contract
is offered in all jurisdictions. It is possible that additional forms of the
Contract may be offered and described in this prospectus in the future.
The three forms of Contract are basically similar, but there are some
significant differences. This prospectus describes each of the Contracts and
explains, where appropriate, the respects in which they differ. Because the
differences between the first form, WVA-83, and the later two forms are somewhat
extensive, a special section, DIFFERENCES UNDER THE WVA-83 CONTRACT, is included
on page 26, to which reference will occasionally be made.
You may make purchase payments under your Contract at regular intervals or from
time to time as you have funds available. Your first payment must be at least
$1,000. Thereafter each payment must be $100 or more. See REQUIREMENTS FOR
ISSUANCE OF A CONTRACT, page 13.
Purchase payments are held in one or more subaccounts of The Prudential
Individual Variable Contract Account (the "Account") as you direct. You may also
choose to invest all or part of your purchase payments in The Prudential
Variable Contract Real Property Account (the "Real Property Account"), which,
through a partnership, invests primarily in income-producing real property. If a
Contract owner elects to invest a portion of his or her purchase payments in the
Real Property Account, 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 the 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 12. Additionally, you may direct that all or part of your payment be
allocated to a FIXED-RATE OPTION providing for the addition of interest at a
guaranteed rate upon the amount so held. Initially, you must allocate at least
$300 to an investment plan option in which you choose to invest. Your subsequent
investments in that investment plan must be in amounts no less than $100 each.
Each variable subaccount is invested in a corresponding portfolio of The
Prudential Series Fund, Inc. (the "Series Fund"), a series mutual fund for which
Prudential is the 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
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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 11, and in the attached prospectus for the Series Fund.
You may place your entire payment in one subaccount, in the Real Property
Account or in the fixed-rate option, or divide it among any of the thirteen
subaccounts, the Real Property Account and the fixed-rate option, subject to the
applicable minimum requirements. You may transfer funds from one subaccount to
another, to the Real Property Account, and to the fixed-rate option. There are
limitations upon transfers from the fixed-rate option and to and from the Real
Property Account. See TRANSFERS, page 14. The amount credited to you in the
variable investment options will initially be equal to that part of your
purchase payment that you choose to invest in each option. Thereafter the value
of your holdings in the variable investment options, after deducting charges
payable under the Contract, will vary in accordance with investment results. See
VALUATION OF CONTRACT OWNER'S CONTRACT FUND, page 15, and page C1 of the
statement of additional information. The total value attributable to a specific
Contract representing amounts allocated to all subaccounts, the Real Property
Account, and the fixed-rate option is known as the "Contract fund". You will
receive confirmations of every purchase payment you make. You will also receive
annual statements showing the status of your Contract fund.
The Contracts described in this prospectus have an 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 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 14. During
the first 8 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 or is subject to a reduced sales charge.
See SALES CHARGES ON WITHDRAWALS, page 16 and RECAPTURE OF ADDITIONAL AMOUNTS,
page 18.
If you need all or part of your money at any time, you may request a withdrawal.
The amount you request will be deducted from your Contract fund. See
WITHDRAWALS, page 15. As long as the Contract remains in effect, you may
withdraw the amount credited to you in a lump sum or use it to effect a monthly
annuity that will continue as long as the annuitant[s] you select live or for
some other period you select. Other than an annuity selected under the
Supplemental Life Annuity Option, WVA-83 and VIP-84 Contract owners may elect to
receive a variable annuity. If you elect a variable annuity option, annuity
payments will vary each month in accordance with the investment performance of
the subaccount[s] you have chosen. See page C1 of the statement of additional
information. If you elect a fixed-dollar annuity option, annuity payments will
be in monthly installments of guaranteed amounts. VIP-86 Contract owners may
only elect a fixed-dollar annuity option. A sales charge may be deducted from
the amount withdrawn. Withdrawals may be subject to tax and, in certain
circumstances, a tax penalty. This sales charge will be higher with respect to
withdrawals of purchase payments made in early years, soon after the purchase
payments are made. See SALES CHARGES ON WITHDRAWALS, page 16, TAXES PAYABLE BY
CONTRACT OWNERS, page 20, and EFFECTING AN ANNUITY, page 21.
CHARGES UNDER THE CONTRACTS
The charges made by Prudential are intended to compensate it for paying various
categories of expenses incurred in maintaining and operating the Account (up to
$30 annually, if applicable) and for assuming mortality and expense risks under
the Contracts (an annual rate of up to 1.2% of the assets held in the variable
investment options). In addition, there are other expenses incurred in
connection with the operation and management of the Series Fund, the most
significant of which is an investment management fee ranging from an annual rate
of 0.35% to 0.75% of the aggregate average daily net assets in each of the
portfolios. For more information regarding these charges, see CHARGES, FEES, AND
DEDUCTIONS, page 16. There is also a management fee and other expenses assessed
against the assets of the real property partnership. See THE PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY ACCOUNT, page 12.
A deferred sales charge is imposed to reimburse Prudential for distribution
expenses such as commissions paid to sales personnel, costs of advertising and
sales promotions, prospectus costs, and costs of sales administration. Many
mutual funds, other than no-load funds, make this charge by deducting a
percentage of the investors purchase payment and investing only the remainder.
Under the Contracts described in this prospectus, each purchase
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payment you make (after deduction of any applicable amount needed to pay taxes
attributable to premiums) is allocated to the subaccounts designated by you, to
the Real Property Account or to the fixed-rate option. In any Contract year you
may make withdrawals without charge of up to 10% of your Contract fund value on
the date of the first withdrawal in that Contract year. A sales charge may be
deducted on withdrawals above 10%. The charge is 8% (the maximum charge) of each
purchase payment withdrawn during the same Contract year that it was made.
Thereafter the charge decreases by 1% per Contract year. Purchase payments
withdrawn 8 or more Contract years after they were made are subject to no sales
charge at all. See SALES CHARGES ON WITHDRAWALS, page 16. Withdrawals may be
subject to tax under the Internal Revenue Code (the "Code"). See WITHDRAWALS,
page 15, and TAXES PAYABLE BY CONTRACT OWNERS, page 20.
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 16.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers may be made from one subaccount to another, to the Real Property
Account or to the fixed-rate option if the amount transferred is $300 or more
and any amount remaining to your credit in the subaccount after the transfer is
not less than $300. Also, you can transfer the total amount remaining in any
subaccount even if that amount is less than $300. Up to four transfers a year
between subaccounts, to the Real Property Account or to the fixed-rate option
may be made during the period before annuity payments begin. Currently, you may
make more than four such transfers per year without Prudential's consent.
Transfers from the fixed-rate option to the subaccounts are permitted only once
each Contract year, and there are other limitations on such transfers. See
TRANSFERS, page 14. Transfers to and from the Real Property Account are subject
to restrictions described in the accompanying prospectus for the Real Property
Account.
WVA-83 Contract owners and VIP-84 Contract owners may convert their Contract
fund into either a variable (if available) or fixed-dollar annuity or both.
After variable annuity payments begin, the Contract owner may make up to four
full or partial transfers per year from any subaccount to one or more other
subaccounts. Currently, the annuitant may make more than four such transfers per
year without Prudential's consent. Prudential's consent is needed if for a
partial transfer, either the number of Subaccount Annuity Units to be
transferred or the number to be retained, multiplied by the corresponding
Subaccount Annuity Unit Value on the effective date of the transfer, is less
than $20. Transfer requests may be in writing.
Transfer requests may also be made by telephone. See TRANSFERS, page 14.
FREE LOOK
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 13.
HOW TO CONTACT PRUDENTIAL
All written requests and notices required by the Contracts, such as withdrawal
or transfer requests, and any questions or inquiries should be sent to the
Prudential Annuity Service Center ("Annuity Service Center", previously the
Prudential Home Office).
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.
4
<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:
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
AS A PERCENTAGE OF
CONTRACT YEARS AFTER PAYMENT PURCHASE PAYMENT WITHDRAWN*
---------------------------- -----------------------------
<S> <C> <C>
0................................... 8% plus return of 1% bonus
1 year.............................. 7% plus return of 1% bonus
2 years............................. 6% plus return of 1% bonus
3 years............................. 5% plus return of 1% bonus
4 years............................. 4% plus return of 1% bonus
5 years............................. 3% plus return of 1% bonus
6 years............................. 2% plus return of 1% bonus
7 years............................. 1% plus return of 1% bonus
8 or more years..................... 0%
</TABLE>
*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 Administrative Charge......................................... 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.
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE CONTRACT FUND)
ALL SUBACCOUNTS
Total Separate Account
Annual Expenses (Mortality and Expense Risk Fee) ..... 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........... .03% .03% .04% .01% .02% .02%
---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses....... .43% .43% .44% .56% .62% .57%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<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........... .02% .01% .01% .04% .10% .10% .09%
---- ---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses....... .37% .41% .46% .64% .50% .85% .54%
==== ==== ==== ==== ==== ====
</TABLE>
5
<PAGE>
The purpose of the foregoing tables is to assist the Contract owners in
understanding the expenses of The Prudential Individual Variable Contract
Account and The Prudential Series Fund, Inc. (the "Series Fund") that they bear,
directly or indirectly. See the sections on charges in this prospectus and the
attached prospectus for the Series Fund. The above tables do not include any
taxes attributable to premiums. Currently, there is no deduction for such taxes
at the time purchase payments are made, but in some states a deduction is made
when an annuity is effected.
Except for the Global Portfolio, Prudential reimburses a portfolio when its
ordinary operating expenses, excluding taxes, interest, and brokerage
commissions exceed 0.75% of the portfolios 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 7, illustrate the cumulative dollar
amount of all the above expenses that would be incurred on each $1,000
investment.
. The examples assume a consistent 5% annual return on invested assets;
. 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;
. The amounts shown are overstated for Contract funds over $10,000 and
understated for Contract funds less than $10,000.
. The examples assume that the operating expenses incurred in 1997 will
continue for a 10 year period.
. For periods 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 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 portfolio example shows how the Year 1 expenses shown in Table I were
calculated for the Money Market 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.
<TABLE>
<S> <C> <C>
Initial Investment 1,000.00
Plus 1% Bonus ($1,000+$10) 1,010.00
Total Contract Expenses (1.2 risk fees + .43 management fee + .075
annual maintenance charge) 1.705%
Assumed 5% Rate of Return Minus
Total Contract Expenses 3.295%
Value of Funds ($1,010 x 3.295%) 33.28
Total Value of Funds ($1,010 + 33.28) 1,043.28
Average Value of Funds {($1,043 + 1,010)*12} 1,026.64
Total Contract Expenses ($1,026.64 x 1.705% (rounded)) 18.00
Contingent Deferred Sales Charges
Initial Investment 1,000.00*
10% Charge Free Withdrawal 100.00
Amount Subject to Withdrawal Charge 900.00
Surrender Charge (900* 8.00%) 72.00
Plus Total Contract Expenses 18.00
Total Charges 90.00
</TABLE>
*Note that in this example, Prudential would recapture the 1% bonus that had
been credited to the initial investment.
6
<PAGE>
EXAMPLES
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....................... $ 90 $ 96 $113 $203
DIVERSIFIED BOND PORTFOLIO................... $ 90 $ 96 $113 $203
GOVERNMENT INCOME PORTFOLIO.................. $ 90 $ 97 $114 $205
CONSERVATIVE BALANCED PORTFOLIO.............. $ 91 $100 $120 $217
FLEXIBLE MANAGED PORTFOLIO................... $ 91 $102 $123 $224
HIGH YIELD BOND PORTFOLIO.................... $ 91 $101 $121 $219
STOCK INDEX PORTFOLIO........................ $ 89 $94 $110 $197
EQUITY INCOME PORTFOLIO...................... $ 89 $ 96 $112 $201
EQUITY PORTFOLIO............................. $ 90 $ 97 $115 $207
PRUDENTIAL JENNISON PORTFOLIO................ $ 92 $103 $124 $226
SMALL CAPITALIZATION STOCK PORTFOLIO......... $ 90 $ 98 $117 $211
GLOBAL PORTFOLIO............................. $ 94 $109 $135 $248
NATURAL RESOURCES PORTFOLIO.................. $ 91 $100 $119 $215
</TABLE>
As an example, if the entire Contract fund is invested in the Flexible Managed
Portfolio, and you surrendered your Contract just prior to the end of 1 year,
you would pay $91 per $1,000 invested, reflecting all charges including the 8%
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 3. 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....................... $ 90 $ 96 $113 $203
DIVERSIFIED BOND PORTFOLIO................... $ 90 $ 96 $113 $203
GOVERNMENT INCOME PORTFOLIO.................. $ 90 $ 97 $114 $205
CONSERVATIVE BALANCED PORTFOLIO.............. $ 91 $100 $120 $217
FLEXIBLE MANAGED PORTFOLIO................... $ 91 $102 $123 $224
HIGH YIELD BOND PORTFOLIO.................... $ 91 $101 $121 $219
STOCK INDEX PORTFOLIO........................ $ 89 $ 94 $110 $197
EQUITY INCOME PORTFOLIO...................... $ 89 $ 96 $112 $201
EQUITY PORTFOLIO............................. $ 90 $ 97 $115 $207
PRUDENTIAL JENNISON PORTFOLIO................ $ 92 $103 $124 $226
SMALL CAPITALIZATION STOCK PORTFOLIO......... $ 90 $ 98 $117 $211
GLOBAL PORTFOLIO............................. $ 94 $109 $135 $248
NATURAL RESOURCES PORTFOLIO.................. $ 91 $100 $119 $215
</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 $54 $ 93 $203
DIVERSIFIED BOND PORTFOLIO................... $ 18 $54 $ 93 $203
GOVERNMENT INCOME PORTFOLIO.................. $ 18 $55 $ 94 $205
CONSERVATIVE BALANCED PORTFOLIO.............. $ 19 $58 $100 $217
FLEXIBLE MANAGED PORTFOLIO................... $ 19 $60 $103 $224
HIGH YIELD BOND PORTFOLIO.................... $ 19 $59 $101 $219
STOCK INDEX PORTFOLIO........................ $ 17 $52 $ 90 $197
EQUITY INCOME PORTFOLIO...................... $ 17 $54 $ 92 $201
EQUITY PORTFOLIO............................. $ 18 $55 $ 95 $207
PRUDENTIAL JENNISON PORTFOLIO................ $ 20 $61 $104 $226
SMALL CAPITALIZATION STOCK PORTFOLIO......... $ 18 $56 $ 97 $211
GLOBAL PORTFOLIO............................. $ 22 $67 $115 $248
NATURAL RESOURCES PORTFOLIO.................. $ 19 $58 $ 99 $215
</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 Money Market Portfolio, $203 at the end of 10 years equals $20.30
per year, or approximately 2.03% of $1,000. The above examples use as the annual
Contract fee the average fee assess based on the aggregate annual Contract fees
collected during the 12 month period ended December 31, 1997 divided by total
assets allocated to the subaccounts.
7
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
PRUDENTIAL'S VARIABLE INVESTMENT PLAN
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------
MONEY MARKET
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 2.008 $ 1.931 $ 1.847 $ 1.796 $ 1.766 $ 1.722
2. Accumulation unit value at end of period.......... 2.092 2.008 1.931 1.847 1.796 1.766
3. Number of accumulation units outstanding at end of
period............................................ 16,449,578 20,966,170 21,383,688 19,719,686 21,196,310 25,559,750
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 1.641 $ 1.536 $ 1.423 $ 1.341
1.722 1.641 1.536 1.423
27,651,809 28,665,736 21,867,895 20,062,883
<CAPTION>
----------------------------------------------------------------------
DIVERSIFIED BOND
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 2.990 $ 2.899 $ 2.430 $ 2.541 $ 2.335 $ 2.204
2. Accumulation unit value at end of period.......... 3.208 2.990 2.899 2.430 2.541 2.335
3. Number of accumulation units outstanding at end of
period............................................ 15,781,677 17,983,051 17,350,482 19,297,770 22,228,674 19,270,816
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 1.916 $ 1.790 $ 1.596 $ 1.493
2.204 1.916 1.790 1.596
15,157,524 13,436,702 14,674,397 16,270,961
<CAPTION>
----------------------------------------------------------------------
GOVERNMENT INCOME
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 1.736 $ 1.719 $ 1.456 $ 1.553 $ 1.397 $ 1.335
2. Accumulation unit value at end of period.......... 1.881 1.736 1.719 1.456 1.553 1.397
3. Number of accumulation units outstanding at end of
period............................................ 26,590,965 32,103,624 36,188,716 42,950,931 51,712,560 31,196,202
<CAPTION>
------------------------------------
01/01/91 01/01/90 05/01/89*
TO TO TO
12/31/91 12/31/90 12/31/89
---------- ----------- ----------
<C> <C> <C>
$ 1.164 $ 1.108 $ 1.000
1.335 1.164 1.108
5,114,032 1,876,055 523,730
<CAPTION>
---------------------------------------------------------------------------
CONSERVATIVE BALANCED
---------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 3.424 $ 3.077 $ 2.655 $ 2.713 $ 2.447 $ 2.316
2. Accumulation unit value at end of period.......... 3.839 3.424 3.077 2.655 2.713 2.447
3. Number of accumulation units outstanding at end of
period............................................ 117,938,119 132,264,454 133,247,386 144,960,917 132,233,247 94,037,783
<CAPTION>
-------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
----------- ----------- ---------- ----------
<C> <C> <C> <C>
$ 1.968 $ 1.892 $ 1.637 $ 1.503
2.316 1.968 1.892 1.637
64,776,062 59,244,790 61,212,122 68,409,626
</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
PRUDENTIAL'S VARIABLE INVESTMENT PLAN
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------
FLEXIBLE MANAGED
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 3.895 $ 3.469 $ 2.828 $ 2.955 $ 2.587 $ 2.434
2. Accumulation unit value at end of period.......... 4.540 3.895 3.469 2.828 2.955 2.587
3. Number of accumulation units outstanding at end of
period............................................ 70,568,253 80,196,501 80,116,280 86,950,166 82,697,681 67,080,104
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 1.963 $ 1.950 $ 1.621 $ 1.453
2.434 1.963 1.950 1.621
57,549,789 59,624,634 64,761,817 72,695,150
<CAPTION>
----------------------------------------------------------------------
HIGH YIELD BOND
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 2.053 $ 1.865 $ 1.605 $ 1.670 $ 1.417 $ 1.220
2. Accumulation unit value at end of period.......... 2.308 2.053 1.865 1.605 1.670 1.417
3. Number of accumulation units outstanding at end of
period............................................ 15,264,711 16,519,861 15,869,142 15,675,021 14,204,249 8,951,297
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 0.887 $ 1.019 $ 1.052 $ 0.941
1.220 0.887 1.019 1.052
5,593,083 5,320,712 8,625,344 6,337,850
<CAPTION>
----------------------------------------------------------------------
STOCK INDEX
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 2.907 $ 2.401 $ 1.772 $ 1.776 $ 1.639 $ 1.548
2. Accumulation unit value at end of period.......... 3.816 2.907 2.401 1.772 1.776 1.639
3. Number of accumulation units outstanding at end of
period............................................... 33,400,486 32,289,212 26,855,828 25,648,545 24,959,253 19,968,362
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 1.208 $ 1.268 $ 0.980 $ 0.859
1.548 1.208 1.268 0.980
12,084,160 5,936,971 4,352,361 960,235
<CAPTION>
----------------------------------------------------------------------
EQUITY INCOME
----------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 3.044 $ 2.530 $ 2.104 $ 2.099 $ 1.737 $ 1.596
2. Accumulation unit value at end of period.......... 4.108 3.044 2.530 2.104 2.099 1.737
3. Number of accumulation units outstanding at end of
period............................................ 29,188,995 29,360,348 28,317,862 26,707,292 19,580,278 8,359,974
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 1.267 $ 1.332 $ 1.099 $ 1.000
1.596 1.267 1.332 1.099
3,601,671 2,596,033 1,812,915 438,001
</TABLE>
*Commencement of Business
The financial statements of the Account are in the Statement of Additional
Information.
9
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
PRUDENTIAL'S VARIABLE INVESTMENT PLAN
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------
EQUITY
---------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 5.680 $ 4.850 $ 3.738 $ 3.681 $ 3.056 $ 2.709
2. Accumulation unit value at end of period.......... 6.996 5.680 4.850 3.738 3.681 3.056
3. Number of accumulation units outstanding at end of
period............................................ 47,230,540 50,992,740 48,356,691 44,189,146 39,039,555 29,987,497
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 2.176 $ 2.323 $ 1.812 $ 1.567
2.709 2.176 2.323 1.812
25,189,460 23,155,951 24,216,949 26,268,202
<CAPTION>
----------------------------------
PRUDENTIAL JENNISON
----------------------------------
01/01/97 01/01/96 05/01/95*
TO TO TO
12/31/97 12/31/96 12/31/95
---------- ---------- ----------
<S> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 1.408 $ 1.245 $ 1.009
2. Accumulation unit value at end of period.......... 1.832 1.408 1.245
3. Number of accumulation units outstanding at end of
period............................................ 11,790,707 8,907,930 3,331,892
<CAPTION>
----------------------------------
SMALL CAPITALIZATION STOCK
----------------------------------
01/01/97 01/01/96 05/01/95*
TO TO TO
12/31/97 12/31/96 12/31/95
---------- ---------- ----------
<S> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 1.408 $ 1.190 $ 1.002
2. Accumulation unit value at end of period.......... 1.742 1.408 1.190
3. Number of accumulation units outstanding at end of
period............................................ 8,957,289 5,169,868 1,491,116
<CAPTION>
---------------------------------------------------------------------
GLOBAL
---------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 1.814 $ 1,533 $ 1.339 $ 1.425 $ 1.007 $ 1.056
2. Accumulation unit value at end of period.......... 1.917 1.814 1.533 1.339 1.425 1.007
3. Number of accumulation units outstanding at end of
period............................................ 19,189,192 21,007,801 18,445,275 20,295,941 5,444,571 1,299,663
<CAPTION>
----------------------------------
01/01/91 01/01/90 01/01/89*
TO TO TO
12/31/91 12/31/90 12/31/89
---------- ---------- ----------
<C> <C> <C>
$ 0.959 $ 1.115 $ 1.015
1.056 0.959 1.115
1,247,336 610,872 125,853
<CAPTION>
---------------------------------------------------------------------
NATURAL RESOURCES
---------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.... $ 2.840 $ 2.196 $ 1.751 $ 1.851 $ 1.497 $ 1.412
2. Accumulation unit value at end of period.......... 2.481 2.840 2.196 1.751 1.851 1.497
3. Number of accumulation units outstanding at end of
period............................................ 9,429,004 10,476,240 8,792,973 8,870,868 5,634,046 3,079,123
<CAPTION>
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
---------- ---------- ---------- ----------
<C> <C> <C> <C>
$ 1.295 $ 1.391 $ 1.038 $ 1.000
1.412 1.295 1.391 1.038
3,120,415 3,256,246 1,098,505 280,510
</TABLE>
*Commencement of Business
The financial statements of the Account are in the Statement of Additional
Information.
10
<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,
the U.S. Virgin Islands and in all states. These Contracts are not offered in
any state in which the necessary approvals have not yet been obtained.
Prudential is currently considering reorganizing itself into a stock company.
This form of reorganization, known as demutualization, is a complex process that
may take two or more years to complete. No plan of demutualization has been
adopted yet by Prudential's Board of Directors. Adoption of a plan of
demutualization would occur only after enactment of appropriate legislation in
New Jersey and would have to be approved by Prudential's policyholders and
appropriate state insurance regulators. Throughout the process, there will be a
continuing evaluation by the Board of Directors and management of Prudential as
to the desirability of demutualization. The Board of Directors, in its
discretion, may choose not to demutualize or to delay demutualization for a
time.
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 Accounts 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 Accounts 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 751 Broad Street,
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.
11
<PAGE>
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
A PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS
--------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 0.40%
DIVERSIFIED BOND PORTFOLIO 0.40%
GOVERNMENT INCOME PORTFOLIO 0.40%
CONSERVATIVE BALANCE 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.
12
<PAGE>
DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The minimum initial purchase payment is $1,000 ($100, if under payroll
deduction). 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 $100 or more per investment
option, 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 the
Annuity Service Center accompanied by forms that will be provided for this
purpose. Prudential currently will not accept purchase payments on and after the
Contract anniversary next following the annuitant's 85th birthday, but reserves
the right to do so.
The Contract date will be the date Prudential received the initial purchase
payment and certain required documentation. The amount credited under the
Contract begins to vary on that date to reflect the investment results of the
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
Annuity Service Center. 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 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. You
may change subsequent purchase payment allocations by providing us with proper
written instructions. You may also change subsequent purchase payment
allocations by telephoning the Annuity Service Center, provided the Contract
owner is enrolled to use the Telephone Transfer System. If, after you have made
one purchase payment, you send Prudential an additional purchase payment without
instructions about how the purchase payment should be allocated, Prudential will
allocate the purchase payment in the same proportions as the most recent
purchase payment you made.
Additionally, a feature called Dollar Cost Averaging ("DCA") is available to
Contract owners. If you wish, purchase payments allocated to the portion of the
Money Market subaccount used for this feature (the "DCA account"), and
designated dollar amounts will be transferred monthly from the DCA account to
other investment options available under the Contract, excluding the Money
Market subaccount and the fixed-rate option, but including the Real Property
Account. Automatic monthly transfers must be at least 3% of the amount initially
allocated to the DCA account (that is, if $10,000 is initially allocated, 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 you establish DCA at issue, you must allocate to the DCA account the
greater of $2,000 or 10% of the initial purchase payment. When you establish DCA
after issue, you must allocate to the DCA account at least $2,000. These
minimums are subject to change at Prudential's discretion. After DCA has been
established and as long as the DCA account has a positive balance, you may
allocate or transfer amounts to the DCA account, subject to the limitations on
purchase payments and transfers generally. In addition, if you have already
established DCA, your purchase payment allocation instructions may include an
allocation of all or a portion of all your purchase payments 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
13
<PAGE>
(e.g., February 30), the transfer will take effect as of the end of the
valuation period on the last day of that 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 you have an outstanding payment allocation to
the DCA account, but your 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
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 every purchase payment that you make and allocate that Additional
Amount to the subaccounts, the Real Property Account, and the fixed-rate option
in the same manner as your 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
you make an initial purchase payment of $2,000 to be allocated equally to the
Equity Subaccount and the fixed-rate option. Prudential will increase the
payment by 1%, or $20, and allocate $1,010 to both the Equity Subaccount and to
the fixed-rate option. Later in the year you send an additional purchase payment
of $600, but you fail to indicate how it should be applied. Prudential will
increase that amount by 1% or $6, and based on your most recent instruction,
will allocate $303 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 you make a withdrawal of
a purchase payment on which an Additional Amount was paid within 8 Contract
years after the payment, unless such withdrawn purchase payment is used to
effect an annuity that is not subject to a sales charge or is subject to a
reduced sales charge. See SALES CHARGES ON WITHDRAWALS, page 16, and RECAPTURE
OF ADDITIONAL AMOUNTS, page 18.
TRANSFERS
You may transfer the portions of your Contract fund allocated to any subaccount
to any of the other subaccounts, to the Real Property Account or to the
fixed-rate option without charge. Transfers must be $300 or more, or the amount
in the subaccount, if less, and must not cause the amount credited to you in any
subaccount to be less than $300, unless you transfer the entire amount in that
subaccount. You may transfer amounts by proper written notice tothe Annuity
Service Center, or by telephone unless you ask 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.
You may make up to four transfers per Contract year during the period before
annuity payments begin. Currently, you may make additional transfers without
Prudential's consent. After variable annuity payments begin, part or all of the
interest in a subaccount may be transferred to one or more other subaccounts.
The annuitant may then make up to four transfers per Contract year. Currently,
you may make additional transfers without Prudential's consent. Any partial
transfer will require Prudential's consent if either the number of Subaccount
Annuity Units to be transferred or the number to be retained, multiplied by the
corresponding Subaccount Annuity Unit Value on the effective date of the
transfer, is less than $20. Transfers among subaccounts will take effect as of
the end of the valuation period in which a proper transfer request is received
at the Annuity Service Center, except that if the request is received within 7
days of an annuity payment date, it will be made on the first business day after
the annuity payment date.
Transfers from the fixed-rate option to the variable investment options are
currently 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 may
currently 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) $2,000. 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. These limits are subject to change in the future. Although it is
not Prudential's present practice to do so, we 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 to and
from the Real Property Account are subject to restrictions described in the
attached prospectus for the Real Property Account.
The Contract was not designed for professional market timing organizations or
other organizations or individuals using programmed, large or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the Series Fund and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures including
but not limited to, not accepting transfer requests of an agent acting under a
power of attorney on behalf of more than one owner.
14
<PAGE>
WITHDRAWALS
You may at any time withdraw all of your investment in the Contract fund.
However, Prudential's consent will be required for a partial withdrawal if the
amount requested is less than $300 or if it would reduce the amount credited
under the Contract to less than $300. Prudential will generally pay the amount
of any withdrawal within 7 days after it receives a properly completed
withdrawal request. The amount of your requested withdrawal, plus any applicable
sales charge and any applicable recapture of additional amounts, will be
deducted from your Contract fund. Any tax withholding required by law will be
deducted from the amount of your requested withdrawal. 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 investment option.
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. You should consult with a tax advisor before making a
withdrawal. See FEDERAL TAX STATUS, page 20.
DEATH BENEFIT
If one annuitant is named in the Contract (and under the WA-83 Contract, only
one annuitant may be named under the Contract. See item 2 under DIFFERENCES
UNDER THE WVA-83 CONTRACT, page 26) or if the annuitant is the last surviving
annuitant under the Contract, and such annuitant should die before any annuity
payments have been received under the Contract, a death benefit, calculated as
of the date due proof of death is received by Prudential, will be payable to the
beneficiary you designate. 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. Unless the
beneficiary has been irrevocably designated, you may change the beneficiary at
any time.
If the annuitant should die before reaching age 65 and before the annuity date,
the amount payable to the beneficiary will be at least equal to the total amount
of purchase payments you have made plus any bonus credited by Prudential
(reduced by any previous withdrawal[s] in the same proportion that such
withdrawal[s] reduced your Contract fund on the withdrawal date[s]), even if the
value of your Contract fund is less than this minimum amount. (Under the WVA-83
Contract, the minimum amount payable to the beneficiary is determined in a
different manner. See item 3 under DIFFERENCES UNDER THE WVA-83 CONTRACT, page
26.) If the value of your Contract fund is greater, however, that value will be
payable to the beneficiary. If the annuitant dies after the age of 65 but before
the annuity date, the death benefit payable to the beneficiary will be the value
of your Contract fund. If the annuitant dies after he or she has begun to
receive annuity payments, the death benefit, if any, will be determined by the
type[s] of annuity payment you have selected. See EFFECTING AN ANNUITY, page 21.
If two annuitants are named in the Contract (only one annuitant may be named
under the WVA-83 Contract and therefore this paragraph does not apply to that
Contract; see item 2 under DIFFERENCES UNDER THE WVA-83 CONTRACT, page 26), and
one annuitant dies before age 65 and before the annuity date, while the other
annuitant is still living, a comparison will be made, on the date of due proof
of the death of the annuitant, between your Contract fund and the total amount
of purchase payments you have made plus any bonus credited by Prudential
(reduced by any previous withdrawal[s] in the same proportion that such
withdrawal[s] reduced your Contract fund on the withdrawal date[s]). If the
total amount of purchase payments plus any bonus so calculated is greater, the
difference will be credited to your Contract fund. You may withdraw your
Contract fund without charge within 30 days following the date of due proof of
the death of the annuitant.
VALUATION OF CONTRACT OWNER'S CONTRACT FUND
The value of your Contract fund is the sum of your interests in the variable
investment options and in the fixed-rate option. The value of your Variable
Account is the sum of your separate interests in each subaccount or the Real
Property Account. These values are measured in Units, for example, Money Market
Units, Diversified Bond Units or Flexible Managed Units. You are credited with
Units in each subaccount in which you invest. Every purchase payment you make is
converted into Units of the subaccount or subaccounts you have chosen by
dividing the amount of the purchase payment by the Unit Value for the subaccount
to which you have allocated that purchase
15
<PAGE>
payment. With regard to purchase payments subsequent to the initial payment
(described above), this is done as of the end of the valuation period in which
the payment is received at the Annuity Service Center. The value of these Units
changes each day to reflect the investment results and expenses of and
deductions of charges from the Series Fund portfolios in which the assets of the
subaccount are invested, in much the same way that the share values of a mutual
fund change each day. The manner in which the computation is made is complicated
and differs somewhat from how mutual fund share values are determined. It is
explained on page C1 of the statement of additional information. The result is
much the same, however. For example, the product of the number of Diversified
Bond Units that are credited to your Variable Account multiplied by the
Diversified Bond Unit Value on any day is the value of your exact proportionate
share of the net assets of the Diversified Bond Subaccount on that day, just as
the number of shares you might hold in a mutual fund multiplied by the value of
a share represents the value of your proportionate share of the net assets of
the mutual fund.
There is, of course, no guarantee that the value of your Contract fund will
increase or that it will not fall below the amount of your total purchase
payments. However, Prudential guarantees a minimum interest rate of 3% 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 3% guaranteed interest rate. See THE FIXED-RATE OPTION, page 19.
The valuation of the portion of the Contract fund allocated to the Real Property
Account is described in the attached prospectus for the Real Property Account.
If applicable, on each Contract anniversary date before the Annuity date,
Prudential makes an annual maintenance charge of up to $30. See ANNUAL
MAINTENANCE CHARGE, page 18. If the Contract fund is allocated to more than one
investment option, the charge will be divided on a pro rata basis, according to
the value held in each subaccount, the Real Property Account, and/or the
fixed-rate option. This charge will also be made, as a deduction from the
proceeds of the withdrawal, if you withdraw your entire Contract fund during the
year, including a withdrawal to effect an annuity under your Contract. That
portion of the maintenance charge which is attributable to your Variable Account
will be assessed by reducing the number of Units credited to your Variable
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 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.
2. SALES CHARGES ON WITHDRAWALS. A 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
commissions, preparation of sales literature, and other promotional activities.
Any amount that you withdraw may be treated for the purpose of determining sales
charges as a withdrawal of investment income, until you have withdrawn an amount
equal to your investment income. There is no sales charge on the withdrawal of
investment income. 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 (that is,
your first purchase payments will be the first withdrawn). The amount of any
sales charge will depend on the purchase payments withdrawn and the number of
Contract years that have elapsed since you made the particular purchase
payments. Your first Contract year begins on the date your initial purchase
payment is invested in the Contract fund (the Contract date). A subsequent
Contract year begins on each anniversary of the Contract date. (Under the WVA-83
Contract, purchase payments, rather than investment income, are deemed removed
first under a withdrawal. Generally, sales charges on withdrawals under the
VIP-84 Contract and the VIP-86 Contract as described in this section will be
less than under the WVA-83 Contract because investment income is deemed removed
before purchase payments, and investment income is not subject to sales charges.
However, due to the possibility of flexible purchase payments, multiple
withdrawals and a variable return, it is not possible to categorically state
that the VIP-84 Contract and the VIP-86 Contract result in lower charges. For a
more detailed description of sales charges on withdrawals under the WVA-83
Contract, see item 1 under DIFFERENCES UNDER THE WVA-83 CONTRACT, page 26.)
16
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In each Contract year you may make withdrawals of purchase payments from your
Contract fund of up to 10% of the value of the Contract fund as of the date of
the first withdrawal in that Contract year, without incurring a sales charge.
This charge-free withdrawal amount does not accumulate from Contract year to
Contract year. If you withdraw all or part of a purchase payment before the end
of the Contract year during which it was made, the sales charge will be 8% of
the purchase payment that you withdraw, subject to the 10% free withdrawal
privilege. For example, suppose you make an initial purchase payment of $1,000.
Within the same Contract year you withdraw $450 and at the time of that
withdrawal the value of your Contract Fund has grown to $1,100 (due to the
credit of $10 for the 1% additional amount and $90 in investment earnings).
Since withdrawals are deemed for sales charge purposes to consist of investment
income first, the amount subject to a sales charge is $360 ($450 minus $90 of
investment income). However, 10% of the value of your Contract fund at the time
of the first withdrawal in the Contract year during which the withdrawal is made
may be withdrawn without charge. Ten percent of $1,100 is $110. Thus, the sales
charge, which generally is also withdrawn from the Contract fund, will be 8% of
$250 (the $360 purchase payment withdrawn minus $110), which is $20. (This
withdrawal would also involve a recapture of $3.60 of the 1% additional amount.
See RECAPTURE OF ADDITIONAL AMOUNTS, page 18.)
In addition, Critical Care Access is available for Contracts issued on or after
February 1, 1985. Based on regulatory approval of the Waiver of Withdrawal
Charges endorsement, 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.
The sales charge imposed on the withdrawal of a purchase payment during the
Contract year beginning after the purchase payment was made is 7% and continues
to decrease by 1% per year in accordance with the following table:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
THE SALES CHARGE WILL BE EQUAL TO
FOR WITHDRAWALS OF PURCHASE PAYMENTS THE FOLLOWING PERCENTAGE OF THE
DURING THE CONTRACT YEAR INDICATED PURCHASE PAYMENT WITHDRAWN (A)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------
Contract Year in Which Payment Made 8%
First Contract Year Following Year in Which Payment Made 7%
Second Contract Year Following Year in Which Payment Made 6%
Third Contract Year Following Year in Which Payment Made 5%
Fourth Contract Year Following Year in Which Payment Made 4%
Fifth Contract Year Following Year in Which Payment Made 3%
Sixth Contract Year Following Year in Which Payment Made 2%
Seventh Contract Year Following Year in Which Payment Made 1%
Subsequent Contract Years No Charge
- ---------------------------------------------------------------------------------------------------------------------
(a) Subject to 10% free withdrawal described above.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
For purchase payments 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 law. Prudential may reduce or eliminate
the amount of the sales charge when a Contract is sold under circumstances which
reduce its sales expenses. Some examples are: if there is a large group of
individuals that will be purchasing the Contract or a prospective purchaser
already has a relationship with Prudential or its affiliates.
Under the VIP-84 Contract and the VIP-86 Contract, withdrawals are considered,
for federal income tax purposes as well as for the purpose of determining the
amount of any sales charge, as having been made first from investment income.
(Under the WVA-83 Contract, withdrawals are also considered, for federal income
tax purposes, as having been made first from investment income, even though
Prudential treats them, for purposes of determining any sales charge, as having
been made first from purchase payments -- see item 1 under DIFFERENCES UNDER THE
WVA-83 CONTRACT, page 26 and TAXES PAYABLE BY CONTRACT OWNERS, page 20.)
Your withdrawal request must specify the source from which the withdrawal is to
be made. If you fail to specify, your withdrawal, subject to minimum amount
requirements, will be allocated among the variable investment options in which
you have an interest and the fixed-rate option, if a portion of your Contract
fund is held under that option, in the same proportions as the value of your
interest in the variable investment options and in the fixed-rate option bears
to the total value of your Contract fund. Your sales charge will be determined
without reference to the source of the withdrawal. The charge will be determined
by reference to the period that has elapsed since your earliest purchase payment
not yet withdrawn, even if that payment was not originally invested in or has
subsequently been transferred from the source from which the withdrawal was
made.
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Under the VIP-86 Contract, an annuity may not be effected earlier than 3 years
after the Contract date. If an annuity is effected 3 or more years after the
Contract date under the Supplemental Life Annuity Option (see ANNUITY OPTIONS
UNDER THE VIP-86 CONTRACT, page 22), there will be no sales charge deducted. If
an annuity is effected under one of the other annuity options under the VIP-86
Contract, the sales charge will be determined as described in the above table.
Under the VIP-84 Contract, if an annuity is effected at any time after the
Contract date under the Supplemental Life Annuity Option (see ANNUITY OPTIONS
UNDER THE WVA-83 AND VIP-84 CONTRACTS, page 23), there will be no sales charge
deducted. If an annuity is effected under one of the other annuity options under
the VIP-84 Contract less than 3 years after the Contract date, the sales charge
will be determined as described in the above table. However, if an annuity is
effected under one of such other annuity options (excluding the Annuity Certain
Option) 3 or more years after the Contract date, the sales charge will be 4%
less than each percentage shown in the above table (the sales charge applied to
a withdrawal to effect the Annuity Certain Option will be determined as
described in the above table).
An annuity is effected by applying the annuity purchase rates set forth in your
Contract to the amount credited to your Contract fund--less any applicable sales
charge, recapture of Additional Amounts (see RECAPTURE OF ADDITIONAL AMOUNTS,
below), premium tax (see PREMIUM TAXES, page 16), and annual maintenance charge
(see ANNUAL MAINTENANCE CHARGE, below)--on the date the annuity is effected. The
amount of the annuity payments that you will receive monthly will depend upon
the form of the annuity you select and, for a variable annuity, upon the
investment performance of the subaccount or subaccounts in which the assets are
held. See EFFECTING AN ANNUITY, page 21.
3. RECAPTURE OF ADDITIONAL AMOUNTS. If you make a withdrawal which consists
partially or wholly of purchase payments, Prudential may recapture the
Additional Amounts that were credited to your Contract fund. 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 less than 8 years (except as
provided in the following paragraph, this includes withdrawals made for the
purpose of applying some or all of the Contract fund to effect an annuity),
Prudential will recapture the Additional Amounts originally credited upon the
portion of the purchase payments being withdrawn. If the duration from the start
of the Contract year of purchase payment to the start of the Contract year of
withdrawal is 8 years or more, the Additional Amounts credited will not be
recaptured. For example, suppose you make an initial purchase payment of $1,000
for which you are credited with a bonus of 1% or $10. 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 withdrawal of $1,600.
On the date of the withdrawal, the value of your Contract fund is $3,900, which
includes $466 of earnings. Thus the requested withdrawal represents a withdrawal
of $1,134 of purchase payments. Because $1,134 of purchase payments is being
withdrawn and the duration from the start of the Contract years of these
purchase payments to the Contract year of withdrawal is less than 8 years, the
portion of the Additional Amounts recaptured will be $11.34 (1% of $1,134).
Prudential will not recapture Additional Amounts paid on any purchase payment[s]
withdrawn 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.
Prudential will not recapture Additional Amounts paid on any purchase payment[s]
withdrawn if such withdrawal is used to effect an annuity that is not subject to
a sales charge or is subject to a reduced sales charge. Such annuity must be
effected 1 or more years after the Contract date (3 or more years after the
Contract date under the VIP-86 Contract.) See SALES CHARGES ON WITHDRAWALS, page
16.
4. ANNUAL MAINTENANCE CHARGE. Currently, an annual maintenance charge of up to
$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 charge
is intended to compensate Prudential for administering the Account, maintaining
records, and preparing and distributing annual reports and an annual statement
of your Contract fund. This $30 fee will not be charged if the Contract fund is
less than $10,000 as a result of a withdrawal due to confinement in a nursing
home or hospital, or due to a terminal illness, as applied under the Waiver of
Withdrawal Charges endorsement. See SALES CHARGES ON WITHDRAWALS, page 16. In
addition, this charge is not made after annuitization, and it may not be
increased by Prudential. See VALUATION OF CONTRACT OWNER'S CONTRACT FUND, page
15.
5. CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS. A deduction is made daily
from each of the variable investment options at an annual rate of up to 1.2% of
the assets held in the variable investment options. This charge may not be
increased by Prudential. Of this amount, one-third, up to 0.4%, is for assuming
the risk that the charges made under the Contracts may not cover
inflation-increased expenses, and two-thirds, up to 0.8%, is for assuming
mortality risks. The mortality risk assumed by Prudential is the risk that
annuity payments under a selected annuity option (see EFFECTING AN ANNUITY, page
21) may continue for a longer period than anticipated under the life expectancy
tables and schedule of annuity rates in effect when the Contract was issued. The
charges for mortality and expense risks will continue throughout the period of
any variable annuity selected (including a
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<PAGE>
variable annuity certain, even though Prudential no longer bears any mortality
risk under such a Contract). 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 11.
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%. Currently, declared interest rates remain in effect from the date
money is allocated to the fixed-rate option until the same date in the following
year. Thereafter, 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%,
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, page14.
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<PAGE>
FEDERAL TAX STATUS
The following discussion is based on current law and interpretations which may
change. The 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 following
rules do not generally apply to contributions after February 28, 1986 to annuity
contracts held by or for non-natural persons (e.g., corporations). Where a
Contract is held by a non-natural person, unless the Contract owner is a nominee
or agent for a natural person (or in other limited circumstances), the Contract
will generally not be treated as an annuity for tax purposes, and increases in
the value of the Contract will be subject to current tax.
The following discussion assumes that the Contract will be treated as an annuity
contract 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 detail 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, 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. It is important, however, to consider how
amounts that are received will be taxed.
TAXES PAYABLE BY CONTRACT OWNERS
The Code provides generally that amounts withdrawn by the 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 will 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.
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
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 purchase payments have 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. A lump sum payment taken in lieu of
remaining annuity payments (as described in item 4 under ANNUITY OPTIONS UNDER
THE WVA-83 AND VIP-84 CONTRACTS, page 23) is not considered an annuity payment
for tax purposes. Any such lump sum payment distributed to an annuitant would be
taxable as ordinary income and may be subject to a penalty tax as described
above.
The Code further provides that any amount received under an annuity contract
which is included in income 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. They include
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
20
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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)).
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.
For Contracts issued after January 18, 1985, certain minimum distribution
requirements apply in the case where the owner dies. See EFFECTING AN ANNUITY,
below.
If you are the owner of a VIP-86 Contract, election of the interest payment
option is not considered as an annuity payment for tax purposes. Accordingly,
such election will cause investment income under the Contract to be taxable.
Generally, the same tax rules apply to amounts received by the beneficiary as
those set forth above with respect to the Contract owner. The election of an
annuity payment option may defer taxes otherwise payable upon the receipt of a
lump sum death benefit.
In addition, a transfer of the Contract to or the designation of a beneficiary
who is either 37 1/2 years younger than the Contract owner or a grandchild of
the Contract owner may have Generation Skipping Transfer tax consequences under
section 2601 of the Code.
Certain transfers of a contract for less than full consideration, such as a
gift, will trigger tax on the investment income in the Contract. This rule does
not apply to certain transfers between spouses or incident to divorce. See
OWNERSHIP OF THE CONTRACT, page 25.
WITHHOLDING
Unless you elect to the contrary, the portion of any amounts received under the
Contract that are attributable to investment income will be subject to
withholding to meet federal income tax obligations. The rate of withholding on
annuity payments will be determined on the basis of the withholding certificate
you may file with Prudential. If you do not file such a certificate, you will be
treated, for purposes of determining your withholding rate, as a married person
with three exemptions. The rate of withholding on all other payments made under
the Contract, such as amounts received upon withdrawals, will be 10%. Thus, if
you fail to elect that Prudential not do so, it will withhold from every
withdrawal or annuity payment the appropriate percentage of the amount of the
payment that constitutes investment income and hence is taxable. Prudential will
provide you with forms and instructions concerning your right to elect that no
amount be withheld from payments. If you elect not to have withholding made, you
are liable for payment of federal income taxes on the taxable portion of the
distribution. You may be subject to penalties under the estimated tax payment
rules if your withholding and estimated tax payments are not sufficient. If you
do not provide a social security number or other taxpayer identification number,
you 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.
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 the 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.
EFFECTING AN ANNUITY
You may decide at any time to convert the amount of your Contract fund into a
fixed-dollar annuity payable to either one or two annuitant[s] named in the
Contract under one or more of the forms of annuity described. (The VIP-84
Contract and the VIP-86 Contract permit the naming of either one or two
annuitants. However, the WVA-83 Contract
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permits the naming of only one annuitant. Therefore, anything in this section
which refers to "two annuitants" does not apply to the WVA-83 Contract. See item
2 under DIFFERENCES UNDER THE WVA-83 CONTRACT, page 26.) If two annuitants are
named in the Contract, you may indicate how much of the amount you wish applied
for each annuitant and under which form[s] of annuity. Except for an annuity
selected under the Supplemental Life Annuity Option, WVA-83 and VIP-84 Contract
owners may select a variable annuity instead of or in addition to a fixed-dollar
annuity. If such variable annuity selection is made, amounts held under the Real
Property Account and/or fixed-rate option will be transferred to your Variable
Account in accordance with your instructions at the time your Contract fund is
converted into an annuity.
Unless Prudential consents to a later date, the latest date that you can choose
for converting your Contract fund into an annuity is the first day of the
calendar month coinciding with or otherwise next following the 90th birthday of
the annuitant or, if there are two annuitants named in the Contract, the 90th
birthday of the younger of the annuitants. 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 you select.
You must convert the entire value of your Contract fund to an annuity or to an
annuity and a cash withdrawal. If your Contract fund is not large enough to
produce an initial payment of $20 ($50 under VIP-86 Contracts), you will be paid
the amount of your Contract fund in a single sum. Annuity payments will not be
assignable by you or subject to the claims of creditors. The annuity is effected
on the first day of the month following receipt by Prudential of proper written
notice that you have elected to convert your Contract fund to an annuity or on
the first day of any subsequent month that you designate. The first monthly
annuity payment will be made on the date the annuity is effected.
The Contract includes schedules that are used to determine the amount of the
first monthly variable and/or fixed dollar annuity payment that will be provided
by the amount credited to your Contract fund (the VIP-86 Contract provides a
schedule only for a Life Annuity with 120 Payments Certain Option; however,
other forms of annuity are available under the Supplemental Life Annuity
Option.) The amount varies with the form of annuity selected. For life
annuities, it also varies with the age and sex of the annuitant (and contingent
annuitant, if the Joint and Survivor Annuity Option is chosen) and the date when
annuity payments begin. Also, if Prudential is offering more favorable rates
than is set forth in the table of rates in the Contract, then those will be
used. For a variable annuity, subsequent monthly payments will vary in
accordance with the investment results of the subaccount[s] you have selected.
Page C1 of the statement of additional information explains in more detail how
your Contract fund is converted into a variable annuity. For a fixed-dollar
annuity, subsequent monthly payments will always be at least equal to the first
monthly payment.
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 follows, 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 the date of death. However, if
an annuity payment option is selected by the designated beneficiary and if the
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 over a specified
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. If the designated beneficiary is the
owner's spouse, these rules will not apply until death of the owner's spouse.
ANNUITY OPTIONS UNDER THE VIP-86 CONTRACT
If you are the owner of a VIP-86 Contract, you may select any of the annuity
options described below. Unlike the WVA-83 and VIP-84 Contracts, the VIP-86
Contract does not provide an option for a variable payout during the annuity or
payout period. All the annuity options under this Contract are fixed annuity
options under which the Contract owner's participation in the Account's and/or
Real Property Account's investment experience ceases when the annuity is
effected, and the amount of each monthly payment does not change.
The forms of annuity from which you may select are listed below. Under each,
annuity payments will be in monthly installments of a guaranteed amount. Unless
applicable law states otherwise, if you have not selected an annuity option to
take effect by the annuity date stated in your Contract (which will not be later
than the annuitant's 90th birthday) the interest payment option (see below) will
become effective then.
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 you designate unless you so select. 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
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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.
2. INTEREST PAYMENT OPTION. You may choose to have Prudential hold a designated
amount for you at interest. Prudential will pay interest at an effective rate of
at least 3% a year, and it may pay a higher rate of interest.
3. SUPPLEMENTAL LIFE ANNUITY. 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. Prudential currently offers a number of different annuity options
including joint and survivor annuities covering more than one person.
Under the Supplemental Life Annuity Option (Option 3 above), 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 the Supplemental Life Annuity Option if doing so
provides greater monthly payments.
ANNUITY OPTIONS UNDER THE WVA-83 AND VIP-84 CONTRACTS
If you own a WVA-83 Contract or a VIP-84 Contract, the following provisions of
this section apply to you. You have considerable flexibility in selecting an
annuity: (1) you may select either a fixed-dollar or variable annuity (a
variable annuity is not available under the Supplemental Life Annuity Option
described in item 5 below) or both; (2) you may select more than one annuity
option; (3) if you select a variable annuity, you may apply the value of your
Variable Account to only one or to two or more subaccounts, and not necessarily
the same subaccount distribution as you used before selecting an annuity; and
(4) if two annuitants are named in the VIP-84 Contract, you may select a
separate annuity or annuities for each annuitant. However, the initial minimum
monthly payment amount will be applicable to each payee, each annuity, and each
subaccount selected.
Except as provided in the Annuity Certain Option described in item 4 below, and
under certain forms of annuity available under the Supplemental Life Annuity
Option described in item 5 below, once annuity payments begin, the annuitant
cannot surrender the annuity benefit and receive a one-sum payment in lieu
thereof (such surrender and one-sum payment also may be under certain forms of
annuity available under the Supplemental Life Annuity Option described in item 5
below). However, as described under TRANSFERS on page 14, if a variable annuity
is selected, the annuitant may transfer the annuity funds between subaccounts up
to four times each Contract year. Additionally, an annuitant who is receiving a
variable annuity may convert all or a part of the variable annuity to a
fixed-dollar annuity, provided: (1) the fixed-dollar annuity is the same form of
annuity as the variable annuity and has the same certain or specified period as
remained under the variable annuity on the conversion date, (2) the present
value on the conversion date of the variable annuity, or portion of the variable
annuity to be converted, calculated in accordance with the Contract, must
produce a monthly payment of at least $20 under the fixed-dollar annuity, and
(3) if only a portion of the variable annuity is converted, the Subaccount
Annuity Units remaining in the unconverted portion must be sufficient to produce
a monthly payment on the conversion date of at least $20.
After annuity payments begin, conversion may not be made from a fixed-dollar
annuity to a variable annuity.
The forms of annuity from which you may select are listed below. Under each, (1)
variable annuity payments can be expected to vary from month to month according
to the investment experience of the portfolio or portfolios in which your
Variable Account is invested, or (2) fixed-dollar annuity payments will be in
monthly installments of a guaranteed amount. For the reason explained on page C1
of the statement of additional information, if the assets of the subaccount
which you have selected do not earn an investment return of 4.7% a year, the
amount of payments under a variable annuity will decrease; conversely, if the
assets of the subaccount(s) which you have selected earn an investment return of
more than 4.7% a year, variable annuity payments will increase. Unless
applicable law states otherwise, if you choose to convert your Variable Account
into an annuity but fail to select one or more of the annuity options, we will
provide a variable Life Annuity with 120 payments certain to the annuitant (if
two annuitants are named in the VIP-84 Contract and both are living, the
variable Life Annuity with 120 payments certain will be provided for the
annuitant identified as First Annuitant in the Contract).
1. LIFE ANNUITY. Payments will be made to the annuitant monthly during his or
her lifetime and will cease with the last monthly payment before his or her
death. Should the annuitant die within a few years after payments begin, total
payments received will probably be substantially less than the value of your
Variable Account when annuity payments first began, and as little as one payment
could be received under this form of annuity.
2. 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, we will discount each such
payment at an
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interest rate of 3.5% a year. The monthly payments under this form of annuity
will be slightly lower than those payable under the life annuity described
above.
3. JOINT AND SURVIVOR LIFE ANNUITY. Payments will be made to the annuitant
monthly during his or her lifetime and, if the contingent annuitant you
designate is living at the time of the annuitant's death, to that person until
his or her death. The monthly payments to your contingent annuitant will be
equal to those that would have been received by the annuitant if he or she had
survived unless a different amount is required by applicable law or regulation
or by the terms of a plan. Monthly payments under this form of annuity will be
less than the payments under either of the forms described above.
4. ANNUITY CERTAIN. Payments will be made to the annuitant monthly for a period
of 60, 120, 180 or 240 months. During this period, the annuitant may elect to
receive a lump sum payment in lieu of the remaining monthly payments or to
receive a partial lump sum payment with reduced monthly payments thereafter. Any
partial lump sum payment must be $300 or more. Also, the initial reduced monthly
payment must equal or exceed $20. If the annuitant dies during the
annuity-certain period, monthly payments will not continue to the beneficiary
you designate unless you so select. Instead, the beneficiary will receive a lump
sum payment. The amount of the lump sum payment (or partial lump sum payment) is
determined by discounting each remaining unpaid monthly payment (or the amount
by which each remaining monthly payment is reduced as a result of a partial lump
sum payment) at an interest rate of 3.5% a year. This will be paid to the
annuitant or the annuitant's beneficiary, whichever is applicable.
5. SUPPLEMENTAL LIFE ANNUITY. 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 the Supplemental Life Annuity Option (Option 5 above), Prudential will
waive withdrawal charges that might be applicable under Options 1-4. Further, if
you select Option 1, 2, 3 or 4 without a right of withdrawal, Prudential will
effect that option under the Supplemental Life Annuity Option if doing so
provides greater monthly payments.
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.
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 share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give
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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.
WVA-83 and VIP-84 Contract owners who elect to receive a variable annuity option
will continue to have voting rights during their payout period. Their number of
votes will be determined in the same manner as described above, but will
decrease throughout the payout period.
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
Currently, Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential which was organized in 1971 under New Jersey law, acts
as the principal underwriter of the Contract. Prudential expects that during the
second quarter of 1998 Prusec's responsibilities as principal underwriter will
be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS,
also an indirect wholly-owned subsidiary of Prudential is a limited liability
corporation organized under Delaware law in 1996. PIMS will act as principal
underwriter under substantially the same terms as Prusec does currently. Both
Prusec and PIMS are registered as broker-dealers under the Securities Exchange
Act of 1934 and are members of the National Association of Securities Dealers,
Inc. The principal business address of both Prusec and PUMS is 751 Broad Street,
Newark, New Jersey 07102-3777.
The Contract is currently sold by registered representatives of the principal
underwriter and may also be sold through other broker-dealers authorized by the
principal underwriter, including broker-dealers otherwise unaffiliated with
Prudential. Registered representatives of such other unaffiliated broker-dealers
may be paid on a different basis than registered representatives of the
principal underwriter or broker-dealers affiliated with Prudential. The maximum
commission that will be 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. In addition, trail commissions based on the size of the
Contract fund may be paid.
OWNERSHIP OF THE CONTRACT
Generally, the purchaser of a Contract is both the Contract owner and the person
entitled to receive an annuity and is entitled to exercise all the rights under
the Contract. 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 have a gift, estate and/or income tax
consequences, and you should consult with a qualified tax advisor before
attempting any such transfer. 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. Generally,
ownership of the Contract is not assignable to another insurance company without
Prudential's consent.
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.
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.
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A cumulative total return reflects performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the performance had
been constant over the entire period.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the subaccount
over a specified seven-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
Reports or advertising may include comparative performance information,
including, but not limited to: comparisons to market indices; comparisons to
other investments; performance rankings; and data presented by analysts or
included in publications.
See "Performance Information" in the Statement of Additional Information for
recent performance information.
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.
DIFFERENCES UNDER THE WVA-83 CONTRACT
As stated in the section entitled THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT
ACCOUNT on page 11, the descriptions of The Prudential Individual Variable
Annuity Contract in the preceding sections of this prospectus and on page C1 of
the statement of additional information generally apply to the VIP-86 Contract,
the VIP-84 Contract and the WVA-83 Contract. Although differences among the
three forms of Contract have been described, additional differences between the
earlier WVA-83 Contract and the two later forms of the Contract are set forth
below.
1. SALES CHARGES ON WITHDRAWALS . . . Under the WVA-83 Contract, any amount
that you withdraw will be treated, for the purpose of determining the
sales charge, as a withdrawal of purchase payments, rather than investment
income, until you have withdrawn your aggregate purchase payments. There
will be no sales charge on amounts withdrawn after all purchase payments
have been withdrawn. For sales charge purposes, purchase payments are
deemed to be withdrawn on a first-in, first-out basis. The amount of the
sales charge will depend on the amount withdrawn and the number of
Contract years that have elapsed since you made the particular purchase
payments deemed to be withdrawn. The 10% free withdrawal privilege will be
applied toward the total amount withdrawn. Withdrawals are treated, for
purposes of federal income taxation, as first from investment income, even
though Prudential treats them as being made from purchase payments.
2. NAMING OF ANNUITANT . . . Under the WVA-83 Contract, only one annuitant
may be named. There is no provision for naming two annuitants as is the
case under the VIP-84 Contract and the VIP-86 Contract. Wherever this
prospectus mentions "one or two annuitants", or "two annuitants", the term
"two annuitants" does not apply to the WVA-83 Contract, and anything which
is contingent upon two annuitants being named in the Contract does not
apply to the WVA-83 Contract. Therefore, any discussion in the preceding
sections of this prospectus which relates to two annuitants, such as the
possibility of a death benefit credit being added to your Variable Account
due to the death of the first to die of the two annuitants named in the
Contract (as described in the third paragraph under DEATH BENEFIT on page
15), will not apply to the WVA-83 Contract.
3. DETERMINATION OF MINIMUM AMOUNT PAYABLE TO A BENEFICIARY . . . Under the
WVA-83 Contract, the minimum amount payable to the beneficiary (due to the
death of the annuitant prior to age 65 and before the annuity date) will
be equal to the total amount of purchase payment you have made, less any
withdrawals (i.e., there is no proportional reduction of the minimum
amount as is the case under the VIP-84 Contract and the VIP-86 Contract).
4. MODIFICATION OF SENTENCE ON PAGE C1 OF THE STATEMENT OF ADDITIONAL
INFORMATION . . . The second sentence in the next to last paragraph under
section B, Determination of the Amount of Monthly Variable Annuity
Payment, as it applies to the WVA-83 Contract, is modified to read: "For
example, for a person of 65 years of age who has selected a lifetime
annuity with a guaranteed minimum of 120 payments, the applicable
schedules currently provide that 1000 Subaccount Annuity Units will result
in the payment each month of an amount equal to the value of 6.28
Subaccount Annuity Units."
5. DETERMINATION OF AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS . . . Under
the WVA-83 Contract, the amount of each monthly variable annuity payment
made on the first day of the month will be equal to the Subaccount Annuity
Units (determined as described on page C1 of the statement of additional
information) multiplied by the Subaccount Annuity Unit Value at the end of
that day, if a business day, or otherwise at the end of the last preceding
business day.
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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, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential'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 and later issued a Final Order and Judgment in the
consolidated class actions before the Court (962 F. Supp. 450 March 17, 1997, as
amended April 14, 1997). The Court's Final Order and Judgment approving the
class action Settlement has been appealed to the United States Court of Appeals
for the Third Circuit which held a hearing on January 26, 1998. The Court has
not yet issued a ruling on the appeal.
Pursuant to the Settlement, Prudential has agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance policies. Management now has information which allows for computation
of a reasonable estimate of losses associated with ADR claims. Based on this
information, management estimated the cost of remedying policyholder claims in
the ADR process before taxes to be approximately $2.05 billion. While management
believes these to be reasonable estimates based on information currently
available, the ultimate amount of the total cost of remedied policyholder claims
is dependent on complex and varying factors, including actual claims by eligible
policyholders, the relief options chosen and the dollar value of htose options.
There are also additional elements of the ADR process which cannot be fully
evaluated at this time (e.g., claims which may be successfully appealed) which
could increase this estimate.
In addition, a number of actions have been filed against Prudential by
policyowners who have excluded themselves from the settlement; Prudential
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 Prudential activities. As of February 24, 1997, Prudential had entered
into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class settlement.
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 of
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not have a material adverse effect on Prudential's
financial position, after consideration of applicable reserves.
YEAR 2000 COMPLIANCE
The services provided to the Contract owners by Prudential, Prusec and PIMS
depend on the smooth functioning of their respective computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer programs cannot distinguish the year 2000 from
the year 1900 because of the way in which dates are encoded. Left uncorrected,
the year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
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Prudential, as Prusec and PIMS's ultimate corporate parent identified this issue
as a critical priority in 1995 and has established quality assurance procedures
including a certification process to monitor and evaluate enterprise wide
conversion and upgrading of systems for "Year 2000" compliance. Prudential has
also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional internal testing, to
participate in securities industry-wide test efforts and to complete major
service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Prudential's,
Prusec's and PIMS's abilities to meet their commitments to Contract owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
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 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.
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The Contents of the statement of additional information include:
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
B. PRINCIPAL UNDERWRITER
C. PARTICIPATION IN DIVISIBLE SURPLUS
D. PERFORMANCE INFORMATION
E. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
DETERMINATION OF SUBACCOUNT UNIT VALUES AND OF AMOUNT OF MONTHLY VARIABLE
ANNUITY PAYMENTS
A. SUBACCOUNT UNIT VALUES
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DIRECTORS
The directors and certain officers of Prudential, listed with their principal
occupations during the past 5 years, are shown below.
FRANKLIN E. AGNEW -- Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc. John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address:
600 Grant Street, Suite 660, Pittsburgh, PA 15219.
FREDERICK K. BECKER -- Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.
JAMES G. CULLEN -- Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS -- Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark,
NJ 07102.
ROGER A. ENRICO -- Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee; Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.
ALLAN D. GILMOUR -- Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995.
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool Corporation,
USWest, Inc., The Dow Chemical Company and DTE Energy Company. Age 63. Address:
751 Broad Street, 23rd Floor, Newark, NJ 07102.
WILLIAM H. GRAY, III -- Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979 to 1991. Mr.
Gray is also a director of Chase Manhattan Corporation, The Chase Manhattan
Bank, Lotus Development Corporation, Municipal Bond Investors Assurance
Corporation, Rockwell International Corporation, Union-Pacific Corporation,
Warner-Lambert Company, Westinghouse Electric Corporation, and Electronic Data
Systems. Age 56. Address: 8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.
JON F. HANSON -- Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
GLEN H. HINER, JR. -- Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.
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CONSTANCE J. HORNER -- Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
GAYNOR N. KELLEY -- Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.
BURTON G. MALKIEL -- Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65. Address: Princeton University, 110 Fisher Hall,
Prospect Avenue, Princeton, NJ 08544-1021.
ARTHUR F. RYAN -- Chairman of the Board, President and Chief Executive Officer
of Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.
IDA F.S. SCHMERTZ -- Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994. Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
CHARLES R. SITTER -- Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.
DONALD L. STAHELI -- Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.
RICHARD M. THOMSON -- Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.
JAMES A. UNRUH -- Director since 1996 (current term expires April, 2000).
Member, Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.
P. ROY VAGELOS, M.D. -- Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.
STANLEY C. VAN NESS -- Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.
PAUL A. VOLCKER -- Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
Bankers Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite
420, New York, NY 10020.
31
<PAGE>
JOSEPH H. WILLIAMS -- Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74102.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
ARTHUR F. RYAN -- Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.
E. MICHAEL CAULFIELD -- Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.
MICHELE S. DARLING -- Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.
ROBERT C. GOLDEN -- Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.
MARK B. GRIER -- Executive Vice President, Financial Management since 1997;
Chief Financial Officer from 1995 to 1997; prior to 1995, Executive Vice
President, Chase Manhattan Corporation, New York, NY. Age 44.
RODGER A. LAWSON -- Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.
JOHN V. SCICUTELLA -- Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.
JOHN R. STRANGFELD -- Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
R. BROCK ARMSTRONG -- Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.
JAMES J. AVERY, JR. -- Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.
MARTIN A. BERKOWITZ -- Senior Vice President and Comptroller since 1995; prior
to 1995, Senior Vice President and CFO, Prudential Investment Corporation. Age
48.
WILLIAM M. BETHKE -- Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.
RICHARD J. CARBONE -- Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.
LEO J. CORBETT -- Senior Vice President, Individual Insurance Marketing since
1997; prior to 1997, Managing Director, Lehman Brothers, New York, NY. Age 49.
MARK R. FETTING -- President, Prudential Retirement Services since 1996; prior
to 1996, President, Prudential Defined Contribution Services. Age 43.
WILLIAM D. FRIEL -- Senior Vice President and Chief Information Officer since
1993. Age 59.
JONATHAN M. GREENE -- President, Investment Management since 1996; prior to
1996, Vice President, T. Rowe Price, Baltimore, MD. Age 54.
JEAN D. HAMILTON -- President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.
32
<PAGE>
RONALD P. JOELSON -- Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.
IRA J. KLEINMAN -- Executive Vice President, International Insurance Group,
since 1997; prior to 1997, Senior Vice President. Age 51.
NEIL A. MCGUINNESS -- Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.
PRISCILLA A. MYERS -- Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.
RICHARD O. PAINTER -- President, Prudential Insurance & Financial Services since
1995; prior to 1995, Senior Vice President, New York Life, New York, NY. Age 50.
I. EDWARD PRICE -- Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.
KIYOFUMI SAKAGUCHI -- President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.
BRIAN M. STORMS -- President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.
ROBERT J. SULLIVAN -- Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.
SUSAN J. BLOUNT -- Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.
C. EDWARD CHAPLIN -- Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
33
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
INDIVIDUAL VARIABLE ANNUITY CONTRACTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT
ACCOUNT
The Individual Variable Annuity Contract (the "Contract") of The
Prudential Individual Variable Contract Account (the "Account") is a variable
annuity contract issued by The Prudential Insurance Company of America
("Prudential"). The Contract is purchased by making an initial purchase payment
of $1,000 or more; subsequent payments must be $100 or more.
This statement of additional information is not a prospectus and should
be read in conjunction with the Contract's prospectus, dated May 1, 1998, which
is available without charge upon written request to The Prudential Insurance
Company of America, 751 Broad Street, Newark New Jersey 07102-3777, or by
telephoning (888) PRU - 2888.
THE PRUDENTIAL INSURANCE COMPANY
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (888) PRU- 2888
VIP-1B Ed 5-98
Catalog # 64M0999
<PAGE>
CONTENTS
PAGE
OTHER INFORMATION CONCERNING THE ACCOUNT.................................... 1
A. EXPERTS.......................................................... 1
B. PRINCIPAL UNDERWRITER............................................ 1
C. PARTICIPATION IN DIVISIBLE SURPLUS............................... 1
D. PERFORMANCE INFORMATION.......................................... 1
E. FINANCIAL STATEMENTS............................................. 3
FINANCIAL STATEMENTS OF THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE
CONTRACT ACCOUNT........................................................ A1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA AND SUBSIDIARIES............................................. B1
DETERMINATION OF SUBACCOUNT UNIT VALUES AND OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENTS............................................... C1
A. SUBACCOUNT UNIT VALUES........................................... C1
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT.. C1
<PAGE>
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
The financial statements included in this prospectus for the years ended
December 31, 1997 and 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 year ended December 31,
1995 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 replaced as the independent
accountants of Prudential. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
B. PRINCIPAL UNDERWRITER
Currently, Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential which was organized in 1971 under New Jersey law, acts
as the principal underwriter of the Contract. Prudential expects that during the
second quarter of 1998 Prusec's responsibilities as principal underwriter will
be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS,
also and indirect wholly-owned subsidiary of Prudential, is a limited liability
corporation organized under Delaware law in 1996. PIMS will act as principal
underwriter under substantially the same terms as Prusec does currently. Both
Prusec and PIMS are registered as broker-dealers under the Securities Exchange
Act of 1934 and are members of the National Association of Securities Dealer,
Inc. The principal business address of both Prusec and PIMS is 751 Broad Street,
Newark, New Jersey 07102-3777.
The Contract is currently sold by registered representatives of the principal
underwriter and may also be sold through other broker-dealers authorized by the
principal underwriter, including broker-dealers otherwise unaffiliated with
Prudential. Registered representatives of such other unaffiliated broker-dealers
may be paid on a different basis than registered representatives of the
principal underwriter or broker-dealers affiliated with Prudential. The maximum
commission that will be 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. In addition, trail commissions based on the size of the
Contract fund may be paid.
C. 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
because the charges made by Prudential are not expected to exceed its actual
expenses in distributing and administering the Contracts. However, there may be
dividends payable during an annuity payout period.
D. PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1997 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, 1997 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.
1
<PAGE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/97 12/31/97 12/31/97 12/31/97
---------- ----------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Diversified Bond.................................. 6/83 0.73 5.88 7.73 8.18
Government Income................................. 5/89 1.83 5.45 N/A 7.33
Conservative Balanced............................. 6/83 5.59 8.80 9.62 9.46
Flexible Managed.................................. 5/83 10.08 11.33 11.87 10.74
High Yield Bond................................... 2/87 5.92 9.65 9.16 7.77
Stock Index....................................... 10/87 24.87 17.93 15.89 16.34
Equity Income..................................... 2/88 28.63 18.32 N/A 15.24
Equity............................................ 6/83 16.74 17.54 15.96 14.10
Prudential Jennison............................... 5/95 23.76 N/A N/A 23.51
Small Capitalization Stock........................ 5/95 17.25 N/A N/A 21.44
Global............................................ 5/89 -0.85 13.22 N/A 7.40
Natural Resources................................. 5/88 -18.42 10.06 N/A 9.80
</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)1/2- ERA. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; 1/2 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 included, however
it applies only if the Contract fund is less than $10,000.
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 ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/97 12/31/97 12/31/97 12/31/97
---------- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Diversified Bond.................................. 6/83 6.98 6.29 7.73 8.18
Government Income................................. 5/89 8.07 5.87 N/A 7.33
Conservative Balanced............................. 6/83 11.80 9.16 9.62 9.46
Flexible Managed.................................. 5/83 16.26 11.65 11.87 10.74
High Yield Bond................................... 2/87 12.14 9.99 9.16 7.77
Stock Index....................................... 10/87 30.96 18.17 15.89 16.34
Equity Income..................................... 2/88 34.69 18.55 N/A 15.24
Equity............................................ 6/83 22.88 17.78 15.96 14.10
Prudential Jennison............................... 5/95 29.85 N/A N/A 24.79
Small Capitalization Stock........................ 5/95 23.39 N/A N/A 22.77
Global............................................ 5/89 5.41 13.52 N/A 7.40
Natural Resources................................. 5/88 -12.94 10.40 N/A 9.80
</TABLE>
2
<PAGE>
Table 3 shows the cumulative total return for the subaccounts, assuming no
withdrawal.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/97 12/31/97 12/31/97 12/31/97
------------ ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Diversified Bond.................................. 6/83 6.98 35.67 110.59 214.15
Government Income................................. 5/89 8.07 32.98 N/A 84.63
Conservative Balanced............................. 6/83 11.80 55.00 150.60 273.38
Flexible Managed.................................. 5/83 16.26 73.47 207.05 343.43
High Yield Bond................................... 2/87 12.14 61.01 140.25 125.22
Stock Index....................................... 10/87 30.96 130.42 337.14 368.39
Equity Income..................................... 2/88 34.69 134.17 N/A 305.23
Equity............................................ 6/83 22.88 128.68 339.79 583.75
Prudential Jennison............................... 5/95 29.85 N/A N/A 80.63
Small Capitalization Stock........................ 5/95 23.39 N/A N/A 72.92
Global............................................ 5/89 5.41 88.49 N/A 85.74
Natural Resources................................. 5/88 -12.94 63.99 N/A 146.85
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1997 were 4.22% and 4.30%, respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1% charge for mortality and
expense risks and the 0.20% charge for administration. It does not reflect the
deferred sales charge. It does reflect the annual contract fee, however it will
only be charged 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.
E. FINANCIAL STATEMENTS
The consolidated financial statements of Prudential and its subsidiaries
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.
3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
<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.
Portfolio at net asset value [Note 3] .......... $ 250,299,005 $ 227,069,081 $1,449,310,301 $ 906,247,126 $ 1,503,678,358
Receivable from The Prudential Insurance Company of
America [Note 2]................................ 0 717,597 0 0 0
-------------- --------------- --------------- -------------- ---------------
Net Assets.................................... $ 250,299,005 $ 227,786,678 $1,449,310,301 $ 906,247,126 $ 1,503,678,358
============== ============== ============== ============= ===============
NET ASSETS, representing
Equity of Contract owners......................... $ 246,238,487 $ 227,350,803 $1,448,451,322 $ 902,799,341 $ 1,496,534,502
Equity of annuitants.............................. 66,619 435,875 0 96,362 102,958
Equity of The Prudential Insurance Company of
America........................................... 3,993,899 0 858,979 3,351,423 7,040,898
-------------- --------------- -------------- ------------- --------------
$ 250,299,005 $ 227,786,678 $1,449,310,301 $ 906,247,126 $ 1,503,678,358
============== ============== ============== ============= ===============
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................... $ 15,268,362 $ 16,901,127 $ 32,344,814 $ 27,153,765 $ 69,645,435
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk and for
administration [Note 5A and 5B]................. 3,403,168 2,790,071 16,875,841 10,829,207 18,102,598
(Note 5A)
-------------- ------------- -------------- ------------- -------------
NET INVESTMENT INCOME (LOSS)......................... 11,865,194 14,111,056 15,468,973 16,324,558 51,542,837
-------------- ------------ -------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received.............. 0 2,678,457 78,732,943 136,601,647 162,961,825
Realized gain on shares redeemed
[average cost basis]............................ 0 871,425 45,936,231 17,694,945 18,586,761
Net change in unrealized gain (loss) on 0 (1,421,119) 151,756,418 (31,167,938) (59,829,935)
investments.......................................
-------------- ------------- -------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS....................... 0 2,128,763 276,425,592 123,128,654 121,718,651
-------------- ------------- -------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS......................... $ 11,865,194 $ 16,239,819 $ 291,894,565 $ 139,453,212 $ 173,261,488
============== ============= ============== ============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 206,710,618 $ 584,301,321 $ 924,080,586 $ 114,268,041 $ 261,664,386 $ 234,702,746 $ 142,558,366 $ 105,914,426
0 0 0 0 0 0 0 0
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- --------------
$ 206,710,618 $ 584,301,321 $ 924,080,586 $ 114,268,041 $ 261,664,386 $ 234,702,746 $ 142,558,366 $ 105,914,426
=============== ============== ============== ============== ============== ============== ============= ==============
$ 206,703,946 $ 583,199,488 $ 923,476,299 $ 113,116,367 $ 259,907,600 $ 234,294,649 $ 142,366,117 $ 105,611,009
0 0 0 0 0 0 0 0
6,672 1,101,833 604,287 1,151,674 1,756,786 408,097 192,249 303,417
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- --------------
$ 206,710,618 $ 584,301,321 $ 924,080,586 $ 114,268,041 $ 261,664,386 $ 234,702,746 $ 142,558,366 $ 105,914,426
=============== ============== ============== ============== ============== ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 19,426,410 $ 7,989,506 $ 21,618,173 $ 736,335 $ 3,362,350 $ 15,529,678 $ 280,341 $ 530,549
2,485,000 6,336,577 9,942,601 1,751,764 3,406,550 2,880,153 1,397,760 951,414
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- -------------
16,941,410 1,652,929 11,675,572 (1,015,429) (44,200) 12,649,525 (1,117,419) (420,865)
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- --------------
0 16,305,306 83,667,610 15,057,641 12,621,909 0 8,029,556 7,179,462
1,058,521 18,694,963 22,177,266 4,265,854 10,753,188 89,927 2,207,647 1,680,689
6,571,445 103,662,327 131,284,129 (35,259,336) (7,387,766) 6,283,807 19,900,327 7,162,308
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- ------------
7,629,966 138,662,596 237,129,005 (15,935,841) 15,987,331 6,373,734 30,137,530 16,022,459
- --------------- -------------- -------------- -------------- -------------- -------------- ------------- ------------
$ 24,571,376 $ 140,315,525 $ 248,804,577 $ (16,951,270) $ 15,943,131 $ 19,023,259 $ 29,020,111 $ 15,601,594
=============== ============== ============== ============== ============== ============== ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
MONEY DIVERSIFIED EQUITY
MARKET BOND
----------------------------- -------------------------- ----------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............$ 11,865,194 $ 12,115,680 $ 14,111,056 $ 12,544,502 $ 15,468,973 $ 15,310,773
Capital gains distributions received.... 0 0 2,678,457 0 78,732,943 114,264,566
Realized gain on shares redeemed
[average cost basis].................. 0 0 871,425 174,400 45,936,231 5,444,130
Net change in unrealized gain (loss) on
investments........................... 0 0 (1,421,119) (4,953,596) 151,756,418 51,568,436
------------ ------------ ------------- ------------ ------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.............................. 11,865,194 12,115,680 16,239,819 7,765,306 291,894,565 186,587,905
------------ ------------ ------------- ------------ ------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [Note 7]...................... (75,545,193) 1,706,616 (32,706,750) 5,466,608 (135,911,653) 59,118,381
------------ ------------ ------------- ------------ ------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [Note 8]...................... 1,260,361 (2,978,837) 13,417 45,114 (431,506) (2,969,818)
------------ ------------ ----------- ------------ ------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS.................................. (62,419,638) 10,843,459 (16,453,514) 13,277,028 155,551,406 242,736,468
NET ASSETS:
Beginning of year....................... 312,718,643 301,875,184 244,240,192 230,963,164 1,293,758,895 1,051,022,427
------------ ------------ ------------- ------------- -------------- --------------
End of year.............................$250,299,005 $312,718,643 $ 227,786,678 $ 244,240,192 $1,449,310,301 $1,293,758,895
============ ============ ============= ============= ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH
FLEXIBLE CONSERVATIVE YIELD STOCK
MANAGED BALANCED BOND INDEX
- -------------------------------- -------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ----------------- ------------- --------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 16,324,558 $ 15,529,180 $ 51,542,837 $ 41,591,964 $ 16,941,410 $ 17,437,936 $ 1,652,929 $ 2,651,307
136,601,647 81,058,661 162,961,825 91,075,317 0 0 16,305,306 4,966,520
17,694,945 2,079,840 18,586,761 2,546,226 1,058,521 169,760 18,694,963 3,738,352
(31,167,938) (4,416,389) (59,829,935) 17,056,572 6,571,445 1,864,874 103,662,327 60,376,871
--------------- -------------- --------------- --------------- -------------- --------------- -------------- -------------
139,453,212 94,251,292 173,261,488 152,270,079 24,571,376 19,472,570 140,315,525 71,733,050
--------------- -------------- --------------- --------------- -------------- --------------- -------------- -------------
(97,169,435) 18,025,987 (159,071,283) 8,268,497 (25,508,643) (2,397,302) 3,420,134 64,563,773
--------------- -------------- --------------- --------------- -------------- --------------- -------------- -------------
1,952,643 (290,507) (643,118) 6,028,831 (334,358) (1,171,126) (116,556) (780,432)
--------------- -------------- --------------- --------------- -------------- --------------- -------------- -------------
44,236,420 111,986,772 13,547,087 166,567,407 (1,271,625) 15,904,142 143,619,103 135,516,391
862,010,706 750,023,934 1,490,131,271 1,323,563,864 207,982,243 192,078,101 440,682,218 305,165,827
--------------- -------------- --------------- --------------- -------------- --------------- -------------- -------------
$ 906,247,126 $ 862,010,706 $ 1,503,678,358 $ 1,490,131,271 $ 206,710,618 $ 207,982,243 $ 584,301,321 $ 440,682,218
================ =============== =============== =============== ============== =============== =============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
----------------------------- ------------------------------ ----------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 11,675,572 $ 15,454,576 $ (1,015,429) $ (631,711) $ (44,200) $ 3,824,014
Capital gains distributions received.. 83,667,610 23,234,609 15,057,641 17,991,345 12,621,909 4,275,097
Realized gain on shares redeemed
[average cost basis]................ 22,177,266 4,894,670 4,265,854 659,033 10,753,188 2,514,488
Net change in unrealized gain (loss)
on investments...................... 131,284,129 82,705,905 (35,259,336) 13,421,277 (7,387,766) 31,571,540
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS............................ 248,804,577 126,289,760 (16,951,270) 31,439,944 15,943,131 42,185,139
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [Note 7].................... (60,468,381) (19,015,822) (24,245,773) 20,830,938 (33,385,529) 20,717,798
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [Note 8].................... (186,017) (1,632,886) 647,536 (69,831) 1,851,079 (770,614)
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS................................ 188,150,179 105,641,052 (40,549,507) 52,201,051 (15,591,319) 62,132,323
NET ASSETS:
Beginning of year..................... 735,930,407 630,289,355 154,817,548 102,616,497 277,255,705 215,123,382
-------------- -------------- -------------- -------------- -------------- -------------
End of year........................... $ 924,080,586 $ 735,930,407 $ 114,268,041 $ 154,817,548 $ 261,664,386 $ 277,255,705
============== ============== ============== ============== ============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
- --------------------------------- --------------------------------- --------------------------------
1997 1996 1997 1996 1997 1996
- ---------------- --------------- ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 12,649,525 $ 14,352,559 $ (1,117,419) $ (557,901) $ (420,865) $ (110,250)
0 0 8,029,556 0 7,179,462 991,049
89,927 254,071 2,207,647 65,488 1,680,689 207,931
6,283,807 (11,980,070) 19,900,327 8,010,502 7,162,308 5,018,004
--------------- -------------- --------------- --------------- -------------- ---------------
19,023,259 2,626,560 29,020,111 7,518,089 15,601,594 6,106,734
--------------- -------------- --------------- --------------- -------------- ---------------
(52,662,598) (21,661,238) 24,668,485 52,514,199 34,572,477 29,814,777
--------------- -------------- --------------- --------------- -------------- ---------------
(4,594,249) 3,578,576 (1,042,725) (2,467,088) (542,063) (530,162)
--------------- -------------- --------------- --------------- -------------- ---------------
(38,233,588) (15,456,102) 52,645,871 57,565,200 49,632,008 35,391,349
272,936,334 288,392,436 89,912,495 32,347,295 56,282,418 20,891,069
--------------- -------------- --------------- --------------- -------------- ---------------
$ 234,702,746 $ 272,936,334 $ 142,558,366 $ 89,912,495 $ 105,914,426 $ 56,282,418
=============== ============== =============== =============== ============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A13
A6
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
For the Year Ended December 31, 1997
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. Proceeds from the purchases of The Prudential Variable
Investment Plan ("VIP") and The Prudential Discovery Plus ("PDISCO+")
variable annuity Contracts are invested in the Account.
The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are thirteen
subaccounts within the Account, each of which invests only in a
corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"). The Series Fund is a diversified open-end management
investment company, and is managed by The Prudential.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The 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 liquidity purposes including
unit purchases and redemptions, 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 the Account's Statements
of Net Assets as a receivable from Prudential. The receivable 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, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 25,029,901 20,601,721 46,647,980 52,443,976 100,444,637
Net asset value per share: $ 10.00000 $ 11.02185 $ 31.06909 $ 17.28029 $ 14.97022
Cost: $ 250,299,005 $ 225,510,503 $ 1,037,926,129 $ 863,087,287 $ 1,476,354,857
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 25,380,300 19,335,203 41,276,871 7,495,808 14,598,977
Net asset value per share: $ 8.14453 $ 30.21956 $ 22.38737 $ 15.24426 $ 17.92348
Cost: $ 202,987,406 $ 331,995,882 $ 659,904,657 $ 122,567,675 $ 214,478,004
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
---------------- ---------------- ----------------
<S> <C> <C> <C>
Number of Shares: 20,368,446 8,039,832 6,648,306
Net asset value per share: $ 11.52286 $ 17.73151 $ 15.93104
Cost: $ 229,668,490 $ 113,701,894 $ 92,987,560
</TABLE>
A8
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (VIP)....16,990,011.295 15,879,990.996 47,418,536.450 70,814,807.780 118,170,617.538
Unit Value (VIP).........................$ 2.09203 $ 3.20766 $ 6.99611 $ 4.53976 $ 3.83869
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity (VIP)..............$ 35,543,613 $ 50,937,612 $ 331,745,297 $ 321,482,232 $ 453,620,368
--------------- --------------- --------------- --------------- ---------------
Contract Owner Units Outstanding 100,713,122.423 54,997,472.119 159,618,134.233 128,050,185.211 271,684,906.571
(PDISCO+)
Unit Value (PDISCO+).....................$ 2.09203 $ 3.20766 $ 6.99611 $ 4.53976 $ 3.83869
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity (PDISCO+)..........$ 210,694,874 $ 176,413,191 $ 1,116,706,025 $ 581,317,109 $1,042,914,134
--------------- --------------- --------------- --------------- ---------------
TOTAL CONTRACT OWNER EQUITY..............$ 246,238,487 $ 227,350,803 $ 1,448,451,322 $ 902,799,341 $1,496,534,502
=============== =============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (VIP)....15,468,070.499 33,858,272.132 29,544,795.753 9,664,492.128 19,592,028.768
Unit Value (VIP).........................$ 2.30802 $ 3.81606 $ 4.10841 $ 2.48061 $ 1.91715
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity (VIP)..............$ 35,700,616 $ 129,205,198 $ 121,382,134 $ 23,973,836 $ 37,560,858
--------------- --------------- --------------- --------------- ---------------
Contract Owner Units Outstanding 74,090,922.239 118,969,379.342 195,232,258.979 35,935,729.848 115,977,749.332
(PDISCO+)................................
Unit Value (PDISCO+).....................$ 2.30802 $ 3.81606 $ 4.10841 $ 2.48061 $ 1.91715
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity (PDISCO+)..........$...171,003,330 $ 453,994,290 $ 802,094,165 $ 89,142,531 $ 222,346,742
--------------- --------------- --------------- --------------- --------------
TOTAL CONTRACT OWNER EQUITY..............$...206,703,946 $ 583,199,488 $ 923,476,299 $ 113,116,367 $ 259,907,600
=============== =============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
---------------- --------------- ---------------
<S> <C> <C> <C>
Contract Owner Units Outstanding (VIP)....26,739,349.400 12,483,682.142 9,606,164.986
Unit Value (VIP).........................$ 1.88100 $ 1.83193 $ 1.74162
--------------- --------------- ---------------
Contract Owner Equity (VIP)..............$ 50,296,716 $ 22,869,232 $ 16,730,289
--------------- --------------- ---------------
Contract Owner Units Outstanding 97,819,209.440 65,230,049.694 51,033,359.517
(PDISCO+)
Unit Value (PDISCO+).....................$ 1.88100 $ 1.83193 $ 1.74162
--------------- --------------- ---------------
Contract Owner Equity (PDISCO+)..........$ 183,997,933 $ 119,496,885 $ 88,880,720
--------------- --------------- ---------------
TOTAL CONTRACT OWNER EQUITY..............$ 234,294,649 $ 142,366,117 $ 105,611,009
=============== =============== ===============
</TABLE>
A9
<PAGE>
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 daily 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
1997, the amount of these charges paid to Prudential was
$19,285,048.
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 1997, the amount of
these charges paid to Prudential was $61,867,656.
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 certain. No sales charge is imposed upon death benefit
payments or upon transfers made between subaccounts. For 1997,
the amount of charges paid to Prudential for VIP was $1,726,683.
For 1997, the amount of charges paid to Prudential for PDISCO+
was $6,969,362.
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 1997, the amount of charges paid to Prudential for
VIP was $1,008,352. For 1997, the amount of charges paid to
Prudential for PDISCO+ was $35,383.
NOTE 6: TAXES
Prudential is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Prudential's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded in
these financial statements.
A10
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING TRANSFERS
The following amounts represent components of Contract owner
activity for the year ended December 31, 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
MARKET BOND EQUITY MANAGED
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments...............$ 23,961,225 $ 9,215,129 53,296,559 $ 32,937,745
Annuity Payments..........................$ (11,354) $ (73,070) 0 $ (14,586)
Surrenders, Withdrawals, and Death
Benefits...............................$ (96,558,513) $ (37,912,055) (173,999,157) $ (116,462,620)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options......$ (2,913,426) $ (3,901,996) (14,985,846) $ (13,383,947)
Administrative and Other Charges..........$ (23,125) $ (34,758) (223,209) $ (246,027)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD STOCK EQUITY
BALANCED BOND INDEX INCOME
----------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments............... 46,263,316 8,018,507 35,558,028 26,582,983
Annuity Payments..........................$ (14,685) 0 0 0
Surrenders, Withdrawals, and Death
Benefits...............................$ (184,353,244) (37,249,666) (65,696,647) (102,914,098)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options......$ (20,694,955) 3,740,393 33,627,406 15,917,238
Administrative and Other Charges..........$ (271,715) (17,877) (68,653) (54,504)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
NATURAL GOVERNMENT PRUDENTIAL
RESOURCES GLOBAL INCOME JENNISON
------------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments............... 8,653,651 10,541,214 3,313,349 16,187,510
Annuity Payments.......................... 0 0 0 0
Surrenders, Withdrawals, and Death
Benefits...............................$ (15,898,839) $ (38,550,162) $ (34,966,016) $ (12,794,870)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options......$ (16,980,836) $ (5,350,918) $ (20,974,599) $ 21,291,056
Administrative and Other Charges..........$ (19,749) $ (25,663) $ (35,332) $ (15,211)
</TABLE>
SUBACCOUNTS
(CONTINUED)
------------------
SMALL
CAPITALIZATION
STOCK
------------------
Contract Owner Net Payments............... 12,922,869
Annuity Payments.......................... 0
Surrenders, Withdrawals, and Death
Benefits...............................$ (9,070,271)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options......$ 30,727,791
Administrative and Other Charges..........$ (7,912)
A11
<PAGE>
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.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for
the years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
------------- ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 172,221,298.646 204,176,098.887 8,561,110.629 18,808,605.407 25,456,660.608 52,452,881.251
Contract Owner Redemptions: (209,069,288.292)(203,372,346.067)(19,161,507.252) (16,855,605.935)(46,279,932.192) (40,780,551.495)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
HIGH
FLEXIBLE CONSERVATIVE YIELD
MANAGED BALANCED BOND
------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
------------- ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 14,758,268.108 34,099,351.741 25,306,625.891 60,831,409.999 32,362,388.446 56,857,168.302
Contract Owner Redemptions: (37,195,797.677) (28,891,707.325) (68,458,695.204) (57,910,760.377)(43,990,812.817) (58,078,219.169)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
------------- ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 42,552,393.314 56,115,653.050 27,819,691.328 35,809,207.178 12,847,676.657 23,441,600.252
Contract Owner Redemptions: (41,080,235.215)(31,307,337.011) (44,765,651.579) (42,629,464.634)(21,611,689.584) (15,563,220.683)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON
------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
------------- ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 48,281,857.344 82,615,204.129 7,504,632.620 21,444,007.615 40,667,682.046 64,681,355.330
Contract Owner Redemptions: (65,322,630.297)(69,813,177.075) (37,417,576.892) (34,280,566.051)(26,227,875.670) (24,764,578.595)
</TABLE>
SUBACCOUNTS (CONTINUED)
-------------------------------
SMALL
CAPITALIZATION
STOCK
--------------------------------
1997 1996
-------------- ---------------
Contract Owner Contributions: 59,912,348.844 44,313,958.907
Contract Owner Redemptions: (38,855,387.335) (21,613,269.945)
A12
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund 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, 1997
Purchases........................... $ 60,312,000 $ 4,032,000 $ 3,813,000 $ 248,000 $ 5,000
Sales............................... $ (138,000,000) $ (40,233,000) $ (157,032,000) $ (106,294,000) $ (177,822,000)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases........................... $ 18,863,000 $ 41,479,000 $ 5,818,000 $ 6,033,000 $ 9,646,000
Sales............................... $ (47,191,000) $ (44,512,000) $ (76,415,000) $ (31,383,000) $ (44,587,000)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- -------------- --------------
<S> <C> <C> <C>
For the year ended December 31, 1997
Purchases........................... $ 5,000 $ 32,756,000 $ 45,212,000
Sales............................... $ (60,142,000) $ (10,528,000) $ (12,133,000)
</TABLE>
A13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Prudential Individual Variable Contract Account
and the Board of Directors of
The Prudential Insurance Company of America
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Money Market, Diversified Bond,
Equity, Flexible Managed, Conservative Balanced, High Yield Bond, Stock Index,
Equity Income, Natural Resources, Global, Government Income, Prudential Jennison
and Small Capitalization Stock Subaccounts of the Prudential Individual Variable
Contract Account at December 31, 1997, the results of each of their operations
for the year then ended and the changes in each of their net assets for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of The
Prudential Insurance Company of America's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned in The Prudential Series
Fund, Inc. at December 31, 1997, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
March 5, 1998
To the Board of Directors and Policyholders of
The Prudential Insurance Company of America
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in equity and
of cash flows present fairly, in all material respects, the financial position
of The Prudential Insurance Company of America and its subsidiaries at December
31, 1997 and 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. 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 audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying consolidated statements of operations, changes
in equity, and cash flows of The Prudential Insurance Company of America and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the 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.
In our opinion, such consolidated statements of operations, changes in equity,
and cash flows present fairly, in all material respects, the results of
operations and cash flows of The Prudential Insurance Company of America and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
June 4, 1997
2
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN MILLIONS)
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost, 1997: $71,496; 1996: $64,545) .......... $ 75,270 $ 66,553
Held to maturity, at amortized cost (fair value, 1997: $19,894; 1996: $21,362) ............ 18,700 20,403
Trading account assets, at fair value........................................................ 6,044 4,219
Equity securities, available for sale, at fair value (cost, 1997: $2,376; 1996: $2,103) ..... 2,810 2,622
Mortgage loans on real estate ............................................................... 16,004 17,097
Investment real estate ...................................................................... 1,519 2,586
Policy loans ................................................................................ 6,827 6,692
Securities purchased under agreements to resell ............................................. 8,661 5,347
Cash collateral for borrowed securities ..................................................... 5,047 2,416
Short-term investments ...................................................................... 12,106 9,294
Other long-term investments ................................................................. 3,360 2,995
----------- -----------
Total investments ......................................................................... 156,348 140,224
Cash ........................................................................................ 3,636 2,091
Deferred policy acquisition costs ........................................................... 5,994 6,291
Accrued investment income ................................................................... 1,909 1,828
Receivables from broker-dealer clients ...................................................... 6,273 5,281
Other assets ................................................................................ 11,276 9,990
Separate Account assets ..................................................................... 74,046 63,358
----------- -----------
TOTAL ASSETS .................................................................................. $ 259,482 $ 229,063
=========== ===========
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits ...................................................................... $ 65,581 $ 63,955
Policyholders' account balances ............................................................. 32,941 36,009
Other policyholders' liabilities ............................................................ 6,659 6,043
Policyholders' dividends .................................................................... 1,269 714
Securities sold under agreements to repurchase .............................................. 12,347 7,503
Cash collateral for loaned securities ....................................................... 14,117 8,449
Short-term debt ............................................................................. 6,774 6,562
Long-term debt .............................................................................. 4,273 3,760
Income taxes payable ........................................................................ 500 1,544
Payables to broker-dealer clients ........................................................... 3,338 3,018
Securities sold but not yet purchased ....................................................... 3,533 1,900
Other liabilities ........................................................................... 14,774 8,238
Separate Account liabilities ................................................................ 73,658 62,845
----------- -----------
TOTAL LIABILITIES ......................................................................... 239,764 210,540
=========== ===========
COMMITMENTS AND CONTINGENCIES (SEE NOTES 12, 13 AND 14)
EQUITY
Retained earnings ........................................................................... 18,051 17,443
Net unrealized investment gains ............................................................. 1,752 1,136
Foreign currency translation adjustments .................................................... (85) (56)
----------- -----------
TOTAL EQUITY .............................................................................. 19,718 18,523
----------- -----------
TOTAL LIABILITIES AND EQUITY .................................................................. $ 259,482 $ 229,063
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Premiums .................................................................... $ 18,534 $ 18,962 $ 19,783
Policy charges and fee income ............................................... 1,828 1,912 1,824
Net investment income ....................................................... 9,863 9,742 10,178
Realized investment gains, net .............................................. 2,187 1,138 1,503
Commissions and other income ................................................ 4,661 4,521 3,952
------------ ----------- -----------
Total revenues ............................................................ 37,073 36,275 37,240
------------ ----------- -----------
BENEFITS AND EXPENSES
Policyholders' benefits ..................................................... 18,208 19,306 19,470
Interest credited to policyholders' account balances ........................ 2,043 2,251 2,739
Dividends to policyholders .................................................. 2,429 2,339 2,317
General and administrative expenses ......................................... 11,926 10,875 10,345
Sales practice remediation costs ............................................ 1,640 410 --
------------ ----------- -----------
Total benefits and expenses ............................................... 36,246 35,181 34,871
------------ ----------- -----------
INCOME FROM OPERATIONS BEFORE INCOME TAXES .................................... 827 1,094 2,369
------------ ----------- -----------
Income taxes
Current ................................................................... (46) 406 1,293
Deferred .................................................................. 263 (390) (167)
------------ ----------- -----------
217 16 1,126
------------ ----------- -----------
NET INCOME .................................................................... $ 610 $ 1,078 $ 1,243
============ =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
FOREIGN NET
CURRENCY UNREALIZED
RETAINED TRANSLATION INVESTMENT TOTAL
EARNINGS ADJUSTMENTS GAINS EQUITY
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 ........................ $ 15,126 $ (42) $ 16 $ 15,100
Net income .................................... 1,243 -- -- 1,243
Change in foreign currency translation
adjustments ................................. -- 18 -- 18
Change in net unrealized investment gains ..... -- -- 2,381 2,381
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995 ...................... 16,369 (24) 2,397 18,742
Net income .................................... 1,078 -- -- 1,078
Change in foreign currency translation
adjustments ................................. -- (32) -- (32)
Change in net unrealized investment gains ..... -- -- (1,261) (1,261)
Additional pension liability adjustment ....... (4) -- -- (4)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 ...................... 17,443 (56) 1,136 18,523
Net income .................................... 610 -- -- 610
Change in foreign currency translation
adjustments ................................. -- (29) -- (29)
Change in net unrealized investment gains ..... -- -- 616 616
Additional pension liability adjustment ....... (2) -- -- (2)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 ...................... $ 18,051 $ (85) $ 1,752 $ 19,718
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 610 $ 1,078 $ 1,243
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized investment gains, net ............................... (2,187) (1,138) (1,503)
Policy charges and fee income ................................ (258) (208) (201)
Interest credited to policyholders' account balances ......... 2,043 2,128 2,616
Depreciation and amortization ................................ 258 266 398
Other, net ................................................... 4,681 (1,180) (2,628)
Loss (gain) on divestitures .................................. -- (116) 297
Change in:
Deferred policy acquisition costs .......................... 143 (122) (214)
Policy liabilities and insurance reserves .................. 2,477 2,471 2,382
Securities purchased under agreements to resell ............ (3,314) (217) 461
Trading account assets ..................................... (1,825) (433) 2,579
Income taxes receivable/payable ............................ (1,391) (937) 194
Cash collateral for borrowed securities .................... (2,631) (332) 25
Broker-dealer client receivables/payables .................. (672) (607) (420)
Securities sold but not yet purchased ...................... 1,633 251 (225)
Securities sold under agreements to repurchase ............. 4,844 (490) (712)
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES ...................... $ 4,411 $ 414 $ 4,292
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities, available for sale .......................... $ 123,550 $ 123,368 $ 97,084
Fixed maturities, held to maturity ............................ 4,042 4,268 3,767
Equity securities, available for sale ......................... 2,572 2,162 2,370
Mortgage loans on real estate ................................. 4,299 5,731 5,553
Investment real estate ........................................ 1,842 615 435
Other long-term investments ................................... 5,081 3,203 3,385
Divestitures .................................................. -- 52 790
Payments for the purchase of:
Fixed maturities, available for sale .......................... (129,854) (125,093) (101,197)
Fixed maturities, held to maturity ............................ (2,317) (2,844) (6,803)
Equity securities, available for sale ......................... (2,461) (2,384) (1,391)
Mortgage loans on real estate ................................. (3,363) (1,906) (3,015)
Investment real estate ........................................ (241) (142) (387)
Other long-term investments ................................... (4,148) (2,060) (1,849)
Cash collateral for securities loaned (net) .................... 5,668 2,891 3,471
Short-term investments (net) ................................... (2,848) (1,915) 2,793
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES ...................... $ 1,822 $ 5,946 $ 5,006
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits ................................ $ 5,020 $ 2,799 $ 2,724
Policyholders' account withdrawals ............................. (9,873) (8,099) (9,164)
Net increase(decrease) in short-term debt ...................... 305 583 (3,077)
Proceeds from the issuance of long-term debt ................... 324 93 763
Repayments of long-term debt ................................... (464) (1,306) (30)
--------- --------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES ................... (4,688) (5,930) (8,784)
--------- --------- ---------
NET INCREASE IN CASH ............................................. 1,545 430 514
CASH, BEGINNING OF YEAR .......................................... 2,091 1,661 1,147
--------- --------- ---------
CASH, END OF YEAR ................................................ $ 3,636 $ 2,091 $ 1,661
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid ................................................ $ 968 $ 793 $ 430
--------- --------- ---------
Interest paid .................................................... $ 1,243 $ 1,404 $ 1,413
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
The Prudential Insurance Company of America and its subsidiaries
(collectively, "the Company") provide insurance and financial services
throughout the United States and many locations worldwide. Principal
products and services provided include life and health insurance, annuities,
pension and retirement related investments and administration, managed
healthcare, property and casualty insurance, securities brokerage, asset
management, investment advisory services and real estate brokerage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Prudential
Insurance Company of America, a mutual life insurance company, and its
subsidiaries, and those partnerships and joint ventures in which the Company
has a controlling interest. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP"). All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the period. Actual results could differ from
those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent
and ability to hold to maturity are stated at amortized cost and classified
as "held to maturity." The amortized cost of fixed maturities are written
down to estimated fair value when considered impaired and the decline in
value is considered to be other than temporary. Unrealized gains and losses
on fixed maturities "available for sale," net of income tax, the effect on
deferred policy acquisition costs and participating annuity contracts that
would result from the realization of unrealized gains and losses, are
included in a separate component of equity, "Net unrealized investment
gains."
TRADING ACCOUNT ASSETS are carried at estimated fair value.
EQUITY SECURITIES, available for sale, comprised of common and
non-redeemable preferred stock, are carried at estimated fair value. The
associated unrealized gains and losses, net of income tax, the effect on
deferred policy acquisition costs and participating annuity contracts that
would result from the realization of unrealized gains and losses, are
included in a separate component of equity, "Net unrealized investment
gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal
balances, net of unamortized discounts and allowance for losses on impaired
loans. Impaired loans are identified by management as loans in which a
probability exists that all amounts due according to the contractual terms
of the loan agreement will not be collected. Impaired loans are measured
based on the present value of expected future cash flows, discounted at the
loan's effective interest rate or the fair value of the collateral, if the
loan is collateral dependent. The Company's periodic evaluation of the
adequacy of the allowance for losses is based on a number of factors,
including past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of the underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires estimating the
amounts and timing of future cash flows expected to be received on impaired
loans.
Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to
the collectibility of principal. Management discontinues the accrual of
interest on impaired loans after the loans are 90 days delinquent as to
principal or interest or earlier when management has serious doubts about
collectibility. When a loan is recognized as
8
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impaired, any accrued but unpaid interest previously recorded on such loan
is reversed against interest income of the current period. Generally, a loan
is restored to accrual status only after all delinquent interest and
principal are brought current and, in the case of loans where interest has
been interrupted for a substantial period, a regular payment performance has
been established.
INVESTMENT REAL ESTATE, which the Company has the intent to hold for the
production of income, is carried at depreciated cost less any write-downs to
fair value for impairment losses. Depreciation on real estate is computed
using the straight-line method over the estimated lives of the properties.
Real estate to be disposed of is carried at the lower of depreciated cost or
fair value less selling costs and is not depreciated once classified as
such.
POLICY LOANS are carried at unpaid principal balances.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE are carried at the amounts at which the securities
will be subsequently resold or reacquired, including accrued interest, as
specified in the respective agreements. The Company's policy is to take
possession of securities purchased under agreements to resell. The market
value of securities to be repurchased is monitored, and additional
collateral is requested, where appropriate, to protect against credit
exposure.
SECURITIES BORROWED AND SECURITIES LOANED are recorded at the amount of cash
advanced or received. With respect to securities loaned, the Company obtains
collateral in an amount equal to 102% and 105% of the fair value of the
domestic and foreign securities, respectively. The Company monitors the
market value of securities borrowed and loaned on a daily basis with
additional collateral obtained as necessary. Non-cash collateral received is
not reflected in the Consolidated Statements of Financial Position.
Substantially, all the Company's securities borrowed contracts are with
other brokers and dealers, commercial banks and institutional clients.
Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30
days or less) and are collateralized principally by U.S. Government and
mortgage-backed securities. The carrying amounts of these instruments
approximate fair value because of the relatively short period of time
between the origination of the instruments and their expected realization.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased
with an original maturity of twelve months or less, are carried at amortized
cost, which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments
in joint ventures and partnerships in which the Company does not have
control and derivatives held for purposes other than trading. Joint venture
and partnership investments are recorded using the equity method of
accounting, reduced for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific
identification method. Costs of fixed maturities and equity securities are
adjusted for impairments considered to be other than temporary. Allowances
for losses on mortgage loans on real estate are netted against asset
categories to which they apply and provisions for losses on investments are
included in "Realized investment gains, net." Unrealized gains and losses on
trading account assets are included in "Commissions and other income."
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production
of new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions,
costs of policy issuance and underwriting, and certain variable field office
expenses. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and loss recognition testing at the end
of each accounting period. Deferred policy acquisition costs are adjusted
for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
9
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For life insurance, deferred policy acquisition costs are amortized over the
expected life of the contracts (up to 45 years) in proportion to estimated
gross margins based on historical and anticipated future experience, which
is updated periodically. The effect of changes in estimated gross margins is
reflected in earnings in the period they are revised. Policy acquisition
costs related to interest-sensitive products and certain investment-type
products are deferred and amortized over the expected life of the contracts
(periods ranging from 15 to 30 years) in proportion to estimated gross
profits arising principally from investment results, mortality and expense
margins and surrender charges based on historical and anticipated future
experience, updated periodically. The effect of revisions to estimated gross
profits on unamortized deferred acquisition costs is reflected in earnings
in the period such estimated gross profits are revised.
For property and casualty contracts, deferred policy acquisition costs are
amortized over the period in which related premiums are earned. Future
investment income is considered in determining the recoverability of
deferred policy acquisition costs.
For disability insurance, health insurance, group life insurance and most
group annuities, acquisition costs are expensed as incurred.
POLICYHOLDERS' DIVIDENDS
The amount of the 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, persistency and expense experience for the year and judgment as
to the appropriate level of statutory surplus to be retained by the Company.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value
and represent segregated funds which are invested for certain policyholders,
pension fund and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, real estate mortgage loans and
short-term investments. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. Investment risks associated with market value
changes are generally borne by the customers, except to the extent of
minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue
to the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
INSURANCE REVENUE AND EXPENSE RECOGNITION
Premiums from participating insurance policies are generally recognized when
due. Benefits are recorded as an expense when they are incurred. A liability
for future policy benefits is recorded using the net level premium method.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities and
structured settlements, premiums are recognized when due with any excess
profit deferred and recognized in a constant relationship to insurance
in-force or, for annuities, the amount of expected future benefit payments.
Amounts received as payment for interest sensitive investment contracts,
deferred annuities and participating group annuities are reported as
deposits to "Policyholders' account balances." Revenues from these contracts
are reflected in "Policy charges and fee income" and consist primarily of
fees assessed during the period against the policyholders' account balances
for mortality charges, policy administration charges, surrender charges and
interest earned from the investment of these account balances. Benefits and
expenses for these products include claims in excess of related account
balances, expenses of contract administration, interest credited and
amortization of deferred policy acquisition costs.
For disability insurance, group life insurance, health insurance and
property and casualty insurance, premiums are recognized over the period to
which the premiums relate in proportion to the amount of insurance
protection provided. Claim and claim adjustment expenses are recognized when
incurred.
10
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of foreign operations and subsidiaries reported in
other than U.S. dollars are translated at the exchange rate in effect at the
end of the period. Revenues, benefits and other expenses are translated at
the average rate prevailing during the period. Translation adjustments
arising from the use of differing exchange rates from period to period are
charged or credited directly to equity. The cumulative effect of changes in
foreign exchange rates are included in "Foreign currency translation
adjustments."
COMMISSIONS AND OTHER INCOME
Commissions and other income principally includes securities and
commodities, commission revenues, asset management fees, investment banking
revenue and realized and unrealized gains on trading account assets of the
Company's broker-dealer subsidiary.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include swaps, forwards, futures, options and loan commitments
subject to market risk, all of which are used by the Company in both trading
and other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis as an adjustment
to the carrying amount or to the yield of the related assets or liabilities
over the periods covered by the derivative contracts. Gains and losses
relating to early terminations of interest rate swaps used to hedge are
deferred and amortized over the remaining period originally covered by the
swap. Gains and losses relating to derivatives used to hedge the risks
associated with anticipated transactions are deferred and utilized to adjust
the basis of the transaction once it has closed. If it is determined that
the transaction will not close, such gains and losses are included in
"Realized investment gains, net."
DERIVATIVES HELD FOR TRADING PURPOSES are used in the Company's securities
broker-dealer business and in a limited-purpose swap subsidiary to meet the
risk management needs of its customers by structuring transactions that
allow customers to manage their exposure to interest rates, foreign exchange
rates, indices or prices of securities and commodities and when possible,
matched trading positions are established to minimize risk to the Company.
Derivatives used for trading purposes are recorded at fair value as of the
reporting date. Realized and unrealized changes in fair values are included
in "Commissions and other income" in the period in which the changes occur.
DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING are primarily used to hedge
or reduce exposure to interest rate and foreign currency risks associated
with assets held or expected to be purchased or sold, and liabilities
incurred or expected to be incurred. Additionally, other than trading
derivatives are used to change the characteristics of the Company's
asset/liability mix consistent with the Company's risk management
activities.
INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Internal Revenue Code (the "Code") limits the amount of
non-life insurance losses that may offset life insurance company taxable
income. The Code also imposes an "equity tax" on mutual life insurance
companies which, in effect, imputes an additional tax to the Company based
on a formula that calculates the difference between stock and mutual
insurance companies' earnings. Income taxes include an estimate for changes
in the total equity tax to be paid for current and prior years. Subsidiaries
operating outside the United States are taxed under applicable foreign
statutes.
Deferred income taxes are generally recognized, based on enacted rates, when
assets and liabilities have different values for financial statement and tax
reporting purposes. A valuation allowance is recorded to reduce a deferred
tax asset to that portion which management believes is more likely than not
to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS
11
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities and provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 became effective January 1, 1997 and is to be applied
prospectively. Subsequent to June 1996, FASB issued SFAS No. 127 "Deferral
of the Effective Date of Certain Provisions of SFAS 125" ("SFAS 127"). SFAS
127 delays the implementation of SFAS 125 for one year for certain
provisions, including repurchase agreements, dollar rolls, securities
lending and similar transactions. The Company will delay implementation
with respect to those affected provisions. Adoption of SFAS 125 has not and
will not have a material impact on the Company's results of operations,
financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This
statement defines comprehensive income as "the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources, excluding investments by owners and
distributions to owners" and establishes standards for reporting and
displaying comprehensive income and its components in financial statements.
The statement requires that the Company classify items of other
comprehensive income by their nature and display the accumulated balance of
other comprehensive income separately from retained earnings in the equity
section of the Statement of Financial Position. In addition,
reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to
current year presentation.
12
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables provide additional information relating to fixed
maturities and equity securities (excluding trading account assets) as of
December 31:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ------------
FIXED MATURITIES AVAILABLE FOR SALE (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 9,755 $ 783 $ -- $ 10,538
Obligations of U.S. states and
their political subdivisions..................... 1,375 93 -- 1,468
Foreign government bonds............................ 3,177 218 17 3,378
Corporate securities................................ 49,997 2,601 144 52,454
Mortgage-backed securities.......................... 6,828 210 5 7,033
Other fixed maturities.............................. 364 35 -- 399
-------------- -------------- -------------- ------------
Total fixed maturities available for sale........... $ 71,496 $ 3,940 $ 166 $ 75,270
============== ============== ============== ============
EQUITY SECURITIES AVAILABLE FOR SALE................ $ 2,376 $ 680 $ 246 $ 2,810
============== ============== ============== ============
<CAPTION>
1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ------------
FIXED MATURITIES HELD TO MATURITY (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 88 $ - $ - $ 88
Obligations of U.S. states and
their political subdivisions...................... 152 4 1 155
Foreign government bonds............................ 33 5 - 38
Corporate securities................................ 18,282 1,212 34 19,460
Mortgage-backed securities.......................... 1 - - 1
Other fixed maturities.............................. 144 8 - 152
-------------- -------------- -------------- ------------
Total fixed maturities held to maturity............. $ 18,700 $ 1,229 $ 35 $ 19,894
============== ============== ============== ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- ------------
FIXED MATURITIES AVAILABLE FOR SALE (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 10,618 $ 361 $ 77 $ 10,902
Obligations of U.S. states and
their political subdivisions...................... 1,104 29 2 1,131
Foreign government bonds............................ 2,814 137 12 2,939
Corporate securities................................ 43,593 1,737 284 45,046
Mortgage-backed securities.......................... 6,377 140 21 6,496
Other fixed maturities.............................. 39 1 1 39
--------------- -------------- -------------- ------------
Total fixed maturities available for sale........... $ 64,545 $ 2,405 $ 397 $ 66,553
=============== ============== ============== ============
EQUITY SECURITIES AVAILABLE FOR SALE................ $ 2,103 $ 659 $ 140 $ 2,622
=============== ============== ============== ============
<CAPTION>
1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- ------------
FIXED MATURITIES HELD TO MATURITY (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 309 $ 3 $ 6 $ 306
Obligations of U.S. states and
their political subdivisions...................... 7 -- -- 7
Foreign government bonds............................ 162 11 -- 173
Corporate securities................................ 19,886 1,033 82 20,837
Mortgage-backed securities.......................... 26 -- -- 26
Other fixed maturities.............................. 13 -- -- 13
--------------- -------------- -------------- ------------
Total fixed maturities held to maturity............. $ 20,403 $ 1,047 $ 88 $ 21,362
=============== ============== ============== ============
</TABLE>
14
<PAGE>
INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities by
contractual maturities at December 31, 1997, is shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- ------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------- -------------- -------------- ------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 1,991 $ 2,011 $ 686 $ 695
Due after one year through five years......... 18,916 19,226 4,496 4,659
Due after five years through ten years........ 16,776 17,494 7,161 7,551
Due after ten years........................... 26,985 29,506 6,356 6,988
Mortgage-backed securities.................... 6,828 7,033 1 1
-------------- -------------- -------------- ------------
Total......................................... $ 71,496 $ 75,270 $ 18,700 $ 19,894
============== ============== ============== ============
</TABLE>
Actual maturities may differ from contractual maturities because issuers have
the right to call or prepay obligations
Proceeds from the repayment of held to maturity fixed maturities during 1997,
1996 and 1995 were $4,042 million, $4,268 million, and $3,767 million,
respectively. Gross gains of $62 million, $78 million, and $27 million, and
gross losses of $1 million, $7 million, and $0.2 million were realized on
prepayment of held to maturity fixed maturities during 1997, 1996 and 1995,
respectively.
Proceeds from the sale of available for sale fixed maturities during 1997,
1996 and 1995 were $120,604 million, $121,910 million and $96,134 million,
respectively. Proceeds from the maturity of available for sale fixed
maturities during 1997, 1996 and 1995 were $2,946 million, $1,458 million,
and $950 million, respectively. Gross gains of $1,310 million, $1,562
million, and $2,052 million and gross losses of $639 million, $1,026 million,
and $941 million were realized on sales and prepayments of available for sale
fixed maturities during 1997, 1996 and 1995, respectively.
Write downs for impairments of fixed maturities which were deemed to be other
than temporary were $13 million, $54 million and $100 million for the years
1997, 1996 and 1995, respectively.
During the year ended December 31, 1997, there were no securities classified
as held to maturity that were sold and two securities so classified were
transferred to the available for sale portfolio. These actions were taken as
a result of a significant deterioration in credit worthiness. The aggregate
amortized cost of the securities transferred was $26 million with gross
unrealized investment gains of $0.5 million charged to "Net unrealized
investment gains."
During the year ended December 31, 1996, one security classified as held to
maturity was sold and two securities so classified were transferred to the
available for sale portfolio. These actions were taken as a result of a
significant deterioration in credit worthiness. The amortized cost of the
security sold was $35 million with a related realized investment loss of $0.7
million; the aggregate amortized cost of the securities transferred was $26
million with gross unrealized investment losses of $6 million charged to "Net
unrealized investment gains."
15
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property
types at December 31:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Office buildings............................... $ 4,692 28.5% $ 6,056 34.4%
Retail stores.................................. 3,078 18.7% 3,676 20.9%
Residential properties......................... 891 5.4% 961 5.4%
Apartment complexes............................ 3,551 21.6% 2,954 16.8%
Industrial buildings........................... 1,958 11.9% 1,807 10.3%
Agricultural properties........................ 1,666 10.1% 1,550 8.8%
Other.......................................... 618 3.8% 608 3.4%
--------------- --------- -------------- ------
Subtotal 16,454 100.0% 17,612 100.0%
========= ======
Allowance for losses........................... (450) (515)
--------------- --------------
Net carrying value............................. $ 16,004 $ 17,097
=============== ==============
</TABLE>
The mortgage loans are geographically dispersed throughout the United
States and Canada with the largest concentrations in California (25.3%) and
New York (8.3%) at December 31, 1997. Included in the above balances are
mortgage loans receivable from affiliated joint ventures of $225 million
and $461 million at December 31, 1997 and 1996, respectively.
Activity in the allowance for losses for all mortgage loans, for the years
ended December 31, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Allowance for losses, beginning of year.............. $ 515 $ 862 $ 1,004
Additions charged to operations...................... 19 9 6
Release of allowance for losses...................... (60) (256) (32)
Charge-offs, net of recoveries....................... (24) (100) (116)
--------------- ---------------- ---------------
Allowance for losses, end of year.................... $ 450 $ 515 $ 862
================ ================ ===============
</TABLE>
The $60 million, $256 million and $32 million reduction of the mortgage
loan allowance for losses in 1997, 1996 and 1995, respectively, is
primarily attributable to the improved economic climate, changes in the
nature and mix of borrowers and underlying collateral and a significant
decrease in impaired loans consistent with a general decrease in the
mortgage loan portfolio due to prepayments, sales and foreclosures.
16
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Impaired mortgage loans and related allowance for losses at December 31,
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with allowance for losses ............. $ 330 $ 941
Impaired mortgage loans with no allowance for losses .......... 1,303 1,491
Allowance for losses .......................................... (97) (189)
----------------- ------------------
Net carrying value of impaired mortgage loans ................. $ 1,536 $ 2,243
================= ==================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. The average recorded investment in impaired loans before
allowance for losses was $2,102 million, $2,842 million and $4,146 million
during 1997, 1996 and 1995, respectively. Net investment income recognized
on these loans totaled $140 million, $265 million and $415 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
INVESTMENT REAL ESTATE
The Company's "investment real estate" of $1,519 million and $2,586 million
at December 31, 1997 and 1996, respectively, is held through direct
ownership. Of the Company's real estate, $1,490 million and $406 million
consists of commercial and agricultural assets held for disposal at
December 31, 1997 and 1996, respectively. Impairment losses and the
valuation allowances aggregated $40 million, $38 million and $124 million
for the years ended December 31, 1997, 1996 and 1995, respectively, and are
included in "Realized investment gains, net."
RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets of $2,783 million and $2,453 million at December 31, 1997 and 1996,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Additionally, assets valued at $2,352
million at December 31, 1997, were held in voluntary trusts. Of this
amount, $1,801 million related to the multi-state policyholder settlement
as described in Note 14. The remainder relates to trusts established to
fund guaranteed dividends to certain policyholders. The terms of these
trusts provide that the assets are to be used for payment of the designated
settlement and dividend benefits, as the case may be. Assets valued at $741
million and $3,414 million at December 31, 1997 and 1996, respectively,
were maintained as compensating balances or pledged as collateral for bank
loans and other financing agreements. Restricted cash and securities of
$1,835 million and $1,614 million at December 31, 1997, and 1996,
respectively, were included in the consolidated financial statements. The
restricted cash represents funds deposited by clients and funds accruing to
clients as a result of trades or contracts.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $3,360 million and $2,995
million as of December 31, 1997 and 1996, respectively, are composed of
$1,349 million and $832 million in real estate related interests and $2,011
million and $2,163 million of non-real estate related interests, including
a $149 million net investment in a leveraged lease entered into in 1997.
The Company's share of net income from such entities was $411 million, $245
million, and $326 million for 1997, 1996, and 1995, respectively, and is
reported in "Net investment income."
17
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities-available for sale........................ $ 5,074 $ 4,871 $ 4,774
Fixed maturities-held to maturity.......................... 1,622 1,793 1,717
Trading account assets..................................... 504 444 588
Equity securities-available for sale ...................... 52 81 57
Mortgage loans on real estate.............................. 1,555 1,690 2,075
Real estate ............................................... 565 685 742
Policy loans............................................... 396 384 392
Securities purchased under agreements to resell............ 15 11 19
Receivables from broker-dealer clients..................... 706 579 678
Short-term investments..................................... 697 536 590
Other investment income.................................... 573 725 983
-------------- -------------- -------------
Gross investment income.................................... 11,759 11,799 12,615
Less investment expenses................................... (1,896) (2,057) (2,437)
-------------- -------------- -------------
Net investment income...................................... $ 9,863 $ 9,742 $ 10,178
============== ============== =============
</TABLE>
REALIZED INVESTMENT GAINS, NET, including changes in allowances for losses
and charges for other than temporary reductions in value, for the years
ended December 31, were from the following sources:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities....................................... $ 684 $ 513 $ 1,180
Mortgage loans on real estate ......................... 68 248 67
Investment real estate ................................ 700 76 (19)
Equity securities-available for sale .................. 363 267 400
Other gains (losses)................................... 372 34 (125)
-------------- -------------- -----------
Realized investment gains, net......................... $ 2,187 $ 1,138 $ 1,503
============== ============== ===========
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are
included in the consolidated statement of financial position as a component
of equity, net of tax. Changes in these amounts for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Balance, beginning of year................................. $ 1,136 $ 2,397
Changes in unrealized investment
gains(losses) attributable to:
Fixed maturities ....................................... 1,766 (2,892)
Equity securities....................................... (85) 254
Participating group annuity contracts................... (564) 479
Deferred policy acquisition costs....................... (154) 261
Deferred federal income taxes........................... (347) 637
----------------- -----------------
Sub-total............................................... 616 (1,261)
----------------- -----------------
Balance, end of year....................................... $ 1,752 $ 1,136
================= =================
</TABLE>
18
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Based on the carrying value, assets categorized as "non-income producing"
for the year ended December 31, 1997 included in fixed maturities available
for sale, mortgage loans on real estate and other long term investments
totaled $26 million, $93 million and $7 million, respectively.
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs as of and
for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year ............................ $ 6,291 $ 6,088 $ 6,403
Capitalization of commissions, sales and issue expenses 1,049 931 919
Amortization and other adjustments..................... (1,192) (989) (783)
Change in unrealized investment gains ................. (154) 261 (451)
-------------- -------------- -----------
Balance, end of year .................................. $ 5,994 $ 6,291 $ 6,088
============== ============== ===========
</TABLE>
5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES
FUTURE POLICY BENEFITS at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Life insurance ............................................ $ 46,712 $ 44,118
Annuities ................................................. 15,469 14,828
Other contract liabilities ................................ 3,400 5,009
----------------- -----------------
Future policy benefits .................................... $ 65,581 $ 63,955
================= =================
</TABLE>
Life insurance liabilities include reserves for death and endowment policy
benefits, terminal dividends, premium deficiency reserves and certain health
benefits. Annuity liabilities include reserves for immediate annuities and
non-participating group annuities. Other contract liabilities primarily consist
of unearned premium and benefit reserves for group health products.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD
- ------------------------- ------------------------ --------------- ------------------------
<S> <C> <C> <C>
Life insurance Generally rates 2.5% to 7.5% Net level premium
guaranteed in calculating based on non-forfeiture
cash surrender values interest rate
Individual immediate 1983 Individual 3.25% to 11.25% Present value of
annuities Annuity Mortality expected future payments
Table with certain based on historical
modifications experience
Group annuities in 1950 Group 3.75% to 17.35% Present value of
payout status Annuity Mortality expected future payments
Table with certain based on historical
modifications experience
Other contract liabilities -- 6.0% to 7.0% Present value of
expected future payments
based on historical
experience
</TABLE>
19
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES (CONTINUED)
For the above categories, premium deficiency reserves are established, if
necessary, when the liability for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for
expected future policy benefits and expenses. A premium deficiency reserve
has been recorded for the group single premium annuity business, which
consists of limited-payment, long duration, traditional non-participating
annuities. A liability of $1,645 million and $1,320 million is included in
"Future policy benefits" with respect to this deficiency for the years
ended December 31, 1997 and 1996, respectively.
POLICYHOLDERS' ACCOUNT BALANCES at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Individual annuities........................................ $ 5,695 $ 6,408
Group annuities & guaranteed investment contracts........... 19,053 21,706
Interest-sensitive life contracts........................... 3,160 2,888
Dividend accumulations...................................... 5,033 5,007
--------- ---------
Policyholders' account balances............................. $ 32,941 $ 36,009
========= =========
</TABLE>
Policyholders' account balances for interest-sensitive life and
investment-type contracts are equal to policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less withdrawals, expenses and mortality charges.
Certain contract provisions that determine the policyholder account
balances are as follows:
<TABLE>
<CAPTION>
WITHDRAWAL/
PRODUCT INTEREST RATE SURRENDER CHARGES
----------------------------------- ------------------------ -------------------------------------
<S> <C> <C>
Individual annuities 3.1% to 6.6% 0% to 8% for up to 8 years
Group annuities 5.0% to 12.7% Contractually limited or subject to
market value adjustments
Guaranteed investment contracts 3.9% to 14.34% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive and
contractual payments
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Dividend accumulations 3.0% to 4.0%
</TABLE>
20
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES (CONTINUED)
OTHER POLICYHOLDERS' LIABILITIES. The following table provides a
reconciliation of the activity in the liability for unpaid claims and claim
adjustment expense for property and casualty and accident and health
insurance, which is included in "Other policyholder's liabilities" at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1......................................... $ 6,043 $ 5,933 $ 7,983
Less reinsurance recoverables.............................. 563 572 865
---------- ---------- ----------
Net balance at January 1..................................... 5,480 5,361 7,118
---------- ---------- ----------
Incurred related to:
Current year............................................... 10,691 10,281 10,534
Prior years................................................ 11 (91) 141
---------- ---------- ----------
Total incurred............................................... 10,702 10,190 10,675
---------- ---------- ----------
Paid related to:
Current year............................................... 7,415 7,497 7,116
Prior years................................................ 2,651 2,574 2,800
---------- ---------- ----------
Total paid................................................... 10,066 10,071 9,916
---------- ---------- ----------
Less Reinsurance
Segment.................................................... -- -- 2,516
---------- ---------- ----------
Net balance at December 31................................... 6,116 5,480 5,361
Plus reinsurance recoverables.............................. 543 563 572
---------- ---------- ----------
Balance at December 31....................................... $ 6,659 $ 6,043 $ 5,933
========== ========== ==========
</TABLE>
The changes in provision for claims and claim adjustment expenses related
to prior years of $11 million, $(91) million and $141 million in 1997, 1996
and 1995, respectively, are due to such factors as changes in claim cost
trends in healthcare, an accelerated decline in indemnity health business,
and lower than anticipated property and casualty unpaid claims and claim
adjustment expenses.
The other policyholders' liabilities presented above consist primarily of
unpaid claim liabilities which include estimates for liabilities associated
with reported claims and for incurred but not reported claims based, in
part, on the Company's experience. Changes in the estimated cost to settle
unpaid claims are charged or credited to the statement of operations
periodically as the estimates are revised. Accident and health unpaid
claims liabilities for 1997 and 1996 included above are discounted using
interest rates ranging from 6.0% to 7.5%.
21
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SHORT-TERM AND LONG-TERM DEBT
Debt consists of the following at December 31:
SHORT-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Commercial paper.......................................... $ 4,268 $ 4,511
Notes payable............................................. 2,151 1,614
Current portion of long-term debt......................... 355 437
-------------- --------------
Total short-term debt................................ $ 6,774 $ 6,562
============== ==============
</TABLE>
The weighted average interest rate on outstanding short-term debt was
approximately 6.0% and 5.6% at December 31, 1997 and 1996, respectively.
The Company issues commercial paper primarily to manage operating cash
flows and existing commitments, meet working capital needs and take
advantage of current investment opportunities. Commercial paper borrowings
are supported by various lines of credit.
LONG-TERM DEBT
<TABLE>
<CAPTION>
DESCRIPTION MATURITY DATES RATE 1997 1996
------------------------------------ ----------------- -------------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Floating rate notes ("FRN") 1998 6.5% $ 40 $ 128
Long term notes 1998 - 2023 4% - 12% 1,194 1,023
Zero coupon notes 1998 - 1999 8.6% (a) 334 365
Australian dollar notes 1997 9% -- 55
Canadian dollar notes 1997 - 1998 7.0% - 9.125% 117 320
Japanese yen notes 1998 - 2000 0.5% - 4.6% 178 90
Swiss francs notes 1998 3.875% 120 103
Canadian dollar FRN 2003 5.89% 96 96
Surplus notes 2003 - 2025 6.875% - 8.3% 986 985
Commercial paper backed by long-term
credit agreements 1,500 1,000
Other notes payable 1998 - 2017 4% - 7.5% 63 32
---------- ----------
Sub-total............................................................................. 4,628 4,197
Less: current portion of long-term debt............................................ (355) (437)
---------- ----------
Total long-term debt.................................................................. $ 4,273 $ 3,760
========== ==========
</TABLE>
(a) The rate shown for zero coupon notes, which do not bear interest,
represents a level yield to maturity.
Payment of interest and principal on the surplus notes of $686 million
issued after 1993 may be made only with the prior approval of the
Commissioner of Insurance of the State of New Jersey.
In order to modify exposure to interest rate and currency exchange rate
movements, the Company utilizes derivative instruments, primarily interest
rate swaps, in conjunction with some of its debt issues. The effect of
these derivative instruments is included in the calculation of the interest
expense on the associated debt, and as a result, the effective interest
rates on the debt may differ from the rates reflected in the tables above.
Floating rates are determined by formulas and may be subject to certain
minimum or maximum rates.
Scheduled principal repayments of long-term debt as of December 31, 1997,
are as follows: $357 million in 1998, $808 million in 1999, $260 million in
2000, $32 million in 2001, $1,814 million in 2002 and $1,379 million
thereafter.
At December 31, 1997, the Company had $8,257 million in lines of credit
from numerous financial institutions of which $5,160 million were unused.
These lines of credit generally have terms ranging from 1 to 5 years.
22
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has one funded non-contributory defined benefit pension plan,
which covers substantially all of its employees. The Company also has
several non-contributory non-funded defined benefit plans covering certain
executives. Benefits are generally based on career average earnings and
credited length of service. The Company's funding policy is to contribute
annually an amount necessary to satisfy the Internal Revenue Service
contribution guidelines.
Prepaid and accrued pension costs are included in "Other assets" and "Other
liabilities," respectively, in the Company's consolidated statements of
financial position. The status of these plans as of September 30, adjusted
for fourth quarter activity related to funding activity and contractual
termination benefits is summarized below:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- -------------- -------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested benefit obligation.............. $ (4,129) $ (205) $ (3,826) $ (180)
============ ============ =========== =============
Accumulated benefit obligation......... $ (4,434) $ (226) $ (4,121) $ (198)
============ ============ =========== =============
Projected benefit obligation............. $ (5,238) $ (319) $ (4,873) $ (274)
Plan assets at fair value................ 8,489 -- 7,306 --
------------ ------------ ----------- -------------
Plan assets in excess of (less than)
projected benefit obligation........... 3,251 (319) 2,433 (274)
Unrecognized transition amount........... (662) 1 (769) 1
Unrecognized prior service cost.......... 317 10 356 11
Unrecognized net (gain) loss............. (1,689) 45 (916) 16
Additional minimum liability............. -- (11) -- (10)
Effect of fourth quarter activity........ (67) 4 (98) 4
------------ ------------ ----------- -------------
Prepaid (accrued) pension cost
at December 31......................... $ 1,150 $ (270) $ 1,006 $ (252)
============ ============ =========== =============
</TABLE>
Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $6,022 million and $5,668 million are
included in Separate Account assets and liabilities at December 31, 1997
and 1996, respectively.
Effective December 31, 1996, The Prudential Securities Incorporated Cash
Balance Plan (the "PSI Plan") was merged into The Retirement System for
United States Employees and Special Agents of The Prudential Insurance
Company of America (the "Prudential Plan"). The name of the merged plan is
The Prudential Merged Retirement Plan ("Merged Retirement Plan"). All of
the assets of the Merged Retirement Plan are available to pay benefits to
participants and their beneficiaries who are covered by the Merged
Retirement Plan. The merger of the plans had no effect on the December 31,
1996 consolidated financial position or results of operations.
During 1996, the Prudential Plan was amended to provide cost of living
adjustments for retirees. The effect of this plan amendment increased
benefit obligations and unrecognized prior service cost by $170 million at
September 30, 1996. In addition, the Prudential Plan was amended to provide
contractual termination benefits to certain plan participants who were
notified between September 15, 1996 and December 31, 1997 that their
employment had been terminated. During 1997, the Prudential Retirement Plan
Document, a component of the Merged Retirement Plan was amended to extend
the contractual termination benefits to December 31, 1998. Costs related to
these amendments are reflected below in contractual termination benefits.
23
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic pension income included in "General and administrative
expenses" in the Company's consolidated statement of operations for the
years ended December 31, 1997, 1996 and 1995 include the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits earned during the year......... $ 127 $ 140 $ 133
Interest cost on projected benefit obligation........ 376 354 392
Actual return on plan assets......................... (1,693) (748) (1,288)
Net amortization and deferral........................ 1,012 73 629
Contractual termination benefits..................... 30 63 --
-------------- ------------- --------------
Net periodic pension income.......................... $ (148) $ (118) $ (134)
============== ============= ==============
</TABLE>
The assumptions at September 30 used by the Company are to calculate the
projected benefit obligations as of that date and determine the pension
expense for the following fiscal year:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Discount rate.......................................... 7.25% 7.75% 7.50%
Rate of increase in compensation levels................ 4.50% 4.50% 4.50%
Expected long-term rate of return on plan assets....... 9.50% 9.50% 9.00%
</TABLE>
OTHER POSTRETIREMENT BENEFITS
The Company provides certain life insurance and health care benefits for
its retired employees, their beneficiaries and covered dependents.
Substantially all of the Company's employees may become eligible to receive
benefits if they retire after age 55 with at least 10 years of service, or
under circumstances after age 50 with at least 20 years of continuous
service.
The Company has elected to amortize its transition obligation over 20
years. Post-retirement benefits are funded as considered necessary by
Company management. The Company's funding of its postretirement benefit
obligations totaled $43 million, $38 million and $94 million in 1997, 1996
and 1995, respectively.
In 1995 the Company modified the restrictions on certain post-retirement
plan assets to allow these assets to be used for benefits related to both
active and retired employees. Formerly, these benefits were available only
for retired employees. In connection with this modification, the Company
transferred $120 million from one of these plans in 1995. Of the $120
million transferred, $45 million went to Union Post-Retirement Benefits and
$75 million went to Union Medical Benefits.
24
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The status of the plan at September 30, adjusted for assets transferred to
the plan in the fourth quarter, is provided below. Accrued post-retirement
benefit costs are included in "Other liabilities" in the Company's
consolidated statement of financial position.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees.......................................................... $ (1,516) $ (1,423)
Fully eligible active plan participants........................... (36) (35)
Other active plan participants.................................... (576) (544)
--------- ---------
Total APBO..................................................... (2,128) (2,002)
Plan assets at fair value............................................ 1,354 1,313
--------- ---------
Funded status........................................................ (774) (689)
Unrecognized transition amount....................................... 707 787
Unrecognized net gain ............................................... (364) (428)
Effects of fourth quarter activity................................... 33 28
--------- ---------
Accrued postretirement benefit cost at December 31................... $ (398) $ (302)
========= =========
</TABLE>
Plan assets with respect to this coverage consist of group and individual
variable life insurance policies, group life and health contracts, common
stocks, U.S. government securities and short-term investments. Plan assets
include $1,044 million and $1,003 million of Company insurance policies and
contracts at December 31, 1997 and 1996, respectively.
Net periodic postretirement benefit cost included in "General and
administrative expenses" for the years ended December 31, 1997, 1996 and
1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost.............................................. $ 38 $ 45 $ 44
Interest cost............................................. 149 157 169
Actual return on plan assets.............................. (120) (105) (144)
Net amortization and deferral............................. 70 53 111
----------- ----------- -----------
Net periodic postretirement benefit cost.................. $ 137 $ 150 $ 180
=========== =========== ===========
</TABLE>
The following assumptions at September 30 are used to calculate the APBO as
of that date and determine postretirement benefit expense for the following
fiscal year:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount rate............................................. 7.25% 7.75% 7.50%
Rate of increase in compensation levels................... 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets.......... 9.0% 9.0% 8.0%
Health care cost trend rates.............................. 8.2-11.8% 8.5-12.5% 8.9-13.3%
Ultimate health care cost trend rate after gradual
decrease until 2006....................................... 5.0% 5.0% 5.0%
</TABLE>
25
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The effect of a 1% increase in health care cost trend rates for each future
year on the following costs at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation............ $ (218) $ (207) $ (217)
Service and interest costs............................... 24 25 27
</TABLE>
POSTEMPLOYMENT BENEFITS
The Company accrues 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, 1997 and 1996
was $144 million and $156 million, respectively, and is included in "Other
liabilities."
OTHER EMPLOYEE BENEFITS
The Company sponsors voluntary savings plans for employees (401(k) plans).
The plans provide for salary reduction contributions by employees and
matching contributions by the Company of up to three percent of annual
salary, resulting in $63 million, $57 million, and $61 million of expenses
included in "General and administrative expenses" for 1997, 1996 and 1995,
respectively.
8. INCOME TAXES
The components of income tax expense for the years ended December 31, were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Current tax expense (benefit):
U.S...................................................... $ (158) $ 255 $ 1,189
State and Iocal.......................................... 48 103 38
Foreign.................................................. 64 48 66
--------- --------- ---------
Total.................................................... $ (46) $ 406 $ 1,293
========= ========= =========
Deferred tax expense (benefit):
U.S...................................................... $ 227 $ (442) $ (166)
State and Iocal.......................................... 3 (2) (10)
Foreign.................................................. 33 54 9
--------- --------- ---------
Total.................................................... $ 263 $ (390) $ (167)
========= ========= =========
Total income tax expense................................. $ 217 $ 16 $ 1,126
========= ========= =========
</TABLE>
26
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
The Company's income tax expense for the years ended December 31, differs
from the amount computed by applying the expected federal income tax rate
of 35% to income from operations before income taxes for the following
reasons:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Expected federal income tax expense.......................... $ 290 $ 382 $ 829
Equity tax................................................... (91) (365) 163
State and local income taxes................................. 51 100 28
Tax-exempt interest and dividend received deduction.......... (67) (50) (77)
Other........................................................ 34 (51) 183
-------- -------- --------
Total income tax expense..................................... $ 217 $ 16 $ 1,126
======== ======== ========
</TABLE>
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
------- --------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Insurance reserves.......................................... $ 1,482 $ 1,316
Policyholder dividends...................................... 250 257
Net operating loss carryforwards............................ 80 268
Depreciation................................................ -- 44
Litigation related reserves................................. 178 297
Employee benefits........................................... 42 10
Other....................................................... 360 329
-------- --------
Deferred tax assets before valuation allowance.............. 2,392 2,521
Valuation allowance......................................... (18) (36)
-------- --------
Deferred tax assets after valuation allowance............... 2,374 2,485
-------- --------
Deferred tax liabilities
Investments................................................. 1,867 1,183
Deferred acquisition costs.................................. 1,525 1,707
Depreciation................................................ 36 --
Other....................................................... 73 110
-------- --------
Deferred tax liabilities.................................... 3,501 3,000
-------- --------
Net deferred tax liability.................................... $ 1,127 $ 515
======== ========
</TABLE>
The Company's income taxes payable of $500 million and $1,544 million
includes a $627 million current income tax receivable at December 31, 1997
and a $1,029 million current income taxes payable at December 31, 1996.
27
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
Management believes that based on its historical pattern of taxable income,
the Company will produce sufficient income in the future to realize its net
deferred tax asset after valuation allowance. Adjustments to the valuation
allowance will be made if there is a change in management's assessment of
the amount of the deferred tax asset that is realizable. At December 31,
1997, the Company had state non-life operating loss carryforwards for tax
purposes approximating $800 million.
The Internal Revenue Service (the "Service") has completed an examination
of the consolidated federal income tax return through 1989. The Service has
examined 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. The Service has begun their examination of the years 1993
through 1995.
9. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following
table reconciles the Company's statutory net income and surplus as of and
for the years ended December 31, determined in accordance with accounting
practices prescribed or permitted by the New Jersey Department of Banking
and Insurance with net income and equity determined using GAAP:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
STATUTORY NET INCOME........................................... $ 1,471 $ 1,402 $ 478
Adjustments to reconcile to net income on a GAAP basis:
Insurance revenues and expenses.............................. 12 (478) (496)
Income taxes................................................. 601 439 (596)
Valuation of investments..................................... (62) 121 --
Realized investment gains.................................... 702 327 1,562
Litigation and other reserves................................ (1,975) (906) --
Other, net................................................... (139) 173 295
-------- -------- --------
GAAP NET INCOME................................................ $ 610 $ 1,078 $ 1,243
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
STATUTORY SURPLUS.............................................. $ 9,242 $ 9,375
Adjustments to reconcile to equity on a GAAP basis:
Deferred policy acquisition costs............................ 5,994 6,291
Valuation of investments..................................... 8,067 5,624
Future policy benefits and policyholder account balances..... (2,906) (1,976)
Non-admitted assets.......................................... 1,643 1,285
Income taxes................................................. (1,070) (654)
Surplus notes................................................ (986) (985)
Other, net................................................... (266) (437)
-------- --------
GAAP EQUITY.................................................... $ 19,718 $ 18,523
======== ========
</TABLE>
28
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EQUITY (CONTINUED)
The New York State Insurance Department ("Department") recognizes only
statutory accounting for determining and reporting the financial condition
of an insurance company, for determining its solvency under the New York
Insurance Law and for determining whether its financial condition warrants
the payment of a dividend to its policyholders. No consideration is given
by the Department to financial statements prepared in accordance with GAAP
in making such determinations.
10. OPERATING LEASES
The Company and its subsidiaries occupy leased office space in many
locations under various long-term leases and have entered into numerous
leases covering the long-term use of computers and other equipment. At
December 31, 1997, future minimum lease payments under non-cancelable
operating leases are estimated as follows:
(IN MILLIONS)
1998........................................ $ 313
1999........................................ 277
2000........................................ 230
2001........................................ 201
2002........................................ 171
Remaining years after 2002.................. 833
-----------
Total....................................... $ 2,025
===========
Rental expense incurred for the years ended December 31, 1997 and 1996 was
approximately $352 million and $343 million, respectively.
11. DIVESTITURES
In October 1995, the Company completed the sale of its reinsurance segment,
Prudential Reinsurance Holdings, Inc., through an initial public offering
of common stock. As a result of the sale, an after-tax loss of $297 million
was recorded in 1995.
On January 26, 1996, the Company entered into a definitive agreement to
sell substantially all the assets of Prudential Home Mortgage Company, Inc.
It has also liquidated certain mortgage-backed securities and extended
warehouse losses, asset write downs, and other costs directly related to
the planned sale. The Company recorded an after-tax loss in 1995 of $98
million which includes operating gains and losses, asset write downs and
other costs directly related with the planned sale. The net assets of the
mortgage banking segment at December 31, 1995 was $78 million, comprised of
$4,293 million in assets and $4,215 million in liabilities.
On July 31, 1996, the Company sold a substantial portion of its Canadian
Branch business to the London Life Insurance Company ("London Life"). This
transaction was structured as a reinsurance transaction whereby London Life
assumed total liabilities of the Canadian Branch equal to $3,291 million as
well as a related amount of assets equal to $3,205 million. This transfer
resulted in a reduction of policy liabilities of $3,257 million and a
corresponding reduction in invested assets. The Company recognized an
after-tax gain in 1996 of $116 million as a result of this transaction,
recorded in "Realized investment gains, net."
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available
information and 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 presented in the table, the carrying value
approximates fair value).
29
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, 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 estimated fair value of certain
non-performing private placement securities is based on amounts estimated
by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future 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, the
fair value is based upon the present value of expected future cash flows
discounted at the appropriate U.S. Treasury rate adjusted for current
market spread for a similar quality mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted
cash flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of swap agreements is estimated based on the present value
of future cash flows under the agreements discounted at the applicable zero
coupon U.S. Treasury rate and swap spread. The fair value of forwards,
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 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.
POLICYHOLDERS' ACCOUNT BALANCES
Fair values of policyholders' account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
DEBT
The estimated fair value of short-term and long-term debt is derived by
using discount rates based on the borrowing rates currently available to
the Company for debt with similar terms and remaining maturities.
30
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ----------- ------------ --------------
FINANCIAL ASSETS: (IN MILLIONS)
<S> <C> <C> <C> <C>
Other than trading:
- -------------------
Fixed maturities:
Available for sale....................... $ 75,270 $ 75,270 $ 66,553 $ 66,553
Held to maturity......................... 18,700 19,894 20,403 21,362
Equity securities........................... 2,810 2,810 2,622 2,622
Mortgage loans on real estate............... 16,004 17,153 17,097 17,963
Policy loans................................ 6,827 6,994 6,692 6,613
Securities purchased under
agreements to resell .................... 8,661 8,661 5,347 5,347
Cash collateral for borrowed securities..... 5,047 5,047 2,416 2,416
Short-term investments...................... 12,106 12,106 9,294 9,294
Cash ....................................... 3,636 3,636 2,091 2,091
Separate Accounts assets.................... 74,046 74,046 63,358 63,358
Derivative financial instruments............ 24 35 16 32
Trading:
- --------
Trading account assets...................... 6,044 6,044 4,219 4,219
Receivables from broker-dealer clients...... 6,273 6,273 5,281 5,281
Derivative financial instruments............ 979 979 904 904
FINANCIAL LIABILITIES:
Other than trading:
- -------------------
Policyholders' account balances............. 32,941 33,896 36,009 37,080
Securities sold under
agreements to repurchase................. 12,347 12,347 7,503 7,503
Cash collateral for loaned securities....... 14,117 14,117 8,449 8,449
Short-term and long-term debt............... 11,047 11,020 10,322 10,350
Securities sold but not yet purchased....... 3,533 3,533 1,900 1,900
Separate Accounts liabilities............... 73,658 73,658 62,845 62,845
Derivative financial instruments............ 32 47 32 45
Trading:
- --------
Payables to broker-dealer clients........... 3,338 3,338 3,018 3,018
Derivative financial instruments ........... 1,088 1,088 1,120 1,120
</TABLE>
31
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The tables below summarize the Company's outstanding positions by
derivative instrument types as of December 31, 1997 and 1996. The amounts
presented are classified as either trading or other than trading, based on
management's intent at the time of contract inception and throughout the
life of the contract. The table includes the estimated fair values of
outstanding derivative positions only and does not include the changes in
fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair
value amounts presented also do not reflect the netting of amounts pursuant
to right of setoff, qualifying master netting agreements with
counterparties or collateral arrangements.
DERIVATIVE FINANCIAL INSTRUMENTS
DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING TOTAL
------------------------ ----------------------- ------------------------------------
ESTIMATED ESTIMATED CARRYING ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets.............. $ 7,759 $ 394 $ 61 $ -- $ 7,820 $ 395 $ 394
Liabilities......... 6,754 489 13 3 6,767 493 491
Forwards:
Assets.............. 29,511 429 1,031 23 30,542 452 452
Liabilities......... 29,894 459 647 7 30,541 466 466
Futures:
Assets.............. 4,103 51 46 -- 4,149 51 51
Liabilities......... 3,064 50 3,320 21 6,384 71 71
Options:
Assets.............. 6,893 105 239 -- 7,132 105 105
Liabilities......... 4,165 90 5 -- 4,170 90 90
Loan Commitments:
Assets.............. -- -- 317 12 317 -- 12
Liabilities......... -- -- 524 16 524 -- 16
----------- ----------- ---------- ----------- ----------- ---------- -----------
Total:
Assets.............. $ 48,266 $ 979 $ 1,694 $ 35 $ 49,960 $ 1,003 $ 1,014
=========== =========== ========== =========== =========== ========== ===========
Liabilities......... $ 43,877 $ 1,088 $ 4,509 $ 47 $ 48,386 $ 1,120 $ 1,134
=========== =========== ========== =========== =========== ========== ===========
</TABLE>
32
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING TOTAL
------------------------ ----------------------- ------------------------------------
ESTIMATED ESTIMATED CARRYING ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets.............. $ 8,080 $ 481 $ 398 $ 10 $ 8,478 $ 481 $ 491
Liabilities......... 8,316 756 139 17 8,455 771 773
Forwards:
Assets.............. 24,275 367 489 13 24,764 376 380
Liabilities......... 20,103 308 920 10 21,023 318 318
Futures:
Assets.............. 2,299 24 3 -- 2,302 24 24
Liabilities......... 2,573 30 1,087 6 3,660 36 36
Options:
Assets.............. 2,981 32 2,083 7 5,064 39 39
Liabilities......... 2,653 26 437 12 3,090 27 38
Loan Commitments:
Assets.............. -- -- 163 2 163 -- 2
Liabilities......... -- -- 445 -- 445 -- --
----------- ----------- ---------- ----------- ----------- ---------- -----------
Total:
Assets.............. $ 37,635 $ 904 $ 3,136 $ 32 $ 40,771 $ 920 $ 936
=========== =========== ========== =========== =========== ========== ===========
Liabilities......... $ 33,645 $ 1,120 $ 3,028 $ 45 $ 36,673 $ 1,152 $ 1,165
=========== =========== ========== =========== =========== ========== ===========
</TABLE>
CREDIT RISK
The current credit exposure of the Company's derivative contracts is
limited to the fair value at the reporting date. Credit risk is managed by
entering into transactions with creditworthy counterparties and obtaining
collateral where appropriate and customary. The Company also attempts to
minimize its exposure to credit risk through the use of various credit
monitoring techniques. Approximately 95% of the net credit exposure for the
Company from derivative contracts is with investment-grade counterparties.
Net trading revenues for the years ended December 31, 1997, 1996 and 1995
relating to forwards, futures and swaps were $54 million, $37 million, $(8)
million; $42 million, $32 million, $(11) million; and $110 million, $42
million, $3 million respectively. Net trading revenues for options were not
material. Average fair values for trading derivatives in an asset position
during the years ended December 31, 1997 and 1996 were $1,015 million and
$881 million, respectively, and for derivatives in a liability position
were $1,166 million and $1,038 million, respectively. Of those derivatives
held for trading purposes at December 31, 1997, 52% of the notional amount
consisted of interest rate derivatives, 40% consisted of foreign currency
derivatives, and 8% consisted of equity and commodity derivatives. Of those
derivatives held for purposes other than trading at December 31, 1997, 72%
of notional consisted of interest rate derivatives and 28% consisted of
foreign currency derivatives.
33
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
During the normal course of its business, the Company utilizes financial
instruments with off-balance sheet credit risk such as commitments,
financial guarantees, loans sold with recourse and letters of credit.
Commitments include commitments to purchase and sell mortgage loans, the
unfunded portion of commitments to fund investments in private placement
securities, and unused credit card and home equity lines. The Company also
provides financial guarantees incidental to other transactions and letters
of credit that guarantee the performance of customers to third parties.
These credit-related financial instruments have off-balance sheet credit
risk because only their origination fees, if any, and accruals for probable
losses, if any, are recognized until the obligation under the instrument is
fulfilled or expires. These instruments can extend for several years and
expirations are not concentrated in any period. The Company seeks to
control credit risk associated with these instruments by limiting credit,
maintaining collateral where customary and appropriate, and performing
other monitoring procedures.
The fair value of asset positions in these instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $1,014 million and $936 million at December 31, 1997
and 1996, respectively.
14. CONTINGENCIES AND LITIGATION
FINANCIAL GUARANTEE AGREEMENT
In connection with the sale in 1995 of its wholly-owned subsidiary
Prudential Reinsurance Company ("Pru Re"), the Company's subsidiary,
Gibraltar Casualty Insurance Company ("Gibraltar") entered into a stop-loss
reinsurance agreement with Pru Re whereby Gibraltar has reinsured up to
$375 million of the first $400 million of aggregate adverse loss
development on reserves recorded by Pru Re at June 30, 1995. Gibraltar also
has entered into several quota share reinsurance arrangements with Pru Re
whereby certain medical malpractice, direct insurance and casualty
reinsurance pool risks previously underwritten by Pru Re prior to June 30,
1995 were ceded to Gibraltar. The Company has guaranteed Gibraltar's
obligations arising under each of these contracts subject to a limit of
$375 million for the stop-loss agreement and $400 million for the other
agreements. Through December 31, 1997, Gibraltar has incurred $285 million
in losses under the stop-loss agreement, including $45 million in 1997.
Gibraltar has paid $165 million to Pru Re under the stop-loss agreement.
The Company has not been required to fund losses arising under the other
arrangements.
ENVIRONMENTAL AND ASBESTOS-RELATED CLAIMS
Certain of the Company's subsidiaries received 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 liability for unpaid claims for these losses, management considered the
available information. However, given the expansion of coverage and
liability by the courts and legislatures in the past, and potential for
other unfavorable trends in the future, the ultimate cost of these claims
could increase from the levels currently established.
MANAGED CARE REIMBURSEMENT
In 1997, the Company continued to review its obligations under certain
managed care arrangements for possible failure to comply with contractual
and regulatory requirements. The estimated cost to the Company for these
reimbursements increased by $115 million in 1997, bringing the total
provision to $265 million. As of December 31, 1997, $163 million has been
paid or credited to customers. It is the opinion of management that the
remaining reserves of $102 million at December 31, 1997 represent a
reasonable estimate of remaining reimbursements to customers and other
related costs.
LITIGATION
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.
Three putative class actions and approximately 677 individual actions were
pending against the Company in the United States as of January 31, 1998
brought 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
34
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CONTINGENCIES AND LITIGATION (CONTINUED)
these cases seek 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
formed in April 1995 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. The Task Force found that some sales of life
insurance policies by the Company had been improper. Based on the findings,
the Task Force recommended, and the Company agreed to, a series of fines
allocated to all 50 states and the District of Columbia. In addition, the
Task Force recommended a remediation program pursuant to which the Company
would offer relief to the policyowners who were misled when they purchased
permanent life insurance policies in the United States from 1982 to 1995.
On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in the consolidated class action lawsuit
pending in a Multi-District Litigation proceeding in the federal court in
New Jersey. The class action suit involved alleged improprieties in
connection with the Company's sale, servicing and operation of permanent
life insurance policies from 1982 through 1995. Pursuant to the settlement,
the Company agreed to provide certain enhancements and changes to the
remediation program previously accepted by the Task Force, including some
additional remedies. In addition, the Company agreed that it would incur a
minimum cost of $410 million in providing remedies to policyowners under
the program and, in specified circumstances, agreed to make certain other
payments and guarantees. Under the terms of the settlement, the Company
agreed to a minimum average cost per remedy of $2,364 for up to 330,000
claims remedied and also agreed to provide additional compensation to be
determined by formula that will range in aggregate amount from $50 million
to $300 million depending on the total number of claims remedied. At the
end of the remediation program's claim evaluation process, the Court will
determine how the additional compensation will be distributed.
The terms of the remediation program described above were enhanced again in
February 1997 pursuant to agreements reached with several states that had
not previously accepted the terms of the program. These changes were
incorporated as amendments to the above-described Stipulation of Settlement
and related settlement documents, and the amended Stipulation of Settlement
was approved as fair to class members by the United States District Court
for the District of New Jersey in March 1997. By that point in time, the
Company had entered into agreements with all 50 states and the District of
Columbia pursuant to which each jurisdiction had accepted the remediation
plan and the Company had agreed to pay approximately $65 million in fines,
penalties and related payments.
The decision of the U.S. District Court to certify a class in the
above-described litigation for settlement purposes only and to approve the
class action settlement as described in the amended Stipulation of
Settlement is presently on appeal to the U.S. Court of Appeals for the
Third Circuit. The appellants claim that the District Court erred in
certifying a class and in finding that the terms of the settlement are fair
to the class.
Pursuant to the state agreements and the amended Stipulation of Settlement,
as approved by the U.S. District Court, the Company initiated its
remediation program in 1997. The Company mailed packages and provided broad
class notice to the owners of approximately 10.7 million policies eligible
to participate in the remediation program, informing them of their rights.
Owners of approximately 21,800 policies elected to be excluded from the
class action settlement. Of those eligible to participate in the
settlement, policyowners who believed they were misled were invited to file
a claim through an Alternative Dispute Resolution ("ADR") process. The ADR
process was established to enable the company to discharge its liability to
the affected policyowners. Policyowners who did not wish to file a claim in
the ADR process were permitted to choose from options available under Basic
Claim Relief, such as preferred rate premium loans, or annuities, mutual
fund shares or life insurance policies that the Company will enhance.
The owners of approximately 1.16 million policies responded to these
notices by indicating an intent to file an ADR claim. All policyholders who
responded were provided an ADR claim form for completion and submission.
Approximately 635,000 claim forms were completed and returned as of January
31, 1998. Management does not believe the number of ADR claims that will be
completed and returned will increase significantly. In addition, the owners
of approximately 510,000 policies indicated an interest in a Basic Claim
Relief remedy. The ADR process requires that individual claim files be
reviewed by one or more independent claim evaluators. Management does not
believe costs associated with providing Basic Claim Relief will be material
to the Company's financial position or results of operations.
35
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CONTINGENCIES AND LITIGATION (CONTINUED)
In 1996, the Company recorded in its Statement of Operations, the minimum
cost of $410 million as agreed to in the settlement. Management had no
better information available at that time upon which to make a reasonable
estimate of losses. Management now has additional information which allows
for computation of a reasonable estimate of losses associated with ADR
claims. Based on this additional information, in 1997, management had
increased the estimated liability for the cost of remedying policyholder
claims in the ADR process by $1.64 billion before taxes to approximately
$2.05 billion before taxes of which $1.80 billion has been funded in a
settlement trust as described in Note 3. While management believes these
are reasonable estimates based on information currently available, the
ultimate amount of the total cost of remedied policyholder claims is
dependent on complex and varying factors, including actual claims by
eligible policyholders, the relief options chosen and the dollar value of
those options. There are also additional elements of the ADR process which
cannot be fully evaluated at this time (e.g., claims which may be
successfully appealed) which could increase this estimate.
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.
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
contract holders 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.
15. SUBSEQUENT EVENTS
On February 10, 1998, the Company's Board of Directors authorized
management to take the preliminary steps necessary to allow the Company to
demutualize and become a publicly-traded company. The Company has begun
discussions with the New Jersey Department of Banking and Insurance,
leaders in the New Jersey State Legislature, as well as other key
regulatory agencies around the country. The New Jersey State Legislature
must first pass a law permitting demutualization. The New Jersey Department
of Banking and Insurance, the Company's Board and a majority of
participating policyholders must ultimately approve the Company's plan for
demutualization.
* * * * *
36
<PAGE>
DETERMINATION OF SUBACCOUNT UNIT VALUES AND
OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY
PAYMENTS
A. SUBACCOUNT UNIT VALUES
The value for each Subaccount Unit is computed as of the end of each "valuation
period" as defined on page 1 of the prospectus (also referred to in this section
as business day).
On any given business day the value of Units 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 expense risks and mortality risks. (See CHARGES, FEES, AND
DEDUCTIONS in the prospectus for the Account.) 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.
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT
When a Contract owner elects to convert his or her Variable Account into monthly
variable annuity payments (an option available under the WVA-83 Contract and the
VIP-84 Contract, but not under the VIP-86 Contract), the number of Units
credited to him or her in each subaccount is first reduced to take into account
any applicable sales charge and any state premium taxes that may be payable. The
remaining Subaccount Units are then converted into a number of Subaccount
Annuity Units of equal aggregate value. As with Subaccount Units, the value of
each Subaccount Annuity Unit also changes daily in accordance with the
investment results of the underlying Series Fund Portfolio, after deduction of
the daily equivalent of the 1.2% annual charge for assuming expense and
mortality risks.
Built into the value of Subaccount Annuity Units is an assumption that the value
of a subaccount will grow by 3.5% each year. The reason for making this
assumption is explained more fully below. Accordingly, the value of a Subaccount
Annuity Unit always increases by an amount that is somewhat less than the
increase would have been had this assumption not been made and decreases by an
amount that is somewhat greater than the decrease would have been had the
assumption not been made. If the value of the assets of a subaccount increases
from 1 day to the next at a rate equivalent to 4.7% per year (3.5% plus the
annual charge of 1.2%), the Subaccount Annuity Unit Value will not change. If
the increase is less than at a rate equivalent to 4.7% per year, the Subaccount
Annuity Unit Value will decrease.
To determine the amount of each monthly variable annuity payment, the first step
is to refer to the Schedule of Annuity Rates set forth in the Contract, relating
to the form of annuity selected by the Contract owner. For example, for a man of
65 years of age who has selected a lifetime annuity with a guaranteed minimum of
120 payments, the applicable schedules currently provide that 1000 Subaccount
Annuity Units will result in the payment each month of an amount equal to the
value of 5.73 Subaccount Annuity Units. (Due to the fact that the Schedule of
Annuity Rates set forth in the WVA-83 Contract differs from that set forth in
the VIP-84 Contract, the preceding sentence, as it applies to the WVA-83
Contract, is modified. See item 4 under DIFFERENCES UNDER THE WVA-83 CONTRACT in
the prospectus for the Account.) The amount of the first variable annuity
payment made on the first day of the month will be equal to that number of
Subaccount Annuity Units multiplied by the Subaccount Annuity Unit Value at the
end of that day, if a business day, or otherwise at the end of the last
preceding business day. The amount of each subsequent variable annuity payment
made on the first day of the month will be equal to the number of Subaccount
Annuity Units multiplied by the Subaccount Annuity Unit Value at the end of the
last business day which is at least 5 days before the date the annuity payment
is due. (Under the WVA-83 Contract, the amount of each variable annuity payment
made after the first payment is not determined as described in the preceding
sentence. See item 5 under DIFFERENCES UNDER THE WVA-83 CONTRACT in the
prospectus for the Account.)
As stated above, Subaccount Annuity Unit Values change in accordance with the
investment results of the subaccount but will not increase--and thus the amount
of each monthly variable payment will not increase--unless the assets in the
subaccount increase, after deducting the 1.2% annual charge, at a rate greater
than 3.5% per year. This
C-1
<PAGE>
compensates for the fact that the annuity rate schedules have been constructed
upon the assumption that there will be a 3.5% annual increase in the value of
each subaccount. Although a different assumption could have been made, namely
that the subaccounts will not increase in value, this would have resulted in
smaller variable annuity payments immediately after annuitization and larger
payments in later years. This would have been advantageous for annuitants who
happen to live very long but disadvantageous to those who happen to die earlier.
The Prudential believes that the 3.5% annual growth assumption is better for
Contract owners, because it produces a better balance between early and later
variable annuity payments.
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<PAGE>
INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
TELEPHONE: (888) PRU-2888
<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, 1997; the Statements of Operations for the periods ended
December 31, 1997 and 1996; and the Notes relating thereto appear in the
statement of additional information (Part B of the Registration
Statement).
(2) Consolidated Financial Statements of The Prudential Insurance Company of
America (Depositor) and subsidiaries, consisting of the Consolidated
Statements of Admitted Assets, Liabilities and Surplus as of December 31,
1997 and 1996; the Consolidated Statements of Operations and Changes in
Surplus and Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995; 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 1)
(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 1)
(b) Proposed form of Selected Broker Agreement between Pruco Securities
Corporation and brokers with respect to sale of the Contracts.
(Note 1)
(4) (a) Individual Variable Annuity Contract (Form WVA-83). (Note 3)
(b) Special Page One to the Contract (Form WVA-83) for N.Y. State
issues. (Note 3)
(c) Endorsement WVA2-83 to the Contract (Form WVA-83) for use in New
Jersey issues. (Note 4)
(d) Special Page Six WVA-83 to the Contract (Form WVA-83) for use in
Oklahoma issues. (Note 4)
(e) Special Page Six WVA-83 to the Contract (Form WVA-83) for use in
California issues. (Note 4)
(f) Endorsement WVA 3-83 to the Contract (Form WVA-83) for use in
Tennessee issues. (Note 5)
(g) Endorsement WVA 4-83 to the Contract (Form WVA-83 and VIP-84) for
use in Texas issues. (Note 5)
(h) Endorsement WVA 5-83 to the Contract (Form WVA-83) for use in Texas
and Pennsylvania issues. (Note 5)
(i) Endorsement WVA 6-83 to the Contract (Form WVA-83) for use in
California issues. (Note 5)
(j) Endorsement COMB 84889-83 to the Contract (Form WVA -83) for use in
the District of Columbia and in all states except New York. (Note 5)
(k) Endorsement COMB 84890-83 to the Contract (Form WVA-83) for use in
the District of Columbia and in all states except New York. (Note 5)
(l) Individual Variable Annuity Contract (Form VIP-84). (Note 6)
(m) Special Page One to the Contract (Form VIP-84) (Note 6)
(n) Special Page Nineteen to the Contract (Form VIP-84) for use in N.Y.
issues. (Note 6)
(o) Special Page Four to the Contract (Form VIP-84) for use in Oklahoma
issues. (Note 6)
(p) Special Page Seven to the Contract Form VIP-84) for use in Oklahoma
issues. (Note 6)
(q) Special Page Four to the Contract (Form VIP-84) for use in
California issues. (Note 6)
(r) Special Page Seven to the Contract (Form VIP-84) for use in
California issues. (Note 6)
(s) Endorsement VIP 3-84 to the Contract (Form VIP-84) for use in
California issues. (Note 6)
(t) Endorsement WVA 13-85 to the Contract (Form VIP-84) for use in all
the states so that the Contract meets Internal Revenue Code Section
72(s) requirements for an annuity. (Note 8)
(u) Endorsement VIP 6-85 to the Contract (Form VIP-84) for use in all
the states so that the Contract meets Internal Revenue Code Section
72(s) requirements for an annuity. (Note 8)
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<PAGE>
(v) Individual Variable Annuity Contract (Form VIP-86). (Note 10)
(w) Individual Variable Annuity Contract (Form VIP-86) revised. (Note 1)
(x) Special Jacket VIP-86 MN to the VIP-86 Contract for use in Minnesota
issues. (Note 11)
(y) Special Jacket VIP-86 Y to the VIP-86 Contract for use in New York
issues. (Note 11)
(z) Special Contract Data Page 3 (VIP-86) (MIN) to the VIP-86 Contract
for use in Minnesota issues. (Note 11)
(aa) Special Page 7 (VIP-86) Y to the VIP-86 Contract for use in New York
issues. (Note 11)
(bb) Special Page 7 (VIP-86) (OK) to the VIP-86 Contract for use in
Oklahoma issues. (Note 11)
(cc) Special Page 8 (VIP-86)(SC) to the VIP-86 Contract for use in South
Carolina issues. (Note 11)
(dd) Special Page 8 (VIP-86) (OK) to the VIP-86 Contract for use in
Oklahoma issues. (Note 11)
(ee) Special Page 11 (VIP-86) (WA) to the VIP-86 Contract for use in
Washington issue. (Note 11)
(ff) Special Page 11 (VIP-86) (SC) to the VIP-86 Contract for use in
South Carolina issues. (Note 11)
(gg) Special Page 11 (VIP-86) (Y) to the VIP-86 Contract for use in New
York issues. (Note 11)
(hh) Special Page 11 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(ii) Special Page 12 (VIP-86) (SC) to the VIP-86 Contract for use in
South Carolina and Washington issues. (Note 11)
(jj) Special Page 12 (VIP-86) (Y) to the VIP-86 Contract for use in New
York issue. (Note 11)
(kk) Special Page 12 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(ll) Special Page 13 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(mm) Special Page 14 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(nn) Special Back Jacket Page 18 (VIP-86) (MN) to the VIP-86 Contract for
use in Minnesota issues. (Note 11)
(oo) Special Back Jacket Page 18 (VIP-86) (Y) to the VIP-86 Contract for
use in New York issues. (Note 11)
(pp) Special Jacket VIP-86-P to the VIP-86 Contract for use in
Pennsylvania issues. (Note 12)
(qq) Special Contract Data Page 3 (VIP-86) (MA) to the VIP-86 Contract
for use in Massachusetts issues. (Note 12)
(rr) Special Page 7 (VIP-86) (PA) to the VIP-86 Contract for use in
Pennsylvania issues. (Note 12)
(ss) Special Blank Page 13 (VIP-86) (MA) to the VIP-86 Contract for use
in Massachusetts issues. (Note 12)
(tt) Special Bank Page 17 VIP-86-P to the VIP-86 Contract for use in
Pennsylvania issues. (Note 12)
(uu) Special Back Jacket Page 18 VIP-86-P to the VIP-86 Contract for use
in Pennsylvania issues. (Note 12)
(vv) Endorsement VIP 501-86 to the VIP-86 Contract for use in all states
except Delaware, Georgia, Massachusetts, North Dakota, New York,
Oregon, Pennsylvania and Texas. (Note 12)
(ww) Endorsement COMB 84890-83 to the VIP-86 Contract for use in Montana.
(Note 12)
(xx) Endorsement Certification PLI 254-86 to the VIP-86 Contract for use
in Pennsylvania. (Note 12)
(yy) Endorsement PLI 288-88 to the VIP-86 Contract. (Note 13)
(zz) Waiver of Withdrawal Charges rider ORD 88753-92 to the VIP-86
Contract (at issue). (Note 15)
(aaa) Waiver of Withdrawal Charges rider ORD 88754-92 to the VIP-86
Contract (after issue). (Note 15)
(bbb) Spousal Continuance Rider ORD 89011-93 to the VIP contract (at
issue). (Note 16)
(ccc) Endorsement altering the Assignment provision ORD 83922-95.
(Note 17)
(5) Application for Individual Variable Annuity Contract:
(a) Application Form VA 200 ED 07/83 for Individual Variable Annuity
Contract (Form WVA-83). (Note 5)
C-2
<PAGE>
(b) Application Form VA 200 ED 5/84 for Individual Variable Annuity
Contract (Form VIP-84) for use by Prudential representatives. (Note
7)
(c) Application Form VA 200B ED 5/84 for Individual Variable Annuity
Contract (Form VIP-84) for use by Prudential Securities account
executives. (Note 7)
(d) Revised Application Form VA 200 ED 5/84-Non-Qualified for Individual
Annuity Contract (Form VIP-84) for use by Prudential
representatives. (Note 8)
(e) Revised Application Form VA 200 Ed. 5/86-Non-Qualified. (Note 9)
(f) Revised Application Form VA 200 Ed. 5/86-Non-Qualified (NY) for use
in New York. (Note 9)
(g) Revised Application Form VA 200 Ed. 9/86-Non-Qualified. (Note 10)
(h) Revised Application Form VA 200 Ed. 11/86-Non-Qualified. (Note 12)
(i) Application for VIP annuity contract ORD 87348-92. (Note 16)
(j) Supplement to the Application for a VIP contract ORD 87454-92. (Note
16)
(6) (a) Charter of The Prudential Insurance Company of America, as amended
November 14, 1995. (Note 14)
(b) By-Laws of The Prudential Insurance Company of America, as amended
April 8, 1997. (Note 19)
(7) Contract of reinsurance in connection with variable annuity contract--Not
Applicable.
(8) Other material contracts performed in whole or part after the date the
registration statement is filed:
(a) Purchase Agreement between The Prudential Series Fund, Inc. and
The Prudential Insurance Company of America. (Note 3)
(9) Opinion of Counsel and consent to its use as to legality of the securities
being registered. (Note 1)
(10) (a) Written consent of Price Waterhouse, LLP, independent accountants.
(Note 1)
(b) Written consent of Deloitte & Touche LLP, independent auditors.
(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 Computation. (Note 1)
(14) Powers of Attorney.
(a) F. Agnew, F. Becker, M. Berkowitz, R. Carbone, J. Cullen, C. Davis,
R. Enrico, A. Gilmour, W. Gray, J. Hanson, G. Hiner, C. G. Kelley,
Horner, B. Malkiel, A. Ryan, I. Schmertz, C. Sitter, D. Staheli, R.
Thomson, J. Unruh, P. Vagelos, S. Van Ness, P. Volcker, J. Williams.
(Note 18)
(27) Financial Data Schedule (Note 1)
- ----------
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Registrant's Form N-8B-2, filed
December 15, 1982.
(Note 3) Incorporated by reference to Pre-Effective Amendment No. 2 to this
Registration Statement, filed March 10, 1983.
(Note 4) Incorporated by reference to Pre-Effective Amendment No. 3 to this
Registration Statement, filed April 27, 1983.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 1 to this
Registration Statement, filed December 8, 1983.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 2 to this
Registration Statement, filed March 22, 1984.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed April 27, 1984.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 4 to this
Registration Statement, filed April 30, 1985.
C-3
<PAGE>
(Note 9) Incorporated by reference to Post-Effective Amendment No. 6 to this
Registration Statement, filed April 30, 1986.
(Note 10) Incorporated by reference to Post-Effective amendment No. 7 to this
Registration Statement, filed July 9, 1986.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 8 to this
Registration Statement, filed October 23, 1986.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement, filed April 27, 1987.
(Note 13) Incorporated by reference to Post-Effective Amendment No. 12 to this
Registration Statement filed March 6, 1989.
(Note 14) 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 15) Incorporated by reference to Post-Effective Amendment No. 18 to this
Registration Statement, filed April 28, 1993.
(Note 16) Incorporated by reference to Post-Effective Amendment No. 19 to Form
S-6, Registration No. 2-80897, filed April 28, 1994.
(Note 17) Incorporated by reference to Post-Effective Amendment No. 20 to Form
S-6, Registration No. 2-80897, filed February 27, 1995.
(Note 18) Incorporated by reference to Post-Effective Amendment No. 10 to Form
S-1, Registration No. 33-20083, filed April 9, 1998, on behalf of The
Prudential Variable Contract Real Property Account.
(Note 19) Incorporated by reference to Post-Effective Amendment No. 12 to Form
N-4, Registration No. 33-25434, filed on or about April 25, 1997, on
behalf of The Prudential Individual Variable Contract Account.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Incorporated by reference to The Prudential Individual Variable Contract Account
prospectus under "Directors and Officers" contained in Part A of this
Registration Statement.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Prudential Insurance Company of America ("Prudential") is a mutual life
insurance company organized under the laws of New Jersey.
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 Pruco Life PRUvider Variable Appreciable Account, the Pruco
Life Variable Universal Account, The Pruco Life Variable Insurance Account, the
Pruco Life Variable Appreciable Account, the Pruco Life Single Premium Variable
Life Account, the Pruco Life Flexible Premium Variable Annuity Account, the
Pruco Life Single Premium Variable Annuity Account (separate accounts of Pruco
Life Insurance Company ("Pruco Life"); the Pruco Life of New Jersey Variable
Insurance Account, the Pruco Life of New Jersey Variable Appreciable Account,
the Pruco Life of New Jersey Single Premium Variable Life Account, and the Pruco
Life of New Jersey Single Premium Variable Annuity Account (separate accounts of
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"). Pruco
Life, an insurance company organized under the laws of Arizona, is a direct
wholly-
C-4
<PAGE>
owned subsidiary of Prudential. Pruco Life of New Jersey, an insurance company
organized 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, a Delaware
corporation, in three of its separate accounts. Each of these separate account
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 .34 to the Form N-IA Registration
Statement for The Prudential Series Fund, Inc., Registration No. 2-80896, filed
on or about April 24, 1998, the text of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 11, 1997 there were 98,046 Contract owners of non-qualified
Contracts offered by the Registrant.
ITEM 28. INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
New Jersey, being the state of organization of Prudential Insurance Company of
America ("Prudential"), permits entities organized under its jurisdiction to
indemnify directors and officers with certain limitations. The relevant
provisions of New Jersey law permitting indemnification can be found in Section
14A:3-5 of the New Jersey Statutes Annotated. The text of Prudential's By-law
27, which relates to indemnification of officers and directors, is incorporated
by reference to Exhibit (8)(ii) of Post-Effective Amendment No. 12 to Form N-4,
Registration No. 33-25434, filed April 30, 1997, on behalf of the Prudential
Individual Variable Contract 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.
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Pruco Securities Corporation also acts as principal underwriter for
the Pruco Life PRUvider Variable Appreciable Account, the Pruco
Life Variable 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, the Pruco Life of New Jersey Variable
Insurance Account, the Pruco Life Account, the Pruco Life of New
Jersey Single Premium Variable Annuity Account, The Prudential
Variable Appreciable Account, ThePrudential Qualified Individual
Variable Contract Account, the Prudential Annuity Plan Account, the
Prudential Investment Plan Account, the Prudential Annuity Plan
Account-2, Prudential's Gibraltar Fund, and The Prudential Series
Fund, Inc.
(b) Incorporated by Reference to item 29(b) of Post-Effective No. 13 to
Form N-4, Registration No. 33-25434 filed April 24, 1998, on behalf
of The Prudential Individual Variable Contract Account.
(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, 751 Broad
Street, 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
Registration Statement as frequently as is necessary to ensure that
the audited financial statements in the Registration Statement are
never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant undertake 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 too 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) 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that this Amendment is filed solely for one or more of the
purposes specified in Rule 485(b)(1) under the Securities Act of 1933 and that
no material event requiring disclosure in the prospectus, other than one listed
in Rule 485(b)(1), has occurred since the effective date of the most recent
Post-Effective Amendment to the Registration Statement which include 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 24th
day of April, 1998.
SEAL: THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(Registrant)
BY: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: /s/ THOMAS C. CASTANO *By: /s/ ESTHER H. MILNES
-------------------------- --------------------------
THOMAS C. CASTANO ESTHER H. MILNES
ASSISTANT SECRETARY VICE PRESIDENT AND ACTUARY
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 23 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
SIGNATURE AND TITLE
-------------------
/s/ * April 24, 1998
-----------------------------------
ARTHUR F. RYAN
CHAIRMAN OF THE BOARD, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
/s/ * *By: /s/ THOMAS C. CASTANO
------------------------------------ -------------------------
RICHARD J. CARBONE THOMAS C. CASTANO
CHIEF FINANCIAL OFFICER (ATTORNEY-IN-FACT)
/s/ *
-----------------------------------
FRANKLIN E. AGNEW
DIRECTOR
/s/ *
-----------------------------------
FRANKLIN K. BECKER
DIRECTOR
/s/ *
-----------------------------------
JAMES G. CULLEN
DIRECTOR
/s/ *
-----------------------------------
CAROLYNE K. DAVIS
DIRECTOR
/s/ *
-----------------------------------
ROGER A. ENRICO
DIRECTOR
C-7
<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
/s/ *
-----------------------------------
GAYNOR N. KELLEY
DIRECTOR
/s/ *
-----------------------------------
BURTON G. MALKIEL
DIRECTOR
/s/ *
-----------------------------------
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
C-8
<PAGE>
SIGNATURE AND TITLE
-------------------
/s/ * April 24, 1998
-----------------------------------
ROY VAGELOS, M.D.
DIRECTOR
/s/ *
-----------------------------------
STANLEY C. VAN NESS
DIRECTOR
/s/ *
-----------------------------------
PAUL A. VOLCKER
DIRECTOR
/s/ * *By: /s/ THOMAS C. CASTANO
------------------------------------ ---------------------
JOSEPH H. WILLIAMS THOMAS C. CASTANO
DIRECTOR (ATTORNEY-IN-FACT)
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
(1) Resolution of the Board of Directors of The Prudential
Insurance Company of America establishing The Prudential
Individual Variable Contract Account Page C-11
(3)(a) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and The Prudential Insurance Company of America
(Depositor) Page C-14
(3)(b) Proposed form of Selected Broker Agreement between Pruco
Securities Corporation and brokers with respect to sale
of the Contracts Page C-21
(4)(w) Individual Variable Annuity Contract (Form VIP-86) revised Page C-32
(9) Opinion of Counsel and consent to its use as to legality of
the securities being registered Page C-50
(10)(a) Written consent of Price Waterhouse LLP, independent
accountants Page C-51
(10)(b) Written consent of Deloitte & Touche LLP,
independent auditors Page C-52
(13) Schedule of Performance Computations Page C-53
(27) Financial Data Schedule
</TABLE>
C-10
RESOLVED, that, subject to the approval of the Commissioner of Insurance of
the State of New Jersey, the Company hereby establishes, pursuant to Section
17B:28-7 of the Revised Statutes of New Jersey, a variable contract account to
be designated initially as "The Prudential Individual Variable Contract Account"
(hereinafter in these resolutions referred to as the "Individual Account"); and
FURTHER RESOLVED, that the Company shall receive and hold in the Individual
Account amounts arising from (i) purchase payments received made pursuant to
certain variable annuity contracts of the Company sold as part of its individual
variable annuity program and (ii) such assets of the Company as the proper
officers of the Company may deem prudent and appropriate to have invested in the
same manner as the assets applicable to its reserve liability under such
contracts and lodged in the Individual Account, and such amounts and the
dividends, interest and gains produced thereby shall be invested and reinvested,
subject to the rights of the holders of such variable annuity contracts, in
shares of The Prudential Series Fund, Inc., an open-end diversified management
investment company of the series type, at the net asset value of such shares at
the time of acquisition; and
FURTHER RESOLVED, that the Individual Account shall be registered as a unit
investment trust under the Investment Company Act of 1940, and that the proper
officers of the Company be and they hereby are authorized to sign and file, or
cause to be filed, with the Securities and Exchange
C-11
<PAGE>
2
Commission a registration statement, on behalf of the Individual Account, as
registrant, under the Investment Company Act of 1940, and to sign and file, or
cause to be filed, an application, including any amendments thereto, for an
order under Section 6(c) of the Investment Company Act of 1940 for such
exemptions from the provisions of that Act as may be necessary or desirable; and
FURTHER RESOLVED, that the Company shall as part of its individual variable
annuity program sell contracts on a variable basis to be known as Individual
Variable Annuity Contracts, and that the proper officers of the Company be and
they hereby are authorized to sign and file, or cause to be filed, with the
Securities and Exchange Commission, on behalf of the Company, as issuer, a
registration statement, including the financial statements and schedules,
exhibits and form of prospectus required as a part thereof, for the registration
of the offering and sale of such Individual Variable Annuity Contracts, to the
extent they represent participating interests in the Individual Account, under
the Securities Act of 1933; and to pay the registration fees required in
connection therewith; and
FURTHER RESOLVED, that the proper officers of the Company are authorized
and directed to sign and file, or cause to be filed, such amendment or
amendments of such registration statements as they may find necessary or
advisable from time to time; and
C-12
<PAGE>
3
FURTHER RESOLVED, that the signature of any director or officer
required by law to affix his signature to the foregoing registration statement
under the Securities Act of 1933, or to any amendment thereof, may be affixed by
said director or officer personally, or by an attorney-in-fact duly constituted
in writing by said director or officer to sign his name thereto; and
FURTHER RESOLVED, that the Secretary of the Company is appointed agent
of the Company to receive any and all notices and communications from the
Securities and Exchange Commission relating to such registration statements and
any and all amendments thereof; and
FURTHER RESOLVED, that the proper officers of the Company be and they
hereby are authorized and directed to do all acts and things including
taking whatever steps may be necessary or desirable to comply with such of
the laws and regulations of the several states as may be applicable, that from
time to time may become necessary, desirable or proper to be done in order to
effectuate the purpose of the foregoing resolutions or any of them.
APPROVED BY
BOARD OF DIRECTORS
OCT 12 1982
/s/ A. J. DUNN
-------------------
Assistant Secretary
C-13
DISTRIBUTION AGREEMENT
AGREEMENT made this 4th day of March, 1983, by and between The Prudential
Insurance Company of America, a New Jersey corporation ("Company") on its own
behalf and on behalf of The Prudential Individual Variable Contract Account and
The Prudential Qualified Individual Variable Contract Account ("Accounts"),
and Pruco Securities Corporation, a New Jersey corporation ("Distributor").
WITNESSETH:
WHEREAS, the Company has established and maintains the Accounts, separate
investment accounts, pursuant to the laws of New Jersey for the purpose of
selling variable annuity contracts ("Contracts"), to commence after the
effectiveness of the respective Registration Statement for each Account filed
with the Securities and Exchange Commission on Form S-6 pursuant to the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, each Account is registered as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the "Securities Exchange Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company and the Distributor wish to enter into an agreement to
have the Distributor act as the Company's principal underwriter for the sale of
the Contracts through the Accounts;
NOW, THEREFORE, the parties agree as follows:
C-14
<PAGE>
-2-
1. Appointment of the Distributor
The Company agrees that during the term of this agreement it will take all
action which is required to cause the Contracts to comply with all applicable
federal securities and state insurance laws and regulations. The Company
appoints the Distributor and the Distributor agrees to act as the principal
underwriter for the sale of Contracts to the public, during the term of this
Agreement, in each state and other jurisdiction in which such Contracts may
lawfully be sold. Distributor shall offer the Contracts for sale and
distribution pursuant to terms set by the Company. Applications for the
Contracts shall be solicited only by representatives duly and appropriately
licensed and otherwise qualified for the sale of such Contracts in each state or
other jurisdiction as representatives of Distributor or a Broker as defined in
paragraph 2 hereof and as agents of Company. Completed applications for
Contracts shall be transmitted directly to the Company for acceptance or
rejection in accordance with underwriting rules established by the Company.
Initial payments under the Contracts shall be made by check payable to the
Company and shall be transmitted promptly by Distributor or its representatives
to the Company, as will any other payments received by Distributor or its
representatives.
2. Sales Agreements
Distributor is hereby authorized to enter into separate written agreements,
on such terms and conditions as Distributor may determine not inconsistent with
this Agreement, with one or more organizations which agree to participate in the
distribution of Contracts. Any such organization (hereafter "Broker") shall be
both registered as a broker/dealer under the Securities Exchange Act and a
member of NASD.
C-15
<PAGE>
-3-
Broker and its agents or representatives soliciting applications for Contracts
shall be duly and appropriately licensed, registered or otherwise qualified for
the sale of such Contracts under the insurance laws and any applicable blue-sky
laws of each state or other jurisdiction in which the Company is licensed to
sell the Contracts.
Distributor shall have the responsibility for ensuring that Broker
supervises its representatives. Any agreement as described in this Section shall
provide that Broker shall assume any legal responsibilities of the Company for
the acts, commissions or defalcations of such representatives insofar as they
relate to the sale of the Contracts. Applications for Contracts solicited by
such Broker through its agents or representatives shall be transmitted directly
to the Company, and if received by Distributor, shall be forwarded to Company.
All payments under the Contracts shall be made by check to Company and remitted
promptly to Company.
3. Life Insurance Agents
Company shall be responsible for insuring that Brokers are duly qualified,
under the insurance laws of the applicable jurisdictions, to sell the Contracts.
4. Suitability
Company wishes to ensure that Contracts sold by Distributor will be issued
to purchasers for whom the Contract will be suitable. Distributor shall take
reasonable steps to ensure that the various representatives appointed by it
shall not make recommendations to an applicant to purchase a Contract in the
absence of reasonable grounds to
C-16
<PAGE>
-4-
believe that the purchase of the Contract is suitable for such applicant. While
not limited to the following, a determination of suitability shall be based on
information furnished to a representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment objectives and
financial situation and needs.
5. Promotion Materials
Company shall have the responsibility for furnishing to Distributor and its
representatives sales promotion materials and individual sales proposals related
to the sale of the Contracts. Distributor shall not use any such materials that
have not been approved by Company.
6. Compensation
Company shall arrange for the payment of commission directly to those
registered representatives of Distributor who are entitled thereto in connection
with the sale of the Contracts on behalf of Distributor, in the amounts and on
such terms and conditions as Company and Distributor shall determine; provided
that such terms, conditions and commissions shall be as are set forth in or as
are not inconsistent with the Prospectus included as part of the respective
Registration Statement for of each Account and effective under the 1933 Act.
Company shall arrange for the payments of commissions directly to those
Brokers who sell Contracts under agreements entered into pursuant to paragraph
2. hereof, in amounts as may be agreed to among the parties and specified in
such written agreements.
C-17
<PAGE>
-5-
Company shall reimburse Distributor for the costs and expenses incurred by
Distributor in furnishing or obtaining the services, materials and supplies
required by the terms of this Agreement in the initial sales efforts and the
continuing obligations hereunder.
7. Records
Distributor shall have the responsibility for maintaining the records of
representatives licensed, registered and otherwise qualified to sell the
Contracts. Distributor shall maintain such other records as are required of it
by applicable laws and regulations. The books, accounts and records of Company,
the Accounts and Distributor shall be maintained so as to clearly and accurately
disclose the nature and details of the transactions.
8. Investigation and Proceeding
(a) Distributor and Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts distributed under this Agreement. Distributor and
Company further agree to cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to Company,
Distributor, their affiliates and their agents or representatives to the extent
that such investigation or proceeding is in connection with Contracts
distributed under this Agreement.
(b) In the case of a substantive customer complaint, Distributor and
Company will cooperate in investigating such complaint and any response to such
complaint will be sent to the other party to this Agreement for approval not
less than five business days prior to its being sent to the
C-18
<PAGE>
-6-
customer or regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or telegraph.
9. Termination
This Agreement shall terminate automatically upon its assignment without
the prior written consent of both parties. This Agreement may be terminated at
any time by either party on 60 days' written notice to the other party, without
the payment of any penalty. Upon termination of the this Agreement all
authorizations, rights and obligations shall cease except the obligation to
settle accounts hereunder, including commissions on payments subsequently
received for Contracts in effect at the time of termination, and the agreements
contained in paragraph 8. hereof.
1O. Regulation
This Agreement shall be subject to the provisions of the 1940 Act and the
Securities Exchange Act and the rules, regulations, and rulings thereunder and
of the applicable rules and regulations of the NASD, from time to time in
effect, and the terms hereof shall be interpreted and construed in accordance
therewith.
11. Severability
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
C-19
<PAGE>
-7-
12. Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Attest: THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
/s/ ISABELLE L. KIRCHNER By /s/ John J. Marcus
- ----------------------------- --------------------------------
Secretary John J. Marcus
Senior Vice President
Attest: PRUCO SECURITIES CORPORATION
/s/ Janet [ILLEGIBLE] By /s/ MARTIN D. VOGEL
- ----------------------------- --------------------------------
Secretary President
C-20
SELECTED BROKER AGREEMENT
Agreement dated ___________, 1983, by and between Pruco Securities
Corporation (Distributor), a New Jersey corporation, and _____________________
(Broker), a ______________________ corporation.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties
hereto agree as follows:
A. Definitions
(1) Contracts - The variable annuity contracts which The Prudential
Insurance Company of America (Company), a New Jersey corporation,
proposes to issue and for which Distributor has been appointed the
principal underwriter pursuant to a Distribution Agreement, a copy of
which has been furnished to Broker.
(2) The Prudential Individual Variable Contract Account (the Individual
Account) - The separate account established and maintained by Company
pursuant to the laws of New Jersey to fund the benefits under those
Contracts which are sold in the non-tax qualified market.
(3) The Prudential Qualified Individual Variable Contract Account (the
Qualified Account) - The separate account established and maintained
by the Company pursuant to the laws of New Jersey to fund the benefits
under those Contracts which are sold in the tax qualified market.
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-2-
(4) The Prudential Series Fund, Inc. (the Fund) - An open-end management
investment company registered under the 1940 Act, shares of which are
sold to the Accounts in connection with the sale of the Contracts.
(5) Registration Statement - The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Fund,
including financial statements and all exhibits.
(o) Prospectus - The prospectuses included within the Registration
Statement referred to herein.
(7) 1933 Act - The Securities Act of 1933, as amended.
(8) 1934 Act - The Securities Exchange Act of 1934, as amended.
(9) SEC - The Securities and Exchange Commission.
B. Agreements of Distributor
(1) Pursuant to the authority delegated to it by Company, Distributor
hereby authorizes Broker during the term of this Ageement to solicit
applications for Contracts from eligible persons provided that there
is an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and
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-3-
of any other action or circumstance that may prevent the lawful sale
of the Contracts in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. Agreements of Broker
(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the National Association of
Securities Dealers, Inc. and that the agents or representatives of
Broker who will be soliciting applications for the Contracts also will
be duly registered representatives of Broker.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use its best efforts to find purchasers for the
Contracts acceptable to Company. In meeting its obligation to use its
best efforts to solicit applications for Contracts, Broker shall,
during the term of this Agreement, engage in the following activities:
(a) Continuously utilize training, sales and promotional materials
which have been approved by Company;
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may
be requested on the results of such inspections and the
compliance with such procedures.
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-4-
(c) take reasonable steps to ensure that the various representatives
appointed by it shall not make recommendations to an applicant to
Purchase a Contract in the absence of reasonable grounds to
believe that the purchase of the Contract is suitable for such
applicant.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be remitted promptly in full together with such
applications, forms and any other required documentation to an office
of the Company designated by Distributor. Checks or money orders in
payment of purchase payments shall be drawn to the order of
"Prudential." Broker acknowledges that Distributor or Company shall
have the unconditional right to reject, in whole or in part, any
application for the Contract. In the event Company or Distributor
rejects an application, Company immediately will return all payments
directly to the purchaser and Broker will be notified of such action.
In the event that any purchaser of a Contract elects to return such
Contract pursuant to any law or contractual provision, any payments
made will be refunded to the purchaser and Broker will be notified of
such action.
(4) Broker shall act as an independent contractor, and nothing herein
contained shall constitute Broker, its agents or representatives, or
any employees thereof as employees of Company or Distributor in
connection with the solicitation of applications for Contracts.
Broker, its agents or representatives and its employees shall not
C-24
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-5-
hold themselves out to be employees of Company or Distributor in this
connection or in any dealings with the public.
(5) Broker agrees that any material it develops, approves or uses for
sales, training, explanatory or other purposes in connection with the
solicitation of applications for Contracts hereunder (other than
generic advertising materials which do not make specific reference to
the Contracts) will not be used without the prior written consent of
Distributor and, where appropriate, the endorsement of Company to be
obtained by Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only
in accordance with applicable laws and regulations. No agent or
representative of Broker shall solicit applications for the Contracts
until duly licensed and appointed by Company as a life insurance and
variable contract broker or agent of Company in the appropriate states
or other jurisdictions. Broker shall ensure that such agents or
representatives fulfill any training requirements necessary to be
licensed. Broker understands and acknowledges that neither it nor its
agents or representatives is authorized by Distributor or Company to
give any information or make any representation in connection with
this Agreement or the offering of the Contracts other than those
contained in the Prospectus or other solicitation material authorized
in writing by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company
to: make, alter or discharge any Contract or other form; receive any
monies or payments due, or to become due, to Company,
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-6-
except as set forth in Section C(3) of this Agreement. Broker shall
not expend, nor contract for the expenditure of the funds of
Distributor, nor shall Broker possess or exercise any authority on
behalf of Distributor other than that expressly conferred on Broker by
this Agreement.
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<PAGE>
-7-
D. Compensation
(1) Pursuant to the Distribution Agreement between Distributor and
Company, Distributor shall cause Company to arrange for the payment of
commissions to Broker as compensation for the sale of each Contract
sold by an agent or representative of Broker. The amount of such
compensation shall be based on a schedule to be determined by
agreement of Company, Distributor and Broker. Company shall identify
to Broker with each such payment the name or names of the agent(s) or
representative(s) of Broker who solicited each Contract covered by the
payment.
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any purchase payment it shall
receive for purposes of payment of commission or otherwise. Neither
Broker nor any of its agents or representatives shall have an interest
in any compensation paid by Company to Distributor, now or hereafter,
in connection with the sale of any Contracts hereunder.
E. Complaints and Investigations
(1) Broker and Distributor jointly agree to cooperate fully in any
insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the Contracts marketed under
this Agreement. Broker and Distributor further agree to cooperate
fully in any securities regulatory investigation or proceeding or
judicial proceeding with respect to Broker, Distributor, their
affiliates and their agents or representatives to the extent that
C-27
<PAGE>
-8-
such investigation or proceeding is in connection with Contracts
marketed under this Agreement.
F. Term of Agreement
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section
E hereof; (b) the indemnity set forth in Section G hereof; and (c) the
obligations to settle accounts hereunder, including purchase payments
subsequently received for Contracts in effect at the time of
termination or issued pursuant to applications received by Broker
prior to termination.
G. Indemnity
(1) Distributor agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims, damages or
liabilities, joint or several, to which Broker or such officer or
director become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact, required to be stated
therein or necessary to make the statements therein not misleading,
contained in any Registration Statement or any
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-9-
post-effective amendment thereof or in the Prospectus or any amendment
or supplement to the Prospectus.
(2) Broker agrees to indemnify and hold harmless Company and Distributor
and each of their current and former directors and officers and each
person, if any, who controls or has controlled Company or Distributor
within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages or liabilities to which Company or Distributor
and any such director or officer or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other
compensation or remuneration of any type;
(c) The failure of Broker, its officers, employees, or agents to
comply with the provisions of this Agreement;
and Broker will reimburse Company and Distributor and any director or
officer or controlling person of either for any legal or other
expenses reasonably incurred by Company, Distributor, such director or
controlling person in connection with investigating or defending any
such loss, claims, damage, liability or action.
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-10-
This indemnity agreement will be in addition to any liability which
Dealer may otherwise have.
H. Assignability
This Agreement shall not be assigned by either party without the written
consent of the other.
I. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey.
In Witness Whereof, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PRUCO SECURITIES CORPORATION
(Distributor)
By __________________________
(Broker)
By __________________________
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<PAGE>
Commissions
3% to selling agent, .6% management override for the first $2,000 of purchase
payment per contract; 2% to selling agent, .4% management override for all
purchase payments made after first $2,000 per contract.
C-31
The Prudential Insurance Company of America
Corporate Office
Newark, New Jersey
Annuitant(s) Honey Comb 3 C0000609 Contract Number
Annuity Date August 31, 1998 August 31, 1992 Contract Date
Agency N/A
We will make monthly annuity payments starting on the Annuity Date we show
above. We make this promise subject to all the provisions of this contract.
Please read this contract with care. A guide to its contents is on the last page
before the back cover. A summary is on page 5. If there is ever a question about
it, or if there is a claim, just see one of our representatives or get in touch
with one of our offices.
Benefits and values under this contract may be on a variable basis. Amounts
directed into one or more of the variable subaccounts will reflect the
investment experience of those subaccounts. They are subject to change both up
and down and are not guaranteed as to dollar amount except as provided under the
Death of Annuitant and Payout Provisions sections.
Right to Cancel Contract--Not later than ten days after you get this contract,
you may return it to us. All you have to do is take it or mail it to one of our
offices or to the agent who sold it to you. We will cancel the contract and
promptly give you its net asset value, less the net asset value of any amount we
add to the contract fund (see page 8) determined as of the date your request is
received, without redemption charge.
The provisions on this and the following pages of this contract comprise the
entire contract. The contract was signed for Prudential on the contract date,
which is the date of issue.
Signed for Prudential.
- ----------- ------------------
Secretary President
Variable Annuity Contract with Flexible Purchase Payments--Monthly annuity
payments starting on Annuity Date. Payment as stated upon death before Annuity
Date. Purchase payments payable during lifetime(s) of annuitant(s) until Annuity
Date. Cash value reflect investment results.
VIP--86
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<PAGE>
ENDORSEMENTS
(Only we can endorse this contract.)
Page 2 (VIP--86)
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<PAGE>
CONTRACT DATA
ANNUITANT (S) Honey Comb 3 CO000609 CONTRACT NUMBER
ANNUITANT DATE August 31, 1998 August 31, 1992 CONTRACT DATE
AGENCY N/A
FIRST ANNUITANT:
NAME Honey Comb 3
SEX AND ISSUE AGE F-84
DATE OF BIRTH December 1, 1907
CO-ANNUITANT:
NAME
SEX AND ISSUE AGE
DATE OF BIRTH
BENEFICIARY: Class 1 Sara Mountain, SISTER
ALLOCATION OF INITIAL PURCHASE PAYMENT
Prudential Money Market 33.0%
Prudential Stock Index 33.0%
Prudential Small Capitalization Stock 34.0%
THE MAINTENANCE CHARGE IS UP TO $30.00 ANNUALLY. WE EXPLAIN THIS ON PAGE 12.
SERVICE OFFICE - PLEASE DIRECT ANY COMMUNICATION ABOUT THIS CONTRACT TO:
PRUDENTIAL ANNUITY SERVICE CENTER, P.O. BOX 14230, NEW BRUNSWICK, NEW JERSEY
08906-4230.
Page 3 (VIP-86)
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<PAGE>
ENDORSEMENTS
(Only we can endorse this contract)
Page 4 (VIP-86)
C-35
<PAGE>
CONTRACT SUMMARY
We offer this summary to help you understand this contract. We do not intend
that it change any of the provisions of the contract.
Beginning on the Annuity Date we will use your contract fund to provide an
income, as we explain on page 13, to the Annuitant named on page 3 (the First
Annuitant named there if two annuitants are named) if he or she is then living
and entitled to payment. But if two annuitants are named on page 3 and (1) the
First Annuitant is not living on the Annuity Date or (2) both annuitants are
living and you ask us to do so, we will make payment to the Co-Annuitant named
on page 3 if he or she is then living. If, on the Annuity Date, no other
settlement has been chosen, we will make monthly payments under the Interest
Payment Option. But if the amount of the initial payment would be less than $50,
the Company reserves the right to, instead, pay the cash value in one sum. We
describe the other options we offer on page 13.
Purchase payments may be made at any time until the Annuity Date. There are no
scheduled amounts or due dates. We explain this on page 8. The purchase
payments, minus any deductions for state and/or local premium taxes, will be
allocated as you direct to one or more of the subaccounts of The Prudential
Individual Variable Contract Account and/or the fixed account.
Additional amounts may also be credited to your contract fund as we described on
page 8.
We describe on page 10 the amount payable, if any; at the death of an annuitant.
If there are two annuitants and one annuitant dies before the Annuity Date, here
is what we will do. We will use any excess of minimum proceeds (the sum of all
purchase payments minus any withdrawals made) over the contract fund to increase
the value of the contract for the surviving annuitant. Otherwise, it may be paid
to the beneficiary in cash; or it may be applied by the beneficiary to either of
the payout options we offer an annuitant under this contract.
You and we may agree on a change in the ownership of this contract. Also, unless
we endorse it to say otherwise. The contract gives you these rights, among
others:
o You may change the beneficiary(ies) under it.
o You may surrender it for its cash value.
o You may make withdrawals.
o You may transfer amounts among the subaccounts and the fixed account.
o You may remove one annuitant if two are named.
Page 5 (VIP-86)
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<PAGE>
GENERAL PROVISIONS
Definitions.-- We define here some of the words and phrases used all through
this contract. We explain others, not defined here, in other parts of the text.
We, Our and Us.--Prudential.
You and Your.--The owner of the contract.
Annuitant(s).--The person or persons named on the first page. If more than one
person is so named, one of the two is named on Page 3 as First Annuitant, the
other as Co-Annuitant. And, in this case, the Beneficiary provisions of the
contract will be based on the death of the last survivor of the persons so
named. The owner need not be an annuitant.
Payee.--A beneficiary who has a right to receive a settlement under this
contract.
SEC.--The Securities and Exchange Commission.
PIVCA.--The Prudential Individual Variable Contract Account.
Contract Date.--The date we receive the purchase payment at our Service Office.
We show the Contract Date on page 3.
Issue Date.--The Contract Date.
Annuity Date.--The date the first annuity payment is due. We show the Annuity
Date on page 3.
Anniversary or Contract Anniversary.--The same day and month as the Contract
Date in each later year.
Example: If the contract date is June 10, 1986, the first anniversary is June
10, 1987. The second is June 10, 1988, and so on.
Contract Year.--A year which starts on the Contract Date or on an Anniversary.
Example: If the contract date is June 10, 1986, the first Contract Year starts
then and ends on June 9, 1987. The second starts on June 10, 1987 and ends on
June 9, 1988.
Attained Age.--An annuitant's attained age at any time is his or her issue age
plus the length of time since the contract date. You will find the issue age(s)
on page 3.
Earnings.--The excess, if any, of (1) the contract fund plus any amounts
previously withdrawn, over (2) total purchase payments to date plus any
additional amounts credited by the Company as a result of such purchase
payments.
Service Office.--The office designated by Prudential to service contracts such
as this. Its mailing address is the address shown on the Contract Data page,
unless Prudential specifies another address by notice to you.
Annual Report-- Once each contract year after the first and before the Annuity
Date we will send you a report. It will show (1) the amount of the contract
fund; (2) the investment amount in each subaccount; (3) the amount in the fixed
account; (4) interest credited during the year, and (5) the interest rate that
will be credited until further notice to the amount in the fixed account. The
report will include any other data that may be currently required where this
contract is delivered. You may ask for a report like this at any time. But,
except for the report we send you once a year, we have the right to charge a fee
for each report.
Contract Modifications.-- Only a Prudential officer may agree to modify this
contract, and then only in writing.
Change of Annuity Date.-- Not later than the present Annuity Date, you may ask
us to change that date to another date. We must have your request in writing at
our Service Office and in a form which meets our needs. You must send the
contract to us to be endorsed if we ask you to do so. We will change the date to
the one you ask for in your request. But, unless we consent, it may not be
before the later of (1) the third contract anniversary and (2) the first of the
next month after the date we receive your request. Also, unless we consent, it
may not be after the first of the next month after the 80th birthday of the
younger of the annuitants. Further, unless we consent, you may not make more
than one change in the Annuity Date.
Removal of an Annuitant.-- If a First Annuitant and a Co-Annuitant are named, we
will remove one from the contract upon: (1) receipt of your written request to
remove that annuitant; or (2) receipt of due proof that the Annuitant has died.
Ownership and Control.-- Unless we endorse this contract to say otherwise: (1)
the owner of the contract is the Annuitant (the First Annuitant, if two are
named); (2) while any annuitant is living the owner alone is entitled to (a) any
contract benefit and value, and (b) the exercise of any right and privilege
granted by the contract or by us; and (3) if two annuitants are named and the
First Annuitant dies while the Co-Annuitant is living, the Co-Annuitant will
become the Owner.
Currency.-- Any money we pay, or which is paid to us, must be in United States
currency. Any amount we owe will be payable at our Service Office.
(Continued on Next Page)
Page 6 (VIP-86)
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<PAGE>
GENERAL PROVISIONS (Continued)
Misstatement of Age or Sex.-- If any annuitants stated date of birth or sex or
both are not correct, we will change each benefit and the amount of each annuity
payment to that which the purchase payment would have bought for the correct
date of birth and sex. Also, we will adjust the amount of any payments we have
already made. Here is how we will do it: (1) We will deduct any overpayments,
with interest at 5% a year, from any payment(s) due then or later. (2) We will
add any underpayments, with interest at 5% a year, to the next payment we make
after we receive proof of the correct date of birth and sex.
Incontestability.-- We will not contest this contract except for non-payment of
the purchase payment due on the contract date.
Proof of Survival or Death.-- Before we make a payment, we have the right to
require proof of the life or death of any person whose life or death determines
whether or to whom we must make the payment.
Changes by Prudential.-- We reserve the right, upon 90 days notice to you to:
(1) change the minimum amount requirements specified for purchases, withdrawals
and transfers in the Contract Fund and Contract Value Options Provision;
(2) refuse to accept any request for purchase;
(3) add, change or discontinue subaccounts, change to or add a different
variable contract account, or substitute fund shares in the account (see page
9);
(4) change any or all terms and provisions of the Annuity Settlement Table on
page 15, but only with respect to any portion of an annuity settlement deriving
from purchase payments made on or after the effective date of the change and
earnings on those purchase payments; and
(5) make any changes required by law.
Voting Rights:
Fund.--We will send you a notice of any meeting at which Fund shares which
comprise the assets of a subaccount may be voted. We will provide a voting
instruction form for the number of Fund shares representing your proportional
interest. The instruction form may be signed and returned to us. If for any
meeting there are Fund shares for which we have not received voting
instructions, this is what we will do. We will vote Fund shares on each matter
in the same proportion as we vote the Fund shares held in the subaccount for
which we did receive instructions.
Prudential.--We are a mutual life insurance company. Our principal office is in
Newark, New Jersey, and we are incorporated in that State. By law, we have 24
directors. This includes 16 elected by our policyholders (four each year for
four year terms), two of our officers, and six public directors named by New
Jersey's Chief Justice.
The election is held on the first Tuesday in April from 10:00 a.m. to 2:00 p.m.
in our office at the Secretary's address shown here. After this contract has
been in force for one year, you may vote either in person or by mail. We will
send you a ballot if you ask for one. Just write to our Secretary at Prudential
Plaza, Newark, New Jersey 07102, at least 60 days before the election date. By
law, your request must show your name, address, contract number and date of
birth. If you are an individual, you must be at least 18 years old to vote.
Participation (Dividends).--This contract is eligible to participate in the
divisible surplus of Prudential. We do not expect that any dividends will be
payable on or before the Annuity Date. While any annuity settlement is in
effect, the contract will share in our surplus to the extent and in the way we
decide.
Page 7 (VIP--86) "A"
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<PAGE>
PURCHASE PAYMENTS
Purchase Payments.-- An initial purchase payment of at least $1,000 is payable
on the Contract Date. Further purchase payments may be made at any time while an
annuitant is living and before the Annuity Date. The amount of each payment
after the first must be at least $100. We reserve the right to establish a
maximum amount.
The initial purchase payment, minus any deduction for state and/or local premium
taxes, will be allocated to the subaccounts and/or to the fixed account as you
instruct. The minimum amount of a first allocation to a subaccount and/or to the
fixed account is $300; the minimum for subsequent allocations is $100 unless we
consent to a smaller amount. If, after you have made at least one purchase, we
receive a purchase payment without instructions, we will make any deduction for
state and/or local premium taxes and allocate the balance in the same
proportions as the most recent purchase payment you made.
Additional Amounts.-- During the first three contract years, and in contract
years thereafter at the discretion of the Company, we will credit an additional
1% to the amount of every purchase payment you make, The Company reserves the
right to limit such additional amounts to $1,000 in each contract year.
This additional amount will not be subject to state and/or local premium taxes.
The amount will be allocated to the subaccounts and/or to the fixed account in
the same proportions as the corresponding purchase payment.
Example 1: On the Contract Date you make a $1,500 purchase to be allocated
equally to subaccounts A, B and C. We will increase that amount by 1%, or $15,
and allocate $505 to each of Subaccounts A, B, and C. Later in the year you send
us a $900 purchase payment, but you don't tell us how it is to be applied. We
will increase that amount by 1% or $9 and, based on the most recent purchase,
the one made on the Contract Date, we would make a $303 purchase for each of
Subaccounts A, B, and C.
Example 2: If in the example above your second purchase payment had been $200
instead of $900, we would have the right not to make the purchase without first
contacting you to find out how the purchase payment is to be applied. This is
because the $200 purchase payment was not enough to make a minimum purchase of
$100 for each of the three subaccounts. The purchase would be made when we
receive your instructions at our Service Office.
BENEFICIARY
You may designate or change a beneficiary. Your request must be in writing and
in a form which meets our needs. It will take effect only when we file it at our
Service Office; this will be after you send the contract to us to be endorsed,
if we ask you to do so. Then any previous beneficiary's interest will end as of
the date of the request. It will end then even if no annuitant is living when we
file the request. Unless otherwise stated, we will make payment to the
beneficiary only if the last surviving or sole annuitant dies before the Annuity
Date. Any beneficiary's interest is subject to the rights of any assignee of
whom we know.
When a beneficiary is designated, any relationship shown is to the Annuitant
(First Annuitant if two annuitants are named on page 3) unless otherwise stated.
To show priority, we may use numbered classes, so that the class with first
priority is called class 1, the class with next priority is called class 2, and
so on. When we use numbered classes, these statements apply to beneficiaries
unless the form states otherwise: (In these provisions and in the Example, the
term annuitant refers, where two annuitants are named, to the last surviving
annuitant.)
1. One who survives the annuitant will have the right to be paid only if no one
in a prior class survives the annuitant.
2. One who has the right to be paid will be the only one paid if no one else in
the same class survives the annuitant.
3. Two or more in the same class who have the right to be paid will be paid in
equal shares.
4. If none survives the annuitant, we will pay in one sum to the annuitants
estate.
Example: Suppose the class 1 beneficiary is Jane and the class 2 beneficiaries
are Paul and John. If the annuitant dies before the Annuity Date, we owe Jane
the proceeds if she is living at the annuitant's death. We owe Paul and John the
proceeds if they are living then but Jane is not. But if only one of them is
living, we owe him the proceeds. If none of them is living, we owe the
annuitant's estate.
Before we make a payment, we have the right to decide what proof we need of the
identity, age or any other facts about any persons designated as beneficiaries.
If beneficiaries are not designated by name and we make payment(s) based on that
proof, we will not have to make the payment(s) again.
Page 8 (VIP-86)
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SEPARATE ACCOUNT
The Account-- The word Account, where we use it in this contract without
qualification, means the Prudential Individual Variable Contract Account (PIVCA)
and any other separate accounts that we establish. PIVCA is a unit investment
trust registered with the SEC under the Investment Company Act of 1940. It is
also subject to the laws of New Jersey. We own the assets of the Account; we
keep them separate from the assets of our general investment account. We
established the Account to support variable annuity contracts.
Subaccounts.-- The PIVCA has several subaccounts. We list them on the Contract
Data page(s). You determine, using percentages, how the invested purchase amount
will be allocated among the subaccounts and/or to the fixed account. You may
choose to allocate nothing to a particular subaccount. But any allocation you
make must be at least 10%; you may not choose a fractional percent.
Example: You may choose a percentage of 0, or 100, or 10, 11, 12, and so on, up
to 90. But you may not choose a percentage of 1 through 9, or 91 through 99, or
any percent that is not a whole number.
The Fund.-- The word fund, where we use it in this contract without
qualification, means the fund we identify in the Contract Data pages. The fund
is registered with the SEC under the Investment Company Act of 1940 as an
open-end diversified management investment company. The fund has several
portfolios; there is a portfolio that corresponds to each of the subaccounts of
the PIVCA. We list these portfolios in the Contract Data pages.
Account Investments.-- We use the assets of the PIVCA to buy shares in the fund.
Each subaccount is invested in a corresponding specific portfolio. Income and
realized and unrealized gains and losses from assets in each subaccount are
credited to, or charged against, the subaccount. This is without regard to
income, gains, or losses in our other investment accounts.
We will determine the value of the assets in the PIVCA at the end of each
business day. When we use the term business day, we mean a day when the New York
Stock Exchange is open for trading. We might need to know the value of an asset
on a day that is not a business day or on which trading in that asset does not
take place. In this case, we will use the value of that asset as of the end of
the last prior business day on which trading took place.
Example: If we need to know the value of an asset on a Sunday, we will normally
use the value of the asset as of the end of business on Friday.
We will always keep assets in the Account with a total value at least equal to
the amount of the investment amounts under contracts like this one. (See page
11.) To the extent those assets do not exceed this amount, we use them only to
support those contracts; we do not use those assets to support any other
business we conduct. We may use any excess over this amount in any way we
choose.
Change in Investment Policy.-- A portfolio of the fund might make a material
change in its investment policy. In that case, we will send you a notice of the
change.
Change of Fund.-- A portfolio might, in our judgment, become unsuitable for
investment by a subaccount. This might happen because of a change in investment
policy, or a change in the laws or regulations, or because the shares are no
longer available for investment, or for some other reason. If that occurs, we
have the right to substitute another portfolio of the fund, or to invest in a
fund other than the one we show on the Contract Data page(s). But we would first
seek approval from the SEC and, where required, the insurance regulator where
this contract is delivered.
FIXED ACCOUNT
The Fixed Account.-- In addition to the subaccounts described above, there is a
fixed account to which you may direct all or part of your invested purchase
amount(s). The fixed account is funded by the general account of Prudential. The
fixed account is credited with interest as described under Guaranteed Interest
on page 12 and Excess Interest on page 12.
Fixed Account Options. --We may have more than one fixed account option. We list
the fixed account option(s) in the Contract Data pages.
Page 9 (VIP--86)
C-40
<PAGE>
TRANSFERS
Transfers Among Subaccounts and into the Fixed Account.-- You may transfer
amounts among subaccounts of PIVCA and into the fixed account as often as four
times in a contract year. In addition, the entire amount in all subaccounts may
be transferred to the fixed account at any time. If we establish new separate
accounts, transfers into or out of these separate accounts will be allowed only
with our consent. To make a transfer, you must notify us in writing in a form
that meets our needs. The transfer will take effect on the date we receive your
notice at our Service Office.
Transfers Among Fixed Account Options and into the Subaccounts.-- You may
transfer amounts among the available Fixed Account Options and into the
subaccounts only with our consent.
DEATH OF ANNUITANT
Sole Annuitant.--lf we receive proof that an annuitant, who was the last
surviving or only annuitant named in the contract, died before the Annuity Date,
we will pay the beneficiary the proceeds promptly.
If the Annuitant dies before his or her 65th birthday, the proceeds will be the
greater of (a) minimum proceeds, which we define below, and (b) the contract
fund (which we define on page 11) as of the date we receive due proof of death.
Minimum proceeds if no withdrawals have been made is the sum of all of the
purchase payments paid to us plus any additional percentage amounts of purchase
payments we credit. Any withdrawal reduces minimum proceeds on the date of the
withdrawal in the same proportion that it reduces your contract fund on that
date. Purchase payments made after a withdrawal increase minimum proceeds by the
amount of the purchase payments plus any additional percentage amounts of
purchase payments we credit.
Example: Assume a total of purchase payments and additional amounts of $10,000
and a subsequent withdrawal of $3,000 made when your contract fund amounts to
$12,000. The contract fund is reduced by one-fourth ($3,000 divided by $12,000);
therefore minimum proceeds, which was $10,000, is also reduced by one-fourth, to
$7,500. A subsequent purchase of $5,000 with an additional amount credited of
$50 would increase minimum proceeds to $12,550.
If the Annuitant dies on or after his or her 65th birthday, the proceeds will be
the contract fund as of the date we receive due proof of death.
If the Annuitant dies on or after the Annuity Date, the settlement then in
effect will govern whether and to whom we will make any payment(s).
Multiple Annuitants.--If two annuitants are named in the contract and we receive
due proof that one of them died before his or her 65th birthday and before the
Annuity Date, here is what we will do. We will compare minimum proceeds,
determined as described above for death of a sole annuitant, with the amount of
your contract fund. If minimum proceeds is greater than the amount of the
contract fund, we will credit the difference to the contract fund as a death
benefit. The death benefit, if any, will be distributed among the subaccounts
and/or the fixed account in the same proportions as the contract fund was
distributed before the crediting of the death benefit.
No death benefit is payable if the Annuitant who died did so before the Annuity
Date and either: (1) the Annuitant had reached his or her 65th birthday on or
before the date of his or her death; or (2) the amount of the contract fund on
the date we received due proof of the Annuitant's death was greater than or
equal to minimum proceeds determined as described above.
The surviving annuitant may withdraw all of the contract fund, within 30 days
following the date we receive due proof of the first annuitant's death, without
paying any sales charge that might otherwise be required for a withdrawal (see
Withdrawal Charges on page 11).
When only one of the annuitants named in the contract survives, the above
provisions for Sole Annuitant will apply to that surviving annuitant.
Where two annuitants named in the contract have died and there is not sufficient
evidence that they have died otherwise than simultaneously, the proceeds of the
contract will be distributed as if the First Annuitant had survived the
Co-Annuitant.
Page 10 (VIP-86)
C-41
<PAGE>
CONTRACT FUND AND CONTRACT VALUE OPTIONS
Before the annuity date, you may be able to make withdrawals from the contract
fund and you may surrender this contract for its cash value.
Contract Fund. --On the contract date the contract fund is equal to the invested
purchase amount (see below) minus any of the charges described in items (f)
through (i) below which may have been due on that date. On any day after that
the contract fund is equal to what it was on the previous day, plus these items:
(a) any increase due to investment results in the value of the subaccounts
to which that portion of the contract fund that is in the investment amount
is allocated (we explain investment amount below);
(b) guaranteed interest at 3% on that portion of the contract fund that is
in the fixed account;
(c) any excess interest on that portion of the contract fund that is in the
fixed account (see page 12); and
(d) any invested purchase amount resulting from additional purchase
payments
minus these items:
(e) any decrease due to investment results in the value of the subaccounts
to which that portion of the contract fund that is in the investment amount
is allocated;
(f) a charge against the investment amount at a rate of up to .00326816% a
day (1.20% a year) for mortality and expense risks that we assume;
(g) any annual maintenance charge that we deduct (see page 12);
(h) any amount charged against that contract fund for Federal or State
income taxes; and
(i) any withdrawals, withdrawal charges, and recapture of additional
amounts.
Invested Purchase Amount. --This is the portion of the purchase payments that we
add to the contract fund. It is equal to the purchase payments, plus any
additional amounts we have credited, minus any applicable deduction for state
and/or local premium taxes.
Investment Amount --The investment amount for this contract is the amount we use
to compute the investment results. The investment amount is allocated among the
subaccounts. The amount of the investment amount and its allocation to
subaccounts depend on (1) how you choose to allocate the invested purchase
amount; (2) whether or not you transfer amounts among subaccounts; (3) the
investment performance of the subaccounts to which amounts are allocated or
transferred; and (4) whether or not you make any withdrawals. The account,
subaccounts, and account investments are described on page 9. The investment
amount at any time is equal to the contract fund, minus the portion of the
contract fund that is in the fixed account.
Cash Value. --The cash value of the contract at any time is the contract fund,
minus any withdrawal charges that apply, minus any Additional Amount which is
subject to recapture. See Withdrawal Charges below for the period of time during
which there may be a withdrawal charge.
Withdrawal Charges (Deferred Contingent Sales Charges). --Although no sales
charges are deducted from your purchase payments when they are made, your
purchase payments may be subject to a sales charge upon withdrawal or upon
surrender of this contract for its cash value. Earnings, defined on page 6, are
not subject to sales charges. Withdrawals are considered to consist of earnings,
if any, first, then of purchase payments on a first-in, first-out basis.
In each contract year, any purchase payments withdrawn which do not in total
exceed 10% of your contract fund valued as of the date of the first withdrawal
in that year, will not incur a sales charge. A sales charge may be imposed on
purchase payments withdrawn in excess of this 10% limitation.
The amount of any sales charge imposed on the withdrawal of a purchase payment
varies with the number of contract years that have elapsed since the purchase
payment was made.
When you make a withdrawal, the rate of sales charge applied against any
purchase payments or portion of a purchase payment that is subject to a charge
is determined in accord with the following:
If the contract year of purchase payment is the same as the contract year of
withdrawal, the rate is 8%.
If the duration from the start of the
contract year of purchase payment to the
start of the contract year of withdrawal is... The rate is...
One year .............................................................. 7%
Two years ............................................................. 6%
Three years ........................................................... 5%
Four years ............................................................ 4%
Five years ............................................................ 3%
Six years ............................................................. 2%
Seven years ........................................................... 1%
Eight years or more .................................................. 0%
In determining the amount of sales charge, if any, we will consider that any
purchase payment withdrawn is the first purchase payment made which has not
previously been withdrawn. This is so even if that purchase payment was
(Continued on Next Page)
Page 11 (VIP-86)
C-42
<PAGE>
CONTRACT FUND AND CONTRACT VALUE OPTIONS (Continued)
allocated to a different subaccount (and/or the fixed account) than that from
which withdrawal is being made or if the amount being withdrawn is no longer
subject to a withdrawal charge. Depending on the amount of the withdrawal, one
or more sales charge rates may be used if the withdrawal is of purchase payments
made in more than one contract year.
Recapture of Additional Amount.-- When you make a withdrawal which consists
partially or fully of purchase payments, we may recapture additional amounts
(see page 8) which we credited to your contract fund. If the duration from the
start of the contract year of purchase payment to the start of the contract year
of withdrawal is less than eight years, we will recapture the exact amount of
any additional amounts credited as a result of such purchase payments. If the
duration from the start of the contract year of purchase payment to the start of
the contract year of withdrawal is eight years or more, we will not recapture
any additional amounts credited as a result of such purchase payments.
Example.--
Year Transaction
- ---- -----------
Contract year one --Payment of $1,000 (plus crediting of $10 additional)
in Subaccount A
Contract year two --Payment of $900 (plus crediting of $9 additional) in
Subaccount B
Contract year three --Payment of $1,500 (plus crediting of $15 additional)
in Subaccount C.
In contract year five the contractholder requests a partial withdrawal of $1,600
from Subaccount C which has grown to $1,900. The amount of the contract fund on
the date of withdrawal is $3,900, $466 more than the total of the purchase
payments made to date, plus the additional amounts credited to date. Thus, for
purposes of determining sales charges, the $1,600 withdrawal is considered to
consist of $466 of earnings and $390 of purchase payments (10% of the contract
fund) may be withdrawn without sales charge. A sales charge is required on the
remaining $744 of purchase payment being withdrawn.
To determine the sales charge we assume that $1,000 of purchase payment being
withdrawn is the payment made to Subaccount A in contract year one. The
remaining $134 of purchase payment being withdrawn is assumed to be a part of
the $900 payment made to Subaccount B in contract year two. Of the first $1,000
purchase payment we have seen that $390 (10% of $3,900) may be withdrawn without
sales charge. A 4% sales charge is due on the withdrawal of the other $610 of
the payment (4% multiplied by $610 equals $24.40). The $134 portion being
withdrawn from the second payment requires a 5% sales charge (5% multiplied by
$134 equals $6.70). Thus the total sales charge for withdrawing $1,600 in year
five is $31.10.
In addition, since $1,134 of purchase payments is being withdrawn and the
durations from the start of the contract years of these purchase payments to the
contract year of withdrawal is less than eight years, we will recapture
additional amounts equal to $11.34 (1% of $1,134).
Annual Maintenance Charge.-- On each contract anniversary before the Annuity
Date or at the time of total withdrawal we will deduct a maintenance charge from
your contract fund. The maximum amount we will deduct is shown on page 3 of this
contract. If on any contract anniversary the contract fund is allocated to more
than one subaccount and/or to the fixed account, we will divide the charge on a
pro-rata basis, according to the value of each subaccount and/or the fixed
account.
Conditions for Withdrawal or Surrender.-- Our consent is needed for a withdrawal
if (1) its amount is less than $300; (2) it would reduce the contract fund to
less than $300; or (3) a withdrawal was made earlier in the same contract year.
To make a withdrawal or to surrender this contract for its cash value, you must
ask us in writing in a form that meets our needs. Also, to surrender the
contract, you must send it to us. Unless we consent, any amount withdrawn will
be taken from the subaccounts and/or the fixed account in proportion to the
amount in each as of the date of the withdrawal. After deducting the Annual
Maintenance Charge and the sales charges, and recaptures of Additional Amounts,
if any, we will pay the balance.
Guaranteed Interest-- The guaranteed interest rate credited on that portion of
the contract fund in the fixed account is an effective rate of 3% a year.
Excess Interest-- Excess interest on that portion of the contract fund in the
fixed account may be credited in addition to the 3% guaranteed interest rate.
The rate of any excess interest is not guaranteed. It will be determined from
time to time and will continue thereafter until a new rate is determined. We may
use different rates of excess interest for different portions of the contract
fund that are in the fixed account.
Page 12 (VIP-86)
C-43
<PAGE>
PAYOUT PROVISIONS
Choosing an Option.-- You may have the amount of your contract fund on the
Annuity Date paid to the Annuitant(s) under one of the options we describe
below. If two annuitants are named in the contract, and both are living, you may
choose to have payments made to either. But, for any annuity settlement, we will
first deduct from your contract fund any charge for state and/or local premium
taxes, any recapture of additional amounts, and any withdrawal charges. We offer
the same annuity options to the Payee that we offer to an annuitant. And we
determine monthly payments for the Payee in the same way we do for an annuitant.
Conditions.-- With respect to the option(s) you select, your right to make the
choice is subject to all these conditions: (1) You must ask for the option in
writing and in a form which meets our needs. (2) You must send the contract to
us to be endorsed. (3) If we require it, you must give us proof of the date of
birth of the person on whose age an annuity payment is based. (4) We must have
your request, the contract and any required proof(s) of the date(s) of birth
before the Annuity Date.
Your choice of an option will take effect on the Annuity Date but only if: (1)
the person on whose life the annuity is to be based is living on that date; (2)
the first payment under the option will be at least $50; and (3) you do not void
the choice by making a later choice before the Annuity Date.
If two annuitants are named in the Contract and both are living, settlement will
be made on the life of the First Annuitant, as named on page 3.
When No Option Chosen.-- If no choice takes effect on the Annuity Date,
settlement under the Interest Payment Option will become effective.
Options Described.-- When we use the word annuitant in the following paragraphs
we mean the annuitant for whom the annuity described was chosen and who is to
receive settlement under the annuity.
For an annuitant, the first payment under these options is due on the Annuity
Date.
For a Payee, unless a later date is requested, the first payment will be due on
the first day of the earliest calendar month on or after the day the Service
Office has received the request for the settlement and due proof of the
annuitant's death and such claim forms and other evidence as may be satisfactory
to us. Here are the options we offer. We may also consent to other arrangements.
Life Income Option.-- You may choose monthly payments for as long as the
annuitant lives, with 120 monthly payments certain.
Interest Payment Option.-- We will hold an amount at interest. We will pay
interest at an effective rate of at least 3% a year ($30.00 annually, $14.89
semi-annually, $7.42 quarterly or $2.47 monthly per $1,000). We may pay more
interest.
Supplemental Life Annuity Option.-- You may choose to receive the proceeds of
this contract in the form of payments like those of any annuity or life annuity
we then regularly issue 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. For purposes of this option
only, the words we, our and us include our subsidiary company, Pruco Life
Insurance Company, which has agreed to make settlements under this option.
The proceeds of this contract might be subject to a withdrawal charge if paid as
a lump sum. If so, we will apply that charge pro-rata to any portion of the
proceeds not placed under this option. For the amount placed under this option
on any date, any annuity payment will be at least 100% of what we would pay
under the chosen kind of annuity with its first payment due on its contract
date. The phrase regularly issue does not include contracts that are used to
qualify for special federal income tax treatment as a retirement plan unless
this contract has been issued as part of such a plan. At least one of the
persons on whose life this option is based must be a Payee. This option cannot
be chosen more than 30 days before the due date of the first payment. On
request, we will quote the payment that would apply for any amount placed under
the option at that time.
Residue Described.-- For the Life Income Option and the Supplemental Life
Annuity Option, residue on any date means the then present value of any unpaid
payments certain. It does not include the value of any payment that may become
due after the certain period. For the Life Income Option, we will compute it at
an effective interest rate of 3 1/2% a year. But we will use the interest rate
we used to compute the actual Life Income Option payments if they were not based
on the table in this contract. For the Supplemental Life Annuity Option, we will
use the interest rate we would use for the chosen kind of annuity with the same
provisions as to withdrawal.
Page 13 (VIP-86)
C-44
<PAGE>
PAYOUT PROVISIONS (Continued)
For the Interest Payment Option, residue on any date means any unpaid balance
with interest to that date.
Withdrawal of Residue.-- Unless otherwise stated when the option is chosen: (1)
under the Life Income Option and the Supplemental Life Annuity Option the
residue may be withdrawn; and (2) under the Interest Payment Option all, or any
part not less than $100, of the residue may be withdrawn. If the Interest
Payment Option residue is reduced to less than $1,000, we have the right to pay
it in one sum. Under the Life Income Option and the Supplemental Life Annuity
Option, withdrawal of the residue will not affect any payments that may become
due after the certain period; the value of those payments cannot be withdrawn.
Instead, the payments will start again if they were based on the life of a
person who lives past the certain period.
Recapture of Additional Amounts.-- Before we make payments under any of the
above options, we will reduce the contract fund by the recapture of additional
amounts in the same way as we would if you had surrendered the contract for its
cash value (see page 12).
Withdrawal Charges.-- Before we make payments, under either the Life Income
Option or the Interest Payment Option, we will also reduce the contract fund by
a withdrawal charge in the same way as we would if you had surrendered the
contract for its cash value (see page 11).
ENDORSEMENTS
(Only we can endorse this contract.)
Page 14 (VIP--86)
C-45
<PAGE>
ANNUITY SETTLEMENT TABLE
Amounts Payable. --If the Annuity Date is a contract anniversary, for the Life
Income Option we will use the table below to compute the amount of the annuity
payment. The amounts we show are based on the Annuitant's sex and age last
birthday on the Annuity Date.
If the Annuity Date is not a contract anniversary, for each completed quarter
year after the most recent anniversary we will adjust the amounts.
When we computed the amounts we show in the tables, we adjusted the 1983 Table A
to an age last birthday basis, less three years; we used an interest rate of
3 1/2% a year. If the age is over 80, the rate for age 80 will be used. We will
let you know the amounts if you ask for them. Settlements under the Life Income
Option will share in our surplus to the extent and in the way we decide.
Other forms of annuity may be provided, subject to Prudential's consent, or as
may be required by any applicable law or regulation.
Amount of Annuity Payment for under the Life Income Option for each
$1,000 applied on the Annuity Date
- --------------------------------------------------------------------------------
AGE MALE FEMALE AGE MALE FEMALE
- --------------------------------------------------------------------------------
41 $3.88 $3.67 61 $5.25 $4.79
42 3.92 3.70 62 5.36 4.89
43 3.97 3.74 63 5.48 4.98
44 4.01 3.78 64 5.60 5.09
45 4.06 3.82 65 5.73 5.20
46 4.12 3.86 66 5.87 5.31
47 4.17 3.90 67 6.01 5.43
48 4.23 3.94 68 6.15 5.56
49 4.28 3.99 69 6.30 5.70
50 4.35 4.04 70 6.46 5.84
51 4.41 4.09 71 6.62 5.99
52 4.48 4.15 72 6.79 6.15
53 4.55 4.21 73 6.96 6.31
54 4.62 4.27 74 7.13 6.49
55 4.70 4.33 75 7.30 6.67
56 4.78 4.40 76 7.48 6.85
57 4.86 4.47 77 7.66 7.04
58 4.95 4.54 78 7.83 7.24
59 5.05 4.62 79 8.00 7.44
60 5.15 4.71 80 8.17 7.64
- --------------------------------------------------------------------------------
ENDORSEMENTS
(Only we can endorse this contract.)
Page 15 (VIP--86)
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<PAGE>
GUIDE TO CONTENTS
Page
Contract Data ........................................................ 3
Contract Summary ..................................................... 5
General Provisions ................................................... 6
Definitions; Annual Report; Contract
Modifications; Change of Annuity Date;
Removal of an Annuitant;
Ownership and Control;
Currency; Misstatement of Age or Sex;
Incontestability; Proof of Survival or Death;
Assignment; Changes by Prudential;
Voting Rights
Purchase Payments .................................................... 8
Additional Amounts
Beneficiary .......................................................... 3 & 8
Separate Account ..................................................... 9
The Account; Subaccounts; The Fund; Account
Investments; Change in
Investment Policy; Change of Fund
Fixed Account ........................................................ 9
The Fixed Account; Fixed Account Options
Death of Annuitant ................................................... 10
Transfers ............................................................ 10
Transfers among Subaccounts and into
the Fixed Account; Transfers Among Fixed
Account Options and into the Subaccounts
Contract Fund and Contract Value Options .............................11 & 12
Contract Fund; Invested Purchase Amount;
Investment Amount; Cash Value;
Withdrawal Charges (Deferred Contingent Sales
Charges); Recapture of Additional Amount;
Annual Maintenance Charge; Conditions
for Withdrawal or Surrender; Guaranteed
Interest; Excess Interest
Payout Provisions .................................................... 13
Choosing an Option; Conditions;
When No Option Chosen; Options Described;
Life Income Option; Interest Payment Option;
Supplemental Life Annuity Option;
Residue Described; Withdrawal of Residue;
Recapture of Additional Amounts;
Withdrawal Charges
Annuity Settlement Table ............................................. 15
Page 16 (VIP--86)
C-47
<PAGE>
Page 18
Variable Annuity Contract with Flexible Purchase Payments--Monthly annuity
payments starting on Annuity Date. Payment as stated upon death before Annuity
Date. Purchase payments payable during lifetime(s) of annuitant(s) until Annuity
Date. Cash values reflect investment results.
(VIP--86)
C-48
<PAGE>
Page 17 (VIP--86)
C-49
EXHIBIT 9
April 24, 1998
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Gentlemen:
In my capacity as Chief Counsel, Variable Products, Law Department of The
Prudential Insurance Company of America, I have reviewed the establishment of
The Prudential Individual Variable Contract Account (the "Account") on October
12, 1982, by the Board of Directors of The Prudential Insurance Company of
America ("Prudential") as a separate account for assets applicable to certain
variable annuity contracts, pursuant to the provisions of Section 17B:28-7 of
the Revised Statutes of New Jersey. I was responsible for oversight of the
preparation and review of the Registration Statements of Form N-4, as amended,
filed by Prudential with the Securities and Exchange Commission (Registration
No. 33-25434 and Registration No. 2-80897) under the Securities Act of 1933 and
the Investment Company Act of 1940 for the registration of certain variable
annuity contracts issued with respect to the Account.
I am of the following opinion:
1. Prudential was duly organized under the laws of New Jersey and is a
validly existing corporation.
2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provisions of New Jersey law.
3. The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable annuity
contracts is not chargeable with liabilities arising out of any other
business Prudential may conduct.
4. The variable annuity contracts are legal and binding obligations of
Prudential, in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Clifford E. Kirsch, Esq.
C-50
EXHIBIT 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 24 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated March
20, 1998, relating to the financial statements of The 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 the Registration Statement of our report dated March 5,
1998, relating to the consolidated 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
New York, New York
April 24, 1998
C-51
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 24 to
Registration Statement No. 2-80897 on Form N-4 of The Prudential Individual
Variable Contract Account of The Prudential Insurance Company of America of our
report dated June 4, 1997 relating to the consolidated financial statements of
The Prudential Insurance Company of America and subsidiaries in the Statement of
Additional Information, 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.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 24, 1998
C-52
<TABLE>
ANNUALIZED RATES OF RETURN 30/9999*1000 = $3.00
AVG POLICY SIZE 1000
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- ------------------------------------------------------------------------------------------------------------------------------
5 YR RATE OF RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
92 (OR INCEPT) TO '93 ROR 1.73% 8.83% 20.43% 14.21% 10.87% 20.84% 4.84% 17.85%
92 TO '93 ERV 1017.32 1088.33 1204.29 1142.13 1108.75 1208.39 1048.37 1178.52
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
92 TO '93 ERV LESS ADMIN CHG 1014.32 1085.33 1201.29 1139.13 1105.75 1205.39 1045.36 1175.52
93 (OR INCEPT) TO '94 ROR 2.82% -4.38% 1.56% -4.31% -2.14% 0.23% 7.11% -3.88%
93 TO '94 ERV 1042.88 1037.82 1220.03 1089.99 1082.07 1208.18 1119.68 1129.97
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
93 TO '94 ERV LESS ADMIN CHG 1039.88 1034.82 1217.03 1086.99 1079.07 1205.18 1116.68 1126.97
94 (OR INCEPT) TO '95 ROR 4.57% 19.31% 29.74% 22.66% 15.89% 20.26% 7.52% 16.17%
94 TO '95 ERV 1087.40 1234.60 1578.99 1333.33 1250.51 1449.40 1200.64 1309.18
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
94 TO '95 ERV LESS ADMIN CHG 1084.40 1231.60 1575.99 1330.33 1247.51 1446.40 1197.64 1306.18
95 (OR INCEPT) TO '96 ROR 3.99% 3.15% 17.11% 12.29% 11.29% 20.29% 4.41% 10.06%
95 TO '96 ERV 1127.63 1270.44 1845.66 1493.78 1388.33 1739.95 1250.48 1437.64
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
95 TO '96 ERV LESS ADMIN CHG 1124.63 1267.44 1842.66 1490.78 1385.33 1736.95 1247.48 1434.64
96 (OR INCEPT) TO '97 ROR 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
96 TO '97 ERV 1171.51 1359.72 2269.80 1737.70 1552.99 2344.67 1371.80 1613.11
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
96 TO '97 ERV LESS ADMIN CHG 1168.51 1356.72 2266.80 1734.70 1549.99 2341.67 1368.80 1610.11
ANNUALIZED ROR BEFORE LOAD 3.16% 6.29% 17.78% 11.65% 9.16% 18.55% 6.48% 9.99%
AMT SUBJ TO LOAD IF + RETURN 883.15 864.33 773.32 826.53 845.00 765.83 863.12 838.99
AMT SUBJ TO LOAD IF - RETURN 1051.66 1221.05 2040.12 1561.23 1394.99 2107.51 1231.92 1449.10
AMT SUBJ TO LOAD 883.15 864.33 773.32 826.53 845.00 765.83 863.12 838.99
5TH (OR INCEPTION) SALE CHARGE 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
AMT OF LOAD 26.49 25.93 23.20 24.80 25.35 22.97 25.89 25.17
ERV LESS LOAD 1142.02 1330.79 2243.60 1709.90 1524.64 2318.70 1342.90 1584.94
- ------------------------------------------------------------------------------------------------------------------------------
ANN. 5YR RET W/LOAD AND ADM CHG 2.69% 5.88% 17.54% 11.33% 8.80% 18.32% 6.07% 9.65%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- -----------------------------------------------------------------------------------------------
5 YR RATE OF RETURN
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 N/A N/A
92 (OR INCEPT) TO '93 ROR 23.67% 8.37% 41.45% 11.23% N/A N/A
92 TO '93 ERV 1236.72 1083.66 1414.46 1112.28 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
92 TO '93 ERV LESS ADMIN CHG 1233.72 1080.66 1411.46 1109.27 N/A N/A
93 (OR INCEPT) TO '94 ROR -5.43% -0.19% -6.02% -6.29% N/A N/A
93 TO '94 ERV 1166.71 1078.60 1326.53 1039.45 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
93 TO '94 ERV LESS ADMIN CHG 1163.71 1075.60 1323.53 1036.45 N/A N/A
94 (OR INCEPT) TO '95 ROR 25.42% 35.45% 14.51% 18.06% N/A N/A
94 TO '95 ERV 1459.53 1456.87 1515.58 1223.65 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
94 TO '95 ERV LESS ADMIN CHG 1456.53 1453.87 1512.58 1220.65 N/A N/A
95 (OR INCEPT) TO '96 ROR 29.32% 21.11% 18.27% 1.00% N/A N/A
95 TO '96 ERV 1883.54 1760.77 1788.93 1232.90 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
95 TO '96 ERV LESS ADMIN CHG 1880.54 1757.77 1785.93 1229.90 N/A N/A
96 (OR INCEPT) TO '97 ROR -12.64% 31.26% 5.71% 8.37% N/A N/A
96 TO '97 ERV 1642.87 2307.22 1887.94 1332.83 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
96 TO '97 ERV LESS ADMIN CHG 1639.87 2304.22 1884.94 1329.83 N/A N/A
ANNUALIZED ROR BEFORE LOAD 10.40% 18.17% 13.52% 5.87% N/A N/A 131.W/OUT
AMT SUBJ TO LOAD IF + RETURN 836.01 769.58 811.51 867.02 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 1475.88 2073.80 1696.45 1196.84 N/A N/A
AMT SUBJ TO LOAD 836.01 769.58 811.51 867.02 N/A N/A
5TH (OR INCEPTION) SALE CHARGE 3.00% 3.00% 3.00% 3.00% N/A N/A
AMT OF LOAD 25.08 23.09 24.35 26.01 N/A N/A
ERV LESS LOAD 1614.79 2281.14 1860.60 1303.81 N/A N/A
- --------------------------------------------------------------------------------------------------------
ANN. 5YR RET W/LOAD AND ADM CHG 10.06% 17.93% 13.22% 5.45% N/A N/A 126.WITH
</TABLE>
C-53
<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU VIP/QVIP PRODUCTS
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-Jun-83 08-Jun-83 06-Jun-83 27-May-83 02-Jun-83 19-Feb-88 02-May-88 23-Feb-87
WHOLE YEARS SINCE
INCEPTION 14.00 14.00 14.00 14.00 14.00 9.00 9.00 10.00
INCEPTION
UNIT VALUE 1.00018 0.99692 1.00243 1.00055 1.00433 0.99731 1.00345 0.99968
30-Jun-83 1.00530 1.00272 1.02693 1.01753 1.01314 N/A N/A N/A
30-Sep-83 1.02378 1.00281 0.99493 1.00086 1.01412 N/A N/A N/A
31-Dec-83 1.04235 1.01629 0.98158 0.99072 1.01744 N/A N/A N/A
1984 31-Mar-84 1.06224 1.02641 0.94082 0.95477 1.01202 N/A N/A N/A
30-Jun-84 1.08491 1.01686 0.94069 0.94290 1.01601 N/A N/A N/A
30-Sep-84 1.11094 1.07968 1.02073 1.01900 1.06862 N/A N/A N/A
31-Dec-84 1.13500 1.13678 1.04475 1.05536 1.11031 N/A N/A N/A
1985 31-Mar-85 1.15381 1.15086 1.13787 1.11869 1.15299 N/A N/A N/A
30-Jun-85 1.17327 1.23024 1.21202 1.19396 1.22381 N/A N/A N/A
30-Sep-85 1.19150 1.25129 1.15091 1.16127 1.21222 N/A N/A N/A
31-Dec-85 1.21015 1.33247 1.37157 1.31311 1.32837 N/A N/A N/A
1986 31-Mar-86 1.22814 1.40367 1.57422 1.50095 1.46075 N/A N/A N/A
30-Jun-86 1.24479 1.42443 1.61918 1.52792 1.48853 N/A N/A N/A
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-May-88 19-Oct-87 01-May-89 01-May-89 01-May-95 01-May-95
WHOLE YEARS SINCE
INCEPTION 9.00 10.00 8.00 8.00 2.00 2.00
INCEPTION
UNIT VALUE 0.98753 0.80241 1.01099 1.00062 1.00870 1.00160 13.81670
30-Jun-83 N/A N/A N/A N/A N/A N/A 5.06563
30-Sep-83 N/A N/A N/A N/A N/A N/A 5.03651
31-Dec-83 N/A N/A N/A N/A N/A N/A 5.04839
1984 31-Mar-84 N/A N/A N/A N/A N/A N/A 4.99628
30-Jun-84 N/A N/A N/A N/A N/A N/A 5.00136
30-Sep-84 N/A N/A N/A N/A N/A N/A 5.29897
31-Dec-84 N/A N/A N/A N/A N/A N/A 5.48221
1985 31-Mar-85 N/A N/A N/A N/A N/A N/A 5.71422
30-Jun-85 N/A N/A N/A N/A N/A N/A 6.03329
30-Sep-85 N/A N/A N/A N/A N/A N/A 5.96718
31-Dec-85 N/A N/A N/A N/A N/A N/A 6.55566
1986 31-Mar-86 N/A N/A N/A N/A N/A N/A 7.16773
30-Jun-86 N/A N/A N/A N/A N/A N/A 7.30484
</TABLE>
Page 1
C-54
<PAGE>
<TABLE>
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-Sep-86 1.26020 1.45293 1.49957 1.43418 1.45031 N/A N/A N/A
31-Dec-86 1.27393 1.50690 1.55982 1.49834 1.49851 N/A N/A N/A
1987 31-Mar-87 1.28845 1.52078 1.89171 1.67720 1.61707 N/A N/A 1.01388
30-Jun-87 1.30457 1.48402 1.95230 1.67787 1.62673 N/A N/A 1.00209
30-Sep-87 1.32190 1.42835 2.05180 1.71478 1.65695 N/A N/A 0.97156
31-Dec-87 1.34087 1.49322 1.56684 1.45340 1.50337 N/A N/A 0.94096
1988 31-Mar-88 1.35917 1.54477 1.71753 1.54476 1.57127 1.00283 N/A 1.00277
30-Jun-88 1.37746 1.55993 1.82741 1.60152 1.61545 1.06131 1.00567 1.01443
30-Sep-88 1.39893 1.58964 1.76701 1.59446 1.61699 1.07484 1.06071 1.03300
31-Dec-88 1.42268 1.59635 1.81228 1.62049 1.63683 1.09874 1.04699 1.05227
1989 31-Mar-89 1.44979 1.60677 1.91512 1.67575 1.68042 1.15617 1.00801 1.06878
30-Jun-89 1.47974 1.72914 2.07947 1.80804 1.76639 1.25045 1.03733 1.09308
30-Sep-89 1.50774 1.73731 2.27225 1.89836 1.83900 1.32945 1.04684 1.06706
31-Dec-89 1.53581 1.79017 2.32328 1.94994 1.89226 1.33181 1.06798 1.01855
1990 31-Mar-90 1.56157 1.76305 2.26411 1.89201 1.87649 1.27764 1.07731 0.97265
30-Jun-90 1.58799 1.81856 2.31918 1.97655 1.94414 1.31537 1.09102 1.02401
30-Sep-90 1.61429 1.83157 1.95179 1.82538 1.88034 1.17152 1.10563 0.92218
31-Dec-90 1.64133 1.91594 2.17588 1.96344 1.96812 1.26685 1.11478 0.88724
1991 31-Mar-91 1.66497 1.96084 2.58450 2.12974 2.09088 1.40599 1.10959 1.02526
28-Jun-91 1.68544 1.99025 2.60830 2.12168 2.11635 1.43223 1.11762 1.10641
30-Sep-91 1.70425 2.09827 2.60343 2.25339 2.19644 1.50276 1.11776 1.16647
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30-Sep-86 N/A N/A N/A N/A N/A N/A 7.09719
31-Dec-86 N/A N/A N/A N/A N/A N/A 7.33751
1987 31-Mar-87 N/A N/A N/A N/A N/A N/A 9.00908
30-Jun-87 N/A N/A N/A N/A N/A N/A 9.04758
30-Sep-87 N/A N/A N/A N/A N/A N/A 9.14533
31-Dec-87 N/A 0.85935 N/A N/A N/A N/A 9.15801
1988 31-Mar-88 N/A 0.90033 N/A N/A N/A N/A 10.64343
30-Jun-88 1.03564 0.95325 N/A N/A N/A N/A 13.05207
30-Sep-88 0.99000 0.95374 N/A N/A N/A N/A 13.07932
31-Dec-88 1.03792 0.98031 N/A N/A N/A N/A 13.30486
1989 31-Mar-89 1.14595 1.04491 N/A N/A N/A N/A 13.75167
30-Jun-89 1.20265 1.13189 0.98864 1.07011 N/A N/A 16.63693
30-Sep-89 1.30914 1.24716 1.08647 1.07178 N/A N/A 17.41256
31-Dec-89 1.39112 1.26833 1.11445 1.10787 N/A N/A 17.79157
1990 31-Mar-90 1.36906 1.22524 1.02194 1.07736 N/A N/A 17.37843
30-Jun-90 1.34845 1.29438 1.06702 1.11388 N/A N/A 17.90055
30-Sep-90 1.32540 1.11345 0.92869 1.09998 N/A N/A 16.77022
31-Dec-90 1.29539 1.20765 0.95902 1.16389 N/A N/A 17.55953
1991 31-Mar-91 1.35148 1.37708 1.00150 1.17717 N/A N/A 18.87900
28-Jun-91 1.38324 1.36795 0.99418 1.18160 N/A N/A 19.10525
30-Sep-91 1.43378 1.43459 1.04325 1.25997 N/A N/A 19.81436
</TABLE>
Page 2
C-55
<PAGE>
<TABLE>
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1.72182 2.20438 2.70927 2.43353 2.31570 1.59617 1.10861 1.22019
1992 31-Mar-92 1.73586 2.16912 2.85556 2.34998 2.29284 1.57543 1.09354 1.30324
30-Jun-92 1.74730 2.25069 2.87122 2.36693 2.32268 1.60774 1.05510 1.34331
30-Sep-92 1.75701 2.33922 2.89727 2.47154 2.37266 1.67452 1.06000 1.39449
31-Dec-92 1.76575 2.33452 3.05622 2.58742 2.44709 1.73693 1.07040 1.41713
1993 31-Mar-93 1.77362 2.42875 3.32862 2.72488 2.56017 1.92882 1.07877 1.49992
30-Jun-93 1.78090 2.48888 3.42357 2.80169 2.62331 1.99606 1.09458 1.56897
30-Sep-93 1.78846 2.56012 3.54449 2.94155 2.70625 2.06034 1.11619 1.58829
31-Dec-93 1.79633 2.54072 3.68057 2.95516 2.71321 2.09889 1.12217 1.67012
1994 31-Mar-94 1.80430 2.46157 3.57550 2.80289 2.63248 2.05769 1.12660 1.66214
30-Jun-94 1.81484 2.42965 3.58857 2.77774 2.63448 2.06517 1.14052 1.64217
30-Sep-94 1.82928 2.43504 3.78210 2.86672 2.68727 2.18204 1.15929 1.63973
30-Dec-94 1.84692 2.42952 3.73800 2.82770 2.65511 2.10375 1.20195 1.60540
1995 31-Mar-95 1.86773 2.52991 4.05731 2.95141 2.76933 2.22908 1.20958 1.68499
30-Jun-95 1.88943 2.70702 4.33227 3.15285 2.89912 2.38653 1.23749 1.74803
30-Sep-95 1.91033 2.76447 4.70277 3.34246 2.99686 2.51048 1.27929 1.79379
31-Dec-95 1.93131 2.89855 4.84971 3.46853 3.07694 2.53006 1.29232 1.86497
1996 31-Mar-96 1.95034 2.83333 5.09322 3.54782 3.17730 2.67539 1.31111 1.92154
30-Jun-96 1.96919 2.83716 5.17367 3.62417 3.21302 2.69254 1.32409 1.94263
30-Sep-96 1.98847 2.89272 5.23847 3.72708 3.25693 2.75868 1.33385 2.02568
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1.41184 1.54800 1.05559 1.33535 N/A N/A 20.66045
1992 31-Mar-92 1.42913 1.50315 1.00468 1.28604 N/A N/A 20.59857
30-Jun-92 1.50681 1.52522 1.05137 1.33707 N/A N/A 20.98544
30-Sep-92 1.54098 1.56677 0.99736 1.40185 N/A N/A 21.47367
31-Dec-92 1.49691 1.63861 1.00733 1.39657 N/A N/A 21.95488
1993 31-Mar-93 1.65960 1.70368 1.09493 1.46481 N/A N/A 23.24657
30-Jun-93 1.81109 1.70478 1.13849 1.51447 N/A N/A 23.94679
30-Sep-93 1.81080 1.74178 1.27875 1.57474 N/A N/A 24.71176
31-Dec-93 1.85126 1.77569 1.42483 1.55337 N/A N/A 25.18232
1994 31-Mar-94 1.79392 1.70182 1.36480 1.48787 N/A N/A 24.47158
30-Jun-94 1.79521 1.70292 1.36149 1.45766 N/A N/A 24.41042
30-Sep-94 1.98188 1.77910 1.41950 1.45439 N/A N/A 25.21634
30-Dec-94 1.75071 1.77231 1.33909 1.45559 N/A N/A 24.72605
1995 31-Mar-95 1.91776 1.93725 1.32967 1.52275 N/A N/A 26.00677
30-Jun-95 2.01860 2.11369 1.45705 1.62031 1.12504 1.06572 29.75315
30-Sep-95 2.10210 2.27331 1.56772 1.64504 1.22835 1.18958 31.30655
31-Dec-95 2.19574 2.40054 1.53340 1.71849 1.24506 1.18974 32.19536
1996 31-Mar-96 2.52219 2.52124 1.62629 1.66881 1.28628 1.24683 33.38169
30-Jun-96 2.60714 2.62380 1.68061 1.66687 1.33056 1.30382 33.98927
30-Sep-96 2.64028 2.69421 1.71720 1.69021 1.35656 1.34006 34.66040
31-Dec-96 2.83947 2.90729 1.81356 1.73574 1.40755 1.40807 36.55399
</TABLE>
Page 3
C-56
<PAGE>
<TABLE>
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 31-Mar-97 2.02785 2.97297 5.74831 3.85675 3.41989 3.05903 1.37463 2.05429
30-Jun-97 2.04847 3.09448 6.39521 4.26399 3.66957 3.55431 1.40169 2.16052
30-Sep-97 2.06983 3.19572 7.10653 4.61139 3.86452 4.10719 1.45336 2.28379
31-Dec-97 2.09203 3.20766 6.99611 4.53976 3.83869 4.10841 1.48380 2.30802
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 31-Mar-97 2.74960 2.97296 1.79889 1.71698 1.37160 1.32916 36.45291
30-Jun-97 2.78093 3.47745 2.02810 1.77095 1.63692 1.56100 39.84359
30-Sep-97 3.17386 3.72370 2.10160 1.82623 1.88408 1.80011 43.20191
31-Dec-97 2.48061 3.81606 1.91715 1.88100 1.83193 1.74162 42.24285
</TABLE>
Page 4
C-57
<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU VIP/QVIP PRODUCTS
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD NATR
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-Jun-83 08-Jun-83 06-Jun-83 27-May-83 02-Jun-83 19-Feb-88 02-May-88 23-Feb-87 02-May-88
WHOLE YEARS SINCE
INCEPTION 14.00 14.00 14.00 14.00 14.00 9.00 9.00 10.00 9.00
INCEPTION UNIT VALUE 1.00018 0.99692 1.00243 1.00055 1.00433 0.99731 1.00345 0.99968 0.98753
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267 2.83947
31-Dec-83 1.04235 1.01629 0.98158 0.99072 1.01744 N/A N/A N/A N/A
31-Dec-84 1.13500 1.13678 1.04475 1.05536 1.11031 N/A N/A N/A N/A
31-Dec-85 1.21015 1.33247 1.37157 1.31311 1.32837 N/A N/A N/A N/A
31-Dec-86 1.27393 1.50690 1.55982 1.49834 1.49851 N/A N/A N/A N/A
31-Dec-87 1.34087 1.49322 1.56684 1.45340 1.50337 N/A N/A 0.94096 N/A
31-Dec-88 1.42268 1.59635 1.81228 1.62049 1.63683 1.09874 1.04699 1.05227 1.03792
31-Dec-89 1.53581 1.79017 2.32328 1.94994 1.89226 1.33181 1.06798 1.01855 1.39112
31-Dec-90 1.64133 1.91594 2.17588 1.96344 1.96812 1.26685 1.11478 0.88724 1.29539
31-Dec-91 1.72182 2.20438 2.70927 2.43353 2.31570 1.59617 1.10861 1.22019 1.41184
31-Dec-92 1.76575 2.33452 3.05622 2.58742 2.44709 1.73693 1.07040 1.41713 1.49691
31-Dec-93 1.79633 2.54072 3.68057 2.95516 2.71321 2.09889 1.12217 1.67012 1.85126
30-Dec-94 1.84692 2.42952 3.73800 2.82770 2.65511 2.10375 1.20195 1.60540 1.75071
31-Dec-95 1.93131 2.89855 4.84971 3.46853 3.07694 2.53006 1.29232 1.86497 2.19574
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267 2.83947
31-Dec-97 2.09203 3.20766 6.99611 4.53976 3.83869 4.10841 1.48380 2.30802 2.48061
<CAPTION>
PRU VIP/QVIP STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 19-Oct-87 01-May-89 01-May-89 01-May-95 01-May-95
WHOLE YEARS SINCE
INCEPTION 10.00 8.00 8.00 2.00 2.00
INCEPTION UNIT VALUE 0.80241 1.01099 1.00062 1.00870 1.00160 13.81670
31-Dec-96 2.90729 1.81356 1.73574 1.40755 1.40807
31-Dec-83 N/A N/A N/A N/A N/A 5.04839
31-Dec-84 N/A N/A N/A N/A N/A 5.48221
31-Dec-85 N/A N/A N/A N/A N/A 6.55566
31-Dec-86 N/A N/A N/A N/A N/A 7.33751
31-Dec-87 0.85935 N/A N/A N/A N/A 9.15801
31-Dec-88 0.98031 N/A N/A N/A N/A 13.30486
31-Dec-89 1.26833 1.11445 1.10787 N/A N/A 17.79157
31-Dec-90 1.20765 0.95902 1.16389 N/A N/A 17.55953
31-Dec-91 1.54800 1.05559 1.33535 N/A N/A 20.66045
31-Dec-92 1.63861 1.00733 1.39657 N/A N/A 21.95488
31-Dec-93 1.77569 1.42483 1.55337 N/A N/A 25.18232
30-Dec-94 1.77231 1.33909 1.45559 N/A N/A 24.72605
31-Dec-95 2.40054 1.53340 1.71849 1.24506 1.18974 32.19536
31-Dec-96 2.90729 1.81356 1.73574 1.40755 1.40807 36.55399
31-Dec-97 3.81606 1.91715 1.88100 1.83193 1.74162 42.24285
PREPARED BY:
REVIEWED BY:
APPROVED BY:
</TABLE>
C-58
<PAGE>
<TABLE>
ANNUALIZED RATES OF RETURN
SINCE INCEPTION RATE OF RETURN
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 14.58 14.57 14.57 14.60 14.58 9.86 9.66 10.85
INCEPT. TO '83 ROR 4.22% 1.94% -2.08% -0.98% 1.31% N/A N/A N/A
INCEPT. TO 'ERV 1042.17 1019.43 979.20 990.17 1013.05 N/A N/A N/A
ANNUAL ADMIN CHARGE 1.74 1.69 1.71 1.79 1.74 N/A N/A N/A
INCEPT TO '83 ERV LESS ADMIN CHG 1040.42 1017.74 977.49 988.38 1011.31 N/A N/A N/A
83 (OR INCEPT) TO '84 ROR 8.89% 11.86% 6.44% 6.53% 9.13% N/A N/A N/A
INCEPT. TO '84 ERV 1132.90 1138.40 1040.40 1052.87 1103.62 N/A N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A
INCEPT. TO 84 ERV LESS ADMIN CHG 1129.89 1135.40 1037.40 1049.87 1100.62 N/A N/A N/A
'84 TO '85 ROR 6.62% 17.21% 31.28% 24.42% 19.64% N/A N/A N/A
'84 TO '85 ERV 1204.71 1330.85 1361.92 1306.28 1316.77 N/A N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A
'84 TO '85 ERV LESS ADMIN CHG 1201.71 1327.85 1358.92 1303.28 1313.77 N/A N/A N/A
'85 TO '86 ROR 5.27% 13.09% 13.73% 14.11% 12.81% N/A N/A N/A
'85 TO '86 ERV 1265.04 1501.68 1545.43 1487.12 1482.05 N/A N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A
'85 TO '86 ERV LESS ADMIN CHG 1262.04 1498.68 1542.43 1484.12 1479.05 N/A N/A N/A
'86 TO '87 ROR 5.25% -0.91% 0.45% -3.00% 0.32% N/A N/A -5.87%
'86 TO '87 ERV 1328.36 1485.07 1549.37 1439.61 1483.85 N/A N/A 941.26
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 2.56
'86 TO '87 ERV LESS ADMIN CHG 1325.36 1482.07 1546.37 1436.61 1480.85 N/A N/A 938.70
'87(OR INCEPT) TO '88 ROR 6.10% 6.91% 15.66% 11.50% 8.88% 10.17% 4.34% 11.83%
'87 TO '88 ERV 1406.22 1584.43 1788.61 1601.77 1612.31 1101.70 1043.39 1049.75
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 2.60 2.00 3.00
'87 TO '88 ERV LESS ADMIN CHG 1403.22 1581.43 1785.60 1598.77 1609.31 1099.11 1041.39 1046.75
'88(OR INCEPT) TO '89 ROR 7.95% 12.14% 28.20% 20.33% 15.61% 21.21% 2.00% -3.20%
'88 TO '89 ERV 1514.81 1773.44 2289.08 1923.80 1860.44 1332.25 1062.27 1013.20
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'88 TO '89 ERV LESS ADMIN CHG 1511.81 1770.44 2286.08 1920.80 1857.44 1329.25 1059.27 1010.20
'89(OR INCEPT) TO 90 ROR 6.87% 7.03% -6.34% 0.69% 4.01% -4.88% 4.38% -12.89%
'89 TO '90 ERV 1615.68 1894.82 2141.04 1934.10 1931.90 1264.42 1105.69 879.97
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'89 TO '90 ERV LESS ADMIN CHG 1612.68 1891.82 2138.04 1931.10 1928.90 1261.42 1102.69 876.97
'90(OR INCEPT) TO '91 ROR 4.90% 15.05% 24.51% 23.94% 17.66% 26.00% -0.55% 37.53%
'90 TO '91 ERV 1691.76 2176.63 2662.16 2393.45 2269.56 1589.33 1096.59 1206.07
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'90 TO '91 ERV LESS ADMIN CHG 1,688.76 2,173.63 2,659.16 2,390.45 2,266.56 1,586.33 1,093.58 1,203.07
'91(OR INCEPT) TO '92 ROR 2.55% 5.90% 12.81% 6.32% 5.67% 8.82% -3.45% 16.14%
'91 TO '92 ERV 1,731.85 2,301.95 2,999.69 2,541.61 2,395.16 1,726.22 1,055.89 1,397.24
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'91 TO '92 ERV LESS ADMIN CHG 1,728.85 2,298.95 2,996.69 2,538.61 2,392.16 1,723.22 1,052.89 1,394.24
'92(OR INCEPT) TO '93 ROR 1.73% 8.83% 20.43% 14.21% 10.87% 20.84% 4.84% 17.85%
'92 TO '93 ERV 1,758.79 2,502.01 3,608.88 2,899.41 2,652.31 2,082.32 1,103.82 1,643.15
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'92 TO '93 ERV LESS ADMIN CHG 1,755.79 2,499.01 3,605.88 2,896.41 2,649.30 2,079.32 1,100.82 1,640.15
'93(OR INCEPT) TO '94 ROR 2.82% -4.38% 1.56% -4.31% -2.14% 0.23% 7.11% -3.88%
'93 TO '94 ERV 1,805.24 2,389.64 3,662.14 2,771.49 2,592.57 2,084.13 1,179.08 1,576.59
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'93 TO '94 ERV LESS ADMIN CHG 1,802.24 2,386.64 3,659.14 2,768.49 2,589.57 2,081.13 1,176.08 1,573.59
'94(OR INCEPT) TO '95 ROR 4.57% 19.31% 29.74% 22.66% 15.89% 20.26% 7.52% 16.17%
'94 TO '95 ERV 1,884.58 2,847.39 4,747.40 3,395.90 3,000.99 2,502.86 1,264.50 1,828.01
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'94 TO '95 ERV LESS ADMIN CHG 1,881.58 2,844.39 4,744.40 3,392.90 2,997.99 2,499.86 1,261.50 1,825.01
'95(OR INCEPT) TO '96 ROR 3.99% 3.15% 17.11% 12.29% 11.29% 20.29% 4.41% 10.06%
'95 TO '96 ERV 1,956.60 2,934.08 5,556.24 3,809.76 3,336.41 3,007.20 1,317.15 2,008.69
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 1,953.60 2,931.08 5,553.24 3,806.76 3,333.41 3,004.20 1,314.15 2,005.69
96(OR INCEPT) TO '97 ROR 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
96 TO '97 ERV 2,035.04 3,144.50 6,840.49 4,437.27 3,736.83 4,055.32 1,445.12 2,255.20
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
96 TO '97 ERV LESS ADMIN CHG 2,032.04 3,141.50 6,837.49 4,434.27 3,733.83 4,052.32 1,442.12 2,252.20
ANNUALIZED ROR BEFORE LOAD 4.98% 8.18% 14.10% 10.74% 9.46% 15.24% 3.86% 7.77%
AMT SUBJ TO LOAD IF + RETURN 796.80 685.85 316.25 556.57 626.62 594.77 855.79 774.78
AMT SUBJ TO LOAD IF - RETURN 1,828.84 2,827.35 6,153.74 3,990.85 3,360.45 3,647.09 1,297.90 2,026.98
AMT SUBJ TO LOAD 796.80 685.85 316.25 556.57 626.62 594.77 855.79 774.78
10TH (OR INCEPTION) SALE CHARGE 0.00% 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 0.00
ERV LESS LOAD 2,032.04 3,141.50 6,837.49 4,434.27 3,733.83 4,052.32 1,442.12 2,252.20
- --------------------------------------------------------------------------------------------------------------------------------
ANN. RET W/LOAD AND ADM CHG 4.98% 8.18% 14.10% 10.74% 9.46% 15.24% 3.86% 7.77%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 9.66 10.20 8.67 8.67 2.67 2.67
INCEPT. TO '83 ROR N/A N/A N/A N/A N/A N/A
INCEPT. TO 'ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
INCEPT TO '83 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
83 (OR INCEPT) TO '84 ROR N/A N/A N/A N/A N/A N/A
INCEPT. TO '84 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
INCEPT. TO 84 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'84 TO '85 ROR N/A N/A N/A N/A N/A N/A
'84 TO '85 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'84 TO '85 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'85 TO '86 ROR N/A N/A N/A N/A N/A N/A
'85 TO '86 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'85 TO '86 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'86 TO '87 ROR N/A 7.10% N/A N/A N/A N/A
'86 TO '87 ERV N/A 1070.96 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 0.60 N/A N/A N/A N/A
'86 TO '87 ERV LESS ADMIN CHG N/A 1070.36 N/A N/A N/A N/A
'87(OR INCEPT) TO '88 ROR 5.10% 14.08% N/A N/A N/A N/A
'87 TO '88 ERV 1051.03 1221.02 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 2.00 3.00 N/A N/A N/A N/A
'87 TO '88 ERV LESS ADMIN CHG 1049.03 1218.02 N/A N/A N/A N/A
'88(OR INCEPT) TO '89 ROR 34.03% 29.38% 10.23% 10.72% N/A N/A
'88 TO '89 ERV 1406.01 1575.88 1102.34 1107.18 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 2.01 2.01 N/A N/A
'88 TO '89 ERV LESS ADMIN CHG 1403.01 1572.88 1100.33 1105.18 N/A N/A
'89(OR INCEPT) TO 90 ROR -6.88% -4.78% -13.95% 5.06% N/A N/A
'89 TO '90 ERV 1306.46 1497.63 946.87 1161.06 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'89 TO '90 ERV LESS ADMIN CHG 1303.46 1494.63 943.87 1158.06 N/A N/A
'90(OR INCEPT) TO '91 ROR 8.99% 28.18% 10.07% 14.73% N/A N/A
'90 TO '91 ERV 1420.64 1915.86 1038.91 1328.66 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'90 TO '91 ERV LESS ADMIN CHG 1,417.64 1,912.86 1,035.91 1,325.66 N/A N/A
'91(OR INCEPT) TO '92 ROR 6.03% 5.85% -4.57% 4.58% N/A N/A
'91 TO '92 ERV 1,503.05 2,024.83 988.55 1,386.44 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'91 TO '92 ERV LESS ADMIN CHG 1,500.05 2,021.83 985.55 1,383.44 N/A N/A
'92(OR INCEPT) TO '93 ROR 23.67% 8.37% 41.45% 11.23% N/A N/A
'92 TO '93 ERV 1,855.15 2,190.97 1,394.03 1,538.76 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'92 TO '93 ERV LESS ADMIN CHG 1,852.15 2,187.97 1,391.03 1,535.76 N/A N/A
'93(OR INCEPT) TO '94 ROR -5.43% -0.19% -6.02% -6.29% N/A N/A
'93 TO '94 ERV 1,751.55 2,183.80 1,307.32 1,439.09 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'93 TO '94 ERV LESS ADMIN CHG 1,748.55 2,180.80 1,304.32 1,436.09 N/A N/A
'94(OR INCEPT) TO '95 ROR 25.42% 35.45% 14.51% 18.06% 23.43% 18.78%
'94 TO '95 ERV 2,193.03 2,953.83 1,493.58 1,695.47 1,234.32 1,187.84
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 2.01 2.01
'94 TO '95 ERV LESS ADMIN CHG 2,190.03 2,950.83 1,490.58 1,692.47 1,232.32 1,185.83
'95(OR INCEPT) TO '96 ROR 29.32% 21.11% 18.27% 1.00% 13.05% 18.35%
'95 TO '96 ERV 2,832.09 3,573.74 1,762.92 1,709.46 1,393.14 1,403.45
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 2,829.09 3,570.74 1,759.92 1,706.46 1,390.14 1,400.45
96(OR INCEPT) TO '97 ROR -12.64% 31.26% 5.71% 8.37% 30.15% 23.69%
96 TO '97 ERV 2,471.54 4,686.90 1,860.45 1,849.27 1,809.27 1,732.19
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
96 TO '97 ERV LESS ADMIN CHG 2,468.54 4,683.90 1,857.45 1,846.27 1,806.27 1,729.19
ANNUALIZED ROR BEFORE LOAD 9.80% 16.34% 7.40% 7.33% 24.79% 22.77% W/OUT 162.77%
AMT SUBJ TO LOAD IF + RETURN 753.15 531.61 814.26 815.37 819.37 827.08
AMT SUBJ TO LOAD IF - RETURN 2,221.68 4,215.51 1,671.70 1,661.64 1,625.65 1,556.27
AMT SUBJ TO LOAD 753.15 531.61 814.26 815.37 819.37 827.08
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00% 6.00% 6.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 49.16 49.62
ERV LESS LOAD 2,468.54 4,683.90 1,857.45 1,846.27 1,757.11 1,679.57
- ------------------------------------------------------------------------------------------------------
ANN. RET W/LOAD AND ADM CHG 9.80% 16.34% 7.40% 7.33% 23.51% 21.44% WITH 160.16%
</TABLE>
C-59
<PAGE>
<TABLE>
ANNUALIZED RATES OF RETURN
10 YR RATE OF RETURN
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 10.00 10.00 10.00 10.00 10.00 9.86 9.66 10.00
1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 N/A N/A 1,000.00
87 TO '88 ROR 6.10% 6.91% 15.66% 11.50% 8.88% N/A N/A 11.83%
87 TO '88 ERV 1,061.01 1,069.07 1,156.65 1,114.96 1,088.77 N/A N/A 1,118.29
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
87 TO '88 ERV LESS ADMIN CHG 1,058.01 1,066.07 1,153.65 1,111.96 1,085.77 N/A N/A 1,115.29
88 TO '89 ROR 7.95% 12.14% 28.20% 20.33% 15.61% N/A N/A -3.20%
88 TO '89 ERV 1,142.14 1,195.50 1,478.93 1,338.03 1,255.21 N/A N/A 1,079.55
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
88 TO '89 ERV LESS ADMIN CHG 1,139.14 1,192.50 1,475.93 1,335.03 1,252.21 N/A N/A 1,076.55
89 (OR INCEPT) TO '90 ROR 6.87% 7.03% -6.34% 0.69% 4.01% N/A N/A -12.89%
89 TO '90 ERV 1,217.41 1,276.28 1,382.29 1,344.27 1,302.41 N/A N/A 937.77
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
89 TO '90 ERV LESS ADMIN CHG 1,214.41 1,273.28 1,379.29 1,341.27 1,299.41 N/A N/A 934.77
90 (OR INCEPT) TO '91 ROR 4.90% 15.05% 24.51% 23.94% 17.66% N/A N/A 37.53%
90 TO '91 ERV 1,273.96 1,464.97 1,717.41 1,662.40 1,528.89 N/A N/A 1,285.55
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
90 TO '91 ERV LESS ADMIN CHG 1,270.96 1,461.97 1,714.41 1,659.40 1,525.89 N/A N/A 1,282.55
91 (OR INCEPT) TO '92 ROR 2.55% 5.90% 12.81% 6.32% 5.67% N/A N/A 16.14%
91 TO '92 ERV 1,303.39 1,548.28 1,933.96 1,764.34 1,612.47 N/A N/A 1,489.56
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
91 TO '92 ERV LESS ADMIN CHG 1,300.39 1,545.28 1,930.96 1,761.34 1,609.47 N/A N/A 1,486.55
92 (OR INCEPT) TO '93 ROR 1.73% 8.83% 20.43% 14.21% 10.87% N/A N/A 17.85%
92 TO '93 ERV 1,322.91 1,681.77 2,325.43 2,011.67 1,784.50 N/A N/A 1,751.94
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
92 TO '93 ERV LESS ADMIN CHG 1,319.91 1,678.77 2,322.43 2,008.67 1,781.50 N/A N/A 1,748.94
93 (OR INCEPT) TO '94 ROR 2.82% -4.38% 1.56% -4.31% -2.14% N/A N/A -3.88%
93 TO '94 ERV 1,357.08 1,605.29 2,358.67 1,922.03 1,743.35 N/A N/A 1,681.16
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
93 TO '94 ERV LESS ADMIN CHG 1,354.08 1,602.29 2,355.67 1,919.03 1,740.35 N/A N/A 1,678.16
94 (OR INCEPT) TO '95 ROR 4.57% 19.31% 29.74% 22.66% 15.89% N/A N/A 16.17%
94 TO '95 ERV 1,415.95 1,911.62 3,056.26 2,353.93 2,016.85 N/A N/A 1,949.50
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
94 TO '95 ERV LESS ADMIN CHG 1,412.95 1,908.62 3,053.26 2,350.93 2,013.85 N/A N/A 1,946.50
95 (OR INCEPT) TO '96 ROR 3.99% 3.15% 17.11% 12.29% 11.29% N/A N/A 10.06%
95 TO '96 ERV 1,469.29 1,968.81 3,575.72 2,639.77 2,241.17 N/A N/A 2,142.40
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
95 TO '96 ERV LESS ADMIN CHG 1,466.29 1,965.81 3,572.72 2,636.77 2,238.17 N/A N/A 2,139.40
96 (OR INCEPT) TO '97 ROR 4.17% 7.28% 23.18% 16.56% 12.10% N/A N/A 12.44%
96 TO '97 ERV 1,527.41 2,108.95 4,400.89 3,073.51 2,509.05 N/A N/A 2,405.54
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
96 TO '97 ERV LESS ADMIN CHG 1,524.41 2,105.95 4,397.89 3,070.51 2,506.05 N/A N/A 2,402.54
ANNUALIZED ROR BEFORE LOAD 4.31% 7.73% 15.96% 11.87% 9.62% N/A N/A 9.16%
AMT SUBJ TO LOAD IF + RETURN 847.56 789.41 560.21 692.95 749.40 N/A N/A 759.75
AMT SUBJ TO LOAD IF - RETURN 1,371.97 1,895.35 3,958.10 2,763.46 2,255.44 N/A N/A 2,162.29
AMT SUBJ TO LOAD 847.56 789.41 560.21 692.95 749.40 N/A N/A 759.75
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00% 0.00% N/A N/A 0.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 0.00 N/A N/A 0.00
ERV LESS LOAD 1,524.41 2,105.95 4,397.89 3,070.51 2,506.05 N/A N/A 2,402.54
- --------------------------------------------------------------------------------------------------------------------------------
ANN. 10YR RET W/LOAD AND ADM CHG 4.31% 7.73% 15.96% 11.87% 9.62% N/A N/A 9.16%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 9.66 10.00 8.67 8.67 2.67 2.67
N/A 1,000.00 N/A N/A N/A N/A
87 TO '88 ROR N/A 14.08% N/A N/A N/A N/A
87 TO '88 ERV N/A 1,140.76 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
87 TO '88 ERV LESS ADMIN CHG N/A 1,137.76 N/A N/A N/A N/A
88 TO '89 ROR N/A 29.38% N/A N/A N/A N/A
88 TO '89 ERV N/A 1,472.04 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
88 TO '89 ERV LESS ADMIN CHG N/A 1,469.04 N/A N/A N/A N/A
89 (OR INCEPT) TO '90 ROR N/A -4.78% N/A N/A N/A N/A
89 TO '90 ERV N/A 1,398.75 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
89 TO '90 ERV LESS ADMIN CHG N/A 1,395.75 N/A N/A N/A N/A
90 (OR INCEPT) TO '91 ROR N/A 28.18% N/A N/A N/A N/A
90 TO '91 ERV N/A 1,789.12 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
90 TO '91 ERV LESS ADMIN CHG N/A 1,786.12 N/A N/A N/A N/A
91 (OR INCEPT) TO '92 ROR N/A 5.85% N/A N/A N/A N/A
91 TO '92 ERV N/A 1,890.66 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
91 TO '92 ERV LESS ADMIN CHG N/A 1,887.66 N/A N/A N/A N/A
92 (OR INCEPT) TO '93 ROR N/A 8.37% N/A N/A N/A N/A
92 TO '93 ERV N/A 2,045.58 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
92 TO '93 ERV LESS ADMIN CHG N/A 2,042.58 N/A N/A N/A N/A
93 (OR INCEPT) TO '94 ROR N/A -0.19% N/A N/A N/A N/A
93 TO '94 ERV N/A 2,038.69 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
93 TO '94 ERV LESS ADMIN CHG N/A 2,035.69 N/A N/A N/A N/A
94 (OR INCEPT) TO '95 ROR N/A 35.45% N/A N/A N/A N/A
94 TO '95 ERV N/A 2,757.28 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
94 TO '95 ERV LESS ADMIN CHG N/A 2,754.28 N/A N/A N/A N/A
95 (OR INCEPT) TO '96 ROR N/A 21.11% N/A N/A N/A N/A
95 TO '96 ERV N/A 3,335.70 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
95 TO '96 ERV LESS ADMIN CHG N/A 3,332.70 N/A N/A N/A N/A
96 (OR INCEPT) TO '97 ROR N/A 31.26% N/A N/A N/A N/A
96 TO '97 ERV N/A 4,374.45 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
96 TO '97 ERV LESS ADMIN CHG N/A 4,371.45 N/A N/A N/A N/A
ANNUALIZED ROR BEFORE LOAD N/A 15.89% N/A N/A N/A N/A W/OUT 74.55%
AMT SUBJ TO LOAD IF + RETURN N/A 562.86 N/A N/A N/A N/A
AMT SUBJ TO LOAD IF - RETURN N/A 3,934.30 N/A N/A N/A N/A
AMT SUBJ TO LOAD N/A 562.86 N/A N/A N/A N/A
10TH (OR INCEPTION) SALE CHARGE N/A 0.00% N/A N/A N/A N/A
AMT OF LOAD N/A 0.00 N/A N/A N/A N/A
ERV LESS LOAD N/A 4,371.45 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
ANN .10YR RET W/LOAD AND ADM CHG N/A 15.89% N/A N/A N/A N/A WITH 74.55%
</TABLE>
C-60
<PAGE>
<TABLE>
ANNUALIZED RATES OF RETURN QUARTER 4
AVG POLICY SIZE 1000 30/9999*1000 = $3.00 ANNUAL CHG Quarter Charge 3.00000
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YTD % OF RETURN 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
ERV (ENDING REDEEMABLE VALUE) 1041.69 1072.81 1231.80 1165.63 1121.02 1349.88 1099.66 1124.40
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1038.69 1069.81 1228.80 1162.63 1118.02 1346.88 1096.66 1121.40
ROR BEFORE LOAD 3.87% 6.98% 22.88% 16.26% 11.80% 34.69% 9.67% 12.14%
AMT SUBJ TO LOAD IF + RETURN 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
AMT SUBJ TO LOAD IF - RETURN 934.82 962.83 1105.92 1046.37 1006.22 1212.19 986.99 1009.26
AMT SUBJ TO LOAD 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.73 62.51 61.40 61.86 62.17 60.57 62.32 62.15
ERV LESS ADMIN CHG & LOAD 975.96 1007.30 1167.40 1100.77 1055.85 1286.31 1034.33 1059.25
- -----------------------------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -2.40% 0.73% 16.74% 10.08% 5.59% 28.63% 3.43% 5.92%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YTD % OF RETURN -12.64% 31.26% 5.71% 8.37% 30.15% 23.69%
ERV (ENDING REDEEMABLE VALUE) 873.62 1312.58 1057.12 1083.69 1301.50 1236.88
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 870.62 1309.58 1054.12 1080.69 1298.50 1233.88
ROR BEFORE LOAD -12.94% 30.96% 5.41% 8.07% 29.85% 23.39% 203.03% W/OUT
AMT SUBJ TO LOAD IF + RETURN 912.94 869.04 894.59 891.93 870.15 876.61
AMT SUBJ TO LOAD IF - RETURN 783.56 1178.62 948.71 972.62 1168.65 1110.50
AMT SUBJ TO LOAD 783.56 869.04 894.59 891.93 870.15 876.61
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 54.85 60.83 62.62 62.44 60.91 61.36
ERV LESS ADMIN CHG & LOAD 815.77 1248.75 991.50 1018.25 1237.59 1172.52
- -------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -18.42% 24.88% -0.85% 1.83% 23.76% 17.25% 117.16% WITH
</TABLE>
<TABLE>
ANNUALIZED RATES OF RETURN
AVG POLICY SIZE 1000 30/9999*1000 = $3.00 ANNUAL CHG
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
ERV (ENDING REDEEMABLE VALUE) 1041.69 1072.81 1231.80 1165.63 1121.02 1349.88 1099.66 1124.40
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1038.69 1069.81 1228.80 1162.63 1118.02 1346.88 1096.66 1121.40
ROR BEFORE LOAD 3.87% 6.98% 22.88% 16.26% 11.80% 34.69% 9.67% 12.14%
AMT SUBJ TO LOAD IF + RETURN 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
AMT SUBJ TO LOAD IF - RETURN 934.82 962.83 1105.92 1046.37 1006.22 1212.19 986.99 1009.26
AMT SUBJ TO LOAD 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.73 62.51 61.40 61.86 62.17 60.57 62.32 62.15
ERV LESS ADMIN CHG & LOAD 975.96 1007.30 1167.40 1100.77 1055.85 1286.31 1034.33 1059.25
- -----------------------------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -2.40% 0.73% 16.74% 10.08% 5.59% 28.63% 3.43% 5.92%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN -12.64% 31.26% 5.71% 8.37% 30.15% 23.69%
ERV (ENDING REDEEMABLE VALUE) 873.62 1312.58 1057.12 1083.69 1301.50 1236.88
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 870.62 1309.58 1054.12 1080.69 1298.50 1233.88
ROR BEFORE LOAD -12.94% 30.96% 5.41% 8.07% 29.85% 23.39% 203.03% W/OUT
AMT SUBJ TO LOAD IF + RETURN 912.94 869.04 894.59 891.93 870.15 876.61
AMT SUBJ TO LOAD IF - RETURN 783.56 1178.62 948.71 972.62 1168.65 1110.50
AMT SUBJ TO LOAD 783.56 869.04 894.59 891.93 870.15 876.61
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 54.85 60.83 62.62 62.44 60.91 61.36
ERV LESS ADMIN CHG & LOAD 815.77 1248.75 991.50 1018.25 1237.59 1172.52
- -------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -18.42% 24.87% -0.85% 1.83% 23.76% 17.25% 117.16% WITH
</TABLE>
C-61
<PAGE>
<TABLE>
VIP/QVIP 31-DEC-97 SAPDU 1 TABLE 1
ASSUMING NO LOAD
<CAPTION>
YTD 1YR 5YR 10YR SINCE ICPT INCPT DATE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MMKT 3.87% 3.87% 3.16% 4.31% 4.98% 02-Jun-83
DIBOND 6.98% 6.98% 6.29% 7.73% 8.18% 08-Jun-83
GVTINC 8.07% 8.07% 5.87% N/A 7.33% 01-May-89
CONS 11.80% 11.80% 9.16% 9.62% 9.46% 02-Jun-83
FLXMGD 16.26% 16.26% 11.65% 11.87% 10.74% 27-May-83
HIYLD 12.14% 12.14% 9.99% 9.16% 7.77% 23-Feb-87
STIX 30.96% 30.96% 18.17% 15.89% 16.34% 19-Oct-87
EQINC 34.69% 34.69% 18.55% N/A 15.24% 19-Feb-88
EQUITY 22.88% 22.88% 17.78% 15.96% 14.10% 06-Jun-83
PRUJEN 29.85% 29.85% N/A N/A 24.79% 01-May-95
SMCAP 23.39% 23.39% N/A N/A 22.77% 01-May-95
GLOBAL 5.41% 5.41% 13.52% N/A 7.40% 01-May-89
NATR -12.94% -12.94% 10.40% N/A 9.80% 02-May-88
RPA 9.67% 9.67% 6.48% N/A 3.86% 02-May-88
- -------------------------------------------------------------------------------------------------------
TOTAL 203.03% 203.03% 131.02% 74.55% 162.77%
</TABLE>
C-62
<PAGE>
<TABLE>
VIP/QVIP 31-DEC-97 SAPDU 1 TABLE 2
ASSUMING CHARGES
<CAPTION>
YTD 1YR 5YR 10YR SINCE ICPT INCPT DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MMKT -2.40% -2.40% 2.69% 4.31% 4.98% 02-Jun-83
DIBOND 0.73% 0.73% 5.88% 7.73% 8.18% 08-Jun-83
GVTINC 1.83% 1.83% 5.45% N/A 7.33% 01-May-89
CONS 5.59% 5.59% 8.80% 9.62% 9.46% 02-Jun-83
FLXMGD 10.08% 10.08% 11.33% 11.87% 10.74% 27-May-83
HIYLD 5.92% 5.92% 9.65% 9.16% 7.77% 23-Feb-87
STIX 24.88% 24.87% 17.93% 15.89% 16.34% 19-Oct-87
EQINC 28.63% 28.63% 18.32% N/A 15.24% 19-Feb-88
EQUITY 16.74% 16.74% 17.54% 15.96% 14.10% 06-Jun-83
PRUJEN 23.76% 23.76% N/A N/A 23.51% 01-May-95
SMCAP 17.25% 17.25% N/A N/A 21.44% 01-May-95
GLOBAL -0.85% -0.85% 13.22% N/A 7.40% 01-May-89
NATR -18.42% -18.42% 10.06% N/A 9.80% 02-May-88
RPA 3.43% 3.43% 6.07% N/A 3.86% 02-May-88
- -------------------------------------------------------------------------------------------------------
TOTAL 117.16% 117.16% 126.94% 74.55% 160.16%
</TABLE>
C-63
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
FINANCIAL DATA SCHEDULE
Article 6 of Regulation S-X
Prudential's Discovery Plus and Variable Investment Plan
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,821,469
<INVESTMENTS-AT-VALUE> 6,910,804
<RECEIVABLES> 718
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,911,522
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 388,312
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,911,522
<DIVIDEND-INCOME> 230,787
<INTEREST-INCOME> 0
<OTHER-INCOME> 523,836
<EXPENSES-NET> 81,153
<NET-INVESTMENT-INCOME> 149,634
<REALIZED-GAINS-CURRENT> 144,017
<APPREC-INCREASE-CURRENT> 291,555
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 472,863
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
