AS FILED WITH THE SEC ON APRIL 27, 1999.
REGISTRATION NO. 33-25434
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 14 [X]
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 30 [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)
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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:
CHRISTOPHER E. PALMER LEE D. AUGSBURGER
SHEA & GARDNER ASSISTANT GENERAL COUNSEL
1800 MASSACHUSETTS AVENUE, N.W. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
WASHINGTON, D.C. 20036 751 BROAD STREET
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
[X] on April 30, 1999 pursuant to paragraph (b) of Rule 485
(date)
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on __________ pursuant to paragraph (a)(1) of Rule 485
(date)
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Interests in Individual Variable Annuity Contracts
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<PAGE>
DISCOVERY(R)
PLUS
THIS PROSPECTUS DESCRIBES AN INDIVIDUAL VARIABLE ANNUITY CONTRACT OFFERED BY THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA.
The Discovery Plus offers a wide variety of investment choices, including a
fixed interest-rate option a real estate variable investment option and 13
variable investment options that invest in the following portfolios managed by
Prudential:
CONSERVATIVE BALANCED PORTFOLIO
DIVERSIFIED BOND PORTFOLIO
EQUITY INCOME PORTFOLIO
EQUITY PORTFOLIO
FLEXIBLE MANAGED PORTFOLIO
GLOBAL PORTFOLIO
GOVERNMENT INCOME PORTFOLIO
HIGH YIELD BOND PORTFOLIO
MONEY MARKET PORTFOLIO
NATURAL RESOURCES PORTFOLIO
PRUDENTIAL JENNISON PORTFOLIO
SMALL CAPITALIZATION STOCK PORTFOLIO
STOCK INDEX PORTFOLIO
MAY 1, 1999
Please read this prospectus before purchasing a Discovery Plus contract and keep
it for future reference. Current prospectuses for each of the underlying mutual
fund portfolios and the real estate investment option accompany this prospectus.
These prospectuses contain important information about these investment options.
Please read these prospectuses and keep them for reference. Discovery Plus may
not be purchased by New York residents or by Oregon residents in connection with
tax favored plans.
To learn more about Discovery Plus, you can request a copy of the Statement of
Additional Information (SAI) dated May 1, 1999. The SAI has been filed with the
Securities and Exchange Commission (SEC) and is legally a part of this
prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Discovery Plus SAI, material incorporated by reference, and other information
regarding registrants that file electronically with the SEC. The Table of
Contents of the SAI is on Page 27 of this prospectus. For a free copy of the
SAI, call us at: (888) PRU-2888 or write to us at:
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Prudential Annuity Service Center
P.O. Box 14215
New Brunswick, New Jersey 08906
THE SEC HAS NOT DETERMINED THAT THIS CONTRACT IS A GOOD INVESTMENT, NOR HAS THE
SEC DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL
OFFENSE TO STATE OTHERWISE.
INVESTMENT IN A VARIABLE ANNUITY IS SUBJECT TO RISK, INCLUDING THE POSSIBLE LOSS
OF YOUR MONEY. AN INVESTMENT IN DISCOVERY PLUS IS NOT A BANK DEPOSIT AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
[PRUDENTIAL LOGO]
<PAGE>
DISCOVERY (R) PLUS VARIABLE ANNUITY
TABLE OF CONTENTS
CAPTION PAGE
- ------- ----
GLOSSARY ................................................................... ii
SUMMARY .................................................................... 1
SUMMARY OF CONTRACT EXPENSES ............................................... 4
EXPENSE EXAMPLES ........................................................... 6
1. WHAT IS THE DISCOVERY PLUS VARIABLE ANNUITY? ......................... 8
Beneficiary........................................................... 8
Death Benefit......................................................... 8
Short Term Cancellation Right or "Free Look".......................... 9
Other Contracts....................................................... 9
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?................................. 9
Variable Investment Options .......................................... 9
Fixed Interest-Rate Option ........................................... 10
Transfers Among Options .............................................. 10
Dollar Cost Averaging ................................................ 10
Voting Rights ........................................................ 11
Substitution ......................................................... 11
Other Changes ........................................................ 11
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)....................................................... 11
Payment Provisions ................................................... 11
Option 1: Life Annuity with 120 Payments (10 Years) Certain........... 12
Option 2: Interest Payment Option .................................... 12
Option 3: Other Annuity Options ...................................... 12
4. WHAT IS THE 1% BONUS?................................................. 12
5. HOW CAN I PURCHASE A DISCOVERY PLUS CONTRACT?......................... 12
Purchase Payments .................................................... 12
Allocation of Purchase Payments ...................................... 12
Calculating Contract Value ........................................... 13
CAPTION PAGE
- ------- ----
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY PLUS CONTRACT?.... 13
Insurance Charges .................................................... 13
Annual Contract Fee................................................... 14
Withdrawal Charge .................................................... 14
Bonus Recapture....................................................... 14
Critical Care Access ................................................. 14
Premium Taxes ........................................................ 15
Company Taxes ........................................................ 15
7. HOW CAN I ACCESS MY MONEY? ........................................... 15
Automated Withdrawals ................................................ 15
Suspension of Payments or Transfers .................................. 15
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY
PLUS CONTRACT?........................................................ 16
Taxes Payable by You.................................................. 16
Taxes on Annuity Payments............................................. 16
Penalty Taxes on Withdrawals and Annuity Payments..................... 16
Taxes Payable by Beneficiaries........................................ 17
Withholding of Tax from Distributions................................. 17
Annuity Qualification................................................. 17
Changes in the Contract............................................... 17
Additional Information................................................ 17
Taxes Paid By Prudential.............................................. 18
Contracts Used in Connection with Tax Favored Plans................... 18
9. OTHER INFORMATION .................................................... 22
The Prudential Insurance Company of America........................... 22
The Separate Account.................................................. 23
The Real Property Account............................................. 23
Sale of the Contract and Distributor ................................. 23
Assignment............................................................ 23
Exchange Offer for Certain Contract Owners............................ 24
Litigation............................................................ 25
Year 2000 Compliance.................................................. 26
Financial Statements.................................................. 27
Statement of Additional Information................................... 27
Accumulation Unit Values ............................................. 28
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DISCOVERY (R) PLUS VARIABLE ANNUITY
GLOSSARY
We have tried to make this prospectus as easy to read and understand as
possible. By the nature of the contract, however, certain technical words or
terms are unavoidable. We have identified the following as some of these words
or terms.
- --------------------------------------------------------------------------------
ACCUMULATION PHASE. The period that begins with the contract date (see below
definition) and ends when you start receiving income payments or earlier if the
contract is terminated through a full withdrawal or payment of a death benefit.
ANNUITANT. The person whose life determines how long the contract lasts and the
amount of income payments that will be paid.
ANNUITY DATE. The date when income payments are scheduled to begin.
BONUS. The additional 1% of your purchase payments that we add to the value of
your contract. This amount is based on the purchase payments you make during the
first three years you own the contract. Payment of the bonus amount may be
limited to $1,000 each contract year. This amount is referred to in your
contract as an "additional amount."
BENEFICIARY. The person(s) or entity you have chosen to receive a death benefit.
CASH VALUE. This is the total value of your contract amount minus any applicable
charges or fees.
CONTRACT DATE. The date we receive your initial purchase payment and all
necessary paperwork in good order in the Prudential Annuity Service Center.
Contract anniversaries are measured from the contract date. A contract year
begins on the contract date or on a contract anniversary.
CONTRACTOWNER, OWNER, OR YOU. The person entitled to the ownership rights under
the contract.
CONTRACT VALUE. The total value of the amounts in a contract allocated to the
variable investment options and the interest rate option as of a particular
date. This amount is referred to in your contract as the "contract fund."
DEATH BENEFIT. If the annuitant or contractowner dies, the designated person(s),
that is the beneficiary, will receive the total value of the contract or
potentially, a greater amount, depending on the age of the contract. See page 8
for a detailed description.
FIXED INTEREST-RATE OPTION. An investment option that offers a fixed rate of
interest for a one year period.
INCOME OPTIONS. Options under the contract that define the frequency and
duration of income payments. In your contract, they are referred to as payout or
annuity options.
MUTUAL FUND INVESTMENT OPTION. When you choose a mutual fund investment option,
we purchase shares of the mutual fund portfolio associated with that option. We
hold these shares in the Separate Account. The division of the Separate Account
is referred to in your contract as a subaccount.
PURCHASE PAYMENTS. The amount of money you pay us to purchase the contract.
Generally, you may make additional purchase payments at any time during the
accumulation phase.
PRUDENTIAL ANNUITY SERVICE CENTER. P.O. Box 14215, New Brunswick, New Jersey,
08906. The phone number is 1-888-PRU-2888.
REAL PROPERTY ACCOUNT. One of your variable investment options. It is a separate
account established by Prudential to invest, through a partnership, in
income-producing real property.
SEPARATE ACCOUNT. Purchase payments allocated to the mutual fund investment
options are held by Prudential in a separate account called the Prudential
Individual Variable Contract Account. The Separate Account is set apart from all
of the general assets of Prudential.
TAX DEFERRAL. This is a way to increase your assets without currently being
taxed. You do not pay taxes on your contract earnings until you take money out
of your contract.
VARIABLE INVESTMENT OPTIONS. The mutual fund investment options and the Real
Property Account.
ii
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
SUMMARY
FOR A MORE COMPLETE DISCUSSION OF THE FOLLOWING TOPICS, SEE THE CORRESPONDING
SECTION IN THE PROSPECTUS.
1. WHAT IS THE DISCOVERY(R) PLUS VARIABLE ANNUITY?
This variable annuity contract, offered by Prudential, is a contract
between you, as the owner, and us. The contract allows you to invest on a
tax-deferred basis in one or more of 13 mutual fund investment options which are
associated with portfolios of the Prudential Series Fund, Inc. ("Series Fund").
There is another variable investment option called the Variable Contract Real
Property Account ("Real Property Account") and a fixed interest-rate option. The
contract is intended for retirement savings or other long-term investment
purposes and provides for a death benefit and guaranteed income options.
The variable investment options are designed to offer the opportunity for
a better return than the fixed interest-rate option. However, this is NOT
guaranteed. It is possible, due to market changes, that your investments may
decrease in value.
The fixed interest-rate option offers an interest rate that is guaranteed.
While your money is in the fixed account, both the interest amount that your
money will earn and your principal amount is guaranteed by us.
You can invest your money in any or all of the variable investment options
and the fixed interest-rate option. You are always allowed at least four
transfers each contract year among the mutual fund investment options, without a
charge. There are certain restrictions on transfers involving the fixed
interest-rate option and the Real Property Account.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
grow on a tax-deferred basis and are taxed as income when you make a withdrawal.
The income phase starts when you choose to begin receiving regular payments from
your contract. The amount of money you are able to accumulate in your contract
during the accumulation phase will help determine the amount of payments you
will receive during the income phase. Other factors will affect the amount of
your payments such as age and the payout option you selected.
Discovery Plus may not be purchased by New York residents or by Oregon residents
in connection with tax favored plans.
FREE LOOK. If you change your mind about owning the Discovery Plus
contract, YOU MAY CANCEL YOUR CONTRACT WITHIN 10 DAYS AFTER RECEIVING IT (or
whatever time period is required in the state where the contract was issued).
OTHER CONTRACTS. This prospectus describes the Discovery Plus contract
which is currently offered for sale. There is an earlier version of the contract
which is no longer being offered. This earlier contract has different features
that are referred to throughout this prospectus. Owners of the previously
offered contract can find further information in the Statement of Additional
Information.
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
You can invest your money in any or all of the variable investment options
that are described in the prospectuses located at the end of this prospectus:
THE PRUDENTIAL SERIES FUND
The Prudential Series Fund, Inc. is a mutual fund made up of the following
portfolios. you may choose one or more of these portfolios as variable
investment options.
Conservative Balanced Portfolio
Diversified Bond Portfolio
Equity Income Portfolio
Equity Portfolio
Flexible Managed Portfolio
Global Portfolio
Government Income Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Natural Resources Portfolio
Prudential Jennison Portfolio
Small Capitalization Stock Portfolio
Stock Index Portfolio
1
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Real Property Account is a separate account established by Prudential
which, through a partnership, invests primarily in income-producing real
property
Depending upon market conditions, you may earn or lose money in any of
these options. The value of your contract will fluctuate depending upon the
investment performance of the Series Fund and the Real Property Account.
Performance information for the variable investment options is provided in the
Accumulation Unit Values chart on page 28 and in the Statement of Additional
Information (SAI). Past performance is not a guarantee of future results.
You can also put your money into a fixed interest-rate option.
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)
If you want to receive regular income from your annuity, you can choose
one of several options, including guaranteed payments for the annuitant's
lifetime. Once you begin receiving regular payments, you may not be able to
change your payment plan without receiving our prior consent.
4. WHAT IS THE 1% BONUS?
Prudential will add to your account an additional 1% of your purchase
payments during the first three years of your contract. Payment of the bonus
amount may be limited to $1,000 each contract year. After three years the
additional 1% may be added at Prudential's discretion. Also, the 1% will be
recaptured if you make a withdrawal within six contract years after making the
purchase payment.
5. HOW CAN I PURCHASE A DISCOVERY PLUS CONTRACT?
You can purchase this contract, under most circumstances, with a $10,000
initial purchase payment. You can add $1,000 or more at any time during the
accumulation phase of the contract (there are certain limitations for residents
of New York and Oregon). Your financial professional can help you fill out the
proper forms.
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY PLUS CONTRACT?
The contract has insurance features and investment features, and there are
costs related to each.
Each year we deduct a $30 contract maintenance charge if your contract
value is less than $10,000 on the contract anniversary. For insurance and
administrative costs, we also deduct an annual charge of 1.20% of the average
daily value of all assets allocated to the variable investment options. This
charge is not assessed against amounts allocated to the fixed interest-rate
investment option.
There are a few states/jurisdictions that assess a premium tax when you
begin receiving regular income payments from your annuity. In those states, we
will charge your contract for the required premium tax charge which currently
can range up to 5%.
The mutual fund investment options also have their own expenses that apply
to your investment. These annual expenses currently range from 0.37% to 0.86% of
the average daily value of the mutual fund. The expenses of the Real Property
Account investment option are substantially higher. See the Real Property
Account prospectus located at the back of this prospectus for further
information.
7. HOW CAN I ACCESS MY MONEY?
You may take money out at any time during the accumulation phase. Each
contract year you may withdraw your earnings plus up to 10% of your contract
value (calculated as of the date of the first withdrawal made in a contract
year), without charge. Withdrawals in excess of earnings plus 10% of your
contract value may be subject to a withdrawal charge. This charge initially is
7% but decreases 1% each contract year for the 4th, 5th and 6th years from the
date that purchase payment was made. After the 6th contract year, there is no
charge
2
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
for a withdrawal for that purchase payment. You may, however, be subject
to income tax and a tax penalty if you make an early withdrawal.
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY PLUS CONTRACT?
Your earnings are not generally taxed until withdrawn. If you take money
out during the accumulation phase, earnings are withdrawn first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings in addition to ordinary
taxation. A portion of the payments you receive during the income phase may be
considered partly a return of your original investment. As a result, that
portion of each payment is not taxable as income. Generally, all amounts
withdrawn from Individual Retirement Annuity contracts are taxable and subject
to the 10% penalty if withdrawn prior to age 59 1/2.
9. OTHER INFORMATION
This contract is issued by The Prudential Insurance Company of America,
and sold by representatives.
3
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
SUMMARY OF CONTRACT EXPENSES
The purpose of this summary is to help you to understand the costs you
will pay for the Discovery Plus contract. This summary includes the expenses of
the mutual funds used by the variable investment options but does not include
any charge for premium taxes that might be applicable in your state. More
detailed information can be found on page 13 under the section called, "What Are
The Expenses Associated With The Discovery Plus Contract?" For more detailed
expense information about the mutual funds, please refer to the prospectuses
located at the back of this prospectus.
TRANSACTION EXPENSES CONTRACT YEARS AFTER PURCHASE PAYMENT
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WITHDRAWAL CHARGE: Year 0 7% plus return of 1% bonus
(SEE NOTE 1 BELOW) Year 1 7% plus return of 1% bonus
Year 2 7% plus return of 1% bonus
Year 3 6% plus return of 1% bonus
Year 4 5% plus return of 1% bonus
Year 5 4% plus return of 1% bonus
After that ............... 0%
ANNUAL CONTRACT FEE
AND FULL WITHDRAWAL
FEE: ............................................ $30.00
(SEE NOTE 2 BELOW)
ANNUAL ACCOUNT EXPENSES
-----------------------
As a percentage of the average account value in the variable
investment options.
MORTALITY AND EXPENSE RISK:
AND ADMINISTRATIVE EXPENSE ..................... 1.20%
- --------------------------------------------------------------------------------
Note 1: Withdrawal charges are imposed only on purchase payments. You may
withdraw earnings without a charge. In addition, during any contract
year you may withdraw up to 10% of the total contract value (calculated
as of the date of the first withdrawal made that contract year) without
charge. There is no withdrawal charge on any withdrawals made under
the CRITICAL CARE ACCESS OPTION (see page 14) or on any amount used to
provide income under THE LIFE ANNUITY WITH 120 PAYMENTS (10 YEARS)
CERTAIN OPTION. (see page 12). Surrender charges are waived when a death
benefit is paid.
Note 2: This fee is only imposed if your contract value is less than $10,000 at
the time this fee is calculated.
4
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DISCOVERY(R) PLUS VARIABLE ANNUITY
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<CAPTION>
ANNUAL VARIABLE INVESTMENT OPTION EXPENSES
- -----------------------------------------------------------------------------------------
As a percentage of each option's average daily net assets:
INVESTMENT OTHER TOTAL
MANAGEMENT FEE EXPENSES EXPENSES
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Conservative Balanced Portfolio 0.55% 0.02% 0.57%
Diversified Bond Portfolio 0.40% 0.02% 0.42%
Equity Income Portfolio 0.40% 0.02% 0.42%
Equity Portfolio 0.45% 0.02% 0.47%
Flexible Managed Portfolio 0.60% 0.01% 0.61%
Global Portfolio 0.75% 0.11% 0.86%
Government Income Portfolio 0.40% 0.03% 0.43%
High Yield Bond Portfolio 0.55% 0.03% 0.58%
Money Market Portfolio 0.40% 0.01% 0.41%
Natural Resources Portfolio 0.45% 0.04% 0.49%
Prudential Jennison Portfolio 0.60% 0.03% 0.63%
Small Capitalization Stock Portfolio 0.40% 0.07% 0.47%
Stock Index Portfolio 0.35% 0.02% 0.37%
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</TABLE>
5
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
These examples will help you compare the fees and expenses of the different
variable investment options offered by the Discovery Plus contract You can also
use the examples to compare the cost of the Discovery Plus contract with other
variable annuity contracts.
- --------------------------------------------------------------------------------
EXAMPLE 1- IF YOU WITHDRAW YOUR ASSETS OR ANNUITIZE
Example 1 assumes that you invest $10,000 in the Discovery Plus contract and
that you allocate all of your assets to one of the variable investment options
and withdraw all your assets or annuitize at the end of the time period
indicated. (Certain annuity options will not be subject to withdrawal charges.
See "WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?"). The
example also assumes that your investment has a 5% return each year and that the
option's operating expenses remain the same. Your actual costs may be higher or
lower, but based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Conservative Balanced Portfolio $ 814 $ 1059 $ 1229 $ 2126
Diversified Bond Portfolio $ 798 $ 1012 $ 1151 $ 1963
Equity Income Portfolio $ 798 $ 1012 $ 1151 $ 1963
Equity Portfolio $ 804 $ 1028 $ 1177 $ 2018
Flexible Managed Portfolio $ 818 $ 1071 $ 1250 $ 2169
Global Portfolio $ 843 $ 1148 $ 1380 $ 2435
Government Income Portfolio $ 799 $ 1016 $ 1156 $ 1974
High Yield Bond Portfolio $ 815 $ 1062 $ 1235 $ 2137
Money Market Portfolio $ 797 $ 1009 $ 1145 $ 1952
Natural Resources Portfolio $ 806 $ 1034 $ 1187 $ 2040
Prudential Jennison Portfolio $ 820 $ 1078 $ 1261 $ 2191
Small Capitalization Stock Portfolio $ 804 $ 1028 $ 1177 $ 2018
Stock Index Portfolio $ 793 $ 997 $ 1124 $ 1908
- --------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The charges shown in the 10 year column are the same for Example 1 and Example
2. This is because after 6 years we no longer deduct withdrawal charges when you
make a withdrawal or when you begin the income phase of your contract.
6
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
EXAMPLE 2 - IF YOU DO NOT WITHDRAW YOUR ASSETS
Example 2 assumes that you invest $10,000 in the Discovery Plus contract and
allocate all of your assets to one of the variable investment options and DO NOT
WITHDRAW any of your assets at the end of the time period indicated. The example
also assumes that your investment has a 5% return each year and that the
option's operating expenses remain the same. Your actual costs may be higher or
lower, but based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Conservative Balanced Portfolio $ 184 $ 569 $ 979 $ 2126
Diversified Bond Portfolio $ 168 $ 522 $ 901 $ 1963
Equity Income Portfolio $ 168 $ 522 $ 901 $ 1963
Equity Portfolio $ 174 $ 538 $ 927 $ 2018
Flexible Managed Portfolio $ 188 $ 581 $ 1000 $ 2169
Global Portfolio $ 213 $ 658 $ 1130 $ 2435
Government Income Portfolio $ 169 $ 526 $ 906 $ 1974
High Yield Bond Portfolio $ 185 $ 572 $ 985 $ 2137
Money Market Portfolio $ 167 $ 519 $ 895 $ 1952
Natural Resources Portfolio $ 176 $ 544 $ 937 $ 2040
Prudential Jennison Portfolio $ 190 $ 588 $ 1011 $ 2191
Small Capitalization Stock Portfolio $ 174 $ 538 $ 927 $ 2018
Stock Index Portfolio $ 163 $ 507 $ 874 $ 1908
-------------------------------------------------------------------------------------------------
</TABLE>
These examples do not show past or future expenses. Actual expenses for a
particular year may be more or less than those shown in the examples.
- --------------------------------------------------------------------------------
Notes: (cont.) If your contract value is less than $10,000, on your contract
anniversary (and upon a surrender), we will deduct a $30 fee. The examples use
an average number as the amount of the annual contract fee. This amount was
calculated by taking the total annual contract fees collected in the preceding
calendar year and then dividing that number by the total assets allocated to the
variable investment options shown in the examples. Based on this calculation the
annual contract fee is included as an annual charge of 0.02% of contract value.
Your actual fees will vary based on the amount of your contract and your
specific allocation(s). A table of accumulation unit values of interests in each
variable investment option, appears under the caption "Other Information" in
this prospectus beginning on Page 22. Premium taxes are not reflected, in these
examples. Premium taxes may apply depending on the state where you live.
7
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
1. WHAT IS THE DISCOVERY(R) PLUS VARIABLE ANNUITY?
The Discovery Plus Variable Annuity is a contract between you, the owner, and
us, the insurance company, The Prudential Insurance Company of America
(Prudential, We or Us).
Under our contract or agreement, in exchange for your payment to us, we promise
to pay you a guaranteed income stream. The earliest annuity date you can choose
is the date of your first contract anniversary. Your annuity is in the
accumulation phase until you decide to begin receiving annuity payments. The
date you begin receiving annuity payments is the annuity date. On the annuity
date, your contract switches to the income phase.
This annuity contract generally benefits from tax deferral. Tax deferral means
that you are generally not taxed on earnings or appreciation on the assets in
your contract until you withdraw money from your contract.
Discovery Plus is a variable annuity contract. This means that during the
accumulation phase, you can allocate your assets among 13 variable investment
options which are portfolios of the Series Fund. There is another variable
investment option that invests in the Real Property Account, and a fixed
interest-rate option. If you select a variable investment option, the amount of
money you are able to accumulate in your contract during the accumulation phase
depends upon the investment performance of the variable investment option(s) you
have selected. Because the option fluctuate in value depending upon market
conditions, your assets can either increase or decrease in value. This is
important, since the amount of the annuity payments you receive during the
income phase depends upon the value of your contract at the time you begin
receiving payments.
As mentioned above, Discovery Plus also contains a guaranteed fixed
interest-rate option. This option offers an interest rate that is guaranteed by
us for one year and will always be at least 3.1% per year.
As the owner of the contract, you have all of the decision-making rights under
the contract. You will also be the annuitant unless you designate someone else.
The annuitant is the person who receives the annuity payments when the income
phase begins. The annuitant is also the person whose life is used to determine
how much the payments are and how long these payments will continue. On and
after the annuity date, the annuitant is the owner and may not be changed. The
beneficiary becomes the owner when a death benefit is payable.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued, unless you
change it at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before the annuitant (or, if a
co-annuitant has been named, any time before the last surviving annuitant dies).
Your written request to change beneficiary becomes effective when we approve it.
DEATH BENEFIT
If the annuitant dies during the accumulation phase, we will, upon receiving
appropriate proof of death, pay a death benefit to the beneficiary designated by
the contractowner.
If the annuitant dies during the accumulation phase the amount of the death
benefit will be the greater of: (a) the current value of the contract as of the
date we receive appropriate proof of death, or (b) the "minimum proceeds" which
is the total of all purchase payments plus any bonus credited by Prudential,
reduce proportionally by any withdrawals. The minimum proceeds amount may get a
one-time special increase on your sixth contract anniversary. If your contract
value on your sixth contract anniversary is greater than the minimum proceeds,
the minimum proceeds amount will be increased to equal the contract value as of
that date. After this, the minimum proceeds will be increased by additional
purchase payments and reduced proportionally for withdrawals. (This one-
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time potential increase in the minimum proceeds is not available for contracts
issued Texas.)
Here is an example of how the death benefit is calculated:
Suppose a contract owner had made purchase payments and was credited a bonus
totalling $100,000 but, due to unfortunate investment results, the contract
value had decreased to $80,000. The death benefit would be the minimum proceeds
or $100,000 because this is greater than the contract value. The minimum
proceeds amount, however, is reduced proportionally when you make a withdrawal
from the contract. If the contractowner had withdrawn 50% of the remaining
$80,000, the minimum proceeds would also have been reduced by 50%. Since the
minimum proceeds had been $100,000, it would now be $50,000.
A number of tax requirements apply to distributions upon an annuitant's death.
See the section titled "What are the Tax Considerations Associated with the
Discovery Plus Contract?" and the Statement of Additional Information for
details.
If the annuitant dies during the income phase, the death benefit, if any, is
determined by the type of annuity payment option you select.
SHORT TERM CANCELLATION RIGHT OR "FREE LOOK"
If you change your mind about owning the Discovery Plus contract, you may cancel
your contract within 10 days after receiving it (or whatever period is required
in the state where the contract was issued). You can request a refund by
returning the contract either to the representative who sold it to you, or to
the Prudential Annuity Service Center at the address shown on the first page of
this prospectus. You will receive, depending on applicable law:
o Your full purchase payment; or
o The amount your contract is worth as of the day we receive your request.
This amount may be more or less than your original payment
OTHER CONTRACTS
This prospectus describes the Discovery Plus contract which is currently offered
for sale. There is an earlier version of the contract which is no longer
offered. This earlier contract has different features that are referred to
throughout the prospectus. Owners of the previously offered contract can find
further information in the discussion contained in the Statement of Additional
Information.
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
The contract gives you the choice of allocating your purchase payments to any
one or more of 14 variable investment options or a fixed interest-rate option.
The variable investment options are invested in accounts which are managed by
Prudential. There is a separate prospectus for the Prudential Series Fund and
for the Real Property Account provided with this prospectus. YOU SHOULD READ THE
PRUDENTIAL SERIES FUND AND/OR REAL PROPERTY ACCOUNT PROSPECTUS BEFORE YOU DECIDE
TO ALLOCATE YOUR ASSETS TO THESE VARIABLE INVESTMENT OPTIONS.
VARIABLE INVESTMENT OPTIONS
The Prudential Series Fund, Inc.
The Prudential Series Fund, Inc. is managed by Prudential through another
company it owns called The Prudential Investment Corporation. The Prudential
Investment Corporation manages each of the portfolios of the Prudential Series
Fund except the Prudential Jennison Portfolio. For this portfolio, Prudential
Investment Corporation oversees another company owned by Prudential called
Jennison Associates Capital Corp. which provides the day to day investment
advisory services.
Listed below are the Prudential Series Fund portfolios which are available as
variable investment options. Each portfolio has a different investment
objective.
o Conservative Balanced Portfolio
o Diversified Bond Portfolio
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o Equity Income Portfolio
o Equity Portfolio
o Flexible Managed Portfolio
o Global Portfolio
o Government Income Portfolio
o High Yield Bond Portfolio
o Money Market Portfolio
o Natural Resources Portfolio
o Prudential Jennison Portfolio (domestic equity)
o Small Capitalization Stock Portfolio
o Stock Index Portfolio
The Prudential Variable Contract Real Property Account
The Real Property Account, 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 and other real
estate-related investments. The partnership is managed by Prudential.
FIXED INTEREST-RATE OPTION
We also offer a fixed interest-rate option. When you select this option, your
payment will earn interest at the established rate for a one year period. This
rate will always be at least 3.1% A new interest rate period is established
every time you allocate or transfer money into the fixed interest-rate option.
You may have money allocated in more than one interest rate period at the same
time. This could result in your money earning interest at different rates and
each interest rate period maturing at a different time.
TRANSFERS AMONG OPTIONS
Up to four times each contract year, you can transfer money among the mutual
fund investment options and from the mutual fund investment options to the fixed
interest-rate option and the Real Property Account. We are not currently
enforcing this limit, however, we may do so in the future if it becomes
necessary due to excessive transfer activity. Your transfer request may be made
by telephone or in writing to the Prudential Annuity Service Center. We have
procedures in place to confirm that instructions received by telephone are
genuine. We will not be liable for following telephone instructions that we
reasonably believe to be genuine. Your transfer request will take effect at the
end of the business day on which it was received.
YOU CAN MAKE TRANSFERS OUT OF THE FIXED INTEREST-RATE OPTION AND THE REAL
PROPERTY ACCOUNT ONLY DURING THE 30-DAY PERIOD FOLLOWING YOUR CONTRACT
ANNIVERSARY DATE.
The maximum amount you may transfer from the fixed interest rate option is
limited to the greater of:
o 25% of the amount allocated to the fixed interest-rate option, or
o $5,000.
The maximum amount you may transfer from the Real Property Account option is
limited to the greater of:
o 50% of the amount allocated to the Real Property Account, or
o $10,000.
DOLLAR COST AVERAGING
The Dollar Cost Averaging (DCA) feature allows you to systematically transfer a
percentage amount out of the money market variable investment option and into
any other variable investment option(s). You can transfer money to more than one
variable investment option. The investment option used for the transfers is
designated as the DCA account. These automatic transfers from the DCA account
can be made monthly. By allocating amounts on a regular schedule instead of
allocating the total amount at one particular time, you may be less susceptible
to the impact of market fluctuations.
When you establish your DCA account with your first purchase payment, you must
allocate either $10,000 or 10% of your purchase payment, whichever is greater,
to your DCA account. If you establish your DCA account at a later time, a
minimum of $10,000 is required. Once your DCA account is opened, as long as it
has a positive balance, you may allocate or transfer amounts to the DCA account
just as you would with any other investment option.
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Once established, your first transfer out of the account must be at least 3.0%
of your DCA account and the minimum amount you can transfer into any one
investment option is $20. Transfers will continue automatically until the entire
amount in your DCA account has been transferred or until you tell us to
discontinue the transfers. You can allocate subsequent purchase payments to
re-open the DCA account at any time.
Your transfers will be made on the last calendar day of each month, provided
that the New York Stock Exchange is open on that date. If the New York Stock
Exchange is not open on a particular transfer date, the transfer will take
effect on the next business day.
Any transfers you make because of Dollar Cost Averaging are not counted toward
the four transfers you are allowed per year. This feature is available only
during the contract accumulation phase.
VOTING RIGHTS
Prudential is the legal owner of the mutual fund shares associated with the
mutual fund investment options. However, we vote these shares according to
voting instructions we receive from contractowners. We will mail you a proxy
which is a form you need to complete and return to us to tell us how you wish us
to vote. When we receive those instructions, we will vote all of the shares we
own on your behalf in accordance with those instructions. We will vote the
shares for which we do not receive instructions, and any other shares that we
own, in the same proportion as the shares for which instructions are received.
We may change the way your voting instructions are calculated if it is required
by federal regulation.
SUBSTITUTION
We may substitute one or more of the Series Fund portfolios used by the mutual
fund investment options. We may also cease to allow investments in existing
portfolios. We would do this only if events such as investment policy changes or
tax law changes make the portfolio unsuitable. We would not do this without the
approval of the Securities and Exchange Commission and necessary state insurance
department approvals. You will be given specific notice in advance of any
substitution we intend to make.
OTHER CHANGES
We may also make other changes to such things as the minimum amounts for
purchases, transfers, and withdrawals. However, before imposing such changes we
will give you at least 90 days notice.
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)
PAYMENT PROVISIONS
Under the terms of the currently offered contract the annuitant can begin
receiving annuity payments any time after the first contract anniversary.
Annuity payments must begin no later than the contract anniversary that
coincides with or next follows the annuitant's 90th birthday (unless we agree to
another date). See the discussion contained in the Statement of Additional
Information for further details.
You may choose among the annuity options described below at any time before the
annuity date. All of the annuity options under this contract are fixed annuity
options. This means that your participation in the variable investment options
ends on the annuity date. At any time before your annuity date, you may ask us
to change the annuity date specified in your contract to another date. This
other date must be after the first contract anniversary or the beginning of the
month following the date we receive your request, whichever is later.
As indicated above, when you decide to begin receiving annuity payments, your
participation in the variable investment options end. The value of your contract
at that time, together with your choice of annuity option, will help determine
how much your income payments will be. You should be aware that depending on how
recently you made purchase payments, you may be subject to withdrawal charges
and the recapture of bonus payments when you annuitize. For certain annuity
options these withdrawal charges will be waived.
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If you have not selected an annuity option by the annuity date, the Interest
Payment Option (Option 2, described below) will automatically be selected unless
prohibited by applicable law. Application of contract value to Option 2 will
generally be taxed as a surrender of the contract.
OPTION 1. LIFE ANNUITY WITH 120 PAYMENTS (10 YEARS) CERTAIN
Under this option, we will make annuity payments to the annuitant monthly,
quarterly, semiannually, or annually as long as the annuitant is alive. If the
annuitant dies before we have made 10 years worth of payments, we will pay the
beneficiary the present value of the remaining certain period annuity payments
in one lump sum unless the annuitant has specifically instructed that the
remaining monthly annuity payments continue to be paid to the beneficiary. The
present value of the remaining certain period annuity payments is calculated by
using the interest rate used to compute the amount of the original 120 payments.
For the purpose of this calculation, the interest rate used will usually be 3.5%
a year.
OPTION 2. INTEREST PAYMENT OPTION
Under this option, you can choose to have us hold all or a portion of your
contract assets in order to accumulate interest. You can receive interest
payments on a monthly, quarterly, semiannual, or annual basis or you can allow
the interest to accrue on your contract assets. If you have not selected an
annuity option by the annuity date, this is the option we will automatically
select for you, unless prohibited by applicable law. Under this option, we will
pay you interest at an effective rate of at least 3.0% a year.
OPTION 3. OTHER ANNUITY OPTIONS
We currently offer a variety of other annuity options not described above. At
the time you choose to receive your annuity payments, we may make available to
you any of the annuity options that are offered at your annuity date.
Under certain of these options, we may waive withdrawal charges, the recapturing
of bonus payments and fees.
4. WHAT IS THE 1% BONUS?
During the first three contract years, we will add an additional 1% to every
purchase payment that you make. After that, we will add the 1% bonus at our
discretion. We may limit our payment of the bonus to $1,000 per contract year.
The bonus payment will be allocated to your contract based on the way your
purchase payment is allocated among the variable investment options and the
fixed interest-rate option.
The bonus amount will not be subject to the charge for premium taxes. We will,
however, take the bonus payments back if you make a withdrawal of a purchase
payment within six years of when the payment was made. The only exception would
be if you annuitize your contract in a way that is not subject to a withdrawal
charge or if you make a withdrawal under the Critical Care Access Option.
5. HOW CAN I PURCHASE A DISCOVERY PLUS CONTRACT?
PURCHASE PAYMENTS
A purchase payment is the amount of money you give us to purchase the contract.
The minimum purchase payment is $10,000. The Discovery Plus contract is not
available for purchase in New York. You can make additional purchase payments of
at least $1,000 or more at any time during the accumulation phase. If you are a
resident of New York, additional payments are a minimum of $10,000 and residents
of Oregon are not permitted to make any additional purchase payments. Certain
different terms apply to earlier versions of the contract. See the Statement of
Additional Information for details. You must get our approval for purchase
payments of $2 million or more.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment among the
variable investment options and the fixed interest-rate option based on the
percentages you choose. The percentage of your allocation to a specific
investment option can range in whole percentages from 10% to 100%. The minimum
subsequent allocation to a particular
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investment option must be at least 10% of your purchase payment. If you make
additional purchase payments, they will be allocated in the same way as your
most recent purchase payment, unless you tell us otherwise.
We will credit these purchase payments to your contract as of the end of the
business day on which the payment is received. Our business day closes, usually
at 4:15 p.m. Eastern time. If, however, your first purchase payment is made and
we do not have enough information to establish your contract, we may need to
contact you to request the required information. If we are not able to get this
information within five business days, we will either return your purchase
payment to you or get your consent to continue holding it until we receive the
necessary information.
CALCULATING CONTRACT VALUE
The value of the variable portion of your contract will go up or down depending
on the investment performance of the variable investment option(s) you choose.
To determine the value of your contract, we use a unit of measure called an
accumulation unit. An accumulation unit works like a share of a mutual fund.
Every day we determine the value of an accumulation unit for each of the
variable investment options. We do this by:
1. Adding up the total amount of money allocated to a specific investment
option;
2. Subtracting from that amount insurance charges and any other charges
such as taxes; and
3. Dividing this amount by the number of outstanding accumulation units.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited to your contract is determined
by dividing the amount of the purchase payment allocated to an investment option
by the unit price of the accumulation unit for that investment option. We
calculate the unit price for each investment option after the New York Stock
Exchange closes each day and then credit your contract. The value of the
accumulation units can increase, decrease, or remain the same from day to day.
The Accumulation Unit Values chart on page 28 of this prospectus gives you more
detailed information about the accumulation units of the mutual fund investment
options.
We cannot guarantee that the value of your contract will increase or that it
will not fall below the amount of your total purchase payments. However, we do
guarantee a minimum interest rate of 3.1% a year on that portion of the contract
allocated to the fixed interest-rate option.
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY PLUS CONTRACT?
There are charges and other expenses associated with the contract that reduce
the return on your investment. These charges and expenses are described below.
INSURANCE CHARGES
Each day, we make a deduction for insurance charges as follows:
1. Mortality and expense risk charge
2. Administrative expense charge
1. Mortality and Expense Risk Charge
The mortality risk charge is for assuming the risk that the annuitant(s) will
live longer than expected based on our life expectancy tables. When this
happens, we pay a greater number of annuity payments. The expense risk charge is
for assuming that the current charges will be insufficient in the future to
cover the cost of administering the contract.
The mortality and expense risk charge is equal, on an annual basis, to 1.00% of
the daily value of the contract invested in the variable investment options,
after expenses have been deducted. This charge is not assessed against amounts
allocated to the fixed interest-rate option.
If the charges under the contract are not sufficient, then we will bear the
loss. We do, however, expect to profit from this charge. The mortality and
expense risk charge cannot be increased. Any profits made from this charge may
be used by us to pay for the costs of distributing the contracts.
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2. Administrative Expense Charge
This charge is for the expenses associated with the administration of the
contract. The administration of the contract would include preparing and issuing
the contract, establishment and maintenance of the contract records,
confirmations, annual reports, personnel costs, legal and accounting fees,
filing fees, and systems costs.
This charge is equal, on an annual basis, 0.20% of the daily value of the
contract invested in the variable investment option, after expenses have been
deducted.
ANNUAL CONTRACT FEE
During the accumulation phase, if your contract value is less than $10,000 on
the contract anniversary date, we will deduct $30 each contract year. This
annual contract fee is used for administrative expenses and cannot be increased.
The $30 charge will be deducted proportionately from each of the investment
options that you have selected. This charge will also be deducted when you
surrender your contract if your contract value is less than $10,000 at that
time.
WITHDRAWAL CHARGE
During the accumulation phase you can make withdrawals from your contract. Your
withdrawal request will be processed as of the date it is received by us in good
order at the Prudential Annuity Service Center.
When you make a withdrawal, money will be taken first from your earnings. When
your earnings have been used up, then we will take the money from your purchase
payments. You will not have to pay any withdrawal charge when you withdraw your
earnings.
The withdrawal charge is for the payment of the expenses involved in selling and
distributing the contracts, including sales commissions, printing of
prospectuses, sales administration, preparation of sales literature and other
promotional activities.
You can withdraw earnings plus up to 10% of your total contract value
(calculated as of the date of the first withdrawal made that contract year)
without paying a withdrawal charge. This amount is referred to as the
"charge-free amount." During the first six contract years following a purchase
payment, if your withdrawal is more than the charge-free amount, a withdrawal
charge will be applied. For this purpose, we treat purchase payments as
withdrawn on a first-in, first-out basis.
The table below shows the withdrawal charges that would apply based on the
number of contract years since the purchase payment was made.
Contract Years After a Purchase Payment
0 .................................... 7%
1 .................................... 7%
2 .................................... 7%
3 .................................... 6%
4 .................................... 5%
5 .................................... 4%
After that ........................... 0%
Contract years 1-6 after purchase payment:
Return of Bonus......1%
BONUS RECAPTURE
The bonus amount will be deducted from your contract value if you withdraw a
purchase payment within six contract years after payment was made. This includes
withdrawals made for the purpose of annuitizing if withdrawal charges apply. If
you make a withdrawal six contract years or more after making the purchase
payment that was credited with the bonus, you can withdraw all or part of your
purchase payment and still retain the bonus amount.
CRITICAL CARE ACCESS
We will allow you to withdraw money from the contract and waive any withdrawal
and annual contract fee, if the annuitant or the last surviving co-annuitant (if
applicable) becomes confined to an eligible nursing home or hospital for a
period of at least three consecutive months. You would need to provide us with
proof of the confinement. If a physician has certified that the annuitant or
last surviving co-annuitant is terminally ill (has six months or less to live)
there will be no charge imposed for withdrawals. Critical Care Access is not
available in all states.
PREMIUM TAXES
Depending upon where you reside, it is possible that your annuity payments will
be subject to taxation by federal, state or municipal government agencies. We
are responsible for the payment of these taxes and will make a deduction from
the value of the contract
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to pay for them. It is our current practice not to deduct these taxes until
annuity payments begin. In the few states that impose a tax, the current rates
range up to 5.0%. If, in the future, we are charged for additional taxes that
are based upon purchase payments, that charge may be passed on to the
contractowner.
COMPANY TAXES
We will pay the taxes on the earnings of the Separate Account. We are not
currently charging the Separate Account for company taxes. We will periodically
review the issue of charging the Separate Account for company taxes and may
impose such a charge in the future.
7. HOW CAN I ACCESS MY MONEY?
You can access your money by:
o Making a withdrawal (either partial or complete); or
o Electing to receive annuity payments during the income phase.
When you make a complete withdrawal, you will receive the value of your
contract, less any applicable charges and fees as of the day we receive your
request at the Prudential Annuity Service Center in a form acceptable to us.
Unless you tell us otherwise, any partial withdrawal will be made
proportionately from all of the variable investment options as well as the fixed
interest-rate option, depending on which options you have selected. You will
have to receive our consent to make a partial withdrawal if the amount is less
than $500 or if as a result of the withdrawal, the value of your contract is
reduced to less than $500.
We will generally pay the withdrawal amount, less any required tax withholding,
within seven days after we receive a properly completed withdrawal request. We
will deduct applicable charges, if any, from the assets in your contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE. FOR A MORE COMPLETE EXPLANATION, SEE SECTION 8 OF THIS PROSPECTUS AND
THE TAX DISCUSSION IN THE STATEMENT OF ADDITIONAL INFORMATION.
AUTOMATED WITHDRAWALS
This contract offers an Automated Withdrawal feature. This feature enables you
to receive periodic withdrawals in monthly, quarterly, semiannual or annual
intervals. We will process your withdrawals of a specified dollar amount at the
end of the business day at the intervals you specify. We will continue at these
intervals until you tell us otherwise.
You can make withdrawals from any designated investment option or proportionally
from all investment options. Withdrawal charges may be deducted if the
withdrawals in any contract year are more than the charge-free amount.
INCOME TAXES AND A 10% PENALTY TAX ON EARNINGS MAY APPLY TO AUTOMATED
WITHDRAWALS.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments made in connection with
withdrawals or transfers for any period when:
1. The New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. Trading on the New York Stock Exchange is restricted;
3. An emergency exists during which sales of shares of the mutual funds
are not reasonable or We cannot reasonably value the accumulation
units; or
4. The Securities and Exchange Commission, by order, so permits
suspension or postponement of payments for the protection of owners.
We expect to pay the amount of any withdrawal or transfer made from the
investment options promptly upon request. We are, however, permitted to delay
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payment for up to 6 months on withdrawals from the fixed interest-rate option.
If we delay payment for more than 30 days, we will pay you interest at an
annualized rate of at least 3.1%.
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY PLUS CONTRACT?
The following discussion covers annuity contracts owned by individuals. The
discussion is general in nature and describes only federal income tax law (not
state or other tax laws). It is based on current law and interpretations which
may change. It is not intended as tax advice. You should consult a qualified tax
adviser for complete information and advice.
We believe the contract is an annuity contract for tax purposes. Accordingly, as
a general rule, you should not pay any tax until you receive money under the
contract.
TAXES PAYABLE BY YOU
Generally, annuity contracts issued to you by the same company (and affiliates)
to you during the same calendar year must be treated as one annuity contract for
purposes of determining the amount subject to tax under the rules described
below.
TAXES ON WITHDRAWALS AND SURRENDERS
o If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income,
rather than as return of purchase payments, until all gain has been
withdrawn.
o If you assign all or part of your contract as collateral for a loan, the
part assigned will be treated as a withdrawal. Also, if you elect the
interest payment option, you will be treated, for tax purposes as
surrendering your contract.
o If you transfer your contract for less than full consideration, such as by
gift, you will trigger tax on the gain in the contract. This rule does not
apply if you transfer the contract to your spouse or incident to divorce.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment you receive will be treated as a partial
return of your purchase payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the annuity payment you receive by a fraction, the
numerator of which is your purchase payments (less any amounts previously
received tax-free) and the denominator of which is the total expected payments
under the contract.
After the full amount of your purchase payments have been recovered tax-free,
the full amount of the annuity payments will be taxable. If annuity payments
stop due to the death of the annuitant before the full amount of your purchase
payments have been recovered, a tax deduction is allowed for the unrecovered
amount.
A lump sum payment taken in lieu of remaining annuity payments is not considered
an annuity payment for tax purposes. Any lump sum payment distributed to an
annuitant would be taxable as ordinary income and may be subject to a penalty
tax.
PENALTY TAXES ON WITHDRAWALS AND ANNUITY PAYMENTS
Any taxable amount you receive under your contract may be subject to a 10%
penalty tax. Amounts are not subject to this penalty tax if:
o the amount is paid on or after you reach age 59 1/2, or in the event of
your death;
o the amount received is attributable to your becoming disabled;
o the amount paid or received is in the form of level annuity payments not
less frequently than annually under a lifetime annuity; and
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o the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
If you modify the lifetime annuity payment stream (other than as a result of
death or disability) before you reach age 59 1/2 (or before the end of the
five-year period beginning with the first payment and ending after you reach
age 59 1/2), your tax for the year of modification will be increased by the
penalty tax that would have been imposed without the exception, plus interest
for the deferral.
TAXES PAYABLE BY BENEFICIARIES
Generally, the same tax rules apply to amounts received by your beneficiary as
those stated above with respect to you. The election of an annuity payment
option instead of a lump sum death benefit may defer taxes. Certain minimum
distribution requirements apply upon your death, as discussed further below.
WITHHOLDING OF TAX FROM DISTRIBUTIONS
Taxable amounts distributed from your annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments.
ANNUITY QUALIFICATION
DIVERSIFICATION AND INVESTOR CONTROL
In order to qualify for the tax rules applicable to annuity contracts described
above, the contract must be an annuity contract for tax purposes. This means
that the assets underlying the annuity contract must be diversified, according
to certain rules. For further information on diversification requirements, see
DIVIDENDS, DISTRIBUTIONS AND TAXES in the attached prospectus for the Series
Fund. It also means that Prudential, and not you as the contractowner, must have
sufficient control over the underlying assets to be treated as the owner of the
underlying assets for tax purposes. We believe these requirements will be met.
REQUIRED DISTRIBUTIONS UPON YOUR DEATH
Upon your death (or the death of a joint owner, if earlier), certain
distributions must be made under the contract. The required distributions depend
on whether you die before you start taking annuity payments under the contract
or after you start taking annuity payments under the contract.
If you die 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 you die before the annuity date, the entire interest in the contract must be
distributed within five years after the date of death. However, if an annuity
payment option is selected by your designated beneficiary and if annuity
payments begin within 1 year of your death, the value of the contract may be
distributed over the beneficiary's life or a period not exceeding the
beneficiary's life expectancy. Your designated beneficiary is the person to whom
ownership of the contract passes by reason of death. and must be a natural
person.
If any portion of the contract is payable to (or for the benefit of) your
surviving spouse, such portion of the contract may be continued with your spouse
as the owner.
CHANGES IN THE CONTRACT
We reserve the right to make any changes we deem necessary to assure that the
contract qualifies as an annuity contract for tax purposes. Any such changes
will apply to all contractowners and you will be given notice to the extent
feasible under the circumstances.
ADDITIONAL INFORMATION
You should refer to the Statement of Additional Information if:
o The contract is held by a corporation or other entity instead of by an
individual or as agent for an individual.
o Your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982.
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o You wish additional information on withholding taxes.
o You are a nonresident alien.
o You transfer your contract to, or designate, a beneficiary who is either
37 1/2 years younger than you or a grandchild.
TAXES PAID BY PRUDENTIAL
Although the separate account is registered as an investment company, it is not
a separate taxpayer for purposes of the Internal Revenue Code. The earnings of
the separate account are taxed as part of the operations of Prudential. No
charge is currently being made against the separate account for company federal
income taxes. We will periodically review the question of charging the separate
account for company federal income taxes. 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 separate account. If there
is a material change in applicable state or local tax laws, the taxes paid by
Prudential that are attributable to the separate account may result in a
corresponding charge against the separate account.
CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS
You may purchase the contract for use in connection with various retirement
arrangements entitled to favorable federal income tax treatment ("tax favored
plans"). These are individual retirement accounts and annuities ("IRAs"),
simplified employee pension plans ("SEPs"), tax deferred annuities ("TDAs"),
deferred compensation plans of state and local governments and tax exempt
organizations ("Section 457 Plans"), and employer-sponsored, tax-qualified
pension, profit sharing and annuity plans.
Such plans, accounts, and annuities must satisfy certain requirements in order
to be entitled to the federal income tax benefits accorded to these plans. A
discussion of these requirements is beyond the scope of this prospectus, and it
is assumed that such requirements are met with respect to a contract purchased
for use in connection with a tax-favored plan. This contract is no longer
available in connection with any tax favored plans in Oregon. This discussion
does apply to tax-favored contracts previously issued to Oregon residents.
In general, assuming the applicable requirements and limitations of tax law are
satisfied, purchase payments (other than after-tax employee payments) under the
contract will be deductible (or not includible in income) up to certain amounts
each year. In addition, tax will not be imposed on the investment income and
realized gains of the subaccounts in which the purchase payments have been
invested until a distribution is received. If you are contemplating the purchase
of a contract in connection with a tax favored plan, you should consult your tax
adviser before purchasing a contract for such purposes.
The comments that follow concerning specific tax favored plans are intended
merely to call attention to certain of their features. No attempt has been made
to discuss in full the tax ramifications involved or to offer tax advice. As
suggested above, you should consult a qualified tax adviser for advice and
answers to any questions.
PLANS FOR SELF-EMPLOYED INDIVIDUALS
For self-employed individuals who establish qualified plans, contributions are
deductible within the limits prescribed by the Internal Revenue Code. Annual
deductible contributions cannot exceed the lesser of $30,000 or 25% of "earned
income." For this purpose, "earned income" is computed after the deduction for
contributions to the plan is considered.
Under these plans, payments are subject to certain minimum distribution
requirements, and generally must begin by April 1 of the calendar year
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DISCOVERY(R) PLUS VARIABLE ANNUITY
following the later of the calendar year in which the employee (1) attains age
70 1/2, or (2)retires.
IRAS
If you receive certain qualifying distributions from a qualified pension or
profit-sharing plan, TDA or IRA, you may, within 60 days, transfer all or any
part of the amount of such distribution to an IRA as a tax-free "rollover."
Additionally, if you are the spouse of a deceased employee, you may roll over to
an IRA certain distributions you received from a qualified pension or profit
sharing plan, TDA or IRA because of the employee's death.
Because the contract's minimum initial payment of $10,000 is greater than the
maximum annual contribution permitted to be made to an IRA (generally, $2,000),
you may purchase a contract as an IRA only in connection with a "rollover" of
the proceeds of a qualified plan, TDA or IRA. In order to qualify as an IRA, a
contract (or a rider made a part of the contract) must contain certain
additional provisions:
o the owner of the contract must be the annuitant, except when a transfer is
made to a former spouse in accordance with a divorce decree;
o the rights of the owners cannot be forfeitable;
o the contract may not be sold, assigned, discounted or pledged for any
purpose to any person except Prudential;
o except in the case of a "rollover" contribution, the annual premium may not
exceed $2,000;
o generally, the annuity date may be no later than April 1st of the calendar
year following the calendar year in which the annuitant attains age 70 1/2;
and
o annuity and death benefit payments must satisfy certain minimum
distribution requirements.
Contracts issued as IRAs will conform to such requirements.
Note that the requirements for a Roth IRA differ substantially from the
requirements for a traditional IRA described above. Contracts will not be issued
as Roth IRAs.
SEPS
Under a SEP, annual employer contributions to an IRA established by an employee
are not includible in income up to the lesser of $30,000 or 15% of the
employee's earned income (excluding the employer's contribution to the SEP). In
addition, a SEP must satisfy certain minimum participation requirements and
contributions may not discriminate in favor of highly compensated employees.
Contracts issued as IRAs established under a SEP must satisfy the requirements
described above for an IRA.
Certain SEP arrangements are permitted to allow employees to elect to reduce
their salaries by as much as $10,000 (in 1998, as indexed) and have their
employer contribute on their behalf to the SEP. These arrangements, called
salary reduction SEPs, are available only if the employer maintaining the SEP
has 25 or fewer employees and at least 50% of the eligible employees elect to
make salary reduction contributions. Other limitations may reduce the
permissible contribution level for highly compensated employees. New Salary
Reduction SEPs may not be established after 1996.
DISCLOSURE AND "FREE LOOK"
If you purchase a contract used as an IRA, including one established under a SEP
arrangement, you will be given disclosure material prepared by Prudential. The
material includes this prospectus, a copy of the contract, and a brochure
containing information about eligibility, contribution limits, tax consequences,
and other particulars concerning IRAs.
You must be given a "free look" after making an initial contribution in which to
affirm or reverse your decision to participate. Therefore, within the free look
period, you may cancel your Contract by notifying Prudential in writing, and
Prudential will refund the purchase payments under the contract or, if greater,
the amount credited under the contract (less any bonus) computed as of the
valuation
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period that Prudential receives the notice for cancellation. See SHORT-TERM
CANCELLATION RIGHT OF "FREE LOOK," page 9.
TDAS
Tax law permits employers and employees of Section 501(c)(3) tax-exempt
organizations and public educational organizations to make, subject to certain
limitations, contributions to an annuity in which the employee's rights are
nonforfeitable (commonly referred to as a "tax deferred annuity" or "TDA"). The
amounts contributed under a TDA and earnings thereon are not taxable as income
until distributed as annuity income or otherwise.
Generally, contributions to a TDA may be made through a salary reduction
arrangement up to a maximum of $10,000 (in 1998, as indexed). However, under
certain special rules, the limit could be increased as much as $3,000. In
addition, the Internal Revenue Code permits certain total distributions from a
TDA to be "rolled over" to another TDA or IRA. Certain partial distributions
from a TDA may be "rolled over" to an IRA.
An annuity contract will not qualify as a TDA, unless under such contract,
distributions from salary reduction contributions and earnings thereon (other
than distributions attributable to assets held as of December 31, 1988) may be
paid only on account of attainment of age 59 1/2, severance of employment,
death, total and permanent disability and, in limited circumstances, hardship.
(Such hardship withdrawals are permitted, however, only to the extent of salary
reduction contributions and not earnings thereon.)
The withdrawal restrictions referred to above do not apply to the transfer of
all or part of a contract owner's interest in his or her contract among the
available investment options offered by Prudential or to the direct transfer of
all or part of the contract owner's interest in the contract to a TDA of another
insurance company or to a mutual fund custodial account under Section 403(b)(7)
of the Internal Revenue Code. In imposing the restrictions on withdrawals as
described above, Prudential is relying upon a no-action letter dated November
28, 1988 from the Chief of the Office of Insurance Products and Legal Compliance
of the Securities and Exchange Commission to the American Council of Life
Insurance.
Employer contributions are subject generally to the same coverage, minimum
participation and nondiscrimination rules applicable to qualified pension and
profit-sharing plans. Distributions from a TDA generally must commence by April
1 of the calendar year following the later of the calendar year in which the
employee (1) attains age 70 1/2; or (2) retires. Distributions must satisfy
minimum distribution requirements similar to those that apply to qualified plans
generally.
ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE OR LOCAL GOVERNMENTS AND TAX
EXEMPT ORGANIZATIONS
A contract may be used to fund an eligible deferred compensation plan of a state
or local government or a tax-exempt organization (commonly called a "Section 457
Plan"). The amounts contributed under such plans and increments thereon are not
taxable as income until distributed or otherwise made available to the employee
or other beneficiary. However, if the tax law requirements are not met,
employees may be required to include in gross income all or part of the
contributions and earnings thereon.
Assets of deferred compensation plans are generally part of the employer's
general assets. However, governmental employers are required to hold assets in a
trust, annuity contract or custodial account. Contributions generally may not
exceed the lesser of $8,000 (in 1998, as indexed) or 33 1/3% of the employee's
compensation.
Generally, distributions must begin by April 1 of the calendar year following
the later of the calendar year in which the employee (1) attains age 70 1/2; or
(2) retires. Distributions are subject to special minimum distribution rules in
addition to the minimum distribution requirements for qualified plans. Rollovers
are not permitted (other than between Section 457 Plans).
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QUALIFIED PENSION AND PROFIT SHARING PLANS
A contract may be used to fund a qualified pension or profit-sharing plan. The
plan itself must satisfy the coverage, minimum participation, nondiscrimination,
minimum distribution, and all other requirements applicable generally to
qualified pension and profit-sharing plans. The Internal Revenue Code also
imposes dollar limitations on contributions that may be made to or benefits that
may be received from a qualified pension or profit-sharing plan (including a
limitation of $10,000 (in 1998 as indexed) on the amount that an employee may
contribute through a "401(k) plan"). Generally, distributions from a qualified
plan must begin by April 1 of the calendar year following the later of the
calendar year in which the employee (1) attains age 70 1/2; or (2) retires.
Distributions are subject to certain minimum distribution requirements.
MINIMUM DISTRIBUTION OPTION
The Minimum Distribution Option is a program available with IRA and SEP
programs. It enables the client to satisfy IRS minimum distribution
requirements, without having to annuitize or cash surrender their contracts.
Distributions from traditional IRAs and SEPs must begin by April 1 of the year
following attainment of age 70 1/2. Each year until the maturity date,
Prudential will recalculate the minimum amount that you are required to withdraw
from your IRA or SEP. We will send you a check for the minimum distribution
amount less any partial withdrawals made during the year. Our calculations are
based solely on the cash value of the contract on the last day of the prior
calendar year. If you have other IRA accounts, you will be responsible for
taking the minimum distribution from each account.
PENALTY FOR EARLY WITHDRAWALS
A 10% penalty tax will generally apply to the taxable part of distributions
received from an IRA, SEP, SIMPLE (25% penalty in certain situations), TDA, and
qualified retirement plans before age 59 1/2. Limited exceptions are provided,
such as where amounts are paid in the form of a qualified life annuity, upon
death or disability of the employee, to pay certain medical expenses, or, in
some cases, upon separation from service on or after the attainment of age 55.
WITHHOLDING
Certain distributions from qualified retirement plans and TDAs will be subject
to mandatory 20% withholding unless the distribution is an eligible rollover
distribution that is "directly" rolled over into another qualified plan, TDA or
IRA. Unless you elect otherwise, the portion of any taxable amounts received
under the contract will be subject to withholding to meet federal income tax
obligations.
The rate of withholding on annuity payments where mandatory withholding is not
required will be determined based on the withholding certificate you may file
with Prudential. For payments not subject to mandatory withholding, if no such
certificate is filed, the contract owner will be treated 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 out of withholding, Prudential will withhold from every
withdrawal or annuity payment the appropriate percentage from the amount of the
payment that is taxable. Prudential will provide forms and instructions
concerning the right to elect that no amount be withheld from payments.
Recipients who elect not to have withholding are liable for payment of federal
income taxes on the taxable portion of the distribution. All recipients may be
subject to penalties under the estimated tax payment rules if withholding and
estimated tax payments are not sufficient. Recipients who do not provide a
social security number or other taxpayer identification number will not be
permitted to elect out of withholding. Special withholding rules apply to
nonresident aliens. Generally, there will be no withholding for taxes until
payments are actually received under the Contract. Distributions to
contractowners under Section 457 Plans are treated as the payment of wages for
federal income tax purposes and thus are subject to the general withholding
requirements.
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INTERESTED PARTY DISCLOSURE
The Employee Retirement Income Security Act of 1974 ("ERISA") prevents a
fiduciary with respect to a pension or profit-sharing plan from receiving any
benefit from any party dealing with the plan as a result of the sale of the
contract (other than benefits that would otherwise be provided in the plan).
Administrative exemptions issued by the IRS and the Department of Labor permit
transactions between insurance agents and qualified pension and profit sharing
plans and with SEP IRAs. To be able to rely on the exemption, certain
information must be disclosed to the plan fiduciary. The information that must
be disclosed includes the relationship between the agent and the insurer, a
description of any charges, fees, discounts, penalties or adjustments that may
be imposed in connection with the purchase, holding, exchange or termination of
the contract, as well as the commissions received by the agent. Information
about any applicable charges, fees, discounts, penalties or adjustments may be
found under WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY PLUS CONTRACT,
page 13. Information about sales representatives and commissions may be found
under SALE OF THE CONTRACT AND DISTRIBUTOR, page 23.
In addition to disclosure, other conditions apply to the use of the exemption.
For example, a plan fiduciary may not be a partner or employee of the Prudential
representative making the sale. The fiduciary must not be a relative of the
representative (including spouse, direct descendant, spouse of a direct
descendant, ancestor, brother, sister, spouse of a brother or sister). The
representative may not be an employee, officer, director or partner of either
the independent fiduciary or the employer establishing the plan. No relative of
the representative may: (1) control, directly or indirectly, the corporation
establishing or maintaining the plan; (2) be either a partner with a 10% or more
interest in the partnership or the sole proprietor establishing or maintaining
the plan; or (3) be an owner of a 5% or more interest in a Subchapter S
Corporation establishing or maintaining the plan. In addition, no affiliate
(including relatives) of the representatives may be a trustee, administrator or
a fiduciary with written authority to acquire, manage or dispose of the assets
of the plan.
ADDITIONAL ERISA REQUIREMENTS
If your retirement arrangement is part of a plan governed by ERISA, additional
requirements such as spousal consent to distributions may be necessary. Consult
the terms of your retirement arrangement.
9. OTHER INFORMATION
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 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. Prudential is subject to the insurance laws and
regulations of all states where it is licensed to do business.
Prudential is currently considering reorganizing itself into a publicly traded
stock company through a process known as "demutualization". On February 10,
1998, the company's Board of Directors authorized management to take the
preliminary steps necessary to allow the company to demutualize. On July 1,
1998, legislation was enacted in New Jersey that would permit this conversion to
occur and that specified the process for conversion. Demutualization is a
complex process involving development of a plan of reorganization, adoption of a
plan by the company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval. This process could take two or more years
to complete. Prudential's management and Board of Directors have not yet
determined to demutualized and it is possible that, after careful review,
Prudential could decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and methodology for allocating
shares or other consideration to those who would be eligible. Generally, the
amount of
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DISCOVERY(R) PLUS VARIABLE ANNUITY
shares or other consideration eligible customers would receive would be based on
a number of factors, including the types, amounts and issue years of their
policies. As a general rule, owners of Prudential-issued insurance policies and
annuity contracts would be eligible, while mutual fund customers and customers
of the company's subsidiaries, would not be. It has not yet been determined
whether any exceptions to that general rule will be made with respect to
policyholders and contractowners of Prudential's subsidiaries.
THE SEPARATE ACCOUNT
We have established a separate account, the Prudential Individual Variable
Contract Account ("Separate Account"), to hold the assets that are associated
with the contracts. The Separate Account was established under New Jersey law on
October 12, 1982, and is registered with the U.S. Securities and Exchange
Commission under the Investment Company Act of 1940, as a unit investment trust,
which is a type of investment company. The assets of the Separate Account are
held in the name of Prudential and legally belong to us. These assets are kept
separate from all of our other assets and may not be charged with liabilities
arising out of any other business we may conduct. More detailed information
about Prudential, including its consolidated financial statements, are provided
in the Statement of Additional Information.
THE REAL PROPERTY ACCOUNT
The Prudential Variable Contract Real Property Account ("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,
hotel, apartments or industrial properties. It also invests in mortgage loans
and other real estate related investments.
A full description of the Real Property Account, its management, policies, and
restrictions, its charges and expenses, the investment risks, 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. Any
contractowner considering the real estate investment option should read the
attached prospectus for the Real Property Account, together with this
prospectus.
SALE OF THE CONTRACT AND DISTRIBUTOR
Currently, Pruco Securities Corporation ("Prusec") acts as the distributor of
the contracts. Prusec is a wholly-owned subsidiary of Prudential. Prudential
expects that at some time during 1999 Prusec's responsibilities as distributor
will be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS
is also a wholly-owned subsidiary of Prudential and is a limited liability
corporation organized under Delaware law in 1996. 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.
Commissions for the sales of contracts are paid to Prudential financial
professionals and to other independent broker-dealers who sell the contracts.
Registered representatives of independent broker-dealers may be paid on a
different basis than those affiliated with Prusec. 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 be more than 6.0% of the
purchase payment.
ASSIGNMENT
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice. We will not be liable
for any payment or other action we take in accordance with the contract if that
action occurs before we receive notice of the assignment. Under certain
circumstances we must AN ASSIGNMENT, LIKE ANY OTHER CHANGE IN OWNERSHIP, MAY
TRIGGER A TAXABLE EVENT.
If the contract is issued under a qualified plan, there may be limitations on
your ability to assign the contract. For further information please speak to
your financial professional.
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EXCHANGE OFFER FOR CERTAIN CONTRACT OWNERS
Subject to regulatory approval, we may permit Contract owners under certain
qualified plans to exchange their Contracts for certain mutual funds or variable
annuity contracts.
MUTUAL FUND OFFER. Subject to regulatory approval, if the qualified plan has $1
million or more invested in one or more Contracts, we may permit the Contract
owners to exchange their Contracts for shares of certain mutual funds managed by
Prudential Funds Investment Management LLC, a wholly-owned subsidiary of
Prudential. We will not charge any fee at the time of the exchange. We will
waive the following charges that might otherwise be applicable to a withdrawal
or surrender of the Contract: the sales charge on withdrawal, the recapture of
additional amounts, and the annual administrative charge. In addition, the
mutual funds waive any sales charge that would usually be imposed on the
purchase of the mutual fund shares. The plan sponsor, not the participants, may
be required to agree to make a payment approximating the Contract's sales charge
if the plan terminates its recordkeeping with Prudential and/or makes certain
withdrawals from the funds while the Contract's sales charge would have been in
effect. Before deciding to make any exchanges, you should carefully read the
prospectus for the mutual funds you are considering. The mutual funds are not
variable annuity contracts like the Contracts, and therefore any investment in
the mutual funds does not come with the same features as the Contracts, such as
the death benefit and the right to effect an annuity.
GROUP DISCOVERY SELECT OFFER. We may permit the Contractowners to exchange their
contracts for Discovery Select Group Variable Annuity Contracts ("Group
Discovery Select") issued by Prudential. In general, this offer will be
available only to contractowners that are part of a qualified plan with 25 or
more participants. We may, however, make the offer available to certain group
plans using a single contract, even if the plan has fewer than 25 participants.
Group Discovery Select provides 22 investment options, some of which are managed
by a Prudential affiliate and some of which are managed by unaffiliated
advisors. We will not charge any fee at the time of the exchange. We will waive
the following charges that might otherwise be applicable to a withdrawal or
surrender of the contract: the sales charge on withdrawal, the recapture of
additional amounts, and the annual administrative charge. Contractowners
switching to Group Discovery Select will be subject to the charges under Group
Discovery Select, including the withdrawal charge. For purposes of that charge,
years of participation in the contract will be counted as years of participation
in Group Discovery Select. Before deciding to make any exchange, you should
carefully read the prospectus for Group Discovery Select and the prospectuses
for the investment options you are considering.
REQUIREMENTS. We will determine, in our sole discretion, to whom an exchange
offer will be made, the time period during which the exchange offer will be in
effect, and when to terminate an exchange offer. We may establish fixed periods
of time for exchanges under a particular contract or group of contracts (a
"window") of at least 60 days in length. These exchange offers are subject to
termination and their terms are subject to change.
TAXES. There should be no adverse tax consequences if a participant in a
qualified retirement arrangement, in a deferred compensation plan under Section
457 or in an individual retirement account under Section 408 of the Internal
Revenue Code elects to exchange from a Contract to Discovery Select or to mutual
funds. For 403(b) plans, exchanges from a Contract to a mutual fund will be
effected from a 403(b) annuity contract to a 403(b)(7) custodial account so that
the transaction will not constitute a taxable distribution. However, 403(b)
participants should be aware that the Internal Revenue Code may impose more
restrictive rules on early withdrawals from Section 403(b)(7) custodial accounts
than from annuity contracts.
DEMUTUALIZATION. If the plan sponsor or participants exchange a contract and if
Prudential demutualizes in the future, the contractowner might not receive
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consideration it might otherwise have received or the amount of the
consideration received could be smaller than had the contract not been
exchanged. As a general rule, owners of Prudential-issued insurance policies and
annuity contracts would be eligible, while mutual fund customers and customers
of the company's subsidiaries would not be. Decisions regarding the exchange of
contracts should be based on the desire for the features of the new product as
well as your insurance needs, and not on Prudential's potential demutualization.
See pages 22-23.
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 Settlement was appealed to the United States Court of Appeals for the
Third Circuit, which upheld the district court's approval of the Stipulation of
Settlement on July 23, 1998. The Supreme Court denied certiorari in January
1999, thereby making final the approval of the class action settlement.
Pursuant to the Settlement, Prudential agreed to provide and has been
implementing an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance Contracts. As of December 31, 1998, based on an analysis of claims
actually remedied, a sample of claims still to be remedied, and estimates of
additional liabilities associated with the ADR program, management estimated the
cost, before taxes, of remedying policyholder claims in the ADR process to be
approximately $2.56 billion. While management believes these to be reasonable
estimates based on available information, the ultimate amount of the total cost
of remedied policyholder claims and other related costs is dependent on complex
and varying factors, including the relief options still to be chosen by
claimants, the dollar value of those options, and the number and type of claims
that may successfully be appealed.
In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class Settlement.
Prudential's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted with precision. 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 the matters specifically discussed above.
Management believes, however, that the ultimate resolution of all such matters,
after consideration of applicable reserves, should not have a material adverse
effect on Prudential's financial position.
YEAR 2000 COMPLIANCE
THE YEAR 2000 ISSUE
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The services provided to you as a purchaser of the Discovery Plus contract
depend on the smooth functioning of numerous computer systems. Many computer
systems in use today are programmed to recognize only the last two digits of a
date as the year. As a result, any systems using this kind of programming can
not distinguish a date using "00" and may treat it as "1900" instead of "2000."
This problem may impact computer systems that store business information, but it
could also affect other equipment used in our business like telephone, fax
machines and elevators. If this problem is not corrected, the "Year 2000" issue
could affect the accuracy and integrity of business records. Prudential's
regular business operations could be interrupted as well as those of other
companies that deal with us.
In addition, the operations of the mutual fund associated with the Discovery
Plus contract could experience problems resulting from the Year 2000 issue.
Please refer to the mutual fund prospectus for information regarding their
approach to Year 2000 concerns. The following describes Prudential's effort to
address Year 2000 concerns. To address this potential problem Prudential
organized its Year 2000 efforts around the following three areas:
o BUSINESS SYSTEMS - Computer programs directly used to support our business;
o INFRASTRUCTURE - Computers and other business equipment like telephones and
fax machines; and
o BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
BUSINESS SYSTEMS. The business systems component includes a wide range of
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and full
implementation is expected by June, 1999.
INFRASTRUCTURE. As with business applications, we established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers, and vendor
hardware and software. With some exceptions almost all of these systems have
been thoroughly addressed. Presently, a small number of midrange computers and
building and facility systems are still in the testing phase. We expect to have
the infrastructure process completed by June, 1999.
BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
2000 readiness of external business relationships especially those that involve
electronic data transfer products and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business, and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
completed. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by September,
1999. If there are any delays, they should not have a significant impact on the
timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
26
<PAGE>
DISCOVERY(R) PLUS VARIABLE ANNUITY
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of the Discovery Plus contract.
During the course of the Year 2000 program, some optional computer projects have
been delayed, but these delays have not had any material effect on the Discovery
Plus contract.
YEAR 2000 RISKS AND CONTINGENCY PLANNING Prudential believes that it is well
positioned to lessen the impact of the Year 2000 problem. However, given the
nature of this issue, we can not be 100% certain that we are completely
prepared, particularly because we cannot be certain of Year 2000 readiness of
third parties. As a result, we are unable to determine at this time whether the
consequences of Year 2000 failures will have a material adverse effect on the
results of Prudential's operations, liquidity or financial condition. In the
worst case, it is possible that a Year 2000 technology failure, whether internal
or external, could have a material impact on Prudential's results of operations,
liquidity, or financial position. If Prudential is unable to address the Year
2000 problem, we may have difficulty in responding to your incoming phone calls,
calculating your unit values or processing withdrawals and purchase payments. It
is also possible that the portfolio managers will not be able to buy or sell
securities either in the United States or overseas. The objective of
Prudential's Year 2000 program has been to reduce these risks as much as
possible.
Most of the operations of the Discovery Plus contract involve such a large
number of individual transactions that they can only be handled with the help of
computers. As a result, our current contingency plans include responses to the
failure of specific business programs or infrastructure components. However, our
contingency responses are now being reviewed and we expect to finalize them by
June, 1999 to ensure that they are workable under the special conditions of a
Year 2000 failure. Prudential believes that with the completion of its Year 2000
program as scheduled, the possibility of significant interruptions of normal
operations will be reduced.
FINANCIAL STATEMENTS
The consolidated financial statements of Prudential and Subsidiaries and the
Separate Account associated with the Discovery Plus contract are included in the
Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
CONTENTS:
o Company
o Directors and Officers
o Further Information regarding Previously
Offered Discovery Plus Contracts
o Distribution of the Contract
o Participation in Divisible Surplus
o Performance Information
o Legal Opinions
o Experts
o Federal Tax Status
o Financial Information
27
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(CONDENSED FINANCIAL INFORMATION)
SUBACCOUNTS
----------------------------------------------------------------
MONEY MARKET
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.092 $ 2.008 $ 1.931 $ 1.847
2. Accumulation unit value at end of period................ 2.179 2.092 2.008 1.931
3. Number of accumulation units outstanding at
end of period......................................... 102,190,340 100,713,122 133,461,350 132,240,079
----------------------------------------------------------------
<CAPTION>
DIVERSIFIED BOND
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 3.208 $ 2.990 $ 2.899 $ 2.430
2. Accumulation unit value at end of period................ 3.397 3.208 2.990 2.899
3. Number of accumulation units outstanding at
end of period................ ........................ 49,189,967 54,997,472 63,529,814 62,158,709
----------------------------------------------------------------
<CAPTION>
EQUITY
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 6.996 $ 5.680 $ 4.850 $ 3.738
2. Accumulation unit value at end of period................ 7.559 6.996 5.680 4.850
3. Number of accumulation units outstanding at
end of period.......................................... 130,737,945 159,618,134 176,617,231 187,580,951
----------------------------------------------------------------
<CAPTION>
FLEXIBLE MANAGED
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 4.540 $ 3.895 $ 3.469 $ 2.828
2. Accumulation unit value at end of period................ 4.944 4.540 3.895 3.469
3. Number of accumulation units outstanding at
end of period......................................... 107,776,121 128,050,185 140,908,132 135,760,708
<CAPTION>
----------------------------------------------------------------
MONEY MARKET
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.796 $ 1.766 $ 1.722 $ 1.641
2. Accumulation unit value at end of period................ 1.847 1.796 1.766 1.722
3. Number of accumulation units outstanding at
end of period......................................... 137,690,220 98,824,301 110,136,278 108,951,868
---------------------------------------------------------------
<CAPTION>
DIVERSIFIED BOND
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.541 $ 2.335 $ 2.204 $ 1.916
2. Accumulation unit value at end of period................ 2.430 2.541 2.335 2.204
3. Number of accumulation units outstanding at
end of period................ ........................ 62,532,884 65,012,139 43,861,931 26,025,946
---------------------------------------------------------------
<CAPTION>
EQUITY
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 3.681 $ 3.056 $ 2.709 $ 2.176
2. Accumulation unit value at end of period................ 3.738 3.681 3.056 2.709
3. Number of accumulation units outstanding at
end of period.......................................... 144,081,975 109,315,212 64,109,169 35,797,392
---------------------------------------------------------------
<CAPTION>
FLEXIBLE MANAGED
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.955 $ 2.587 $ 2.434 $ 1.963
2. Accumulation unit value at end of period................ 2.828 2.955 2.587 2.434
3. Number of accumulation units outstanding at
end of period......................................... 140,860,169 111,136,044 62,046,878 33,449,040
<CAPTION>
--------------------------------
MONEY MARKET
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.536 $ 1.440
2. Accumulation unit value at end of period................ 1.641 1.536
3. Number of accumulation units outstanding at
end of period......................................... 78,507,679 20,144,839
--------------------------------
<CAPTION>
DIVERSIFIED BOND
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.790 $ 1.596
2. Accumulation unit value at end of period................ 1.916 1.790
3. Number of accumulation units outstanding at
end of period................ ........................ 14,221,106 6,775,075
--------------------------------
<CAPTION>
EQUITY
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.323 $ 1.884
2. Accumulation unit value at end of period................ 2.176 2.323
3. Number of accumulation units outstanding at
end of period.......................................... 13,870,625 5,468,614
--------------------------------
<CAPTION>
FLEXIBLE MANAGED
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.950 $ 1.656
2. Accumulation unit value at end of period................ 1.963 1.950
3. Number of accumulation units outstanding at
end of period......................................... 20,844,438 7,863,675
</TABLE>
*Commencement of Business
28
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(CONDENSED FINANCIAL INFORMATION)
SUBACCOUNTS
----------------------------------------------------------------
CONSERVATIVE BALANCED
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 3.839 $ 3.424 $ 3.077 $ 2.655
2. Accumulation unit value at end of period................ 4.238 3.839 3.424 3.077
3. Number of accumulation units outstanding at
end of period......................................... 227,149,053 271,684,907 300,853,936 296,641,925
----------------------------------------------------------------
<CAPTION>
HIGH YIELD BOND
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.308 $ 2.053 $ 1.865 $ 1.605
2. Accumulation unit value at end of period................ 2.227 2.308 2.053 1.865
3. Number of accumulation units outstanding at
end of period......................................... 64,464,275 74,090,922 84,625,385 86,497,155
----------------------------------------------------------------
<CAPTION>
STOCK INDEX
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 3.816 $ 2.907 $ 2.401 $ 1.772
2. Accumulation unit value at end of period................ 4.842 3.816 2.907 2.401
3. Number of accumulation units outstanding at
end of period......................................... 104,818,158 118,969,379 118,928,560 99,553,628
----------------------------------------------------------------
<CAPTION>
EQUITY INCOME
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 4.108 $ 3.044 $ 2.530 $ 2.104
2. Accumulation unit value at end of period................ 3.963 4.108 3.044 2.530
3. Number of accumulation units outstanding at
end of period......................................... 163,578,483 195,232,259 212,322,247 220,184,990
<CAPTION>
----------------------------------------------------------------
CONSERVATIVE BALANCED
----------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.713 $ 2.447 $ 2.316 $ 1.968
2. Accumulation unit value at end of period................ 2.655 2.713 2.447 2.316
3. Number of accumulation units outstanding at
end of period......................................... 313,266,018 242,321,897 133,530,065 59,165,985
----------------------------------------------------------------
<CAPTION>
HIGH YIELD BOND
----------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.670 $ 1.417 $ 1.220 $ 0.887
2. Accumulation unit value at end of period................ 1.605 1.670 1.417 1.220
3. Number of accumulation units outstanding at
end of period......................................... 82,161,785 68,503,233 31,814,404 9,103,642
----------------------------------------------------------------
<CAPTION>
STOCK INDEX
----------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.776 $ 1.639 $ 1.548 $ 1.208
2. Accumulation unit value at end of period................ 1.772 1.776 1.639 1.548
3. Number of accumulation units outstanding at
end of period......................................... 89,080,644 91,215,676 71,404,267 38,553,592
----------------------------------------------------------------
<CAPTION>
EQUITY INCOME
----------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.099 $ 1.737 $ 1.596 $ 1.267
2. Accumulation unit value at end of period................ 2.104 2.099 1.737 1.596
3. Number of accumulation units outstanding at
end of period......................................... 218,661,165 155,205,890 68,252,437 28,475,526
<CAPTION>
--------------------------------
CONSERVATIVE BALANCED
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.892 $ 1.666
2. Accumulation unit value at end of period................ 1.968 1.892
3. Number of accumulation units outstanding at
end of period......................................... 29,438,662 10,559,021
--------------------------------
<CAPTION>
HIGH YIELD BOND
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.019 $ 1.078
2. Accumulation unit value at end of period................ 0.887 1.019
3. Number of accumulation units outstanding at
end of period......................................... 3,962,676 2,636,013
--------------------------------
<CAPTION>
STOCK INDEX
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.268 $ 1.018
2. Accumulation unit value at end of period................ 1.208 1.268
3. Number of accumulation units outstanding at
end of period......................................... 17,965,337 5,881,105
--------------------------------
<CAPTION>
EQUITY INCOME
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.332 $ 1.139
2. Accumulation unit value at end of period................ 1.267 1.332
3. Number of accumulation units outstanding at
end of period......................................... 16,439,709 9,230,667
</TABLE>
*Commencement of Business
29
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DISCOVERY PLUS CONTRACT
(CONDENSED FINANCIAL INFORMATION)
SUBACCOUNTS
----------------------------------------------------------------
NATURAL RESOURCES
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 2.481 $ 2.840 $ 2.196 $ 1.751
2. Accumulation unit value at end of period................ 2.032 2.481 2.840 2.196
3. Number of accumulation units outstanding at
end of period......................................... 24,701,429 35,935,730 43,858,984 37,663,872
----------------------------------------------------------------
<CAPTION>
GLOBAL
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.917 $ 1.814 $ 1.533 $ 1.339
2. Accumulation unit value at end of period................ 2.370 1.917 1.814 1.533
3. Number of accumulation units outstanding at
end of period......................................... 92,477,880 115,977,749 131,910,848 212,272,476
----------------------------------------------------------------
<CAPTION>
GOVERNMENT INCOME
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.881 $ 1.736 $ 1.719 $ 1.456
2. Accumulation unit value at end of period................ 2.027 1.881 1.736 1.719
3. Number of accumulation units outstanding at
end of period......................................... 83,822,525 97,819,209 122,312,126 131,063,592
----------------------------------------------------------------
<CAPTION>
PRUDENTIAL JENNISON
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95*
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.832 $ 1.408 $ 1.245 $ 1.009
2. Accumulation unit value at end of period................ 2.489 1.832 1.408 1.245
3. Number of accumulation units outstanding at
end of period......................................... 79,195,890 65,230,050 54,259,732 19,918,994
----------------------------------------------------------------
<CAPTION>
SMALL CAPITALIZATION STOCK
----------------------------------------------------------------
01/01/98 01/01/97 01/01/96 01/01/95*
TO TO TO TO
12/31/98 12/31/97 12/31/96 12/31/95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.742 $ 1.408 $ 1.190 $ 1.002
2. Accumulation unit value at end of period................ 1.708 1.742 1.408 1.190
3. Number of accumulation units outstanding at
end of period......................................... 50,300,591 51,033,360 34,325,331 15,303,395
<CAPTION>
---------------------------------------------------------------
NATURAL RESOURCES
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.851 $ 1.497 $ 1.412 $ 1.295
2. Accumulation unit value at end of period................ 1.751 1.851 1.497 1.412
3. Number of accumulation units outstanding at
end of period......................................... 38,719,527 21,404,880 9,178,489 7,245,895
---------------------------------------------------------------
<CAPTION>
GLOBAL
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.425 $ 1.007 $ 1.056 $ 0.959
2. Accumulation unit value at end of period................ 1.339 1.425 1.007 1.056
3. Number of accumulation units outstanding at
end of period......................................... 127,945,906 51,691,984 12,211,247 6,345,863
---------------------------------------------------------------
<CAPTION>
GOVERNMENT INCOME
---------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.553 $ 1.397 $ 1.335 $ 1.164
2. Accumulation unit value at end of period................ 1.456 1.553 1.397 1.335
3. Number of accumulation units outstanding at
end of period......................................... 148,872,947 161,058,905 103,111,144 35,607,897
---------------------------------------------------------------
<CAPTION>
--------------------------------
NATURAL RESOURCES
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.391 $ 1.137
2. Accumulation unit value at end of period................ 1.295 1.391
3. Number of accumulation units outstanding at
end of period......................................... 7,525,168 2,095,818
--------------------------------
<CAPTION>
GLOBAL
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.115 $ 1.015
2. Accumulation unit value at end of period................ 0.959 1.115
3. Number of accumulation units outstanding at
end of period......................................... 5,058,856 1,221,795
--------------------------------
<CAPTION>
GOVERNMENT INCOME
--------------------------------
01/01/90 01/01/89*
TO TO
12/31/90 12/31/89
--------------- ---------------
<S> <C> <C>
1. Accumulation unit value at beginning of period.......... $ 1.108 $ 1.000
2. Accumulation unit value at end of period................ 1.164 1.108
3. Number of accumulation units outstanding at
end of period......................................... 8,957,406 3,570,059
--------------------------------
</TABLE>
*Commencement of Business
30
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OF THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
The Discovery(R) Plus 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 $10,000 or
more; subsequent payments must be $1000 or more except in New York where
non-qualified contract subsequent payments are $10,000. Oregon does not allow
subsequent payments.
This statement of additional information is not a prospectus and
should be read in conjunction with the contract's prospectus, dated May 1, 1999,
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 OF AMERICA
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (888) PRU- 2888
PIVC-1B Ed 5-9 9
Catalog # 64M101W
<PAGE>
CONTENTS
PAGE
----
OTHER INFORMATION CONCERNING THE ACCOUNT
Company................................................................... 1
Directors and Officers.................................................... 1
Further Information Regarding Previously Offered Discovery
Plus Contracts.......................................................... 4
Distribution of the Contract.............................................. 4
Participation in Divisible Surplus........................................ 5
Performance Information................................................... 5
Comparative Performance Information....................................... 5
Experts................................................................... 7
Legal Opinions............................................................ 7
Federal Tax Status........................................................ 7
Financial Statements...................................................... 8
FINANCIAL STATEMENTS OF THE PRUDENTIAL INDIVIDUAL VARIABLE
CONTRACT ACCOUNT........................................................ A-1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA AND SUBSIDIARIES..................................... B-1
DETERMINATION OF ACCUMULATION UNIT VALUES AND OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENTS
A. Accumulation Unit Values......................................... C-1
<PAGE>
COMPANY
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company founded in 1875 under the laws of the state of New Jersey. Prudential is
licensed to sell life insurance and annuities in the District of Columbia, Guam
and in all states.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DIRECTORS
FRANKLIN E. AGNEW--Director since 1994 (current term expires April, 2000).
Member, Committee on Finance & Dividends; Member Corporate Governance Committee.
Business consultant since 1986. Senior Vice President, H.J. Heinz from 1971 to
1986. Mr. Agnew is also a director of Bausch & Lomb, Inc. and Erie Plastics
Corporation. Age 64. Address: 600 Grant Street, Suite 660, Pittsburgh, PA 15219.
FREDERICK K. BECKER--Director since 1994 (current term expires April, 2005).
Member, Auditing Committee; Member, Corporate Governance Committee. President,
Wilentz Goldman and Spitzer, P.A. (law firm) since 1989, with firm since 1960.
Age 63. Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
GILBERT F. CASELLAS--Director since 1998 (current term expires April, 2003).
Member Compensation Committee President, The Swarthmore Group, Inc. since 1999.
Partner, McConnell Valdes, LLP in 1998. Chairman, U.S. Equal Employment
Opportunity Commission from 1994 to 1998. Age 46. Address: 1646 West Chester
Pike, Suite 3, West Chester, PA 19382.
JAMES G. CULLEN--Director since 1994 (current term expires April, 2001). Member,
Compensation Committee; Member, Committee on Business Ethics. President & Chief
Operating Officer, Bell Atlantic Corporation, since 1998. President & Chief
Executive Officer, Telecom Group, Bell Atlantic Corporation, from 1997 to 1998.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 56. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS--Director since 1989 (current term expires April, 2001).
Member, Committee on Business Ethics; Member, Compensation Committee.
Independent Health Care Advisor since 1997. National and International Health
Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr. Davis is also a director
of Beckman Coulter Instruments, Inc., Merck & Co., Inc., Minimed Incorporated,
and Beverley Enterprises. Age 67. Address: 751 Broad Street, 23rd Floor, Newark,
NJ 07102.
ROGER A. ENRICO--Director since 1994 (current term expires April, 2002). Member,
Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996. Mr.
Enrico originally joined PepsiCo, Inc. in 1971. Mr. Enrico is also a director of
A.H. Belo Corporation and Dayton Hudson Corporation. Age 54. Address: 700
Anderson Hill Road, Purchase, NY 10577.
ALLAN D. GILMOUR--Director since 1995 (current term expires April, 2003).
Member, Investment Committee; Member, Committee on Finance & Dividends. Retired
since 1995. Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour
originally joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool
Corporation, MeidiaOne Group, Inc., AP Automotive Systems, Inc., The Dow
Chemical Company and DTE Energy Company. Age 64. Address: 751 Broad Street, 23rd
Floor, Newark, NJ 07102.
WILLIAM H. GRAY, III--Director since 1991 (current term expires April, 2000).
Chairman, Committees on Nominations & Corporate Governance; Member, Executive
Committee; Member, Committee on Business Ethics.. President and Chief Executive
Officer, The College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979
to 1991. Mr. Gray is also a director of Chase Manhattan Corporation, Municipal
Bond Investors Assurance Corporation, Rockwell International Corporation,
Union-Pacific Corporation, Warner-Lambert Company, CBS Corporation, and
Electronic Data Systems. Age 57. Address: 8260 Willow Oaks Corp. Drive, Fairfax,
VA 22031-4511.
JON F. HANSON--Director since 1991 (current term expires April, 2003). Member,
Investment Committee; Member, Committee on Business Ethics. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of James E. Hanson
Management Company, Neumann Distributors, Inc., Fleet Trust and Investment
Services Company, N.A., United Water Resources, Orange & Rockland Utilities,
Inc., and Consolidated Delivery and Logistics. Age 62. Address: 235 Moore
Street, Suite 200, Hackensack, NJ 07601.
GLEN H. HINER, JR.--Director since 1997 (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation and Owens Corning. Age 64. Address: One Owens Corning Parkway,
Toledo, OH 43659.
CONSTANCE J. HORNER--Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993.
1
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Ms. Horner is also a director of Foster Wheeler Corporation, Ingersoll-Rand
Company, and Pfizer, Inc. Age 56. Address: 1775 Massachusetts Ave., N.W.
Washington, D.C. 20036-2188.
GAYNOR N. KELLEY--Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Chairman and Chief Executive
Officer, The Perkin Elmer Corporation from 1990 to 1996. Mr. Kelley is also a
director of Hercules Incorporated, and Alliant Techsystems. Age 67. Address: 751
Broad Street, 23rd Floor, Newark, NJ 07102-3777.
BURTON G. MALKIEL--Director since 1978 (current term expires April, 2002).
Chairman, Investment Committee; Member, Executive Committee; Member, Committee
on Finance & Dividends. Professor of Economics, Princeton University, since
1988. Dr. Malkiel is also a director of Banco Bilbao Vizcaya, Baker Fentress &
Company, The Jeffrey Company, The Southern New England Telecommunications
Company, and Vanguard Group, Inc. Age 66. Address: Princeton University, 110
Fisher Hall, Prospect Avenue, Princeton, NJ 08544-1021.
ARTHUR F. RYAN--Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Bank from 1990 to 1994, with Chase since 1972. Age 56. Address: 751 Broad
Street, Newark, NJ 07102.
IDA F.S. SCHMERTZ--Director since 1997 (current term expires April, 2004).
Member, Audit Committee. Principal, Investment Strategies International since
1994. Age 64. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
CHARLES R. SITTER--Director since 1995 (current term expires April, 2003).
Member, Committee on Finance & Dividend; Member, Investment Committee. Retired
since 1996. President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his
career with Exxon in 1957. Age 68. Address: 5959 Las Colinas Boulevard, Irving,
TX 75039-2298.
DONALD L. STAHELI--Director since 1995 (current term expires April, 2003).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1996.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company, Conti-Financial
Corporation and Continental Grain Company. Age 67 Address: 39 Locust Street,
Suite 204, New Canaan, CT 06840.
RICHARD M. THOMSON--Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee. Retired since
1998. Chairman of the Board, The Toronto-Dominion Bank from 1997 to 1998.
Chairman and Chief Executive Officer from 1978 to 1997. Mr. Thomson is also a
director of CGC, Inc., INCO, Limited, S.C. Johnson & Son, Inc., The Thomson
Corporation, Canadian Occidental Petroleum, Ltd., The Toronto-Dominion Bank and
Ontario Hydro. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1A2, Canada.
JAMES A. UNRUH--Director since 1996 (current term expires April, 2000). Member,
Committees on Nominations & Corporate Governance; Member, Investment Committee.
Retired since 1997. Chairman and Chief Executive Officer, Unisys Corporation,
from 1990 to 1997. Mr. Unruh is also a director of Ameritech Corporation and
Moss Micro. Age 57. Address: 751 Broad Street, Newark, NJ 07102-3777
P. ROY VAGELOS, M.D.--Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman, Advanced Medicines, Inc. since 1997. Chairman, Chief Executive
Officer and President, Merck & Co., Inc. from 1986 to 1995, Dr. Vagelos
originally joined Merck in 1975 Dr. Vagelos is also a director of The Estee
Lauder Companies, Inc. and PepsiCo., Inc. Age 69. Address: One Crossroads Drive,
Building A, 3rd Floor, Bedminster, NJ 07921.
STANLEY C. VAN NESS--Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Partner, Herbert, Van Ness, Cayci & Goodell (law firm) since
1998. Counselor at Law, Picco Herbert Kennedy (law firm) from 1990 to 1998. Mr.
Van Ness is also a director of Jersey Central Power & Light Company. Age 64.
Address: 22 Chambers Street, Princeton, NJ 08542.
PAUL A. VOLCKER--Director since 1988 (current term expires April, 2000).
Chairman, Committee on Finance & Dividends; Member, Executive Committee; Member,
Committee on Nominations & Corporate Governance. Consultant since 1997.
Chairman, Wolfensohn & Co., Inc. 1988 to 1996 Chairman, James D. Wolfensohn,
Inc. 1988 to 1996. Chief Executive Officer, James D. Wolfensohn, Inc. from 1995
to 1996. Mr. Volcker is also a director of Nestle, S.A., and Bankers Trust New
York Corporation as well as a Director of the Board of Overseers of TIAA-CREF.
Age 71, Address: 610 Fifth Avenue, Suite 420, New York, NY 10020.
JOSEPH H. WILLIAMS--Director since 1994 (current term expires April, 2002).
Member, Committee on Finance & Dividends; Member, Investment Committee.
Director, The Williams Companies since 1979. Chairman & Chief Executive Officer,
The Williams Companies from 1979 to 1993. Mr. Williams is also a director of The
Orvis Company, MTC Investors, LLC., and AEA Investors, Inc. Age 65. Address: One
Williams Center, Tulsa, OK 74102.
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
ARTHUR F. RYAN--Chairman of the Board, President and Chief Executive Officer
since 1994; prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation, New York, NY. Age 56.
E. MICHAEL CAULFIELD--Executive Vice President, Financial Management since 1998;
Chief Executive Officer, Prudential Investments from 1995 to 1998; Chief
Executive Officer, Money Management Group in 1995; prior to 1995, President,
Prudential Preferred Financial Services. Age 52.
MICHELE S. DARLING--Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 45.
ROBERT C. GOLDEN--Executive Vice President Operations and Systems since 1997;
prior to 1997, Executive Vice President, Prudential Securities, New York, NY.
Age 53.
MARK B. GRIER--Executive Vice President, Corporate Governance since 1998;
Executive Vice President, Financial Management from 1997 to 1998; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 46.
JEAN D. HAMILTON--Executive Vice President, Prudential Institutional since 1998;
President, Diversified Group since 1995 to 1998; prior to 1995, President,
Prudential Capital Group. Age 52.
RODGER A. LAWSON--Executive Vice President, International Investments & Global
Marketing Communications since 1998; Executive Vice President, Marketing and
Planning from 1996 to 1998; President and CEO, Van Eck Global, New York, NY,
from 1994 to 1996; prior to 1994, President and CEO, Global Private Banking,
Bankers Trust Company, New York, NY. Age 52.
KIYOFUMI SAKAGUCHI--Executive Vice President, International Insurance since
1998; President, International Insurance Group from 1995 to 1998; prior to 1995,
Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age 56.
JOHN V. SCICUTELLA--Executive Vice President, Individual Financial Services
since 1998; Chief Executive Officer, Individual Insurance Group from 1997 to
1998; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 49.
JOHN R. STRANGFELD--Executive Vice President, Global Asset Management since
1998; Chief Executive Officer, Private Asset Management Group (PAMG) from 1996
to 1998; President, PAMG, from 1994 to 1996; prior to 1994, Senior Managing
Director. Age 45.
JAMES J. AVERY, JR.--Senior Vice President & Chief Actuary, Individual Insurance
Group since 1997; President Prudential Select from 1996 to 1997; prior to 1995,
Executive Vice President and Chief Operating Officer, Prudential Select. Age 47.
MARTIN A. BERKOWITZ--Senior Vice President, Financial Management since 1998;
Senior Vice President and Comptroller from 1995 to 1998; prior to 1995, Senior
Vice President and CFO, Prudential Investment Corporation. Age 50.
WILLIAM M. BETHKE--Senior Vice President and Chief Investment Officer since
1997; prior to 1997, President, Capital Management Group. Age 51.
ANNE E. BOSSI--Senior Vice President, Institutional since 1998; President, Group
Life & Disability 1997 to 1998; President, Group Life Insurance 1995 to 1997;
prior to 1995, President, Northeastern Group Operations. Age 47
RICHARD J. CARBONE--Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 51.
THOMAS J. CARROLL--Senior Vice President and Chief Auditor since 1999.
Managing Director, Bankers Trust Company from 1996 to 1998; prior to 1996,
Global Chief Auditor and Managing Director, Credit Suisse First Boston. Age 57
THOMAS W. CRAWFORD--Senior Vice President, Individual Financial Services, since
1998; President and Chief Executive Officer, Prudential Property & Casualty
Company from 1996 to 1998; Vice President, Prudential Property & Casualty
Company in 1996; prior to 1996, President & CEO, Southern Heritage Insurance
Company. Age 55.
WILLIAM D. FRIEL--Senior Vice President and Chief Information Officer since
1996; prior to 1996, Chief Executive Officer, Prudential Service Company. Age
60.
MICHAEL J. HINES--Senior Vice President, Marketing and Communications since
1999; 1996 to 1998 Vice President, Marketing and Communications. Age 47
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RONALD P. JOELSON--Senior Vice President, Guaranteed Products, Global Asset
Management since 1997; Senior Vice President, Guaranteed Products, Guaranteed
Investments from 1996 to 1997; Vice President, Guaranteed Investments,
Guaranteed Products from 1996 to 1996; prior to 1996, Managing Director,
Retirement Services. Age 40.
IRA J. KLEINMAN--Senior Vice President, International Insurance Group, since
1997; prior to 1997, Chief Marketing & Product Development Officer. Age 51.
KATHLEEN KRALL--Senior Vice President, Individual Financial Services since 1999;
Vice President, Individual Financial Services from 1996 to 1999; Vice President,
Operations and Systems from 1995 to 1996; prior to 1995 Vice President, Chase
Manhattan Bank. Age 41.
JOYCE R. LEIBOWITZ--Senior Vice President, Management Internal Controls since
1999; Vice President, Management Internal Controls from 1995 to 1999; prior to
1995 Integrated Control Officer. Age 51.
JOHN M. LIFTIN--Senior Vice President and General Counsel since 1998;
Self-employed from 1997 to 1998; prior to 1997 Senior Vice President and General
Counsel, Kidder & Peabody Group, Inc. Age 55.
NEIL A. MCGUINNESS--Senior Vice President, Marketing, Prudential Investments,
since 1996; Director, Putnam Investments, in 1996; prior to 1996, President,
Fidelity Investment Employer Services Company. Age 52.
PRISCILLA A. MYERS--Senior Vice President and Auditor, Audit, Compliance and
Investigation since 1995; prior to 1995, Vice President and Auditor. Age 48.
I. EDWARD PRICE--Senior Vice President since 1996; Senior Vice President and
Actuary from 1995 to 1996; prior to 1995, Chief Executive Officer, Prudential
International Insurance. Age 56.
ROBERT J. SULLIVAN--Senior Vice President, Mutual Funds Sales, Individual
Financial Services since 1997; prior to 1997, Managing Director, Fidelity
Investments, Boston. Age 60.
SUSAN J. BLOUNT--Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 41.
C. EDWARD CHAPLIN--Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
ANTHONY S. PISZEL--Vice President and Controller since 1998; Vice President,
Enterprise Financial Management from 1997 to 1998; prior to 1997, Chief
Financial Officer, Individual Insurance Group. Age 44
FURTHER INFORMATION REGARDING PREVIOUSLY OFFERED DISCOVERY PLUS CONTRACTS
The currently offered contract has certain provisions that differ from
previously offered forms of the Prudential Discovery Variable Annuity contract.
This section describes those differences.
SUBSEQUENT PURCHASE PAYMENTS. Under the currently offered contract most
contractowners are able to make subsequent purchase payments at any time in a
minimum amount of $1000. However, contractowners that live in New York and
Oregon are subject to limitations. Subsequent purchase payments for New York
residents must be at least $10,000. Oregon contractowners, under the currently
offered contract may not make any additional purchase payments.
Under contracts issued to Oregon residents prior to April, 1995, contractowners
may make additional purchase payments at any time in an amount of $1000.
FIXED INTEREST-RATE OPTION MINIMUM RATE. Under the currently offered contract,
you may allocate assets to a Fixed Interest-Rate Option that earns interest at a
minimum annual rate of 3.1%. Under contracts issued prior to May, 1993 the
minimum annual rate was 4.0%. Beginning May, 1993 we began to issue contracts
with the lower guaranteed rate as such contracts were approved by the various
states.
DISTRIBUTION OF THE CONTRACT
Currently, Pruco Securities Corporation ("Prusec"), a wholly-owned subsidiary of
Prudential which was organized in 1971 under New Jersey law, acts as the
distributor of the contract. Prudential expects that sometime during 1999,
Prusec's responsibilities as distributor will be assigned to Prudential
Investment Management Services LLC ("PIMS"). PIMS, is also a wholly-owned
subsidiary of Prudential and is a limited liability corporation organized under
Delaware law in 1996. PIMS will act as principal underwriter under substantially
the same terms as Prusec currently does. 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.
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The contract is currently sold by registered representatives of the distributor
and may also be sold through other broker-dealers authorized by the distributor.
This includes 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 distributor or
broker-dealers affiliated with Prudential. The maximum commission that will be
paid to a 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.
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 the annuity income period.
PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1998. 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, 1998 in each subaccount
other than the Money Market Subaccount. These figures assume withdrawal of the
investments at the end of the period other than to effect an annuity under the
contract.
<TABLE>
<CAPTION>
TABLE 1
-------
AVERAGE ANNUAL TOTAL RETURN
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/98 12/31/98 12/31/98 12/31/98
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
DIVERSIFIED BOND............ 2/89 -.37 5.42 N/A 7.96
GOVERNMENT INCOME........... 5/89 1.54 4.90 N/A 7.58
CONSERVATIVE BALANCED....... 2/89 4.17 8.85 N/A 9.95
FLEXIBLE MANAGED............ 2/89 2.68 10.40 N/A 11.76
HIGH YIELD BOND............. 2/89 -9.60 5.36 N/A 7.65
STOCK INDEX................. 2/89 -9.62 13.16 N/A 13.51
EQUITY...................... 2/89 1.80 15.12 N/A 15.17
PRUDENTIAL JENNISON......... 5/95 29.79 N/A N/A 27.48
SMALL CAPITALIZATION STOCK.. 5/95 -8.12 N/A N/A 15.04
GLOBAL...................... 5/89 17.46 10.26 N/A 9.21
NATURAL RESOURCES........... 2/89 -23.25 1.21 N/A 6.08
REAL PROPERTY ACCOUNT....... 2/89 1.85 6.88 N/A 4.88
</TABLE>
The average annual rates of total return shown above are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)- ERA. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; is the number of
years; and ERA is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum deferred sales charge that may be
applicable to a particular period. The annual contract fee is included, however
it applies only if the contract fund is less than $10,000.
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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 contractowner annuitizes at the end of the period.
<TABLE>
<CAPTION>
TABLE 2
-------
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/98 12/31/98 12/31/98 12/31/98
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
DIVERSIFIED BOND............ 2/89 5.89 5.98 N/A 7.96
GOVERNMENT INCOME........... 5/89 7.78 5.47 N/A 7.58
CONSERVATIVE BALANCED....... 2/89 10.40 9.33 N/A 9.95
FLEXIBLE MANAGED............ 2/89 8.91 10.84 N/A 11.76
HIGH YIELD BOND............. 2/89 -3.52 5.92 N/A 7.65
STOCK INDEX................. 2/89 26.89 22.22 N/A 17.17
EQUITY INCOME............... 2/89 -3.54 13.55 N/A 13.51
EQUITY...................... 2/89 8.04 15.48 N/A 15.17
PRUDENTIAL JENNISON......... 5/95 35.84 N/A N/A 27.91
SMALL CAPITALIZATION STOCK.. 5/95 -1.94 N/A N/A 15.65
GLOBAL...................... 5/89 23.60 10.71 N/A 9.21
NATURAL RESOURCES........... 2/89 -18.09 1.88 N/A 6.08
REAL PROPERTY ACCOUNT....... 2/89 8.09 7.40 N/A 4.88
Table 3 shows the cumulative total return for the subaccounts, assuming no
withdrawal.
<CAPTION>
TABLE 3
-------
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/98 12/31/98 12/31/98 12/31/98
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
DIVERSIFIED BOND............ 2/89 5.89 33.69 N/A 112.40
GOVERNMENT INCOME........... 5/89 7.78 30.51 N/A 102.61
CONSERVATIVE BALANCED....... 2/89 10.40 56.20 N/A 154.36
FLEXIBLE MANAGED............ 2/89 8.91 67.32 N/A 198.51
HIGH YIELD BOND............. 2/89 -3.52 33.33 N/A 106.54
STOCK INDEX................. 2/89 26.89 172.70 N/A 375.50
EQUITY INCOME............... 2/89 -3.54 488.81 N/A 247.81
EQUITY...................... 2/89 8.04 105.37 N/A 301.30
PRUDENTIAL JENNISON......... 5/95 35.84 N/A N/A 146.71
SMALL CAPITALIZATION STOCK.. 5/95 -1.94 N/A N/A 70.50
GLOBAL...................... 5/89 23.60 66.31 N/A 134.38
NATURAL RESOURCES........... 2/89 -18.09 9.76 N/A 78.74
REAL PROPERTY ACCOUNT....... 2/89 8.09 42.92 N/A 59.86
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1998 were 3.62% and 3.68% 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%.
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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.
EXPERTS
The consolidated financial statements of Prudential and Subsidiaries as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the financial statements of the Account as of December 31,
1998 and for each of the two years in the period then ended included in this
Statement of Additional Information have been included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP's principal business address is 1177 Avenue of the
Americas, New York, New York 10036.
LEGAL OPINIONS
Shea & Gardner of Washington, D.C., has provided advice on certain matters
relating to the federal securities laws in connection with the contract.
FEDERAL TAX STATUS
OTHER TAX RULES
o ENTITY OWNERS
Where a contract is held by a non-natural person (e.g. a corporation), other
than as an agent or nominee for a natural person (or, in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract will be subject to tax.
o PURCHASE PAYMENTS MADE BEFORE AUGUST 14, 1982
If your contract was 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. Generally, withdrawals are treated as a recovery
of your investment in the contract first until purchase payments made before
August 14, 1982 are withdrawn. Moreover, any income allocable to purchase
payments made before August 14, 1982, is not subject to the 10% penalty tax.
o WITHHOLDING OF TAX FROM DISTRIBUTIONS
Taxable amounts distributed from annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments. The rate of withholding on annuity payments will be determined on the
basis of the withholding certificate you file with Prudential. Absent these
elections, Prudential will withhold the tax amounts required by the applicable
tax regulations. 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.
o NONRESIDENT ALIENS
Special tax withholding rules apply to nonresident aliens.
o TRANSFERS TO YOUNGER PERSONS
If you transfer your contract to a person either 37 1/2 years younger than you,
or a grandchild, (or designate such a younger person as a beneficiary), there
may be Generation Skipping Transfer tax consequences.
PLEASE CONSULT A QUALIFIED TAX ADVISER FOR COMPLETE INFORMATION AND ADVICE.
7
<PAGE>
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.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in The Prudential Series Fund, Inc.
Portfolios, at net asset value [Note 3] ..... $ 264,386,519 $ 217,559,213 $1,308,196,413 $ 835,286,675 $1,401,110,158
Receivable from The Prudential Insurance
Company of America [Note 2] ................. 59,949 398,933 0 92,513 100,702
------------- ------------- -------------- -------------- --------------
Net Assets .................................... $ 264,446,468 $ 217,958,146 $1,308,196,413 $ 835,379,188 $1,401,210,860
============= ============= ============== ============== ==============
NET ASSETS, representing
Equity of contract owners ..................... $ 264,386,519 $ 217,559,213 $1,308,196,413 $ 835,286,675 $1,401,110,158
Equity of annuitants .......................... 59,949 398,933 0 92,513 100,702
------------- ------------- -------------- -------------- --------------
$ 264,446,468 $ 217,958,146 $1,308,196,413 $ 835,379,188 $1,401,210,860
============= ============= ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 175,152,635 $ 670,007,466 $ 759,646,463 $ 64,446,192 $ 258,096,650 $ 220,516,883 $ 248,378,960 $ 104,084,411
0 0 0 0 0 0 0 0
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 175,152,635 $ 670,007,466 $ 759,646,463 $ 64,446,192 $ 258,096,650 $ 220,516,883 $ 248,378,960 $ 104,084,411
============= ============= ============= ============= ============= ============= ============= =============
$ 175,152,635 $ 670,007,466 $ 759,646,463 $ 64,446,192 $ 258,096,650 $ 220,516,883 $ 248,378,960 $ 104,084,411
0 0 0 0 0 0 0 0
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 175,152,635 $ 670,007,466 $ 759,646,463 $ 64,446,192 $ 258,096,650 $ 220,516,883 $ 248,378,960 $ 104,084,411
============= ============= ============= ============= ============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A2
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
MARKET BOND EQUITY MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income .............................................. $ 13,378,160 $ 13,636,053 $ 25,364,009 $ 27,994,933
------------- ------------- ------------- -------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Note 5A] .................................. 3,035,427 2,674,427 16,895,452 10,444,475
------------- ------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) .................................. 10,342,733 10,961,626 8,468,557 17,550,458
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ........................ 0 822,234 144,827,411 86,035,269
Realized gain (loss) on shares redeemed ..................... 0 678,365 84,956,911 11,115,417
Net change in unrealized gain (loss) on investments ......... 0 231,661 (127,608,808) (39,636,425)
------------- ------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS ................................ 0 1,732,260 102,175,514 57,514,261
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................................... $ 10,342,733 $ 12,693,886 $ 110,644,071 $ 75,064,719
============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD STOCK EQUITY NATURAL GOVERNMENT
BALANCE BOND INDEX INCOME RESOURCES GLOBAL INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 60,878,422 $ 18,728,616 $ 7,599,066 $ 22,763,060 $ 725,661 $ 3,418,085 $ 12,940,655
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
17,384,686 2,408,966 7,457,465 10,618,744 1,050,694 3,077,836 2,720,861
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
43,493,736 16,319,650 141,601 12,144,316 (325,033) 340,249 10,219,794
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
83,734,628 0 10,418,287 48,729,087 5,030,198 10,854,082 0
12,851,707 (790,210) 43,780,963 38,248,407 (6,039,489) 14,764,669 1,650,896
4,365,369 (22,198,255) 92,626,185 (129,699,817) (14,947,592) 28,186,381 5,136,878
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
100,951,704 (22,988,465) 146,825,435 (42,722,323) (15,956,883) 53,805,132 6,787,774
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 144,445,440 $ (6,668,815) $ 146,967,036 $ (30,578,007) $ (16,281,916) $ 54,145,381 $ 17,007,568
============== ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
SUBACCOUNTS (CONTINUED)
-----------------------------
SMALL
PRUDENTIAL CAPITALIZATION
JENNISON STOCK
PORTFOLIO PORTFOLIO
------------ ------------
INVESTMENT INCOME
Dividend income ............................ $ 395,247 $ 592,644
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Note 5A] ................... 2,178,805 1,213,628
------------ ------------
NET INVESTMENT INCOME (LOSS) ................. (1,783,558) (620,984)
------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ....... 3,660,421 6,391,614
Realized gain (loss) on shares redeemed .... 4,398,979 1,486,431
Net change in unrealized gain (loss) on
investments ................................ 51,294,609 (9,797,860)
------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ............... 59,354,009 (1,919,815)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. $ 57,570,451 $ (2,540,799)
============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
A5
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
--------------------------------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ 10,342,733 $ 11,865,194 $ 10,961,626 $ 14,111,056
Capital gains distributions received ........ 0 0 822,234 2,678,457
Realized gain (loss) on shares redeemed ..... 0 0 678,365 871,425
Net change in unrealized gain (loss) on
investments ............................... 0 0 231,661 (1,421,119)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... 10,342,733 11,865,194 12,693,886 16,239,819
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 19,047,075 23,961,225 7,493,461 9,215,129
Annuity Payments ............................ (11,427) (11,354) (75,573) (73,070)
Surrenders, Withdrawals and Death Benefits .. (85,288,504) (96,558,513) (39,747,715) (37,912,055)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ......... 74,158,657 (2,913,426) 9,831,958 (3,901,996)
Administrative and Other Charges ............ (21,437) (23,125) (31,385) (34,758)
------------ ------------ ------------ ------------
TOTAL ANNUITY PAYMENTS AND OTHER
OPERATING TRANSFERS [Note 8] ................ 7,884,364 (75,545,193) (22,529,254) (32,706,750)
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 7] .................................... (4,079,634) 1,260,361 6,836 13,417
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... 14,147,463 (62,419,638) (9,828,532) (16,453,514)
NET ASSETS
Beginning of year ........................... 250,299,005 312,718,643 227,786,678 244,240,192
------------ ------------ ------------ ------------
End of year ................................. $264,446,468 $250,299,005 $217,958,146 $227,786,678
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS
---------------------------------
EQUITY
PORTFOLIO
---------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ 8,468,557 $ 15,468,973
Capital gains distributions received ........ 144,827,411 78,732,943
Realized gain (loss) on shares redeemed ..... 84,956,911 45,936,231
Net change in unrealized gain (loss) on
investments ............................... (127,608,808) 151,756,418
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... 110,644,071 291,894,565
-------------- --------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 29,716,539 53,296,559
Annuity Payments ............................ 0 0
Surrenders, Withdrawals and Death Benefits .. (227,791,649) (173,999,157)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ......... (50,984,299) (14,985,846)
Administrative and Other Charges ............ (219,027) (223,209)
-------------- --------------
TOTAL ANNUITY PAYMENTS AND OTHER
OPERATING TRANSFERS [Note 8] ................ (249,278,436) (135,911,653)
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 7] .................................... (2,479,523) (431,506)
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... (141,113,888) 155,551,406
NET ASSETS
Beginning of year ........................... 1,449,310,301 1,293,758,895
-------------- --------------
End of year ................................. $1,308,196,413 $1,449,310,301
============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A6
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------
HIGH
FLEXIBLE CONSERVATIVE YIELD
MANAGED BALANCED BOND
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------- ------------------------------- -------------------------------
1998 1997 1998 1997 1998 1997
- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 17,550,458 $ 16,324,558 $ 43,493,736 $ 51,542,837 $ 16,319,650 $ 16,941,410
86,035,269 136,601,647 83,734,628 162,961,825 0 0
11,115,417 17,694,945 12,851,707 18,586,761 (790,210) 1,058,521
(39,636,425) (31,167,938) 4,365,369 (59,829,935) (22,198,255) 6,571,445
- -------------- -------------- -------------- -------------- -------------- --------------
75,064,719 139,453,212 144,445,440 173,261,488 (6,668,815) 24,571,376
- -------------- -------------- -------------- -------------- -------------- --------------
22,415,245 32,937,745 30,313,954 46,263,316 8,252,011 8,018,507
(15,788) (14,586) (15,705) (14,685) 0 0
(142,521,722) (116,462,620) (240,337,372) (184,353,244) (35,428,319) (37,249,666)
(21,663,353) (13,383,947) (28,841,738) (20,694,955) 2,319,159 3,740,393
(228,301) (246,027) (245,663) (271,715) (18,595) (17,877)
- -------------- -------------- -------------- -------------- -------------- --------------
(142,013,919) (97,169,435) (239,126,524) (159,071,283) (24,875,744) (25,508,643)
- -------------- -------------- -------------- -------------- -------------- --------------
(3,918,738) 1,952,643 (7,786,414) (643,118) (13,424) (334,358
- -------------- -------------- -------------- -------------- -------------- --------------
(70,867,938) 44,236,420 (102,467,498) 13,547,087 (31,557,983) (1,271,625)
906,247,126 862,010,706 1,503,678,358 1,490,131,271 206,710,618 207,982,243
- -------------- -------------- -------------- -------------- -------------- --------------
$ 835,379,188 $ 906,247,126 $1,401,210,860 $1,503,678,358 $ 175,152,635 $ 206,710,618
============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A7
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------
STOCK EQUITY
INDEX INCOME
PORTFOLIO PORTFOLIO
-------------------------------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ 141,601 $ 1,652,929 $ 12,144,316 $ 11,675,572
Capital gains distributions received ........ 10,418,287 16,305,306 48,729,087 83,667,610
Realized gain (loss) on shares redeemed ..... 43,780,963 18,694,963 38,248,407 22,177,266
Net change in unrealized gain (loss) on
investments ............................... 92,626,185 103,662,327 (129,699,817) 131,284,129
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 146,967,036 140,315,525 (30,578,007) 248,804,577
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 24,500,709 35,558,028 22,166,099 26,582,983
Annuity Payments ............................ 0 0 0 0
Surrenders, Withdrawals and Death Benefits .. (99,445,039) (65,696,647) (135,728,883) (102,914,098)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ......... 15,244,688 33,627,406 (18,894,051) 15,917,238
Administrative and Other Charges ............ (84,556) (68,653) (63,403) (54,504)
------------ ------------ ------------ ------------
TOTAL ANNUITY PAYMENTS AND OTHER
OPERATING TRANSFERS [Note 8] (59,784,198) 3,420,134 (132,520,238) (60,468,381)
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 7 ..................................... (1,476,693) (116,556) (1,335,878) (186,017)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... 85,706,145 143,619,103 (164,434,123) 188,150,179
NET ASSETS
Beginning of year ........................... 584,301,321 440,682,218 924,080,586 735,930,407
------------ ------------ ------------ ------------
End of year ................................. $670,007,466 $584,301,321 $759,646,463 $924,080,586
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS
----------------------------
NATURAL
RESOURCES
PORTFOLIO
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ (325,033) $ (1,015,429)
Capital gains distributions received ........ 5,030,198 15,057,641
Realized gain (loss) on shares redeemed ..... (6,039,489) 4,265,854
Net change in unrealized gain (loss) on
investments ............................... (14,947,592) (35,259,336)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (16,281,916) (16,951,270)
------------ ------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 1,759,006 8,653,651
Annuity Payments ............................ 0 0
Surrenders, Withdrawals and Death Benefits .. (13,931,910) (15,898,839)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ......... (20,293,516) (16,980,836)
Administrative and Other Charges ............ (17,384) (19,749)
------------ ------------
TOTAL ANNUITY PAYMENTS AND OTHER
OPERATING TRANSFERS [Note 8] (32,483,804) (24,245,773)
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 7 ..................................... (1,056,129) 647,536
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... (49,821,849) (40,549,507)
NET ASSETS
Beginning of year ........................... 114,268,041 154,817,548
------------ ------------
End of year ................................. $ 64,446,192 $114,268,041
============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A8
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------- ------------------------------- -------------------------------
1998 1997 1998 1997 1998 1997
- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 340,249 $ (44,200) $ 10,219,794 $ 12,649,525 $ (1,783,558) $ (1,117,419)
10,854,082 12,621,909 0 0 3,660,421 8,029,556
14,764,669 10,753,188 1,650,896 89,927 4,398,979 2,207,647
28,186,381 (7,387,766) 5,136,878 6,283,807 51,294,609 19,900,327
- -------------- -------------- -------------- -------------- -------------- --------------
54,145,381 15,943,131 17,007,568 19,023,259 57,570,451 29,020,111
- -------------- -------------- -------------- -------------- -------------- --------------
5,063,342 10,541,214 3,666,532 3,313,349 17,246,201 16,187,510
0 0 0 0 0 0
(35,899,207) (38,550,162) (43,974,647) (34,966,016) (17,922,398) (12,794,870)
(24,753,353) (5,350,918) 9,701,933 (20,974,599) 49,190,893 21,291,056
(26,535) (25,663) (29,963) (35,332) (28,692) (15,211)
- -------------- -------------- -------------- -------------- -------------- --------------
(55,615,753) (33,385,529) (30,636,145) (52,662,598) 48,486,004 24,668,485
(2,097,364) 1,851,079 (557,286) (4,594,249) (235,861) (1,042,725)
- -------------- -------------- -------------- -------------- -------------- --------------
(3,567,736) (15,591,319) (14,185,863) (38,233,588) (105,820,594) (52,645,871)
261,664,386 277,255,705 234,702,746 272,936,334 142,558,366 89,912,495
- -------------- -------------- -------------- -------------- -------------- --------------
$ 258,096,650 $ 261,664,386 $ 220,516,883 $ 234,702,746 $ 248,378,960 $ 142,558,366
============== ============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -------------------------------
SMALL
CAPITALIZATION
STOCK
PORTFOLIO
- -------------- --------------
1998 1997
- -------------- --------------
<S> <C>
$ (620,984) $ (420,865)
6,391,614 7,179,462
1,486,431 1,680,689
(9,797,860) 7,162,308
- -------------- --------------
(2,540,799) 15,601,594
- -------------- --------------
7,596,842 12,922,869
0 0
(11,810,054) (9,070,271)
5,267,396 30,727,791
(16,231) (7,912)
- -------------- --------------
1,037,953 34,572,477
(327,169) (542,063)
- -------------- --------------
(1,830,015) (49,632,008)
105,914,426 56,282,418
- -------------- --------------
$ 104,084,411 $ 105,914,426
============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A15
</TABLE>
A9
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
DECEMBER 31, 1998
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. The account is a funding vehicle
for individual variable annuity contracts. 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 accompanying financial statements are prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of
the financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated at
the net asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund and are
recorded on the ex-dividend date.
Equity of 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.
Receivable from The Prudential Insurance Company of America--The
receivable represents amounts due from Prudential to fund annuitant
reserves.
A10
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share (rounded) for each portfolio of the
Series Fund, the number of shares of each portfolio held by the
subaccounts and the aggregate cost of investments in such shares at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 26,438,652 19,668,734 44,140,946 50,437,702 92,908,365
Net asset value per share (rounded): $ 10.00 $ 11.06 $ 29.64 $ 16.56 $ 15.08
Cost: $ 264,386,519 $ 215,768,974 $1,024,421,049 $ 831,763,261 $1,369,421,288
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 24,300,092 17,753,245 37,920,664 5,377,929 12,199,177
Net asset value per share (rounded): $ 7.21 $ 37.74 $ 20.03 $ 11.98 $ 21.16
Cost: $ 193,627,678 $ 325,075,842 $ 625,170,351 $ 87,693,418 $ 182,723,887
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- -------------- --------------
<S> <C> <C> <C>
Number of shares: 18,576,710 10,389,443 7,075,461
Net asset value per share (rounded): $ 11.87 $ 23.91 $ 14.71
Cost: $ 210,345,749 $ 168,227,879 $ 100,955,405
</TABLE>
A11
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (VIP).... 19,160,802 14,862,088 42,333,211 61,157,390 103,465,203
Unit Value (VIP).......................... $ 2.17869 $ 3.39660 $ 7.55872 $ 4.94447 $ 4.23790
-------------- -------------- -------------- -------------- --------------
Contract Owner Equity (VIP)............... $ 41,745,447 $ 50,480,570 $ 319,984,891 $ 302,390,879 $ 438,475,186
-------------- -------------- -------------- -------------- --------------
Contract Owner Units Outstanding (PDISCO+) 102,190,340 49,189,967 130,737,945 107,776,121 227,149,053
Unit Value (PDISCO+)...................... $ 2.17869 $ 3.39660 $ 7.55872 $ 4.94447 $ 4.23790
-------------- -------------- -------------- -------------- --------------
Contract Owner Equity (PDISCO+)........... $ 222,641,072 $ 167,078,643 $ 988,211,522 $ 532,895,796 $ 962,634,972
-------------- -------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 264,386,519 $ 217,559,213 $1,308,196,413 $ 835,286,675 $1,401,110,158
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (VIP).... 14,194,497 33,545,384 28,115,406 7,014,841 16,442,502
Unit Value (VIP).......................... $ 2.22674 $ 4.84237 $ 3.96281 $ 2.03196 $ 2.36959
-------------- -------------- -------------- -------------- --------------
Contract Owner Equity (VIP)............... $ 31,607,455 $ 162,439,163 $ 111,416,013 $ 14,253,876 $ 38,961,990
-------------- -------------- -------------- -------------- --------------
Contract Owner Units Outstanding (PDISCO+) 64,464,275 104,818,158 163,578,483 24,701,429 92,477,880
Unit Value (PDISCO+)...................... $ 2.22674 $ 4.84237 $ 3.96281 $ 2.03196 $ 2.36959
-------------- -------------- -------------- -------------- --------------
Contract Owner Equity (PDISCO+)........... $ 143,545,180 $ 507,568,303 $ 648,230,450 $ 50,192,316 $ 219,134,660
-------------- -------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 175,152,635 $ 670,007,466 $ 759,646,463 $ 64,446,192 $ 258,096,650
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------- -------------- --------------
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- --------------
<S> <C> <C> <C>
Contract Owner Units Outstanding (VIP).... 24,947,937 20,612,417 10,647,324
Unit Value (VIP).......................... $ 2.02736 $ 2.48856 $ 1.70776
-------------- -------------- --------------
Contract Owner Equity (VIP)............... $ 50,578,449 $ 51,295,237 $ 18,183,074
-------------- -------------- --------------
Contract Owner Units Outstanding (PDISCO+) 83,822,525 79,195,890 50,300,591
Unit Value (PDISCO+)...................... $ 2.02736 $ 2.48856 $ 1.70776
-------------- -------------- --------------
Contract Owner Equity (PDISCO+)........... $ 169,938,434 $ 197,083,723 $ 85,901,337
-------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 220,516,883 $ 248,378,960 $ 104,084,411
============== ============== ==============
</TABLE>
A12
<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 related charges by Prudential.
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.
B. Deferred Sales Charge
A deferred sales charge is imposed upon the withdrawals 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.
C. Annual Maintenance Charge
An annual maintenance charge of $30 will be deducted if and only if
the contract fund is less than $10,000 on a contract anniversary or
at the time a full withdrawal is effected, including a withdrawal to
effect an annuity. The charge is made by reducing accumulation units
credited to a contract owner's account.
NOTE 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.
A13
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the account
represents the net contributions (withdrawals) of Prudential to (from)
the Account. Effective October 13, 1998 Prudential no longer maintains
a position in the Account. Previously, Prudential maintained a position
in the Account for liquidity purposes including unit purchases and
redemptions, fund share transactions and expense processing.
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 162,020,025 172,221,299 14,301,983 8,561,111 14,968,731 25,456,661
Contract Owner
Redemptions: (158,372,017) (209,069,288) (21,127,390) (19,161,507) (48,934,246) (46,279,932)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
FLEXIBLE MANAGED CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 9,450,947 14,758,268 17,543,869 25,306,626 23,750,625 32,362,388
Contract Owner
Redemptions: (39,382,429) (37,195,798) (76,785,137) (68,458,695) (34,650,846) (43,990,813)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
STOCK INDEX EQUITY INCOME NATURAL RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 27,342,157 42,552,393 23,428,982 27,819,691 3,558,351 12,847,677
Contract Owner
Redemptions: (41,806,266) (41,080,235) (56,512,147) (44,765,652) (17,442,303) (21,611,690)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
GLOBAL GOVERNMENT INCOME PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 22,539,970 48,281,857 19,860,202 7,504,633 54,234,114 40,667,682
Contract Owner
Redemptions: (49,189,366) (65,322,630) (35,648,299) (37,417,577) (32,139,539) (26,227,876)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------
SMALL CAPITALIZATION STOCK
PORTFOLIO
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Contract Owner
Contributions: 33,038,958 59,912,349
Contract Owner
Redemptions: (32,730,568) (38,855,387)
</TABLE>
A14
<PAGE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund for the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
-----------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases......................... $ 127,604,290 $ 16,713,425 $ 8,553,429 $ 2,117,228 $ 1,701,485
Sales............................. $ (126,894,941) $ (41,591,607) $ (277,206,842) $ (158,586,873) $ (266,099,812)
<CAPTION>
PORTFOLIOS (CONTINUED)
-----------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases......................... $ 19,310,659 $ 23,010,668 $ 8,624,608 $ 785,582 $ 4,508,243
Sales............................. $ (46,608,792) $ (91,729,024) $ (153,099,467) $ (35,376,210) $ (65,299,197)
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
--------------- --------------- ---------------
<S> <C> <C> <C>
Purchases......................... $ 7,186,717 $ 66,225,607 $ 23,799,554
Sales............................. $ (41,101,010) $ (20,154,268) $ (24,302,397)
</TABLE>
A15
<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 subaccounts (Money Market
Portfolio, Diversified Bond Portfolio, Equity Portfolio, Flexible Managed
Portfolio, Conservative Balanced Portfolio, High Yield Bond Portfolio, Stock
Index Portfolio, Equity Income Portfolio, Natural Resources Portfolio, Global
Portfolio, Government Income Portfolio, Prudential Jennison Portfolio and Small
Capitalization Stock Portfolio) of the Prudential Individual Variable Contract
Account at December 31, 1998, 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 fund shares owned at December 31, 1998,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A16
<PAGE>
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1998 AND 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 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 audits. 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.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
2
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1998 AND 1997 (IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost, 1998: $76,997; 1997: $71,496) $ 80,158 $ 75,270
Held to maturity, at amortized cost (fair value, 1998: $17,906; 1997: $19,894) 16,848 18,700
Trading account assets, at fair value 8,888 6,347
Equity securities, available for sale, at fair value (cost, 1998: $2,583; 1997: $2,376) 2,759 2,810
Mortgage loans on real estate 16,495 16,004
Investment real estate 801 1,519
Policy loans 7,476 7,034
Securities purchased under agreements to resell 10,252 8,661
Cash collateral for borrowed securities 5,622 5,047
Other long-term investments 2,658 2,489
Short-term investments 9,781 12,106
--------- ---------
Total investments 161,738 155,987
Cash 1,943 1,859
Accrued investment income 1,795 1,909
Broker-dealer related receivables 10,142 8,442
Deferred policy acquisition costs 6,462 6,083
Other assets 15,721 11,452
Separate Account assets 81,621 73,839
--------- ---------
TOTAL ASSETS $ 279,422 $ 259,571
========= =========
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits $ 69,129 $ 67,367
Policyholders' account balances 30,974 33,246
Unpaid claims and claim adjustment expenses 3,860 4,864
Policyholders' dividends 1,444 1,269
Securities sold under agreements to repurchase 21,486 12,347
Cash collateral for loaned securities 7,132 14,117
Income taxes payable 785 500
Broker-dealer related payables 6,530 3,338
Securities sold but not yet purchased 5,771 3,648
Other liabilities 16,169 14,659
Short-term debt 10,082 6,774
Long-term debt 4,734 4,273
Separate Account liabilities 80,931 73,451
--------- ---------
Total liabilities 259,027 239,853
--------- ---------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 16)
EQUITY
Accumulated other comprehensive income 1,232 1,661
Retained earnings 19,163 18,057
--------- ---------
Total equity 20,395 19,718
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 279,422 $ 259,571
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 9,024 $ 9,005 $ 9,999
Policy charges and fee income 1,462 1,434 1,490
Net investment income 9,520 9,456 9,461
Realized investment gains, net 2,630 2,168 1,128
Commissions and other income 4,451 4,481 4,512
-------- -------- --------
Total revenues 27,087 26,544 26,590
-------- -------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 9,976 10,076 11,094
Interest credited to policyholders' account balances 1,806 2,044 2,251
Dividends to policyholders 2,478 2,422 2,339
General and administrative expenses 9,720 8,992 8,956
Sales practices remedies 510 1,640 410
-------- -------- --------
Total benefits and expenses 24,490 25,174 25,050
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,597 1,370 1,540
-------- -------- --------
Income taxes
Current 1,185 101 556
Deferred (215) 306 (376)
-------- -------- --------
970 407 180
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 1,627 963 1,360
-------- -------- --------
DISCONTINUED OPERATIONS
Loss from Healthcare operations, net of taxes (298) (353) (282)
Loss on disposal of Healthcare operations, net of taxes (223) -- --
-------- -------- --------
Net loss from discontinued operations (521) (353) (282)
-------- -------- --------
NET INCOME $ 1,106 $ 610 $ 1,078
======== ======== ========
</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, 1998, 1997 AND 1996 (IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED OTHER COMPREHENSIVE INCOME
------------------------------------------------------
FOREIGN NET TOTAL
CURRENCY UNREALIZED PENSION ACCUMULATED OTHER
TRANSLATION INVESTMENT LIABILITY COMPREHENSIVE RETAINED TOTAL
ADJUSTMENTS GAINS ADJUSTMENT INCOME EARNINGS EQUITY
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ (24) $ 2,397 $ -- $ 2,373 $ 16,369 $ 18,742
Comprehensive income (loss):
Net income 1,078 1,078
Other comprehensive income (loss), net of tax:
Change in foreign currency translation
adjustments (32) (32) (32)
Change in net unrealized investment gains (1,261) (1,261) (1,261)
Additional pension liability adjustment (4) (4) (4)
--------
Other comprehensive income (loss) (1,297)
--------
Total comprehensive income (loss) (219)
-----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 (56) 1,136 (4) 1,076 17,447 18,523
Comprehensive income:
Net income 610 610
Other comprehensive income (loss), net of tax:
Change in foreign currency translation
adjustments (29) (29) (29)
Change in net unrealized investment gains 616 616 616
Additional pension liability adjustment (2) (2) (2)
--------
Other comprehensive income 585
--------
Total comprehensive income 1,195
-----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 (85) 1,752 (6) 1,661 18,057 19,718
Comprehensive income:
Net income 1,106 1,106
Other comprehensive income, net of tax:
Change in foreign currency translation
adjustments 54 54 54
Change in net unrealized investment gains (480) (480) (480)
Additional pension liability adjustment (3) (3) (3)
--------
Other comprehensive income (429)
--------
Total comprehensive income 677
-----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ (31) $ 1,272 $ (9) $ 1,232 $ 19,163 $ 20,395
=============================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,106 $ 610 $ 1,078
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized investment gains, net (2,660) (2,209) (1,138)
Policy charges and fee income (135) (258) (208)
Interest credited to policyholders' account balances 1,806 2,044 2,251
Depreciation and amortization 305 258 266
Loss (gain) on disposal of businesses 223 -- (116)
Change in:
Deferred policy acquisition costs (165) (142) (122)
Future policy benefits and other insurance liabilities 584 2,762 2,471
Securities purchased under agreements to resell (1,591) (3,314) (217)
Trading account assets (2,540) (1,825) (433)
Income taxes receivable/payable 594 (1,391) (937)
Cash collateral for borrowed securities (575) (2,631) (332)
Cash collateral for securities loaned (net) (6,985) 5,668 2,891
Broker-dealer related receivables/payables 1,495 (672) (607)
Securities sold but not yet purchased 2,122 1,633 251
Securities sold under agreements to repurchase 9,139 4,844 (490)
Other, net (5,168) 4,142 (1,334)
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES (2,445) 9,519 3,274
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities, available for sale 123,151 123,550 123,368
Fixed maturities, held to maturity 4,466 4,042 4,268
Equity securities, available for sale 2,792 2,572 2,162
Mortgage loans on real estate 4,839 4,299 5,731
Investment real estate 1,364 1,842 615
Other long-term investments 1,848 5,081 3,203
Disposal of businesses -- -- 52
Payments for the purchase of:
Fixed maturities, available for sale (126,742) (129,854) (125,093)
Fixed maturities, held to maturity (2,244) (2,317) (2,844)
Equity securities, available for sale (2,547) (2,461) (2,384)
Mortgage loans on real estate (4,885) (3,363) (1,906)
Investment real estate (31) (241) (142)
Other long-term investments (1,415) (4,148) (2,060)
Short-term investments (net) 2,145 (2,848) (1,915)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES 2,741 (3,846) 3,055
--------- --------- ---------
</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, 1998, 1997 AND 1996 (IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits 6,955 5,020 2,676
Policyholders' account withdrawals (11,111) (9,873) (8,099)
Net increase in short-term debt 2,422 305 583
Proceeds from the issuance of long-term debt 1,940 324 93
Repayments of long-term debt (418) (464) (1,306)
-------- -------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES (212) (4,688) (6,053)
-------- -------- --------
NET INCREASE IN CASH 84 985 276
CASH, BEGINNING OF YEAR 1,859 874 598
-------- -------- --------
CASH, END OF YEAR $ 1,943 $ 1,859 $ 874
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 163 $ 968 $ 793
-------- -------- --------
Interest paid $ 864 $ 708 $ 595
-------- -------- --------
</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 financial services throughout the
United States and several locations worldwide. The Company's businesses
provide a full range of insurance, investment, securities brokerage and
other financial products and services to both retail consumers and
institutions. Principal products and services provided include life
insurance, property and casualty insurance, annuities, mutual funds,
pension and retirement related investments and administration, asset
management, and securities brokerage.
DEMUTUALIZATION
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 stock company. On July 1, 1998,
legislation was enacted in New Jersey that would permit this conversion to
occur and that specified the process for conversion. Demutualization is a
complex process involving development of a plan of reorganization, adoption
of a plan by the Company's Board of Directors, a public hearing, voting by
qualified voters and regulatory approval. There can be no assurance that
the Company will demutualize or, if it does so, when demutualization will
occur.
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 consolidated 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 a 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, "Accumulated other
comprehensive income."
TRADING ACCOUNT ASSETS AND SECURITIES SOLD BUT NOT YET PURCHASED are
carried at estimated fair value. Realized and unrealized gains and losses
on trading account assets and securities sold but not yet purchased are
included in "Commissions and other income."
EQUITY SECURITIES, available for sale, are comprised of common and
non-redeemable preferred stock and are carried at estimated fair value. The
associated unrealized gains and losses, net of income tax, and the effects
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, "Accumulated other
comprehensive income."
8
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal
balances, net of unamortized discounts and allowance for losses. The
allowance for losses is based upon a loan specific review and, for
performing loans collectively evaluated, a portfolio review. The loan
specific review includes consideration of expected future cash flows
relative to outstanding balances. The portfolio review includes
consideration of the composition of the loan portfolio, current economic
conditions, past results, current trends, the estimated aggregate value of
the underlying collateral, and other relevant environmental factors.
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, identified in management's
specific review of probable loan losses, 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.
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 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 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. 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 and is reviewed for
impairment whenever events or circumstances indicate the carrying value may
not be recoverable. In reviewing recoverability, an impairment loss is
recognized for an other than temporary decline in value to the extent the
reduction in carrying values of investment real estate exceeds estimated
undiscounted future cash flows. Charges relating to real estate to be
disposed of and impairments of real estate held for investment are included
in "Realized investment gains, net." Depreciation on real estate is
computed using the straight-line method over the estimated lives of the
properties.
POLICY LOANS are carried at unpaid principal balances.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE are treated as financing arrangements and 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 or resold is monitored, and additional collateral is requested,
where appropriate, to protect against credit exposure.
SECURITIES BORROWED AND SECURITIES LOANED are treated as financing
arrangements and 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 because the debtor typically
has the right to redeem the collateral on short notice. Substantially all
of 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.
9
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities repurchase and resale agreements and securities borrowed and
loaned 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.
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.
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.
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." Decreases in the lower of
depreciated cost or fair value less selling costs of investment real estate
held for sale are recorded in "Realized investment gains, net."
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, for certain products, 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 "Accumulated
other comprehensive income."
For participating 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. The average rate of assumed investment yield in
estimating expected gross margins was 9.97%, 9.39%, and 8.39% for 1998,
1997 and 1996, respectively. Deferred policy acquisition costs related to
non-participatory term insurance are amortized over the expected life of
the contracts in proportion to the premium income.
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.
10
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For disability 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 Statements of Operations. Mortality, policy administration and
surrender charges on the accounts are included in "Policy charges and fee
income."
OTHER ASSETS AND OTHER LIABILITIES
Other assets consist primarily of prepaid benefit costs, reinsurance
recoverables, certain restricted assets, trade receivables and property and
equipment. Property and equipment are stated at cost less accumulated
depreciation. Depreciation is determined using the straight-line method
over the estimated useful lives of the related assets which generally range
from 3 to 40 years. Other liabilities consist primarily of trade payables
and reserves for sales practice remediation costs.
INSURANCE REVENUE AND EXPENSE RECOGNITION
Premiums from participating insurance policies are 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
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, 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.
11
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums, benefits and expenses are stated net of reinsurance ceded to
other companies. Estimated reinsurance receivables and the cost of
reinsurance are recognized over the life of the reinsured policies using
assumptions consistent with those used to account for the underlying
policies.
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. The effects of
translating the Statements of Financial Position of non-U.S. entities with
functional currencies other than the U.S. dollar are recorded, net of
related hedge gains and losses and income taxes, as "Other comprehensive
income," a separate component of equity.
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 from trading activities of the
Company's broker-dealer subsidiary.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are financial instruments whose values are derived from
interest rates, foreign exchange rates, various financial indices, or the
value of securities or commodities. Derivative financial instruments can be
exchange-traded or contracted in the over-the-counter market and those used
by the Company include swaps, futures, forwards and options contracts. The
Company uses derivative financial instruments to hedge market risk from
changes in interest rates or foreign currency exchange rates, and to alter
interest rate or currency exposures arising from mismatches between assets
and liabilities. Additionally, derivatives are used in the broker-dealer
business and in a limited-purpose subsidiary for trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for
existing assets, liabilities, firm commitments, or anticipated transactions
which are identified and probable to occur, and effective in reducing the
market risk to which the Company is exposed. The effectiveness of the
derivatives are evaluated at the inception of the hedge and throughout the
hedge period.
DERIVATIVES HELD FOR TRADING PURPOSES are used in the Company's securities
broker-dealer business and in a limited-purpose subsidiary to meet the
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. Trading derivative positions are
valued daily, generally by obtaining quoted market prices or through the
use of pricing models. Values are affected by changes in interest rates,
currency exchange rates, credit spreads, market volatility and liquidity.
The Company monitors these exposures through the use of various analytical
techniques.
Derivatives held for trading are recorded at fair value in "Trading account
assets," "Other liabilities" or "Receivables from/Payables to broker-dealer
clients" in the Consolidated Statements of Financial Position, and realized
and unrealized changes in fair value are included in "Commissions and other
income" of the Consolidated Statements of Operations in the periods in
which the changes occur. Cash flows from trading derivatives are reported
in the operating activities section of the Consolidated Statements of Cash
Flows.
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.
12
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
See Note 14 for a discussion of the accounting treatment of derivatives
that qualify as hedges. If the Company's use of other than trading
derivatives does not meet the criteria to apply hedge accounting, the
derivatives are recorded at fair value in "Other long-term investments" or
"Other liabilities" in the Consolidated Statements of Financial Position,
and changes in their fair value are recognized in earnings in "Realized
investment gains, net" without considering changes in the hedged assets or
liabilities. Cash flows from other than trading derivative assets and
liabilities are reported in the investing activities section in the
Consolidated Statements of Cash Flows.
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 life
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 that is expected 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 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
was 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 delayed the implementation of SFAS 125 for one year
for certain provisions, including repurchase agreements, dollar rolls,
securities lending and similar transactions. The Company adopted the
delayed provisions of SFAS 125 in 1998. The adoption of SFAS 125 did not
have a material impact on the Company's results of operations or financial
position.
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which was issued by the FASB in June 1997. This statement defines
comprehensive income 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 Statements of Financial Position. Application of this
statement did not change recognition or measurement of net income and,
therefore, did not affect the Company's financial position or results of
operations.
During 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which was issued by the
FASB in February 1998. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures. This statement is
limited to changes in reporting and presentation and does not change
recognition or measurement of pension or other postretirement benefit
plans. Therefore, its adoption did not affect the Company's financial
position or results of operations.
13
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP
97-3"). This statement provides guidance for determining when an insurance
company or other enterprise should recognize a liability for guaranty-fund
assessments as well as guidance for measuring the liability. The adoption
of SOP 97-3 did not have a material effect on the Company's financial
condition or results of operations. In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133 provides, if certain conditions are met, that a
derivative may be specifically designated as (1) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (fair value hedge), (2) a hedge of the
exposure to variable cash flows of a forecasted transaction (cash flow
hedge), or (3) a hedge of the foreign currency exposure of a net investment
in a foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated forecasted
transaction (foreign currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts.
However, certain hybrid contracts that contain features which can affect
settlement amounts similarly to derivatives may require separate accounting
for the "host contract" and the underlying "embedded derivative"
provisions. The latter provisions would be accounted for as derivatives as
specified by the statement.
Under SFAS No. 133, the accounting for changes in fair value of a
derivative depends on its intended use and designation. For a fair value
hedge, the gain or loss is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item. For a cash
flow hedge, the effective portion of the derivative's gain or loss is
initially reported as a component of other comprehensive income and
subsequently reclassified into earnings when the forecasted transaction
affects earnings. For a foreign currency hedge, the gain or loss is
reported in other comprehensive income as part of the foreign currency
translation adjustment. For all other derivatives not designated as hedging
instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement no later than
January 1, 2000 and is currently assessing the effect of the new standard.
In October 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on
how to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June
15, 1999. The adoption of this statement is not expected to have a material
effect on the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to current
year presentation.
14
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS
In December 1998, the Company entered into a definitive agreement to sell
its HealthCare business to Aetna Inc. ("Aetna"). Included in this
transaction are the Company's managed medical care, point of service,
preferred provider organization and indemnity health lines, dental
business, as well as the Company's Administrative Services Only ("ASO")
businesses. The transaction was approved by the boards of directors of both
companies and is expected to be completed in the second quarter of 1999,
subject to review by federal antitrust authorities and approval by state
regulators, and other customary closing conditions. Proceeds from the sale
will consist of $500 million of cash and $500 million of Aetna three year
senior notes.
Loss from operations of discontinued businesses for 1998 includes results
through December 31, 1998 (the measurement date). The Statements of
Operations for 1997 and 1996 have been restated to conform with the 1998
presentation. Amounts within the footnotes have been adjusted, where noted,
to eliminate the impact of discontinued operations and to be consistent
with the presentation in the Consolidated Statements of Operations. The
following table presents the results of operations and the loss on the
disposal of the Company's HealthCare business, determined as of the
measurement date, which are included in "Discontinued Operations" in the
Consolidated Statements of Operations. Amounts for 1997 and 1996 include
revenues and expenses relating to a contract with the American Association
of Retired Persons for healthcare and similar coverages which was
terminated effective December 31, 1997.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
Revenues $ 7,461 $ 10,305 $ 9,187
Policyholder benefits (6,064) (8,484) (7,711)
General and administrative expenses (1,822) (2,364) (1,921)
--------- --------- ---------
Loss before income taxes (425) (543) (445)
Income tax benefit 127 190 163
--------- --------- ---------
Loss from operations (298) (353) (282)
Loss on disposal, net of tax benefit of $131 (223) - -
--------- --------- ---------
Loss from discontinued operations, net of taxes $ (521) $ (353) $ (282)
========= ========= =========
</TABLE>
The loss on disposal includes anticipated operating losses to be incurred
by the HealthCare business subsequent to the measurement date through the
expected date of the sale, as well as estimates of other costs the Company
will incur in connection with the disposition of the HealthCare business.
Actual amounts may differ from these estimates. These include costs
attributable to facilities closure and systems terminations, severance,
payments to Aetna related to the ASO business, and estimated payments in
connection with an agreement covering the fully insured medical and dental
business. The latter agreement provides for payments either to or from
Aetna in the event that medical loss ratios (i.e., incurred medical expense
divided by earned premiums) for covered businesses are either less
favorable or more favorable than levels specified in the agreement for the
years 1999 and 2000. The loss on disposition was reduced by the estimated
impact of expected modifications of certain pension and other
postretirement benefit plans in which employees of the HealthCare business
participate. This amount includes curtailment gains and the cost of
termination benefits. (See Note 9.)
15
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS (CONTINUED)
The following table presents the assets and liabilities pertaining to the
Company's HealthCare business at December 31, 1998 which are included in
the Company's Consolidated Statements of Financial Position.
(In Millions)
Cash and investments $ 1,652
Other assets 1,030
-------
Total assets 2,682
Future policy benefits 1,241
Other liabilities 1,105
-------
Total liabilities 2,346
-------
Net assets $ 336
=======
4. 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>
1998
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 5,761 $ 580 $ 9 $ 6,332
Obligations of U.S. states and
their political subdivisions 2,672 204 1 2,875
Foreign government bonds 3,156 253 52 3,357
Corporate securities 57,373 2,545 553 59,365
Mortgage-backed securities 7,935 208 14 8,129
Other fixed maturities 100 - - 100
-----------------------------------------------------------
Total fixed maturities available for sale $ 76,997 $ 3,790 $ 629 $ 80,158
===========================================================
EQUITY SECURITIES AVAILABLE FOR SALE $ 2,583 $ 472 $ 296 $ 2,759
===========================================================
</TABLE>
16
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FIXED MATURITIES HELD TO MATURITY (In Millions)
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 5 $ - $ - $ 5
Obligations of U.S. states and
their political subdivisions 62 2 1 63
Foreign government bonds 31 4 - 35
Corporate securities 16,699 1,096 49 17,746
Mortgage-backed securities 1 - - 1
Other fixed maturities 50 6 - 56
------------------------------------------------------------
Total fixed maturities held to maturity $ 16,848 $ 1,108 $ 50 $ 17,906
============================================================
<CAPTION>
1997
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE (In Millions)
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 9,071 $ 671 $ - $ 9,742
Obligations of U.S. states and
their political subdivisions 1,529 152 - 1,681
Foreign government bonds 3,177 218 17 3,378
Corporate securities 50,043 2,611 144 52,510
Mortgage-backed securities 7,576 288 5 7,859
Other fixed maturities 100 - - 100
-----------------------------------------------------------
Total fixed maturities available for sale $ 71,496 $ 3,940 $ 166 $ 75,270
===========================================================
EQUITY SECURITIES AVAILABLE FOR SALE $ 2,376 $ 680 $ 246 $ 2,810
===========================================================
</TABLE>
17
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ----------- ----------
(In Millions)
<S> <C> <C> <C> <C>
FIXED MATURITIES HELD TO MATURITY
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>
18
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities by
contractual maturities at December 31, 1998, 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 $ 2,638 $ 2,644 $ 730 $ 736
Due after one year through five years 17,551 17,874 4,326 4,465
Due after five years through ten years 19,523 19,976 6,783 7,162
Due after ten years 29,350 31,535 5,008 5,542
Mortgage-backed securities 7,935 8,129 1 1
--------- ---------- -------- --------
Total $ 76,997 $ 80,158 $ 16,848 $ 17,906
========= ========== ======== ========
</TABLE>
Actual maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations.
Proceeds from the repayment of held to maturity fixed maturities during
1998, 1997 and 1996 were $4,466 million, $4,042 million and $4,268 million,
respectively. Gross gains of $135 million, $62 million and $78 million, and
gross losses of $2 million, $1 million and $7 million, were realized on
prepayment of held to maturity fixed maturities during 1998, 1997 and 1996,
respectively.
Proceeds from the sale of available for sale fixed maturities during 1998,
1997 and 1996 were $119,096 million, $120,604 million and $121,910 million,
respectively. Proceeds from the maturity of available for sale fixed
maturities during 1998, 1997 and 1996 were $ 4,055 million, $2,946 million
and $1,458 million, respectively. Gross gains of $1,765 million, $1,310
million and $1,562 million and gross losses of $443 million, $639 million
and $1,026 million were realized on sales and prepayments of available for
sale fixed maturities during 1998, 1997 and 1996, respectively.
Writedowns for impairments of fixed maturities which were deemed to be
other than temporary were $96 million, $13 million and $54 million for the
years 1998, 1997 and 1996, respectively.
During the years ended December 31, 1998 and December 31, 1997, certain
securities classified as held to maturity 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 $73 million and $27 million, respectively with
gross unrealized investment losses of $.4 million and gross unrealized
investment gains of $.6 million included during the years ended December
31, 1998 and 1997, respectively, in "Accumulated other comprehensive
income" at the time of the transfer.
19
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property
types at December 31:
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
(IN MILLIONS) OF TOTAL (IN MILLIONS) OF TOTAL
------------- ---------- ------------- ----------
1998 1997
------------------------ -------------------------
Office buildings $ 4,267 25.2% $ 4,692 28.5%
Retail stores 3,021 17.9% 3,078 18.7%
Residential properties 716 4.2% 891 5.4%
Apartment complexes 4,362 25.8% 3,551 21.6%
Industrial buildings 1,989 11.8% 1,958 11.9%
Agricultural properties 1,936 11.4% 1,666 10.1%
Other 631 3.7% 618 3.8%
-------- ----- -------- -----
Subtotal 16,922 100.0% 16,454 100.0%
===== =====
Allowance for losses (427) (450)
-------- --------
Net carrying value $ 16,495 $ 16,004
======== ========
The mortgage loans are geographically dispersed throughout the United
States and Canada with the largest concentrations in California (23.8%)
and New York (9.5%) at December 31, 1998. Included in the above balances
are mortgage loans receivable from affiliated joint ventures of $87 million
and $225 million at December 31, 1998 and 1997, respectively.
Activity in the allowance for losses for all mortgage loans, for the years
ended December 31, is summarized as follows:
1998 1997 1996
----- ----- -----
(In Millions)
Allowance for losses, beginning of year $ 450 $ 515 $ 862
Additions charged to operations - - -
Release of allowance for losses - (41) (247)
Charge-offs, net of recoveries (23) (24) (100)
----- ----- -----
Allowance for losses, end of year $ 427 $ 450 $ 515
===== ===== =====
The $41 million and $247 million reductions of the mortgage loan allowance
for losses in 1997 and 1996, respectively, are 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.
20
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
Impaired mortgage loans identified in management's specific review of
probable loan losses and related allowance for losses at December 31, are
as follows:
1998 1997
------- -------
(In Millions)
Impaired mortgage loans with allowance for losses $ 149 $ 330
Impaired mortgage loans with no allowance for losses 924 1,303
Allowance for losses (45) (97)
------- -------
Net carrying value of impaired mortgage loans $ 1,028 $ 1,536
======= =======
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 $1,329 million, $2,102 million and $2,842 million
during 1998, 1997 and 1996, respectively. Net investment income recognized
on these loans totaled $94 million, $140 million and $265 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
INVESTMENT REAL ESTATE
The Company's "Investment real estate" of $801 million and $1,519 million
at December 31, 1998 and 1997, respectively, is held through direct
ownership. Of the Company's real estate, $675 million and $1,490 million
consists of commercial and agricultural assets held for disposal at
December 31, 1998 and 1997, respectively. Impairment losses aggregated $8
million, $40 million and $38 million for the years ended December 31, 1998,
1997 and 1996, respectively, and are included in "Realized investment
gains, net."
RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets of $3,135 million and $2,783 million at December 31, 1998 and 1997,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Additionally, assets valued at $3,727
million and $2,352 million at December 31, 1998 and 1997, respectively,
were held in voluntary trusts. Of this amount, $3,131 million and $1,801
million at December 31, 1998 and 1997, respectively, related to the
multi-state policyholder settlement as described in Note 16. 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 $403 million and $632 million at December 31,
1998 and 1997, respectively, were maintained as compensating balances,
which do not legally restrict the use of the funds, or pledged as
collateral for bank loans and other financing agreements. Restricted cash
and securities of $2,366 million and $1,835 million at December 31, 1998
and 1997, respectively, were included in the consolidated financial
statements in "Other assets." 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 $2,658 million and $2,489
million as of December 31, 1998 and 1997, respectively, are comprised of
$1,007 million and $1,498 million in real estate related interests and
$1,651 million and $991 million of non-real estate related interests. The
Company's share of net income from such entities was $285 million, $411
million and $245 million for 1998, 1997 and 1996, respectively, and is
reported in "Net investment income."
21
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. 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>
1998 1997 1996
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 5,366 $ 5,074 $ 4,871
Fixed maturities - held to maturity 1,406 1,622 1,793
Trading account assets 677 504 444
Equity securities - available for sale 54 52 81
Mortgage loans on real estate 1,525 1,555 1,690
Investment real estate 230 565 685
Policy loans 410 396 384
Securities purchased under agreements to resell 18 15 11
Receivables from broker-dealer clients 836 706 579
Short-term investments 725 697 702
Other investment income 415 520 559
-------- -------- --------
Gross investment income 11,662 11,706 11,799
Less investment expenses (2,035) (2,038) (2,130)
-------- -------- --------
Subtotal 9,627 9,668 9,669
Less amount relating to discontinued operations (107) (212) (208)
-------- -------- --------
Net investment income $ 9,520 $ 9,456 $ 9,461
======== ======== ========
</TABLE>
REALIZED INVESTMENT GAINS, NET, for the years ended December 31, were from
the following sources:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Fixed maturities $ 1,381 $ 684 $ 513
Mortgage loans on real estate 22 68 248
Investment real estate 642 700 76
Equity securities - available for sale 427 363 267
Other 188 394 34
-------- -------- --------
Subtotal 2,660 2,209 1,138
Less amounts related to discontinued operations (30) (41) (10)
-------- -------- --------
Realized investment gains, net $ 2,630 $ 2,168 $ 1,128
======== ======== ========
</TABLE>
Based on the carrying value, assets categorized as "non-income producing"
for the year ended December 31, 1998 included in fixed maturities available
for sale, mortgage loans on real estate and other long term investments
totaled $1 million, $23 million and $13 million, respectively.
22
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
NET UNREALIZED INVESTMENT GAINS
Net unrealized investment gains on securities available for sale are
included in the Consolidated Statements of Financial Position as a
component of "Accumulated other comprehensive income." Changes in these
amounts include reclassification adjustments to avoid double-counting in
"Comprehensive income," items that are included as part of "Net income" for
a period that also had been part of "Other comprehensive income" in earlier
periods. The amounts for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In Millions)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year $ 1,752 $ 1,136 $ 2,397
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized investment gains (losses) on investments arising
during the period 522 1,706 (1,281)
Reclassification adjustment for gains included in net income (1,087) (631) (471)
------- ------- -------
Change in net unrealized investment gains, net of adjustments (565) 1,075 (1,752)
Impact of net unrealized investment gains on:
Future policy benefits 23 (360) 318
Deferred policy acquisition costs 62 (99) 173
------- ------- -------
Change in net unrealized investment gains (480) 616 (1,261)
------- ------- -------
Net unrealized investment gains, end of year $ 1,272 $ 1,752 $ 1,136
======= ======= =======
</TABLE>
Unrealized gains (losses) on investments arising during the periods
reported in the above table are net of income tax expense (benefit) of $282
million, $961 million and $(647) million for the years ended December 31,
1998, 1997 and 1996, respectively.
Reclassification adjustments reported in the above table for the years
ended December 31, 1998, 1997 and 1996 are net of income tax expense of
$588 million, $355 million and $238 million, respectively.
The future policy benefits reported in the above table are net of income
tax expense (benefit) of $15 million, $(203) million and $161 million for
the years ended December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense (benefit) of
$36 million, $(55) million and $88 million, respectively.
23
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. 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>
1998 1997 1996
------- ------- -------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year $ 6,083 $ 6,095 $ 5,892
Capitalization of commissions, sales and issue expenses 1,313 1,409 1,260
Amortization (1,139) (1,176) (1,261)
Change in unrealized investment gains 77 (154) 261
Foreign currency translation 128 (91) (57)
------- ------- -------
Balance, end of year $ 6,462 $ 6,083 $ 6,095
======= ======= =======
</TABLE>
6. POLICYHOLDERS' LIABILITIES
FUTURE POLICY BENEFITS at December 31, are as follows:
1998 1997
------- -------
(In Millions)
Life insurance $48,927 $46,765
Annuities 15,360 15,469
Other contract liabilities 4,842 5,133
------- -------
Future policy benefits $69,129 $67,367
======= =======
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.
24
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. POLICYHOLDERS' LIABILITIES (CONTINUED)
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 3.5% 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
Table with certain payments
modifications based on historical
experience
Other contract liabilities - 5.3% to 7.0% Present value of
expected future
payments
based on historical
experience
</TABLE>
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 and to recover any unamortized
acquisition costs. A premium deficiency reserve has been recorded for the
group single premium annuity business, which consists of limited-payment,
long duration, traditional and non-participating annuities. A liability of
$1,780 million and $1,645 million is included in "Future policy benefits"
with respect to this deficiency for the years ended December 31, 1998 and
1997, respectively.
POLICYHOLDERS' ACCOUNT BALANCES at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In Millions)
<S> <C> <C>
Individual annuities $ 4,997 $ 5,695
Group annuities and guaranteed investment contracts 16,770 19,053
Interest-sensitive life contracts 3,566 3,258
Dividend accumulations and other 5,641 5,240
------- --------
Policyholders' account balances $30,974 $ 33,246
======= ========
</TABLE>
Policyholders' account balances for interest-sensitive life and
investment-type contracts represent an accumulation of gross premium
payments plus credited interest less withdrawals, expenses and mortality
charges.
25
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. POLICYHOLDERS' LIABILITIES (Continued)
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 3.0% to 6.6% 0% to 8% for up to 8 years
Group annuities 5.0% to 13.4% Contractually limited or subject
to market value adjustment
Guaranteed investment contracts 3.9% to 15.4% Subject to market value withdrawal
payout status 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 and other 3.0% to 4.5% --
</TABLE>
26
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. POLICYHOLDERS' LIABILITIES (Continued)
Unpaid Claims and Claim Adjustment Expenses. The following table provides
a reconciliation of the activity in the liability for unpaid claims and
claim adjustment expenses for property and casualty and accident and
health insurance at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- -----------------------
ACCIDENT PROPERTY ACCIDENT PROPERTY ACCIDENT PROPERTY
AND HEALTH AND CASUALTY AND HEALTH AND CASUALTY AND HEALTH AND CASUALTY
---------- ------------ ---------- ------------ ---------- -------------
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 $ 1,908 $ 2,956 $ 1,990 $ 3,076 $ 2,033 $ 3,053
Less reinsurance recoverables 810 535 10 553 15 557
------- ------- ------- ------- ------- -------
Net balance at January 1 1,098 2,421 1,980 2,523 2,018 2,496
------- ------- ------- ------- ------- -------
Incurred related to:
Current year 6,127 1,354 8,348 1,525 8,391 1,760
Prior years 7 (194) 102 (91) (66) (25)
------- ------- ------- ------- ------- -------
Total incurred 6,134 1,160 8,450 1,434 8,325 1,735
------- ------- ------- ------- ------- -------
Paid related to:
Current year 5,289 717 6,676 739 6,589 908
Prior years 851 681 1,854 797 1,774 800
------- ------- ------- ------- ------- -------
Total paid 6,140 1,398 8,530 1,536 8,363 1,708
------- ------- ------- ------- ------- -------
Net balance at December 31 1,092 2,183 1,900 2,421 1,980 2,523
Plus reinsurance recoverables 52 533 8 535 10 553
------- ------- ------- ------- ------- -------
Balance at December 31 $ 1,144 $ 2,716 $ 1,908 $ 2,956 $ 1,990 $ 3,076
======= ======= ======= ======= ======= =======
</TABLE>
The Accident and Health balance at December 31 includes amounts
attributable to the Company's discontinued HealthCare business: 1998 -
$1,082; 1997 - $1,757 and 1996 - $1,750.
In 1998 and 1997, the changes in provision for claims and claim adjustment
expenses for property and casualty related to prior years are primarily
driven by lower than anticipated losses for the Voluntary Auto line of
business.
The changes in provision for claims and claim adjustment expense for
accident and health related to prior years are primarily due to such
factors as changes in claim cost trends and an accelerated decline in the
indemnity health business.
The unpaid claims and claim adjustment expenses presented above consist 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 Consolidated
Statement of Operations periodically as the estimates are revised.
Accident and health unpaid claims liabilities for 1998, 1997 and 1996
included above are discounted using interest rates ranging from 3.0%
to 6.0%.
27
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. REINSURANCE
The Company participates in reinsurance in order to provide greater
diversification of business, provide additional capacity for future growth
and limit the maximum net loss potential arising from large risks. Life
reinsurance is accomplished through various plans of reinsurance,
primarily yearly renewable term and coinsurance. Property-casualty
reinsurance is placed on both a pro-rata and excess of loss basis.
Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer. Ceded balances would
represent a liability to the Company in the event the reinsurers were
unable to meet their obligations to the Company under the terms of the
reinsurance agreements. The Company periodically reviews the financial
condition of its reinsurers and amounts recoverable therefrom, recording
an allowance when necessary for uncollectible reinsurance.
Reinsurance amounts included in the Consolidated Statements of Operations,
excluding HealthCare, for the years ended December 31, were as follows:
1998 1997 1996
------- ------ -------
(In Millions)
Direct Premiums $9,615 $9,679 $10,690
Reinsurance Assumed 65 42 13
Reinsurance Ceded (656) (716) (704)
------ ------ -------
Premiums $9,024 $9,005 $ 9,999
====== ====== =======
Policyholders' benefits ceded $ 519 $ 530 $ 571
====== ====== =======
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31, were as
follows:
1998 1997
------ ------
(In Millions)
Life insurance $ 620 $ 685
Property-casualty 564 554
Other reinsurance 92 65
------ ------
$1,276 $1,304
====== ======
28
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
8. SHORT-TERM AND LONG-TERM DEBT
Debt consists of the following at December 31:
SHORT-TERM DEBT
1998 1997
------- ------
(In Millions)
Commercial paper $ 7,057 $4,268
Notes payable 2,164 2,151
Current portion of long-term debt 861 355
------- ------
Total short-term debt $10,082 $6,774
======= ======
The weighted average interest rate on outstanding short-term debt was
approximately 5.4% and 6.0% at December 31, 1998 and 1997, 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 1998 1997
- ----------- -------------- ---- ----- ----
(In Millions)
<S> <C> <C> <C> <C>
Floating rate notes ("FRN") 1999 - 2005 4.04-14.00%(a) $ 729 $ 324
Long term notes 1999 - 2023 5.5% - 12% 1,318 910
Zero coupon notes 1999 8.6% (b) 364 334
Canadian dollar notes - 7.0% - 9.125% - 117
Japanese yen notes 1999 - 2000 0.5% - 4.6% 160 178
Swiss francs notes - 3.875% - 120
Canadian dollar FRN 2003 5.25%-5.89% 96 96
Surplus notes 2003 - 2025 6.875% - 8.3% 987 986
Senior notes 1999 - 2006 6.375% 393 -
Commercial paper backed by long-term
credit agreements 1,500 1,500
Other notes payable 1999 - 2017 4% - 7.5% 48 63
------- -------
Subtotal 5,595 4,628
Less: current portion of long-term debt (861) (355)
------- -------
Total long-term debt $ 4,734 $ 4,273
======= =======
</TABLE>
(a) The Company issued an S&P 500 index linked note of $29 million in September
of 1997. The interest rate on the note is based on the appreciation of the
S&P 500 index, with a contractual cap of 14%. At December 31, 1998, this
rate was 14%. Excluding this note, floating rate note interest rates were
between 4.04% - 5.50%.
(b) The rate shown for zero coupon notes represents a level yield to maturity.
29
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. SHORT-TERM AND LONG-TERM DEBT (CONTINUED)
Payment of interest and principal on the surplus notes issued after 1993,
of which $686 million were outstanding at December 31, 1998, 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, 1998,
are as follows: $862 million in 1999, $560 million in 2000, $327 million
in 2001, $1,816 million in 2002, $458 million in 2003 and $1,575 million
thereafter.
At December 31, 1998, the Company had $9,853 million in lines of credit
from numerous financial institutions of which $8,330 million were unused.
These lines of credit generally have terms ranging from one to five years.
Interest expense for short-term and long-term debt is $920 million,
$743 million and $618 million for the years ended December 31, 1998, 1997
and 1996, respectively.
9. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
The Company has funded non-contributory defined benefit pension plans
which cover substantially all of its employees. The Company also has
several non-funded non-contributory 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.
The Company provides certain life insurance and health care benefits
("Other postretirement benefits") for its retired employees, their
beneficiaries and covered dependents. The healthcare plan is
contributory; the life insurance plan is non-contributory. 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
certain circumstances after age 50 with at least 20 years of continuous
service. These benefits are funded as considered necessary by Company
management.
The Company has elected to amortize its transition obligation for other
postretirement benefits over 20 years.
30
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Prepaid and accrued benefit 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, is summarized below:
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------------- ------------------------
1998 1997 1998 1997
-------- ------- ------- -------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at the beginning of period $(5,557) $(5,148) $(2,128) $(2,002)
Service cost (159) (127) (35) (38)
Interest cost (397) (376) (142) (149)
Plan participants' contributions - - ( 6) (4)
Amendments (58) - - 31
Actuarial losses (600) (334) (31) (84)
Transfer to third party - 32 - -
Contractual termination benefits (30) (63) - -
Benefits paid 485 460 128 117
Foreign currency changes 7 (1) 1 1
------- ------- ------- -------
Benefit obligation at end of period $(6,309) $(5,557) $(2,213) $(2,128)
======= ======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of period $ 8,489 $ 7,306 $ 1,354 $ 1,313
Actual return on plan assets 445 1,693 146 120
Transfer to third party (4) (32) - -
Contribution from pension plan - - 31 25
Employer contributions 25 16 13 9
Plan participants' contributions - - 6 4
Withdrawal under IRS Section 420 (36) (35) - -
Benefits paid (485) (460) (128) (117)
Foreign currency changes (7) 1 - -
------- ------- ------- -------
Fair value of plan assets at end of period $ 8,427 $ 8,489 $ 1,422 $ 1,354
======= ======= ======= =======
FUNDED STATUS:
Funded status at end of period $ 2,118 $ 2,932 $ (791) $ (774)
Unrecognized transition (asset) liability (554) (661) 660 707
Unrecognized prior service cost 335 327 - -
Unrecognized actuarial net gain (813) (1,644) (353) (364)
Effects of 4th quarter activity (9) (63) 2 33
------- ------- ------- -------
Net amount recognized $ 1,077 $ 891 $ (482) $ (398)
======= ======= ======= =======
AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost $ 1,348 $ 1,150 $ - $ -
Accrued benefit liability (287) (270) (482) (398)
Intangible asset 7 5 - -
Accumulated other comprehensive income 9 6 - -
-------- -------- -------- ---------
Net amount recognized $ 1,077 $ 891 $ (482) $ (398)
======== ======== ======== =========
</TABLE>
31
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $384 million, $284 million and
$0, respectively, as of September 30, 1998 and $319 million, $226 million
and $ 0, respectively, as of September 30, 1997.
The effects of fourth quarter activity are summarized as follows:
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------------- -----------------------
1998 1997 1998 1997
------ ------- ------ ------
(In Millions)
<S> <C> <C> <C> <C>
Effect of IRS Section 420 transfer $ - $ (36) $ - $ -
Contractual termination benefits (14) (30) - -
Contribution from pension plan - - - 31
Employer contributions 5 3 2 2
----- ------- ------ ------
Effects of 4th quarter activity $ (9) $ (63) $ 2 $ 33
====== ======= ====== ======
</TABLE>
Pension plan assets consist primarily of equity securities, bonds, real estate
and short-term investments, of which $5,926 million and $6,022 million are
included in Separate Account assets and liabilities at September 30, 1998 and
1997, respectively.
Other postretirement plan assets 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 $1,018
million and $1,044 million of Company insurance policies and contracts at
September 30, 1998 and 1997, 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 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, 1998 that their employment had been
terminated. Costs related to these amendments are reflected below in contractual
termination benefits.
32
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic benefit cost included in "General and administrative expenses"
in the Company's Consolidated Statements of Operations for the years ended
December 31, includes the following components:
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------------------- ------------------------------------
1998 1997 1996 1998 1997 1996
----------------------------------- ------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFITS COSTS:
Service cost $ 159 $ 127 $ 140 $ 35 $ 38 $ 45
Interest cost 397 376 354 142 149 157
Expected return on plan assets (674) (617) (594) (119) (87) (93)
Amortization of transition amount (106) (106) (107) 47 50 53
Amortization of prior service cost 45 42 26 - - -
Amortization of actuarial net (gain) loss 1 - - (13) (13) (3)
Curtailment gain (loss) 5 - - - - (9)
Contractual termination benefits 14 30 63 - - -
------- ------- ------- ------- ------- ------
Net periodic (benefit) cost $ (159) $ (148) $ (118) $ 92 $ 137 $ 150
======= ======= ======= ======= ======= ======
</TABLE>
The assumptions at September 30, used by the Company to calculate the benefit
obligations as of that date and to determine the benefit cost in the subsequent
year are as follows:
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------ ----------------------------------------
1998 1997 1996 1998 1997 1996
------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rate 6.50% 7.25% 7.75% 6.50% 7.25% 7.75%
Rate of increase in compensation levels 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Expected return on plan assets 9.50% 9.50% 9.50% 9.00% 9.00% 9.00%
Health care cost trend rates - - - 7.80-11.00% 8.20-11.80% 8.50-12.50%
Ultimate health care cost trend rate
after gradual decrease until 2006 - - - 5.00% 5.00% 5.00%
</TABLE>
33
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage point
increase and decrease in assumed health care cost trend rates would have
the following effects:
OTHER
POSTRETIREMENT BENEFITS
-----------------------
1998
------
(In Millions)
ONE PERCENTAGE POINT INCREASE
Effect on total service and interest costs $ 24
Effect on postretirement benefit obligation (226)
ONE PERCENTAGE POINT DECREASE
Effect on total service and interest costs $ (19)
Effect on postretirement benefit obligation 187
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, 1998 and 1997
was $135 million and $144 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 3% of annual salary,
resulting in $54 million, $63 million and $57 million of expenses included in
"General and administrative expenses" for 1998, 1997 and 1996, respectively.
DISCONTINUED OPERATIONS
In connection with the disposal of the Company's HealthCare business, as more
fully discussed in Note 3, the loss on disposal was reduced by an estimated
curtailment gain of $30 million.
34
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. INCOME TAXES
The components of income tax expense for the years ended December 31, were
as follows:
1998 1997 1996
------ ------ ------
(In Millions)
Current tax expense (benefit):
U.S. $ 983 $ (14) $ 400
State and local 54 51 108
Foreign 148 64 48
------ ------ ------
Total $1,185 $ 101 $ 556
====== ====== ======
Deferred tax expense (benefit):
U.S. $ (193) $ 269 $ (428)
State and local (6) 4 (2)
Foreign (16) 33 54
------ ------ ------
Total $ (215) $ 306 $ (376)
====== ====== ======
Total income tax expense $ 970 $ 407 $ 180
====== ====== ======
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 continuing operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Expected federal income tax expense $ 908 $ 480 $ 539
Equity tax (benefit) 75 (65) (365)
State and local income taxes 31 37 69
Tax-exempt interest and dividend received deduction (46) (67) (67)
Other
2 22 4
------ ------ ------
Total income tax expense $ 970 $ 407 $ 180
====== ====== ======
</TABLE>
35
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
------- -------
(In Millions)
Deferred tax assets
Insurance reserves $ 1,584 $ 1,482
Policyholder dividends 265 250
Net operating loss carryforwards 260 80
Litigation related reserves 104 178
Employee benefits 63 42
Other 134 287
------- -------
Deferred tax assets before valuation allowance 2,410 2,319
Valuation allowance (13) (18)
------- -------
Deferred tax assets after valuation allowance 2,397 2,301
------- -------
Deferred tax liabilities
Investments 1,414 1,867
Deferred policy acquisition costs 1,436 1,525
Depreciation 64 36
------- -------
Deferred tax liabilities 2,914 3,428
------- -------
Net deferred tax liability $ 517 $ 1,127
======= =======
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its 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, 1998 and 1997,
respectively, the Company had federal life net operating loss carryforwards of
$540 million and $1,200 million, which expire by 2012. At December 31, 1998 and
1997, respectively, the Company had state non-life operating loss carryforwards
for tax purposes approximating $1,059 million and $800 million, which expire by
2018.
The Internal Revenue Service (the "Service") has completed all examinations of
the consolidated federal income tax returns through 1989. The Service has
examined the years 1990 through 1992. Discussions are being held with the
Service with respect to proposed adjustments. Management, however, 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.
36
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. STATUTORY EQUITY AND INCOME
Applicable insurance department regulations require that the Company
prepare statutory financial statements in accordance with statutory
accounting practices prescribed or permitted by the New Jersey Department
of Banking and Insurance. Statutory accounting practices primarily differ
from GAAP by charging policy acquisition costs to expense as incurred,
establishing future policy benefits reserves using different actuarial
assumptions, not providing for deferred taxes, and valuing securities on a
different basis. The Company's statutory net income, as filed with the New
Jersey Department of Banking and Insurance was $1,247 million, $1,471
million and $1,402 million for the years 1998, 1997 and 1996,
respectively. Statutory capital and surplus, as filed, at December 31,
1998 and 1997 was $8,536 million and $9,242 million, respectively.
12. 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, 1998, future minimum lease payments under non-cancelable
operating leases are estimated as follows:
(In Millions)
1999 $ 295
2000 263
2001 231
2002 198
2003 157
Remaining years after 2003 753
-------
Total $ 1,897
=======
Amounts presented in the table above include operating leases relating to
the Company's HealthCare business. See Note 3 for a discussion of the
pending sale of this business. Amounts applicable to the HealthCare
business are $65 million in 1999, $58 million in 2000, $52 million in
2001, $45 million in 2002, $34 million in 2003 and $89 million thereafter.
Rental expense incurred for the years ended December 31, 1998, 1997 and
1996 was approximately $320 million, $352 million and $343 million,
respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated 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
estimated fair values (for all other financial instruments presented in
the table, the carrying value approximates estimated fair value).
37
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FIXED MATURITIES AND EQUITY SECURITIES
Estimated 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 fair value of
certain non-performing private placement securities is based on amounts
estimated by management.
MORTGAGE LOANS ON REAL ESTATE
The estimated 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 loans, the
estimated 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 estimated 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
Estimated fair values of policyholders' account balances are derived by
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. For interest sensitive life
contracts, fair value approximates carrying value.
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.
38
<PAGE>
- -------------------------------------------------------------------------------
13. 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>
1998 1997
----------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(In Millions)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Other than trading:
Fixed maturities:
Available for sale $ 80,158 $ 80,158 $ 75,270 $ 75,270
Held to maturity 16,848 17,906 18,700 19,894
Equity securities 2,759 2,759 2,810 2,810
Mortgage loans on real estate 16,495 17,265 16,004 16,703
Policy loans 7,476 8,037 7,034 7,201
Securities purchased under agreements to resell 1,737 1,737 - -
Short-term investments 9,781 9,781 12,106 12,106
Cash 1,943 1,943 1,859 1,859
Restricted Assets 2,366 2,366 1,835 1,835
Separate Account assets 81,621 81,621 73,839 73,839
Derivative financial instruments 132 135 93 92
Trading:
Trading account assets $ 8,888 $ 8,888 $ 6,347 $ 6,347
Broker-dealer related receivables 10,142 10,142 8,442 8,442
Derivative financial instruments 765 765 910 910
Securities purchased under agreements to resell 8,515 8,515 8,661 8,661
Cash collateral for borrowed securities 5,622 5,622 5,047 5,047
FINANCIAL LIABILITIES:
Other than trading:
Policyholders' account balances $ 30,974 $ 31,940 $ 33,246 $ 34,201
Securities sold under agreements to repurchase 7,085 7,085 85 85
Cash collateral for loaned securities 2,450 2,450 9,647 9,647
Short-term and long-term debt 14,816 15,084 11,047 11,131
Securities sold but not yet purchased 2,215 2,215 - -
Separate Account liabilities 80,931 80,931 73,451 73,451
Derivative financial instruments 390 391 100 99
Trading:
Broker-dealer related payables $ 6,530 $ 6,530 $ 3,338 $ 3,338
Derivative financial instruments 725 725 1,019 1,019
Securities sold under agreements to repurchase 14,401 14,401 12,262 12,262
Cash collateral for loaned securities 4,682 4,682 4,470 4,470
Securities sold but not yet purchased 3,556 3,556 3,648 3,648
</TABLE>
39
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
INTEREST RATE SWAPS
The Company uses interest rate swaps to reduce market risks from changes in
interest rates and to alter interest rate exposures arising from mismatches
between assets and liabilities. Under interest rates swaps, the Company
agrees with other parties to exchange, at specified intervals the difference
between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. Generally, no cash is
exchanged at the outset of the contract and no principal payments are made
by either party. Cash is paid or received based on the terms of the swap.
These transactions are entered into pursuant to master agreements that
provide for a single net payment to be made by one counterparty at each due
date. 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.
If swap agreements meet the criteria for hedge accounting, net interest
receipts or payments are accrued and recognized over the life of the swap
agreements as an adjustment to interest income or expense of the hedged
item. Any unrealized gains or losses are not recognized until the hedged
item is sold or matures. Gains or losses on early termination of interest
rate swaps are deferred and amortized over the remaining period originally
covered by the swaps. If the criteria for hedge accounting are not met, the
swap agreements are accounted for at market value with changes in fair value
reported in current period earnings.
FUTURES AND OPTIONS
The Company uses exchange-traded Treasury futures and options to reduce
market risks from changes in interest rates, to alter mismatches between the
duration of assets in a portfolio and the duration of liabilities supported
by those assets, and to hedge against changes in the value of securities it
owns or anticipates acquiring. The Company enters into exchange-traded
futures and options with regulated futures commissions merchants who are
members of a trading exchange. The fair value of futures and options is
based on market quotes for transactions with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified
number of contracts with other parties and to post variation margin on a
daily basis in an amount equal to the difference in the daily market values
of those contracts. Futures are typically used to hedge duration mismatches
between assets and liabilities by replicating Treasury performance. Treasury
futures move substantially in value as interest rates change and can be used
to either modify or hedge existing interest rate risk. This strategy
protects against the risk that cash flow requirements may necessitate
liquidation of investments at unfavorable prices resulting from increases in
interest rates. This strategy can be a more cost effective way of
temporarily reducing the Company's exposure to a market decline than selling
fixed income securities and purchasing a similar portfolio when such a
decline is believed to be over.
If futures meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing
financial instruments are amortized as a yield adjustment over the remaining
lives of the hedged item. Futures that do not qualify as hedges are carried
at fair value with changes in value reported in current period earnings. The
gains and losses associated with anticipatory transactions are not material.
40
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
When the Company anticipates a significant decline in the stock market
which will correspondingly affect its diversified portfolio, it may
purchase put index options where the basket of securities in the index is
appropriate to provide a hedge against a decrease in the value of the
equity portfolio or a portion thereof. This strategy effects an orderly
sale of hedged securities. When the Company has large cash flows which it
has allocated for investment in equity securities, it may purchase call
index options as a temporary hedge against an increase in the price of the
securities it intends to purchase. This hedge permits such investment
transactions to be executed with the least possible adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the
criteria for hedge accounting, changes in their fair value are deferred
and recognized as an adjustment to the hedged item. Deferred gains or
losses from the hedges for interest-bearing financial instruments are
recognized as an adjustment to interest income or expense of the hedged
item. If the options do not meet the criteria for hedge accounting, they
are fair valued, with changes in fair value reported in current period
earnings.
CURRENCY DERIVATIVES
The Company uses currency derivatives, including exchange-traded currency
futures and options, currency forwards and currency swaps to reduce market
risks from changes in currency values of investments denominated in
foreign currencies that the Company either holds or intends to acquire and
to alter the currency exposures arising from mismatches between such
foreign currencies and the U.S. Dollar.
Under currency forwards, the Company agrees with other parties upon
delivery of a specified amount of specified currency at a specified future
date. Typically, the price is agreed upon at the time of the contract and
payment for such a contract is made at the specified future date. Under
currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal
amount. Generally, the principal amount of each currency is exchanged at
the beginning and termination of the currency swap by each party. These
transactions are entered into pursuant to master agreements that provide
for a single net payment to be made by one counterparty for payments made
in the same currency at each due date.
If currency derivatives are effective as hedges of foreign currency
translation and transaction exposures, gains or losses are recorded in
"Accumulated other comprehensive income." If currency derivatives do not
meet hedge accounting criteria, gains or losses from those derivatives are
recognized in current period earnings.
The tables below summarize the Company's outstanding positions by
derivative instrument types as of December 31, 1998 and 1997. 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.
41
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
DECEMBER 31, 1998
(In Millions)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING TOTAL
------------------------- ------------------------- -------------------------
ESTIMATED ESTIMATED ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Swaps:
Assets $ 4,564 $ 309 $ 2,200 $ 96 $ 6,764 $ 405
Liabilities 4,734 274 3,065 349 7,799 623
Forwards:
Assets 45,651 282 1,004 14 46,655 296
Liabilities 39,153 280 2,039 37 41,192 317
Futures:
Assets 3,272 61 1,786 23 5,058 84
Liabilities 4,371 47 531 5 4,902 52
Options:
Assets 8,310 113 130 2 8,440 115
Liabilities 6,388 124 213 - 6,601 124
-------- -------- -------- ------- -------- --------
Total:
Assets $ 61,797 $ 765 $ 5,120 $ 135 $ 66,917 $ 900
======== ======== ======== ======= ======== ========
Liabilities $ 54,646 $ 725 $ 5,848 $ 391 $ 60,494 $ 1,116
======== ======== ======== ======= ======== ========
</TABLE>
42
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
14. 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 ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
-------- ----------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Swaps:
Assets $ 5,798 $ 316 $ 1,446 $ 67 $ 7,244 $ 383
Liabilities 5,439 418 1,197 70 6,636 488
Forwards:
Assets 29,947 438 1,171 25 31,118 463
Liabilities 29,985 461 687 8 30,672 469
Futures:
Assets 4,103 51 46 - 4,149 51
Liabilities 3,064 50 3,320 21 6,384 71
Options:
Assets 6,893 105 239 - 7,132 105
Liabilities 3,946 90 224 - 4,170 90
------- ------- ------- ------ ------- -------
Total:
Assets $46,741 $ 910 $ 2,902 $ 92 $49,643 $ 1,002
======= ======= ======= ====== ======= =======
Liabilities $42,434 $ 1,019 $ 5,428 $ 99 $47,862 $ 1,118
======= ======= ======= ====== ======= =======
</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. At December
31, 1998 and 1997 approximately 97% and 95%, respectively, 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, 1998, 1997 and 1996
relating to forwards, futures and swaps were $67 million, $(5) million and $(13)
million; $59 million, $37 million and $(13) million; and $42 million, $32
million and $(11) 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, 1998 and 1997 were $1,165 million and $1,015
million, respectively, and for derivatives in a liability position were $1,140
million and $1,166 million, respectively. Of those derivatives held for trading
purposes at December 31, 1998, 63% of the notional amount consisted of interest
rate derivatives, 32% consisted of foreign currency derivatives, and 5%
consisted of equity and commodity derivatives. Of those derivatives held for
purposes other than trading at December 31, 1998, 60% of notional consisted of
interest rate derivatives, 31% consisted of foreign currency derivatives, and 9%
consisted of equity and commodity derivatives.
43
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. 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
underfunded portion of commitments to fund investments in private placement
securities, and unused credit card and home equity lines. In connection
with the Company's commercial banking business, loan commitments for credit
cards and home equity lines of credit include agreements to lend up to
specified limits to customers. It is anticipated that commitment amounts
will only be partially drawn down based on overall customer usage patterns,
and, therefore, do not necessarily represent future cash requirements. The
Company evaluates each credit decision on such commitments at least
annually and has the ability to cancel or suspend such lines at its option.
The total available lines of credit card and home equity commitments were
$3.0 billion of which $2.2 billion remains available at December 31, 1998.
Also in connection with the Company's investment banking activities, the
Company enters into agreements with mortgage originators and others to
provide financing on both a secured and unsecured basis. Aggregate
financing commitments on a secured basis approximate $6.1 billion of which
$3.3 billion remains available at December 31, 1998. Unsecured commitments
approximate $65.0 million, the majority of which is outstanding at December
31, 1998.
Other commitments substantially include commitments to purchase and sell
mortgage loans and the underfunded portion of commitments to fund
investments in private placement securities. These mortgage loans and
private commitments were $2.5 billion of which $1.8 billion remain
available at December 31, 1998. Additionally, mortgage loans sold with
recourse were $0.5 billion at December 31, 1998.
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. At December 31,
1998 these were immaterial.
15. DIVESTITURE
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."
16. CONTINGENCIES AND LITIGATION
STOP-LOSS REINSURANCE 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. The Company
has guaranteed
44
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. CONTINGENCIES AND LITIGATION (CONTINUED)
Gibraltar's obligations arising under the stop-loss agreement subject to a
limit of $375 million. Through December 31, 1998, Gibraltar has incurred
$375 million in losses under the stop-loss agreement, including $90 million
in 1998. Gibraltar has paid $197 million to Pru Re under the stop-loss
agreement.
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
The Company has reviewed its obligations under certain managed care
arrangements for possible failure to comply with contractual and regulatory
requirements. It is the opinion of management that adequate reserves have
been established to provide for appropriate reimbursements to customers.
REINSURANCE AND PARTICIPATION AGREEMENT
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. In November 1998,
the Rehabilitation Court approved the sale of MBLLAC's individual life
insurance and individual group annuity business to affiliates of SunAmerica
Inc. Upon the end of the rehabilitation period, expected during 1999, the
agreement will terminate.
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.
Two putative class actions and approximately 320 individual actions were
pending against the Company in the United States as of January 31, 1999
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. Additional
suits may be filed by individuals who opted out of the class action
settlement described below. The sales practices alleged to have occurred
are contrary to Company policy. Some of these cases seek substantial
damages while others seek unspecified compensatory, punitive and treble
damages. The Company intends to defend these cases vigorously.
45
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. CONTINGENCIES AND LITIGATION (CONTINUED)
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. 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 and that the
Company's efforts to prevent such practices were not sufficiently
effective. Based on the findings, the Task Force recommended, and the
Company agreed to, various changes to its sales and business practices
controls, and 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 U.S. District
Court for the District of 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 U.S. District Court 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 was affirmed by the U.S. Court of Appeals for the Third Circuit
in July 1998 although the issue of class counsel's fees was sent back to
the U.S. District Court for review. The Supreme Court denied certiorari in
January 1999, thereby making final the approval of the class action
settlement.
While the approval of the class action settlement is now final, the Company
remains subject to oversight and review by insurance regulators and other
regulatory authorities with respect to its sales practices and the conduct
of the remediation program. The releases granted by the state insurance
regulators pursuant to the individual state settlement agreements do not
become final until the remediation program has been completed without any
material changes to which those regulators have not agreed. The U.S.
District Court has also retained jurisdiction as to all matters relating to
the administration, consummation, enforcement and interpretation of the
class action settlement.
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 in
46
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. CONTINGENCIES AND LITIGATION (CONTINUED)
October 1996, 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.
In January 1997 the U.S. District Court sanctioned and fined the Company
$1 million for failure to properly implement procedures for its employees
to retain documents in violation of the Courts' order that required the
parties to preserve all documents relevant to the class action and
remediation program. The Court ordered the Company to implement a document
retention policy and directed that an independent expert be engaged to
investigate the extent of document destruction and its impact on the
remediation program.
In response to the class notices, the owners of approximately 503,000
policies indicated an interest in a Basic Claim Relief remedy. Management
believes that costs associated with providing Basic Claim Relief will not
be material to the Company's financial position or results of operations.
The owners of approximately 1.16 million policies responded to the class
notices by indicating an intent to file an ADR claim. All policyholders
who responded were provided an ADR claim form for completion and
submission. The ADR process generally requires that individual claim forms
and files be reviewed by the Company and by one or more independent claim
evaluators. Approximately 649,000 claim forms were completed and returned
and approximately 591,000 decision letters had been mailed to claimants as
of January 31, 1999. In many instances, claimants have the right to
"appeal" the Company's decision to an independent reviewer. Management
believes that the bulk of such appeals will be resolved in 1999.
In 1996, the Company recorded in its Consolidated Statement of Operations
the cost of $410 million as a guaranteed minimum remediation expense
pursuant to the settlement agreement. Management had no better information
available at that time upon which to make a reasonable estimate of losses
associated with the settlement. In 1997, based on additional information
derived from claim sampling techniques, the terms of the settlement and
the number of claim forms received, management 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 was funded in a settlement trust. Management
expressly noted that additional cost items were anticipated that could not
be fully evaluated at that time.
In 1998, based on estimates derived from an analysis of claims actually
remedied (including interest), a sample of claims still to be remedied, an
estimate of additional liability associated with the results of the
investigation by the independent expert regarding the impact of document
destruction on the ADR program, and an estimate of additional liabilities
associated with a claimant's right to "appeal" the Company's decision,
management increased the estimated liability for the cost of ADR remedies
by $.51 billion before taxes to a total of $2.56 billion before taxes, all
of which has been funded in a settlement trust as discussed in Note 4. The
Company has also recorded from 1996 through 1998 additional charges to
reflect ongoing administrative costs related to the ADR program,
regulatory fines, penalties and related payments, litigation costs and
settlements, and other fees and expenses associated with the resolution of
sales practices issues. While management believes the foregoing provisions
are reasonable estimates based on information currently available, the
ultimate amount of the total cost of remedied policyholder claims and
other related costs is dependent on complex and varying factors, including
the relief options still to be chosen by claimants, the dollar value of
those options, and the number and type of claims that may successfully be
appealed.
47
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. CONTINGENCIES AND LITIGATION (CONTINUED)
The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted with precision. 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 the matters specifically discussed
above. Management believes, however, that the ultimate resolution of all
such matters, after consideration of applicable reserves, should not have a
material adverse effect on the Company's financial position.
******
48
<PAGE>
DETERMINATION OF ACCUMULATION UNIT VALUES AND
OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY
PAYMENTS
A. ACCUMULATION UNIT VALUES
The value for each accumulation unit is computed as of the end of each valuation
period, also referred to in this section as business day.
On any given business day the value of accumulation 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 administrative expenses and mortality and expense risks. The
account's financial statements reflect a different breakdown of the expense
structure described in the prospectus. The mortality and expense risk charges
described in item 5 therein combined with and administrative charge described in
Item 4 total the amount which is the same 1.2% per year described in Note 3A of
the Notes to the account's financial statements. The value of the assets of a
subaccount is determined by multiplying the number of shares of the Series Fund
held by that subaccount by the net asset value of each share and adding the
value of dividends declared by the Series Fund but not yet paid.
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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>
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,
1998; the Statements of Operations for the year ended December 31, 1998;
Statements of Changes in Net Assets for the years ended December 31, 1998
and 1997; and the Notes relating thereto appear in the statement of
additional information (Part B of the Registration Statement).
(2) Consolidated Financial Statements of The Prudential Insurance Company of
America (Depositor) and subsidiaries consisting of the Statements of
Financial Position as of December 31, 1998 and 1997; the Consolidated
Statements of Operations, Consolidated Statements of Changes in Equity,
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996; and the Notes relating thereto appear in the statement
of additional information (Part B of the Registration Statement).
(b) EXHIBITS
(1) Resolution of the Board of Directors of The Prudential Insurance Company of
America establishing The Prudential Individual Variable Contract Account.
(Note 2)
(2) Agreements for custody of securities and similar investments--Not
Applicable.
(3) (a) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and The Prudential Insurance Company of America
(Depositor). (Note 2)
(b) Proposed form of Selected Broker Agreement between Pruco Securities
Corporation and brokers with respect to sale of the Contracts. (Note 2)
(4) (a) The Prudential Discovery Plus Contract. (Note 2)
(b) Endorsement ORD 86972-89 to the VAC-89 Contract for use in all states
when issuing a Contract to a juvenile. (Note 1).
(c) Endorsement COMB 84890-86 to the VAC-89 Contract for use in all states
when issuing a Contract in a qualified market. (Note 1)
(d) Limitation Provisions ORD 80445 Ed 8-88 to the VAC-89 Contract for use
in all states. (Note 1)
(e) Limitation Provisions VIP 7-88 to the VAC-89 Contract for use in all
states. (Note 1)
(f) Limitation Provisions WVQ 2-88 to the VAC-89 Contract for use in all
states. (Note 1)
(g) Waiver of Withdrawal Charges rider ORD 88753-92 to the VAC-89 Contract
(at issue). (Note 1)
(h) Waiver of Withdrawal Charges rider ORD 88754-92 to the VAC-89 Contract
(after issue). (Note 1)
(i) Spousal Continuance Rider ORD 89011-93. (Note 1)
(j) Endorsement altering the Assignment provision ORD 83921-95. (Note 1)
(k) Endorsement altering the Death of Annuitant provision ORD 89319-95 (at
issue). (Note 1)
(5) (a) Application form for The Prudential Discovery Plus Contract. (Note 1)
(b) Application for an Annuity contract ORD 87348-92. (Note 1)
(c) Supplement to the Annuity application ORD 87454-92. (Note 1)
(6) (a) Charter of The Prudential Insurance Company of America, as amended
November 14, 1995. (Note 3)
(b) By-laws of The Prudential Insurance Company of America, as amended May
12, 1998. (Note 4)
(7) Contract of reinsurance in connection with variable annuity contract--Not
Applicable.
(8) Other material contracts performed in whole or in part after the date the
registration statement is filed:
(a) Purchase Agreement between The Prudential Series Fund, Inc. and
Prudential. (Note 1)
(9) Opinion of Counsel and consent to its use as to legality of the securities
being registered. (Note 1)
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(10) (a) Written consent of PricewaterhouseCoopers LLP, independent
accountants. (Note 1)
(11) All financial statements omitted from Item 23, Financial Statements
--Not Applicable.
(12) Agreements in consideration for providing initial capital between or
among Registrant, Depositor, Underwriter, or initial Contract
owners--Not Applicable.
(13) Schedule of Performance Computations. (Note 1)
(14) Powers of Attorney.
(a) F. Agnew, F. Becker, R. Carbone, J. Cullen, C. Davis, R.Enrico,
A. Gilmour, W. Gray, Ill, J. Hanson, G. Hiner, C. Horner,
G. Kelley, B. Malkiel, A. Ryan, I. Schmertz, C. Sitter,
D. Staheli, R. Thompson, J. Unruh, P. Vagelos, S. Van Ness,
P. Volcker, J. Williams. (Note 5)
(b) A. Piszel (Note 6)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed April 24, 1998.
(Note 3) 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 4) Incorporated by reference to Form S-6, Registration No. 333-64957,
filed September 30, 1998, on behalf of The Prudential Variable
Appreciable Account.
(Note 5) 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 6) Incorporated by reference to Post-Effective Amendment No. 4 to Form
N-4, Registration No. 333- 23271, filed February 23, 1999 on behalf of
The Prudential Discovery Select Variable Contract Account.
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ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Incorporated by reference to The Prudential Individual Variable Contract Account
Statement of Additional Information under "Directors and Officers" contained in
Part B of this registration statement.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Prudential Insurance Company of America ("Prudential") is a mutual life
insurance company organized under the laws of New Jersey. The subsidiaries of
Prudential and short descriptions of each are listed under Item 25 to
Post-Effective Amendment No. 1 to the Form N-1A Registration Statement for The
Prudential Series Fund, Inc., Registration No. 2-80896, filed April 24, 1998,
the text of which is hereby incorporated .Prudential may be deemed to control
the Prudential Series Fund, Inc., a Maryland corporation which is registered as
an open-end, diversified, management investment company under the Investment
Company Act of 1940, all the shares of which are held by Prudential and the
following separate accounts which are registered as unit investment trusts under
the Investment Company Act of 1940: The Prudential Variable Appreciable Account,
The Prudential Individual Variable Contract Account (Registrant), The Prudential
Qualified Individual Variable Contract Account, The Prudential Variable Contract
Account-24 (separate accounts of Prudential); the Prudential Life PRUvider
Variable Appreciable Account, the Pruco Life Variable Universal Account, the
Pruco Life Variable Insurance Account, the Pruco Life Variable Appreciable
Account, the Pruco Life Single Premium Variable Life Account, the Pruco Life
Flexible Premium Variable Annuity Account, the Pruco Life Single Premium
Variable Annuity Account (separate accounts of Pruco Life Insurance Company
("Pruco Life"); the Pruco Life of New Jersey Variable Insurance Account, the
Pruco Life of New Jersey Variable Appreciable Account, the Pruco Life of New
Jersey Single Premium Variable Life Account, and the Pruco Life of New Jersey
Single Premium Variable Annuity Account (separate accounts of Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey");. Pruco Life, a
corporation organized under the laws of Arizona, is a direct wholly-owned
subsidiary of Prudential. Pruco Life of New Jersey, a corporation under the laws
of New Jersey, is a direct wholly-owned subsidiary of Pruco Life, and an
indirect wholly-owned subsidiary of Prudential.
Prudential holds all of the shares of Prudential's Gibraltar Fund, Inc., a
Maryland corporation, in three of its separate accounts. Each of these separate
accounts is a unit investment trust registered under the Investment Company Act
of 1940. Prudential's Gibraltar Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940.
In addition, Prudential may also be deemed to be under common control with The
Prudential Variable Contract Account-2, The Prudential Variable Contract
Account-10, and The Prudential Variable Contract Account-11, separate accounts
of Prudential, all of which are registered as open-end, diversified, management
investment companies under the Investment Company Act of 1940.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 29, 1999 there were 33,240 Contract owners of qualified Contracts
offered by the Registrant, and 53,524 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 The Prudential Insurance Company
of America ("Prudential"), permits entities organized under its jurisdiction to
indemnify directors and officers with certain limitations. The relevant
provisions of New Jersey law permitting indemnification can be found in Section
14A:3-5 of the New Jersey Statutes Annotated. The text of Prudential's By-law
27, which relates to indemnification of officers and
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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 this Registrant.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Pruco Securities Corporation also acts as principal underwriter for the
Pruco Life PRUvider Variable Appreciable Account, the Pruco Life Variable
Insurance Account, the Pruco Life Variable Appreciable Account, the Pruco
Life Variable Universal Account, the Pruco Life Single Premium Variable
Life Account, the Pruco Life Single Premium Variable Annuity Account, the
Pruco Life of New Jersey Variable Insurance Account, the Pruco Life of New
Jersey Variable Appreciable Account, the Pruco Life of New Jersey Single
Premium Variable Life Account, the Pruco Life of New Jersey Single Premium
Variable Annuity Account, the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account, The Prudential Variable Appreciable Account, The
Prudential Individual Variable Contract Account, The Prudential Qualified
Individual Variable Contract Account, Prudential's Annuity Plan Account,
Prudential's Investment Plan Account, Prudential's Annuity Plan Account-2,
Prudential's Gibraltar Fund, and The Prudential Series Fund, Inc.
(b) NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
--------------------- ----------------------
James J. Avery, Jr.* Chairman and Director
Richard Topp* President and Director
E. Michael Caulfield* Director
Joseph Mahoney* Director
Richard Painter** Director
James D. Price Director
Charles A. McGee, Jr.* Chief Financial Officer and Comptroller
Clifford E. Kirsch** Chief Legal Officer and Secretary
* Principal Business Address: 751 Broad Street, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ 07102
(c) Not Applicable
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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 Registrant
Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a statement of
additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the
Chief of the Office of Insurance Products and Legal Compliance of the
Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988.
(e) The Prudential Insurance Company of America ("Prudential") hereby
represents that the fees and charges deducted under the Contract, in the
aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred and the risks assumed by Prudential.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent
Amendment to the Registration Statement which included a prospectus and has
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal hereunto affixed and attested, all in
the city of Newark and the State of New Jersey, on this 26th day of April, 1999.
(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. 14 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
SIGNATURE AND TITLE
-------------------
/s/ * April 26, 1999
- -------------------------------------
ARTHUR F. RYAN
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
/s/ *
- -------------------------------------
RICHARD J. CARBONE
SENIOR VICE PRESIDENT AND
PRINCIPAL FINANCIAL OFFICER
/s/ *
- -------------------------------------
ANTHONY S. PISZEL
VICE PRESIDENT AND CONTROLLER
(CHIEF ACCOUNTING OFFICER)
/s/ *
- -------------------------------------
FRANKLIN E. AGNEW *By: /s/ THOMAS C. CASTANO
DIRECTOR ---------------------------
THOMAS C. CASTANO
(ATTORNEY-IN-FACT)
/s/ *
- --------------------------------------
FREDERIC C. BECKER
DIRECTOR
/s/ *
- --------------------------------------
JAMES G. CULLEN
DIRECTOR
/s/ *
- --------------------------------------
CAROLYNE K. DAVIS
DIRECTOR
C-6
<PAGE>
SIGNATURE AND TITLE
-------------------
/s/ * April 26, 1999
- ----------------------------------------
ROGER A. ENRICO
DIRECTOR
/s/ *
- ----------------------------------------
ALLAN D. GILMOUR
DIRECTOR
/s/ *
- ---------------------------------------- *By: /s/ THOMAS C. CASTANO
WILLIAM H. GRAY, II ----------------------------
DIRECTOR THOMAS C. CASTANO
(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
<PAGE>
SIGNATURE AND TITLE
-------------------
/s/ *
- ----------------------------------------
P. ROY VAGELOS, M.D.
DIRECTOR
/s/ * April 26, 1999
- ----------------------------------------
STANLEY C. VAN NESS
DIRECTOR
/s/ *
- ----------------------------------------
PAUL A. VOLCKER *By: /s/ THOMAS C. CASTANO
DIRECTOR ------------------------------
THOMAS C. CASTANO
(ATTORNEY-IN-FACT)
/s/ *
- ----------------------------------------
JOSEPH H. WILLIAMS
DIRECTOR
C-8
<PAGE>
EXHIBIT INDEX
(4)(b) through (k) Discovery Plus Endorsements and Special Pages...............
(5)(a) through (c) Application for Discovery Plus Contract ....................
(8)(a) Purchase Agreement between The Prudential Series Fund, Inc. and
Prudential ...........................................................
(9) Opinion of Counsel and consent to its use as to the legality of the
securities being registered ..........................................
(10)(a) Written consent of PricewaterhouseCoopers, LLP, independent
accountants...........................................................
(13) Schedule of Performance Computations....................................
C-9
Exhibit (4)(b)
================================================================================
ENDORSEMENTS
(Only we can endorse this contract.)
ALTERATION OF TEXT
The provision of this policy entitled "Ownership and Control" is replaced at
issue by the following:
Ownership and Control
All references in this provision to the Annuitant shall mean to the First
Annuitant if two are named
Unless we endorse this contract to say otherwise, while the Annuitant is living
and less than 21 years of age the owner of the contract is the applicant for it.
But if the applicant is not living the owner, except as we state below, is the
beneficiary(ies) who at the time would be entitled to any proceeds arising from
the Annuitant's death. If there is no such beneficiary at the time, the owner is
the Annuitant. A beneficiary named by the Annuitant will not replace the
Annuitant as owner.
After the Annuitant is 21 years of age, the owner is the Annuitant.
While the Annuitant is living the owner alone is entitled to any contract
benefit and value, and to the exercise of any right and privilege granted by the
contract or by us. This includes, but is not limited to, these rights: (1) to
assign the contract; and (2) to change any subsequent owner. A request for such
a change must be in writing to us at our Home Office and in a form which meets
our needs. The change will take effect only when we endorse the contract to show
it.
If the owner is the Annuitant, but he or she (1) is not able, due to age, to
exercise rights, and (2) has no legal guardian to do so, we have the right to
let a person who appears to us to be responsible for the Annuitant's support or
welfare, act for the Annuitant. We will not do so unless the action appears to
us to be for the Annuitant's benefit.
The Prudential Insurance Company of America.
By A B C
Secretary
- -------------
ORD 86972--89
- -------------
Exhibit (4)(c)
ENDORSEMENT
(Only we can endorse this contract)
This endorsement is attached to and made a part of this contract on the contract
date:
Any reference, in any provision of this contract, to the sex of any person
will be ignored except for the purpose of identification. For any participating
settlement payable for the lifetime of one or more payees, the female rates we
show in the contract will apply to both male and female payees.
The Prudential Insurance Company of America
By /s/ Dorothy K. Light
Secretary
- --------------
COMB 84890--86
- --------------
Exhibit (4)(d)
- ---------------------------------===============================================
Prudential LIMITATION PROVISIONS
___ The Prudential Insurance Company of America
___ Pruco Life Insurance Company
================================================================================
The contract is amended at issue to include these provisions. They apply even
though the contract may state otherwise:
Non-transferable
This contract may not be sold, assigned, or pledged for any purpose to anyone
except us.
- --------------------------------------------------------------------------------
Retirement Options
For settlements that start while the Annuitant is living:
The fixed period payout option may be chosen only if the period will not exceed
the life expectancy of the Annuitant, as we determine for persons of the same
age. If there is a contingent payee, the period may not exceed the joint life
and last survivor expectancy of the Annuitant and the contingent payee, as we
determine for persons of the same age.
- --------------------------------------------------------------------------------
Death Options
Except for one made in accord with the Retirement Options above, a settlement
may not be chosen unless one of these next three sentences is true:
1. The amount available for settlement with the beneficiary or contingent
payee will be distributed within five years of the date of death of the
person by reason of whose death the amount became available.
2. That amount will be payable at such death to the beneficiary or contingent
payee who is a natural person to be paid in his or her own right, and
settlement will be made under a life income option or under the fixed
period payout option for a period not to exceed the life expectancy of the
beneficiary or contingent payee, as we determine for persons of the same
age.
3. The beneficiary is the Annuitant's spouse and settlement as described in 1.
or 2. above will start no later than April 1st of the calendar year next
following the end of the calendar year in which the Annuitant would have
attained age 70 1/2.
- --------------------------------------------------------------------------------
Annuity Date
The annuity date may not be changed to a date that is later than April 1st of
the calendar year next following the end of the calendar year in which the
Annuitant would attain age 70 1/2.
- --------------------------------------------------------------------------------
A change might be needed later to conform this contract to the requirements of
the Internal Revenue Code, regulations or published rulings or to the
requirements of the Employee Retirement Income Security Act of 1974 if so, we
will have the right to make the change(s) without a signed request and to
provide a form of amendment to the contract.
Endorsed by attachment for the Company
on the Contract Date
By /s/ Dorothy K. Light
Secretary
================================================================================
- ---------
Ord 80445 Ed 8-88
- ---------
Exhibit (4)(e)
- --------------------------------================================================
Prudential [LOGO] LIMITATIONS PROVISION
___ The Prudential Insurance Company of America
___ Pruco Life Insurance Company
___ Pruco Life Insurance Company of New Jersey
================================================================================
So that this contract may meet the requirements of an annuity within the meaning
of Section 72(s) of the Internal Revenue Code of 1954, as amended (the Code),
certain limitations are included. Different limitations apply depending on the
circumstances involved. This Limitations Provision modifies your contract to
comply with the Code. If any action is taken that is contrary to this provision,
this contract will no longer be considered an annuity as defined in the Code and
will be subject to taxation and, possibly, tax penalties.
- --------------------------------------------------------------------------------
Death Of Owner-Annuitant
If the Annuitant is an owner under this contract and dies, any amounts payable
at that death must be distributed within five years of that date. There are two
exceptions:
1. If the beneficiary is a natural person who will receive the proceeds in his
or her own right and payments will start within one year of the Annuitant's
death, settlement may be made in accord with the fixed period payout option
or life annuity option so long as any period certain does not exceed that
beneficiary's life expectancy; or
2. If the beneficiary is the Annuitant's spouse, any of the options for a
beneficiary described in the contract may be chosen.
- --------------------------------------------------------------------------------
Death Of Non-Owner Annuitant
If the Annuitant is not an owner under this contract and dies, any of the
options described for a beneficiary in the settlement provisions may be chosen.
But if the owner of the contract is a non-person, such as a corporation or a
trustee under a trust agreement, then the proceeds must be distributed as we
explain under "Death of Owner-Annuitant".
- --------------------------------------------------------------------------------
Change In Owner
If the rights under this contract are transferred, either by endorsement,
assignment or as the result of the death of an owner who is not the Annuitant,
we will report any gain under this contract as of the effective date of the
transfer to the Internal Revenue Service. This will not apply if the rights are
transferred to that owner's spouse.
- --------------------------------------------------------------------------------
Co-Annuitant Contracts
If this is a contract that provides for a Co-Annuitant, the words "the
Annuitant" in this provision mean the last-surviving annuitant. Also, if this
contract is owned by a non-person, at the death of the first to die of the two
annuitants, we will report any gain under the contract as of the date of death
to the Internal Revenue Service. But this will not apply if the last-surviving
annuitant is the spouse of the annuitant who died.
- --------------------------------------------------------------------------------
A change might be needed to conform this to the requirements of the Internal
Revenue Code, regulations or published rulings. If so, we will have the right to
make the change(s) without a signed request and to provide a form of amendment
to the contract.
Signed for the Company By:
/s/ Dorothy K. Light
================================================================================
- -----
VIP 7 88
- -----
Exhibit (4)(f)
LIMITATION PROVISIONS
The contract is amended at issue to include these provisions. They apply even
though the contract may state otherwise:
NON-FORFEITABLE AND NON-TRANSFERABLE
1. Co-Annuitant and/or co-owners are not permitted under this contract.
2. The Annuitant will always be the owner of this contract except when a
transfer is made to a former spouse in accord with a divorce decree as
provided in Section 408 (d) (6) of the Internal Revenue Code of 1954, as
amended (the "Code"). The rights of an Annuitant cannot be forfeited.
3. This contract may not be sold, assigned, discounted or pledged for any
purpose to anyone except us. No part of the value of this contract may be
used to buy life insurance.
- --------------------------------------------------------------------------------
RETIREMENT OPTIONS
For settlements that start while the Annuitant is living:
The Annuitant/owner's entire interest (the cash value) must be distributed or,
if an annuity option is selected, annuity payments must begin, no later than
April 1st of the calendar year next following the end of the calendar year in
which the Annuitant attains age 70 1/2.
Any annuity option must provide for payments (a) over the life of the Annuitant,
or the lives of the Annuitant and a contingent payee, or (b) over a period not
extending beyond the life expectancy of the Annuitant, or the joint and last
survivor expectancy. For purposes of determining the maximum payment period
under (b), the life expectancy and joint and last survivor expectancy are
computed by use of the return multiples contained in section 1.72-9 of the
Income Tax Regulations. If the Annuitant's spouse is not the contingent
payee, the method of settlement selected must assure that at least 50% of the
present value of the amount available for settlement is paid within the life
expectancy of the Annuitant.
- --------------------------------------------------------------------------------
DEATH OPTIONS
Except for one made in accord with the Retirement Options above, a settlement
may not be chosen unless one of these next three sentences is true:
1. The amount available for settlement with the beneficiary or contingent
payee will be distributed within five years of the date of death of the
person by reason of whose death the amount became available.
2. That amount will be payable commencing not later than 1 year following such
date of death to the beneficiary or contingent payee who is a natural
person to be paid in his or her own right, and settlement will be made
under Option 2 or under Option 1 for a period not to exceed the life
expectancy, computed by use of the return multiples contained in section
1.72-9 of the Income Tax Regulations, of the beneficiary or contingent
payee.
3. The beneficiary is the Annuitant's spouse and settlement as described in 1.
or 2. above will start no later than the date on which the Annuitant would
have attained age 70 1/2.
- --------------------------------------------------------------------------------
So that the contract may meet the requirements of an individual retirement
annuity within the meaning of Section 408 (b) of the Code:
1. We do not expect that any dividends may be payable during the accumulation
period. If any dividends are declared, they will be credited on the next
contract anniversary and only used to increase the annuity benefits.
2. The maximum purchase we will accept for any one tax year of the Annuitant
is (a) the lesser of $2,000 or 100% of the amount that is included in the
gross income of the Annuitant; or (b) a greater amount if allowed under the
Code. But a purchase payment will not be considered in applying the maximum
if we have been furnished with evidence that it came from one of these
distributions:
a. A qualifying rollover paid to a participant or, if he or she is
deceased, to his or her spouse from a plan described in Section 401
(a) or 403 (a) of the Code.
b. A qualifying one paid to a participant or, if he or she is deceased,
to his or her spouse from an annuity contract described in section 403
(b) of the Code.
- -----
WVQ 2 88
- -----
<PAGE>
c. One from an individual retirement account or annuity as described in
Section 408 (a) or (b) of the Code, that is not an inherited
individual retirement account or annuity as described in Section 408
(d)(3)(c) of the Code.
A change might be needed later to conform this contract to the requirements of
the Internal Revenue Code, regulations or published rulings or to the
requirements of the Employee Retirement Income Security Act of 1974. If so, we
will have the right to make the change(s) without a signed request and to
provide a form of amendment to the contract.
Endorsed by attachment on the Contract Date
The Prudential Insurance Company of America.
By /s/ Dorothy K. Light
Secretary
- -----
WVQ 2 88
- -----
EXHIBIT (b)(4)(g)
WAIVER OF WITHDRAWAL CHARGES
Subject to all the provisions of this rider and of the rest
of the contract, we will waive part or all of (1) any
withdrawal and maintenance charges otherwise associated with
a full or partial withdrawal, or (2) any annuitization or
withdrawal charge due on the annuity date, if an annuitant
is (a) terminally ill, or (b) confined to an eligible
nursing home or hospital continuously for three months while
this contract is in force. This waiver applies only to any
purchase payment(s) made one year or more prior to your
request(s) for withdrawal, or the annuity date.
Terminal Illness You may use this option if you give us evidence that
Option satisfies us that an Annuitant's life expectancy is six
months or less. Part of that evidence must be a
certification by a licensed physician.
Nursing You may use this option if an Annuitant is confined to an
Home/Hospital eligible nursing home and/or hospital starting any time
Option after the contract date, and has been confined there
continuously for at least three months.
Eligible Nursing An eligible nursing home is an institution or special
Home nursing unit of a hospital which meets at least one of the
following requirements:
1. it is Medicare approved as a provider of skilled
nursing care services; or
2. it is licensed as a skilled nursing home or as an
intermediate care facility by the state in which it is
located; or
3. it meets all of the requirements listed below:
(a) it is licensed as a nursing home by the state in which
it is located;
(b) its main function is to provide skilled, intermediate,
or custodial nursing care;
(c) it is engaged in providing continuous room and board
accommodations to 3 or more persons;
(d) it is under the supervision of a registered nurse (RN)
or licensed practical nurse (LPN);
(e) it maintains a daily medical record of each patient;
and
(f) it maintains control and records for all medications
dispensed.
Institutions which primarily provide residential facilities
are not eligible nursing homes.
Eligible Hospital An eligible hospital is an institution that meets either of
these requirements:
1. It is accredited as a hospital under the Hospital
Accreditation Program of the Joint Commission on
Accreditation of Healthcare Organizations.
2. It is legally operated, has 24 hour a day supervision
by a staff of doctors, has 24 hour a day nursing
service by registered graduate nurses, and complies
with (a) or (b):
(a) It mainly provides general inpatient medical care and
treatment of sick or injured persons by the uses of
medical, diagnostic and major surgical facilities. All
such facilities are in it or under its control.
(b) It mainly provides specialized inpatient medical care
and treatment of sick or injured persons by the use of
medical and diagnostic facilities (including x-ray and
laboratory). All such facilities are in it, under its
control, or available to it under a written agreement
with a hospital (as defined above) or with a
specialized provider of these facilities.
An eligible hospital is not an institution, or part of one,
which: (a) furnishes mainly homelike or custodial care, or
training in the routines of daily living; or (b) is mainly a
school.
- ------------
ORD 88753-92
- ------------
<PAGE>
Conditions Your right to be paid under one of these options is subject
to the following conditions:
1. You must choose the option in writing in a form that
meets our needs.
2. The contract must not be assigned.
3. You must give us any facts we need to satisfy us that
an Annuitant qualifies for one of the options described
above.
Rider attached to and made a part of this contract on the
Contract Date
The Prudential Insurance Company of America.
By /s/ Dorothy K. Light
Secretary
- ------------
ORD 88753-92
- ------------
EXHIBIT (b)(4)(h)
ThePrudential[LOGO]
Annuitant Contract No.
John Doe XX XXX XXX
------------------------------------- -------------------------
================================================================================
WAIVER OF WITHDRAWAL CHARGES
Subject to all the provisions of this rider and of the rest of the contract, we
will waive part or all of (1) any withdrawal and maintenance charges otherwise
associated with a full or partial withdrawal, or (2) any annuitization or
withdrawal charge due on the annuity date, if an annuitant is (a) terminally
ill, or (b) confined to an eligible nursing home or hospital continuously for
three months while this contract is in force. This waiver applies only to any
purchase payment(s) made one year or more prior to your request(s) for
withdrawal, or the annuity date.
Terminal Illness Option
You may use this option if you give us evidence that satisfies us that an
Annuitant's life expectancy is six months or less. Part of that evidence must be
a certification by a licensed physician.
Nursing Home/Hospital Option
You may use this option if an Annuitant is confined to an eligible nursing home
and/or hospital starting any time after the contract date, and has been confined
there continuously for at least three months.
Eligible Nursing Home
An eligible nursing home is an institution or special nursing unit of a hospital
which meets at least one of the following requirements:
1. it is Medicare approved as a provider of skilled nursing care
services; or
2. it is licensed as a skilled nursing home or as an intermediate care
facility by the state in which it is located; or
3. it meets all of the requirements listed below:
(a) it is licensed as a nursing home by the state in which it is
located;
(b) its main function is to provide skilled, intermediate, or
custodial nursing care;
(c) it is engaged in providing continuous room and board
accommodations to 3 or more persons;
(d) it is under the supervision of a registered nurse (RN) or
licensed practical nurse (LPN);
(e) it maintains a daily medical record of each patient; and
(f) it maintains control and records for all medications dispensed.
Institutions which primarily provide residential facilities are not
eligible nursing homes.
Eligible Hospital
An eligible hospital is an institution that meets either of these requirements:
1. It is accredited as a hospital under the Hospital Accreditation
Program of the Joint Commission on Accreditation of Healthcare
Organizations.
2. It is legally operated, has 24 hour a day supervision by a staff of
doctors, has 24 hour a day nursing service by registered graduate
nurses, and complies with (a) or (b):
<PAGE>
(a) It mainly provides general inpatient medical care and treatment
of sick and injured persons by the use of medical, diagnostic and
major surgical facilities. All such facilities are in it or under
its control.
(b) It mainly provides specialized inpatient medical care and
treatment of sick or injured persons by the use of medical and
diagnostic facilities (including x-ray and laboratory). All such
facilities are in it, under its control, or available to it under
a written agreement with a hospital (as defined above) or with a
specialized provider of these facilities.
An eligible hospital is not an institution, or part of one, which: (a)
furnishes mainly homelike or custodial care, or training in the routines of
daily living; or (b) is mainly a school.
Conditions
Your right to be paid under one of these options is subject to the following
conditions:
1. You must choose the option in writing in a form that meets our needs.
2. The contract must not be assigned.
3. You must give us any facts we need to satisfy us that an Annuitant
qualifies for one of the options described above.
Rider attached to and made a part of this contract
The Prudential Insurance Company of America,
By /s/[ILLEGIBLE]
Secretary
Effective Date Nov. 18, 1992 Attest M. Smith
4(i)
================================================================================
SPOUSAL CONTINUANCE RIDER
This rider is effective only under the following conditions:
1. There is only one Annuitant.
2. The Annuitant is the only owner of the contract.
3. The Annuitant's spouse is the only class 1 (primary) beneficiary.
4. The Annuitant dies before the Annuity Date.
At the Annuitant's death, the contract will continue and, effective as of the
date of death, the spouse will be the Annuitant and owner.
If the spouse requests a full withdrawal within 60 days from the date of the
Annuitant's death we will pay the spouse the amount that would have been payable
by reason of the Annuitant's death, calculated as of the date we receive due
proof of death, if later.
If the spouse requests a full withdrawal more than 60 days after the date of the
Annuitant's death, the provisions in the contract for withdrawals will apply.
Rider attached to and made a part of this contract on the Contract Date.
The Prudential Insurance Company of America.
By /s/ Dorothy K. Light
Secretary
- -------------
ORD 89011--93
- -------------
Exhibit (4)(j)
================================================================================
ENDORSEMENTS
(Only we can endorse this contract.)
ALTERATION OF TEXT
The provision of this contract entitled "Assignment" is replaced
at issue by the following:
Assignment We will not be deemed to know of an assignment unless we receive
it, or a copy of it, at our Home Office. We are not obliged to
see that an assignment is valid or sufficient. If any annuitant
is living on the Annuity Date and an assignment is in effect on
that date, we have the right to pay the full withdrawal in one
sum. This contract may not be assigned to another insurance
company or to any employee benefit plan or program without our
consent.
The Prudential Insurance Company of America,
By Dorothy K. Light
Secretary
- ------------
ORD 83921-95
- ------------
Exhibit (4)(k)
================================================================================
ENDORSEMENTS
(Only we can endorse this contract.)
This endorsement is attached to and made a part of this contract on the contract
date:
The following paragraphs are added to the provision entitled DEATH OF ANNUITANT
under the heading Before the Annuity Date.
As of the sixth contract anniversary, we will compare the contract fund and
minimum proceeds. Whichever amount is greater will become the minimum proceeds
as of that contract anniversary.
Minimum proceeds after the sixth contract anniversary will increase by invested
purchase payments as they are made; if a withdrawal is made, minimum proceeds
will decrease in the same proportion as the withdrawal decreases the contract
fund.
The Prudential Insurance Company of America,
By Dorothy K. Light
Secretary
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Exhibit (5)(A)
- --------------------------------------------------------------------------------------==============================================
Application for an Annuity Contract
No.________________________________________
The Prudential Insurance Company of America
====================================================================================================================================
1. Proposed Annuitant (Owner, unless otherwise indicated in #3) Sex Date of birth Age Social Security No.
Name--first, initial, last (Print) M F Mo. Day Yr.
[ ] [ ]
--------------------------------------------------------------------------------------------------------------------------------
Address No. Street City State Zip State of Residence
====================================================================================================================================
2. Proposed Co-Annuitant (if any) (Do not complete if applying for a tax-qualified plan)
Name--first, initial, last (Print) Sex Date of birth Age Social Security No. Relationship to person
M F Mo. Day Yr. named in 1
[ ] [ ]
====================================================================================================================================
3. Contract Owner (if other than Proposed Annuitant) (Do not complete if applying for an IRA, SEP or TDA plan)
Name Social Security or Tax ID No.
--------------------------------------------------------------------------------------------------------------------------------
Address No. Street City State Zip
====================================================================================================================================
4. Contingent Contract Owner (if any) (Do not complete if applying for a tax-qualified plan)
Name Social Security or Tax ID No.
--------------------------------------------------------------------------------------------------------------------------------
Address No. Street City State Zip
====================================================================================================================================
5. Beneficiary: (Give name, age and relationship to person named in 1.)(Do not complete if applying for a Pension/Profit Sharing
plan. The beneficiary for a contract owned by a trustee or an employer is the owner.)
a. Primary (Class 1):
--------------------------------------------------------------------------------------------------------------------------------
b. Contingent (Class 2) if any:
====================================================================================================================================
6. Will this annuity replace or change any existing insurance or annuity contract in any company on any person Yes No
named in 1 or 2? (If "Yes", for each such contract give the person's name, name of company, plan, amount and [ ] [ ]
contract numbers.)
====================================================================================================================================
7A. Kind of Annuity 7B. Type of Annuity 9. Complete this Section only if a Qualified Plan or
a. Variable [ ] a. Non-Qualified [ ] Program is the contract being applied for (Check One)
b. Fixed b. Qualified [ ]
3 yr. guaranteed interest [ ] Type:
6 yr. guaranteed interest [ ] [ ] IRA--Individual Retirement Annuity
==================================================================== [ ] SEPP (Plan Name)____________________________________
8. Source of Funds ________________________________________________________
a. Amount paid with application: $____ [ ] None (check 'None' on [ ] Premium/Profit Sharing (Plan Name)__________________
TDA or Section 457 Plan Apps.) ________________________________________________________
b. IRA: Is any part of this purchase payment an IRA rollover? Section 457 (Plan Name)_________________________________
[ ] Yes [ ] No ________________________________________________________
Amount of Rollover: $______________ [ ] Tax Deferred Annuity
Regular Contribution: $______________ Year_______ [ ] Public School Employees
$______________ Year_______ [ ] 501(c)(3)
For TDA Billing:
Employer Name_______________________________________
Employer Address____________________________________
====================================================================================================================================
10. Remarks or Special Requests
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
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====================================================================================================================================
<S> <C> <C> <C>
11. Investment Selection (Select one or more): Allocation (%) 12. Telephone Transfer/Reallocation Privileges
Bond __________ %
[] I wish to authorize telephone transfers/
Money Market __________ % reallocations.
Common Stock __________ % I give the company permission to change the
allocation of my net premium payments and/or
Aggressively Managed Flexible __________ % to transfer funds among my investment
choices based on my telephone instructions
Conservatively Managed Flexible __________ % when they agree with the established
conditions and requirements.
High Dividend Stock __________ %
I have read and I understand the conditions and requirements
Stock Index __________ % associated with the transfer of funds from the Fixed Rate
Option and the Real Property Option. I understand that the
High Yield Bond __________ % Company will not be subject to any claims, liability, loss,
expense or cost resulting from following my telephone
Natural Resources __________ % instructions (or anyone successfully representing
him/herself to be me).
Real Property (Not available in qualified __________ %
Contracts) I am aware that my telephone instructions will be recorded
to protect me and the Company and will be put into effect
Fixed Account __________ % only when proper identification is provided.
Other_____________________________________ __________ % [] I do not wish to authorize telephone
Total Investment 100 transfers/reallocations.
====================================================================================================================================
13. Acknowledgement
OWNERSHIP: The owner of the contract will be as required by the applicable retirement plan. If there is no such plan, the
owner will be (1) the applicant if other than the proposed Annuitant, or else (2) the proposed Annuitant. In either case, any
limitations required by the retirement plan or program will be part of the contract.
If this application is for a variable annuity contract, I understand that; (1) payments and values may be based on the
investment experience of a separate account; and (2) if so, they may vary and are not guaranteed as to fixed dollar amount.
I have received the current prospectus for (1) the variable annuity contract; (2) The Prudential Series Fund, Inc.; and, if
applying for a non-qualified annuity, The Prudential Variable Contract Real Property Account. I have read the Section in the
prospectus titled "ERISA Disclosure" and conclude that the representative recommending these contracts and I do not have a
proscribed relationship. Check here if a Statement of Additional Information is desired.[]
If this application is for an IRA, I have received an explanatory booklet, and I understand that I will be given a financial
statement with the contract.
Application made at: Signature of Proposed Annuitant
_____________________________________________________________
STATE______________________________________________________ Signature of Applicant (if other than proposed Annuitant)
DATE_______________________________________________________ _____________________________________________________________
(If owner is a firm or corporation, show that company's name)
WITNESS____________________________________________________
(Writing Agent or Representative) By___________________________________________________________
(Signature and title of officer signing for that Company)
====================================================================================================================================
Supplementary Information
- ------------------------------------------------------------------------------------------------------------------------------------
1. Give proposed Annuitant's current Home and Business addresses if not shown on face of application. (Print)
Home: No._______ Street____________________________ City___________________________________________ State_________ Zip_________
Business: Employer No. Street City State Zip
- ------------------------------------------------------------------------------------------------------------------------------------
2. Do you have, from any source, facts that any person named in 1 or 2 of the application may replace or change any Yes No
current insurance or annuity in any company? (Give details of "Yes", answers in "Remarks".) [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
3. Does the purchase payment come from the proceeds of insurance contracts in this or another company? [ ] Yes [ ] No If "Yes", give
a. Company name_____________________________________________ b. Prudential/Pruco Life contract no.(s)_______ ___________________
c. Amount $_______________ d. Proceeds are from: [ ] Loan [ ] Dividends [ ] Surrender [ ] Other (describe)
- ------------------------------------------------------------------------------------------------------------------------------------
To be Completed by Writing Agent or Registered To be Completed by Registered Representative (Pru Bache)
Representative (Pruco Securities)
___________________________________________________________ ________________________________________________________________
NAME AND TITLE--Please Print NAME--Please Print
___________________________________________________________ ________________________________________________________________
CONTRACT NO. OFFICE CODE RHO CONTRACT NO. OFFICE CODE
___________________________________________________________ ________________________________________________________________
OFFICE BRANCH OFFICE
( )______________________________________________________ ( )___________________________________________________________
PHONE NO. PHONE NO.
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------====================================================
The Prudential Application for an Annuity Contract
[ ] The Prudential Insurance Company of America
[ ] Pruco Life Insurance Company, a subsidiary of
The Prudential Insurance Company of America
Corporate Offices, Newark, New Jersey
[ ] Qualified [ ] Non-Qualified Policy number |___|___|___|___|___|___|___|___|___|
====================================================================================================================================
1. Proposed Annuitant (Owner, unless otherwise indicated in #3) Sex Date of Birth Age Social Security No.
Name -- first, initial, last (Print) M F Mo. Day Yr.
[ ][ ]
---------------------------------------------------------------------------------------------------------------------------------
Address No. Street City State Zip State of Residence
====================================================================================================================================
2. Proposed Co-Annuitant (if any) (Do not complete if applying for a tax-qualified plan other than a Prudential Income Annuity)
Name -- first, initial, last (Print) Sex Date of Birth Age Social Security No. Relationship to
M F Mo. Day Yr. person named in 1.
[ ][ ]
====================================================================================================================================
3. Contract Owner (if other than Proposed Annuitant) (Do not complete if applying for an IRA, SEP, or TDA contract)
Name -- first, initial, last (Print) Date of Birth Social Security
Mo. Day Yr. or Tax ID No.
---------------------------------------------------------------------------------------------------------------------------------
Relationship to the Annuitant____________________________________________________________________________________________________
Address No. Street City State Zip
====================================================================================================================================
4. Beneficiary: (Give name, age and relationship to person named in 1.) (Do not complete if applying for a Pension/Profit
Sharing Plan. The beneficiary for a contract owned by a trustee or an employer is the owner.)
a. Primary (Class 1):
---------------------------------------------------------------------------------------------------------------------------------
b. Contingent (Class 2) if any:
====================================================================================================================================
5. Kind of Annuity (If a Variable contract is applied for, complete suitability form.)
a. Fixed Annuities: [ ] Prudential Income Annuity (PIA)
[ ] Fixed Interest Plan [ ] Discovery_____year(s) guarantee [______________________________________
b. Variable Annuities: [ ] Discovery Plus [ ] Variable Investment Plan [ ]______________________
c. Future Value Annuity [ ] 2 Yr. [ ] 3 Yr. [ ] 4 Yr. [ ] 5 Yr. [ ] 6 Yr. [ ] 7 Yr. [ ] 8 Yr. [ ] 9 Yr. [ ] 10 Yr.
====================================================================================================================================
6. Purchase Payments Amount paid with application: $_________________ [ ] None (check `None' on Section 457 Plans)
Mode of Purchase Payment: [ ] Ann. [ ] Semi-Ann. [ ] Quar. [ ] Pay. Budg. [ ] Pru-Matic [ ] Gov't. Allot.
====================================================================================================================================
7. Source of Funds (NOTE: Contract minimums must be met.)
IRA: Is any part of this purchase payment an IRA rollover? [ ] Yes [ ] No
Amount of Rollover: $______________ Regular Contribution: $_____________ Year_____________ $______________ Year_____________
Will the Purchase Payment be transferred from another financial institution? [ ] Yes [ ] No
====================================================================================================================================
8. Complete this Section only if a Qualified Plan or Program is being applied for (Check One) Type:
[ ] IRA -- individual Retirement Annuity [ ] TDA -- Non-Profit Organization 501(c)(3)_____________________
[ ] SEP (Plan Name)_________________________________________ For TDA Billing:
[ ] Pension/Profit Sharing (Plan Name)______________________ Employer Name_________________________________________________
[ ] Section 457 (Plan Name)_________________________________ Employer Address______________________________________________
[ ] TDA -- Public School Employees-403(b)___________________ ______________________________________________________________
====================================================================================================================================
Complete 9 for Prudential Income Annuity Only
9a. Kind of Payment Option__________________________________________________________________________________________________________
Frequency of annuity payment Amount of each annuity payment Date of first annuity payment
[ ] Mo. [ ] Quar. [ ] Semi-Ann. [ ] Ann. $
--------------------------------------------------------------------------------------------------------------------------------
b. Annuity payments payable to: Name_______________________________________________________________________________________________
No. Street City State Zip
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: The Prudential Income Annuity contract will take effect on the date the purchase payment is received in the Home
Office, even if the Annuitant or Co-Annuitant died after that date but before the contract is issued.
Proof of the date of birth of each proposed Annuitant, such as birth certificate, baptismal record, etc. must be
submitted with the application whenever a life annuity option is selected.
====================================================================================================================================
- ------------
ORD 87348-92 Litho in U.S.A.
- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
====================================================================================================================================
10. Will this annuity replace or change any existing insurance or annuity contract in any company on any Yes No
person named in 1 or 2? (If yes, for each such contract give the person's name, name of company, [ ] [ ]
plan, amount and contract numbers.)
====================================================================================================================================
11. Special Requests
====================================================================================================================================
OWNERSHIP: The owner of the contract will be as required by the applicable retirement plan. If there is no such plan,
the owner will be (1) the applicant if other than the proposed Annuitant, or else (2) the proposed Annuitant. In either
case, any limitations required by the retirement plan or program will be part of the contract. It is understood that the
purchase payment becomes the absolute property of the Company.
If this application is for an IRA, I have received an explanatory booklet, and I understand that I will be given a
financial statement with the contract.
__________________________________________________________________ _______________________________________________________________
Signature of Proposed Co-Annuitant Signature Proposed Annuitant
Dated at__________________________on_______________, 19___________ _______________________________________________________________
(City/State) Signature of Applicant (if other than proposed Annuitant)
(If owner is a firm or corporation, show that company' name)
Witness___________________________________________________________ By_____________________________________________________________
(Licensed Writing Representative must witness where (Signature and title of officer signing for that Company)
required by law.)
====================================================================================================================================
- ------------
ORD 87348-92
- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Supplementary Information
- ------------------------------------------------------------------------------------------------------------------------------------
Instructions for the Writing Representative
o On IRA's contracts, the contract owner must be the Annuitant.
o If the product is a variable annuity, be sure you give the proposed Annuitant a prospectus.
o A completed Income Tax Withholding Election Form (ORD 84549B) must accompany this application. Also, Form ORD 84549A, the Income
Tax Withholding Notice must be given to the client.
- ------------------------------------------------------------------------------------------------------------------------------------
1. Proposed Annuitant's telephone no. Home( ) Business( )
- ------------------------------------------------------------------------------------------------------------------------------------
2. Does the purchase payment come from the proceeds of insurance contracts in this or another company? If yes, give: [ ] Yes [ ] No
a. Company name________________________________________________ b. Prudential/Pruco Life contract no.(s)_______________________
c. Amount $__________________________ d. Proceeds are from: [ ] Loan [ ] Dividends [ ] Surrenders [ ] Other (describe)
====================================================================================================================================
3. Do you have, from any source, facts that any person named in 1 or 2 of the application may replace or change any current
insurance or annuity in any company? (Give details of yes, answers in "Remarks".) [ ] Yes [ ] No
_____________________________,19_______ ______________________________________________________________________________________
Date Signature of Writing Representative (Agent)
====================================================================================================================================
Remarks:
====================================================================================================================================
Credit % Contract number Name & Title Agcy. No./Rep. Init. Office code Detached Office
________ _______________ _____________________________________ ___________________ ___________ _______________________
________ _______________ _____________________________________ ___________________ ___________ _______________________
________ _______________ _____________________________________ ___________________ ___________ _______________________
====================================================================================================================================
- ---------
ORD 87348 92 Litho in U.S.A.
_________
</TABLE>
<PAGE>
================================================================================
================================================
The Prudential Receipt
[ ] The Prudential Insurance Company of America
[ ] Pruco Life Insurance Company, a subsidiary of
The Prudential Insurance Company of America
- --------------------------------------------------------------------------------
We, the Company, received $________ on ___________, 19__ from __________________
This amount was paid when, on this date, an annuity application was signed in
which ____________________________ is named as the proposed Annuitant.
This receipt is issued on the condition that any check, draft or other order for
the payment of money is good and can be collected. All checks must be drawn only
to the Company and not to any other party.
If the application is rejected or if we issue a contract other than as applied
for and it is not accepted on delivery, we will refund the amount shown above.
_______________________________________________
No change may be made in the terms and conditions of this form. No statement
which claims to make such a change will bind the Company.
____________________________________ _____________________________________
Field Office Writing Representative (Agent)
================================================================================
- -------------
ORD 87348A-92 Litho in U.S.A.
- -------------
- --------------------------------------------------------------------------------
===========================================
The Prudential Important Notice About Your
Application For An Annuity
The Prudential Insurance Company of America
Pruco Life Insurance Company
- --------------------------------------------------------------------------------
Any information we obtain or have obtained about you will be treated as
confidential. However, we may give this information, as necessary, to persons
conducting mortality or morbidity studies and to affiliate companies for
marketing, servicing, underwriting or claim handling purposes. If you ask, we
will describe any other circumstance when we may obtain or disclose or may have
obtained or disclosed information about you without your prior authorization.
If you have any questions concerning any of the personal information which we
obtain or report, let us know. You have the right to see this information and to
correct, amend or delete any information which may be wrong. We will tell you
how to do this if you ask us.
Thank you for applying to us for an annuity.
================================================================================
- ------------
ORD 80067-92 Litho in U.S.A.
- ------------
<PAGE>
Corporate Offices, Newark, NJ
The Prudential Insurance Company of America Pension Office
Pruco Life Insurance Company Service Offices
Note--Unless you get a contract, or your money back within eight weeks from the
date of this receipt, please notify the Company. Give the amount paid, date of
payment, name of person to whom paid, (Locations are shown above.)
_________________________________________
Received from the Company the sum of $_________________which is a refund of the
sum paid on this contract.
______________________________, 19__ __________________________________________
Date Signature
================================================================================
- --------------------------------------------------------------------------------
========================================
Supplement To The Application
For An Annuity
ThePrudential [LOGO]
- --------------------------------------------------------------------------------
- ---------
ORD 87454 92
- ---------
<PAGE>
RETAIN THIS PAGE FOR YOUR RECORDS. DO NOT RETURN WITH APPLICATION.
CONDITIONS AND REQUIREMENTS
I. Contribution Allocation (when the contract is issued)
1. The percentage chosen may be 0%, 100%, or any whole number between 10%
and 90% (e.g., 33% can be chosen, 33 1/3% cannot).
2. The total of all percentages must equal 100%.
3. The allocation request is subject to certain investment option
restrictions (outlined in III. below.)
II. Transfers and Reallocations (after the contract is issued)
A. Transfers from the Fixed Rate Option
1. Transfers are permitted only once in a contract year and only
during the 30-day period beginning on the contract anniversary.
2. The maximum amount that can be transferred each year is the
greater of: (a) 25% of the amount in the Fixed Rate Option or (b)
$1,000 for VIP contracts, or (a) 25% of the amount in the Fixed
Rate Option, or (b) $2,500 for Discovery Plus contracts. These
limits are subject to change in the future.
3. Transfer requests received during the 30-day period beginning on
the contract anniversary will take effect on the date we receive
the request at our Home Office. Any requests received after that
period will be effective on the contract anniversary following
receipt of the request at our Home Office, provided that we
receive the request during the 30-day period preceding the
contract anniversary.
B. Transfers from the Real Property Account
1. Transfers are permitted only once in a contract year and only
during the 30-day period beginning on the contract anniversary.
2. The maximum amount that can be transferred each year is the
greater of: (a) 50% of the amount in the Real Property Account,
or (b) $10,000. These limits are subject to change in the future.
3. Transfer requests received during the 30-day period beginning on
the contract anniversary will take effect on the date we receive
the request at our Home Office. Any requests received after that
period will be effective on the contract anniversary following
receipt of the request at our Home Office, provided that we
receive the request during the 30-day period preceding the
contract anniversary.
C. Other Transfers
1. Four transfers including transfers outlined in A. and B. above
are permitted in a contract year.
2. The transfer will take effect on the date we receive the request
at our Home Office.
D. Reallocation (of additional payments, if applicable)
1. Reallocation requests are subject to all the same restrictions
shown under contribution allocation (outlined in I. above)
2. A reallocation will take effect on the date we receive the
request at our Home Office.
III. Investment Option Restrictions
1. The Real Property Account is not available with any tax-qualified
contracts.
- --------------------------------------------------------------------------------
To reallocate your premium contributions and/or transfer monies among investment
options by phone:
Call toll free between 8:00 a.m. and 4:00 p.m. each business day. This facility
is available only if you have previously authorized telephone
reallocations/transfers.
( ) 1-800-356-4050 for Eastern Home Office (Fort Washington, PA)--Eastern
Time
( ) 1-800-634-7879 for North Central Home Office (Minneapolis, MN)--Central
Time
( ) 1-800-635-9587 for South Central home Office (Jacksonville, Fl)--Eastern
Time
Note: Your policy number is required when making a telephone request. For future
reference, record your policy number in the space below.
|___|___|___|___|___|___|___|___|___|
Written confirmation of your reallocation/transfer request will be mailed to
you.
- --------------------------------------------------------------------------------
- ---------
ORD 87454 92
- ---------
<PAGE>
Supplement to the Application
[ ] The Prudential Insurance Company of America
[ ] Pruco Life Insurance Company
A Subsidiary of The Prudential Insurance Company of America
No.
_______________________________________________________________
A Supplement to the Application for a variable contract in which _______________
____________________ is named as the proposed Annuitant.
________________________________________________________________________________
I BELIEVE THIS CONTRACT MEETS MY INSURANCE NEEDS AND FINANCIAL OBJECTIVES. I
ACKNOWLEDGE RECEIPT OF A CURRENT PROSPECTUS FOR THE CONTRACT. I UNDERSTAND THAT
THE CONTRACT'S VALUE AND DEATH BENEFIT MAY VARY DEPENDING ON THE CONTRACT'S
INVESTMENT EXPERIENCE..........................................YES [ ] NO [ ]
An illustration of values is available upon request.
Date Signature of Applicant
_______________, 19______ ____________________________________________________
- -------------
ORD 87454--92
- -------------
<PAGE>
- --------------------------------------------------------------------------------
===============================================================
Allocation/Telephone Elections
[ ] The Prudential Insurance Company of America
[ ] Pruco Life Insurance Company
A Subsidiary of The Prudential Insurance Company of America
ThePrudential [LOGO]
I. INVESTMENT ALLOCATION
---------------------
I request that net payments be allocated to the investment options selected
below:
Investment Option Allocation
----------------- ----------
Aggressively Managed Flexible................. __________ % (AFLX)
Conservatively Managed Flexible............... __________ % (CFLX)
Money Market.................................. __________ % (MMKT)
High Yield Bond............................... __________ % (HIYB)
High Dividend Stock........................... __________ % (HIDV)
Natural Resources............................. __________ % (NATR)
Bond.......................................... __________ % (BOND)
Common Stock.................................. __________ % (CSTK)
Stock Index................................... __________ % (STIX)
Global Equity*................................ __________ % (GLEQ)
Government Securities......................... __________ % (GVSC)
______________________________________________ __________ % ( )
______________________________________________ __________ % ( )
Fixed Rate.................................... __________ % (FXRT)
Real Property*................................ __________ % (REAL)
Total ___100____ %
* All investment options are not available to all contracts. Please refer to
your prospectus and to the accompanying CONDITIONS AND REQUIREMENTS
information.
- --------------------------------------------------------------------------------
II. TELEPHONE REALLOCATION/TRANSFER PRIVILEGES
------------------------------------------
Please Check One:
( ) I give the Company permission to change the allocation of my net
contributions and/or to transfer funds among my investment choices based on
my telephone instructions when those instructions agree with the company's
conditions and requirements. I have received a copy of the Company's
conditions and requirements and, in particular, the restrictions covering
transfers from the Fixed Rate Option and the Real Property Account. I am
aware that my telephone instructions will be recorded to protect me and the
Company and will be put into effect only when proper identification is
provided.
( ) I do not wish to authorize telephone reallocations/transfers.
Date Signature of Applicant
_________________, 19_____ ____________________________________________________
- --------------------------------------------------------------------------------
Supplementary Information
Submitting office code Agent's name
Contract number (Agency number for D.A.)
- --------------------------------------------------------------------------------
- ---------
ORD 87454 92
- ---------
<PAGE>
- --------------------------------------------------------------------------------
===============================================================
Suitability Checklist
[ ] The Prudential Insurance Company of America
[ ] Pruco Life Insurance Company
A Subsidiary of The Prudential Insurance Company of America
No.
---------------------------------------------------------------
ThePrudential [LOGO]
1. THIS APPLICATION IS SUBMITTED IN THE BELIEF THAT THE PURCHASE OF THIS
CONTRACT IS SUITABLE FOR THE APPLICANT BASED ON THE INFORMATION
FURNISHED................................................... YES [ ] NO [ ]
2. REASONABLE INQUIRY HAS BEEN MADE OF THE APPLICANT CONCERNING THE
APPLICANT'S OVERALL FINANCIAL SITUATION AND NEEDS AND INVESTMENT
OBJECTIVES.................................................. YES [ ] NO [ ]
3. THE PURCHASE OF THIS CONTRACT IS REASONABLY CONSISTENT WITH THE PREMISE
THAT THE PROPOSED CONTRACT OWNER WILL PERSIST WITH THE CONTRACT
............................................................ YES [ ] NO [ ]
Date Signature of Registered Representative
________________, 19______ ____________________________________________________
- ---------
ORD 87454 92
- ---------
PURCHASE AGREEMENT
This agreement is made on the 4th day of March, 1983, between The
Prudential Insurance Company of America, a New Jersey corporation
("Prudential"), on its own behalf and on behalf of The Prudential Individual
Contract Account The Prudential Qualified Individual Variable Account ("Variable
Annuity Accounts"), and The Prudential Series Fund, Inc. a Maryland corporation
(the "Series Fund").
1. The Variable Annuity Accounts are accounts established and maintained by
Prudential under New Jersey law as separate investment accounts for the purpose
of holding and investing payments, made under variable annuity contracts
("Contracts") issued by Prudential, as provided in such Contracts. Such amounts
will be held in one or more of five subaccounts of either of the Variable
Annuity Accounts, as directed by the respective contractholders. The Variable
Annuity Accounts are registered as unit investment trusts under the Investment
Company Act of 1940.
2. The Series Fund is registered as an open-end management company
organized as a series fund under the Investment Company Act of 1940. The Series
Fund will be comprised initially of five Portfolios: a Money Market Portfolio, a
Common Stock Portfolio, a Bond Portfolio, a Conservatively Managed Flexible
Portfolio, and an Aggressively Managed Flexible Portfolio.
<PAGE>
-2-
3. Prudential will invest the assets held in each subaccount of the
Variable Annuity Accounts in shares of the corresponding Portfolio described
above.
NOW, THEREFORE, Prudential and the Series Fund hereby agree as follows:
1. The Series Fund agrees to sell shares in each of its Portfolios to the
corresponding subaccount of each of the Variable Annuity Accounts at net asset
value. Orders for such shares shall be made by wire, hand delivery of written
orders or telephone directed to the transfer agent designated by the Series
Fund. Payment for such shares shall be made by wire transfer of federal funds to
the Custodian designated by the Series Fund within five business days after the
placing of the corresponding orders.
2. Redemption of Series Fund shares shall be requested by wire, hand
delivery of written requests or telephone directed to the said transfer agent
and payment therefore shall be made by wire transfer of federal funds within
five business days after the request for redemption is received.
3. On each day in which the net asset value of the shares of any Portfolio
in the Series Fund is Determined, the Series Fund shall provide Prudential with
the net asset value of such shares by 5:30 p.m. New York City time or at such
later time as shall be agreed to by the parties.
<PAGE>
-3-
4. This Agreement shall remain in effect until terminated by the mutual
written consent of the parties hereto.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
BY /s/ John J. Marcus
------------------------------------
John J. Marcus
Senior Vice President
THE PRUDENTIAL SERIES FUND, INC.
BY /s/ Martin D. Vogt
------------------------------------
Martin D. Vogt
President
April 23, 1999
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 Statement on Form N-4, as amended,
filed by Prudential with the Securities and Exchange Commission (Registration
No. 33-25434) 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 contacts are legal and binding obligation 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,
/s/ CLIFFORD E. KIRSCH
- -----------------------
Chief Counsel Variable Products
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 14 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated March
19, 1999, 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 this Registration Statement of our report dated February
26, 1999, relating to the consolidated financial statements of The Prudential
Insurance Company of America and its subsidiaries, 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.
PricewaterhouseCoopers LLP
New York, New York
April 23, 1999
<TABLE>
<CAPTION>
PRU DISCOVERY PLUS (SAPDU#3) 31-Dec-98
ASSUMING NO LOAD (TABLE 1) INCPT
YTD 1YR 5YR SINCE ICPT DATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMKT 4.14% 4.14% 3.94% 4.30% 2/27/89
DIBOND 5.89% 5.89% 5.98% 7.96% 2/27/89
GVTINC 7.78% 7.78% 5.47% 7.58% 5/1/89
CONS 10.40% 10.40% 9.33% 9.95% 2/27/89
FLXMGD 8.91% 8.91% 10.84% 11.76% 2/27/89
HIYLD -3.52% -3.52% 5.92% 7.65% 2/27/89
STIX 26.89% 26.89% 22.22% 17.17% 2/27/89
EQINC -3.54% -3.54% 13.55% 13.51% 2/27/89
EQUITY 8.04% 8.04% 15.48% 15.17% 2/27/89
PRUJEN 35.84% 35.84% N/A 27.91% 5/1/95
SMCAP -1.94% -1.94% N/A 15.65% 5/1/95
GLOBAL 23.60% 23.60% 10.71% 9.21% 5/1/89
NATR -18.09% -18.09% 1.88% 6.08% 2/27/89
RPA 8.09% 8.09% 7.40% 4.88% 2/27/89
- -----------------------------------------------------------------------------------------------
TOTAL 112.50% 112.50% 112.72% 158.77%
CHECK ABOVE 112.50% 112.50% 112.72% 158.77%
<CAPTION>
PRU DISCOVERY PLUS (SAPDU#3) 31-Dec-98
ASSUMING CHARGES (TABLE 2) INCPT
YTD 1YR 5YR SINCE ICPT DATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMKT -2.13% -2.13% 3.33% 4.30% 2/27/89
DIBOND -0.37% -0.37% 5.42% 7.96% 2/27/89
GVTINC 1.54% 1.54% 4.90% 7.58% 5/1/89
CONS 4.17% 4.17% 8.85% 9.95% 2/27/89
FLXMGD 2.68% 2.68% 10.40% 11.76% 2/27/89
HIYLD -9.60% -9.60% 5.36% 7.65% 2/27/89
STIX 20.78% 20.78% 21.96% 17.17% 2/27/89
EQINC -9.62% -9.62% 13.16% 13.51% 2/27/89
EQUITY 1.80% 1.80% 15.12% 15.17% 2/27/89
PRUJEN 29.79% 29.79% N/A 27.48% 5/1/95
SMCAP -8.12% -8.12% N/A 15.04% 5/1/95
GLOBAL 17.46% 17.46% 10.26% 9.21% 5/1/89
NATR -23.25% -23.25% 1.21% 6.08% 2/27/89
RPA 1.85% 1.85% 6.88% 4.88% 2/27/89
- -----------------------------------------------------------------------------------------------
TOTAL 26.99% 26.99% 106.86% 157.72%
CHECK ABOVE 26.99% 26.99% 106.86% 157.72%
<CAPTION>
PRU DISCOVERY PLUS (SAPDU#3) 31-Dec-98
ASSUMING CHARGES (TABLE 3)
INCPT DATE 1YR 5YR 10YR SINCE ICPT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DIBOND 6/83 5.89% 33.69% N/A 112.40%
GVTINC 5/89 7.78% 30.51% N/A 102.61%
CONS 6/83 10.40% 56.20% N/A 154.36%
FLXMGD 5/83 8.91% 67.32% N/A 198.51%
HIYLD 2/87 -3.52% 33.33% N/A 106.54%
STIX 10/87 26.89% 172.70% N/A 375.50%
EQINC 2/88 -3.54% 88.81% N/A 247.81%
EQUITY 6/83 8.04% 105.37% N/A 301.30%
PRUJEN 5/95 35.84% N/A N/A 146.71%
SMCAP 5/95 -1.94% N/A N/A 70.50%
GLOBAL 5/89 23.60% 66.31% N/A 134.38%
NATR 5/88 -18.09% 9.76% N/A 78.74%
RPA 5/88 8.09% 42.92% N/A 59.86%
- -----------------------------------------------------------------------------------------------
TOTAL 108.36% 706.91% 0.00% 2089.22%
ABOVE
</TABLE>
22
<PAGE>
<TABLE>
PDISCO+ 12/31/97
CUMULATIVE WITH NO CHARGES SAPDU1 TABLE 3
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
A B C D E=(A/D)-1 F=(B/D)-1 G=(C/D)-1
5 YR 10 YR SINCE INCEPT 5 YR ROR 10 YR ROR SINCE INCEPT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIBOND 1,336.87 N/A 2,124.03 1,000.00 33.69% N/A 112.40%
GVTINC 1,305.14 N/A 2,026.10 1,000.00 30.51% N/A 102.61%
CONS 1,561.95 N/A 2,543.59 1,000.00 56.20% N/A 154.36%
FLXMGD 1,673.16 N/A 2,985.12 1,000.00 67.32% N/A 198.51%
HIYLD 1,333.28 N/A 2,065.41 1,000.00 33.33% N/A 106.54%
STIX 2,727.04 N/A 4,754.97 1,000.00 172.70% N/A 375.50%
EQINC 1,888.05 N/A 3,478.13 1,000.00 88.81% N/A 247.81%
EQUITY 2,053.68 N/A 4,012.95 1,000.00 105.37% N/A 301.30%
PRUJEN N/A N/A 2,467.10 1,000.00 N/A N/A 146.71%
SMCAP N/A N/A 1,705.03 1,000.00 N/A N/A 70.50%
GLOBAL 1,663.07 N/A 2,343.83 1,000.00 66.31% N/A 134.38%
NATR 1,097.61 N/A 1,787.36 1,000.00 9.76% N/A 78.74%
RPA 1,429.22 N/A 1,598.57 1,000.00 42.92% N/A 59.86%
</TABLE>
23
<PAGE>
<TABLE>
Date: 20-Apr-99
UNIT VALUES FOR THE LAST BUSINESS DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU DISCO PLUS PRODUCT
<CAPTION>
PRU DISCO PLUS MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89 27-Feb-89
WHOLE YEARS SINCE
INCEPTION 9.00000 9.00000 9.00000 9.00000 9.00000 9.00000 9.00000 9.00000
INITIAL UNIT VALUE 1.43998 1.59913 1.88358 1.65637 1.66611 1.13935 1.00329 1.07811
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
30-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
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
<CAPTION>
PRU DISCO PLUS NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 27-Feb-89 27-Feb-89 01-May-89 01-May-89 01-May-95 01-May-95
WHOLE YEARS SINCE
INCEPTION 9.00000 9.00000 9.00000 9.00000 3.00000 3.00000
INITIAL UNIT VALUE 1.13685 1.01838 1.01099 1.00062 1.00870 1.00160 17.64306
1989 31-Mar-89 1.14595 1.04491 0.99112 N/A N/A N/A 14.74279
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
30-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
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
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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
1998 31-Mar-98 2.11355 3.25776 7.83953 4.90872 4.06859 4.56104 1.50171 2.41722
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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
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
1998 31-Mar-98 2.67357 4.33108 2.19992 1.89997 2.09735 1.92781 45.79782
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-Jun-98 2.13528 3.33047 7.82240 4.94566 4.12224 4.48870 1.52455 2.41376
30-Sep-98 2.15736 3.40084 6.64350 4.51187 3.97944 3.66324 1.55612 2.17797
31-Dec-98 2.17869 3.39660 7.55872 4.94447 4.23790 3.96281 1.60383 2.22674
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
30-Jun-98 2.34689 4.45663 2.27472 1.94367 2.19916 1.83288 45.83701
30-Sep-98 2.12709 3.99966 1.94559 2.03999 1.92797 1.45069 41.58133
31-Dec-98 2.03196 4.84237 2.36959 2.02736 2.48856 1.70776 45.57736
</TABLE>
26
<PAGE>
<TABLE>
Date: 20-Apr-99
UNIT VALUES FOR THE FIRST BUSINESS DAY OF EVERY YEAR FOR THE PRU DISCO PLUS PRODUCT (Beginning 1997)
PRU DISCO PLUS MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267
<CAPTION>
PRU DISCO PLUS NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 2.83947 2.90729 1.81356 1.73574 1.40755 1.40807 36.55399
</TABLE>
27
<PAGE>
<TABLE>
PRU DISCO PLUS POLICY SIZE: $1,000 DATE: 21-Apr-99
<CAPTION>
MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 4.14% 5.89% 8.04% 8.91% 10.40% -3.54% 8.09% -3.52%
ERV(ENDING REDEEMABLE VALUE) 1041.42 1058.90 1080.42 1089.15 1104.00 964.56 1080.89 964.78
AMT SUBJ TO LOAD IF + RETURN 895.86 894.11 891.96 891.09 889.60 903.54 891.91 903.52
AMT SUBJ TO LOAD IF - RETURN 937.28 953.01 972.38 980.23 993.60 868.10 972.80 868.31
AMT SUBJ TO LOAD 895.86 894.11 891.96 891.09 889.60 868.10 891.91 868.31
1ST YEAR SALE LOAD 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.71 62.59 62.44 62.38 62.27 60.77 62.43 60.78
ERV LESS LOAD 978.71 996.32 1017.98 1026.77 1041.72 903.79 1018.46 904.00
RETURN W/SALES LOAD -2.13% -0.37% 1.80% 2.68% 4.17% -9.62% 1.85% -9.60%
5 YEAR % OF RETURN 21.29% 33.69% 105.37% 67.32% 56.20% 88.81% 42.92% 33.33%
ERV(ENDING REDEEMABLE VALUE) 1212.86 1336.87 2053.68 1673.16 1561.95 1888.05 1429.22 1333.28
ANNUALIZED RETURN W/O SALE LOAD 3.94% 5.98% 15.48% 10.84% 9.33% 13.55% 7.40% 5.92%
AMT SUBJ TO LOAD IF + RETURN 878.71 866.31 794.63 832.68 843.80 811.19 857.08 866.67
AMT SUBJ TO LOAD IF - RETURN 1091.57 1203.18 1848.31 1505.85 1405.76 1699.25 1286.30 1199.95
AMT SUBJ TO LOAD 878.71 866.31 794.63 832.68 843.80 811.19 857.08 866.67
5TH (OR INCEPTION) SALE LOAD 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
AMT OF LOAD 35.15 34.65 31.79 33.31 33.75 32.45 34.28 34.67
ERV LESS LOAD 1177.71 1302.21 2021.90 1639.86 1528.20 1855.60 1394.94 1298.61
YRS IN EXISTENCE 5 5 5 5 5 5 5 5
ANNUALIZED RETURN W/SALE LOAD 3.33% 5.42% 15.12% 10.40% 8.85% 13.16% 6.88% 5.36%
SINCE INCPT % OF RETURN 51.30% 112.40% 301.30% 198.51% 154.36% 247.81% 59.86% 106.54%
ERV(ENDING REDEEMABLE VALUE) 1,513.00 2,124.03 4,012.95 2,985.12 2,543.59 3,478.13 1,598.57 2,065.41
ANNUALIZED RETURN W/O SALE LOAD 4.30% 7.96% 15.17% 11.76% 9.95% 13.51% 4.88% 7.65%
AMT SUBJ TO LOAD IF + RETURN 848.70 787.60 598.70 701.49 745.64 652.19 840.14 793.46
AMT SUBJ TO LOAD IF - RETURN 1361.70 1911.63 3611.66 2686.61 2289.23 3130.32 1438.71 1858.87
AMT SUBJ TO LOAD 848.70 787.60 598.70 701.49 745.64 652.19 840.14 793.46
SINCE INCEPTION SALES LOAD * 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 1513.00 2124.03 4012.95 2985.12 2543.59 3478.13 1598.57 2065.41
YRS IN EXISTENCE 9.83984 9.83984 9.83984 9.83984 9.83984 9.83984 9.83984 9.83984
ANNUALIZED RETURN W/SALE LOAD 4.30% 7.96% 15.17% 11.76% 9.95% 13.51% 4.88% 7.65%
<CAPTION>
NATR STIX GLOBAL GVTINC PRUJEN SMCAP
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN -18.09% 26.89% 23.60% 7.78% 35.84% -1.94% 112.50% W/OUT
ERV(ENDING REDEEMABLE VALUE) 819.14 1268.94 1236.00 1077.81 1358.44 980.56
AMT SUBJ TO LOAD IF + RETURN 918.09 873.11 876.40 892.22 864.16 901.94
AMT SUBJ TO LOAD IF - RETURN 737.22 1142.05 1112.40 970.03 1222.59 882.50
AMT SUBJ TO LOAD 737.22 873.11 876.40 892.22 864.16 882.50
1ST YEAR SALE LOAD 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 51.61 61.12 61.35 62.46 60.49 61.78
ERV LESS LOAD 767.53 1207.83 1174.65 1015.35 1297.95 918.78
RETURN W/SALES LOAD -23.25% 20.78% 17.46% 1.54% 29.79% -8.12% 26.99% WITH
5 YEAR % OF RETURN 9.76% 172.70% 66.31% 30.51% N/A N/A
ERV(ENDING REDEEMABLE VALUE) 1097.61 2727.04 1663.07 1305.14 N/A N/A
ANNUALIZED RETURN W/O SALE LOAD 1.88% 22.22% 10.71% 5.47% N/A N/A 112.72% W/OUT
AMT SUBJ TO LOAD IF + RETURN 890.24 727.30 833.69 869.49 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 987.85 2454.33 1496.76 1174.62 N/A N/A
AMT SUBJ TO LOAD 890.24 727.30 833.69 869.49 N/A N/A
5TH (OR INCEPTION) SALE LOAD 4.00% 4.00% 4.00% 4.00% N/A N/A
AMT OF LOAD 35.61 29.09 33.35 34.78 N/A N/A
ERV LESS LOAD 1062.00 2697.94 1629.72 1270.36 N/A N/A
YRS IN EXISTENCE 5 5 5 5 0 0
ANNUALIZED RETURN W/SALE LOAD 1.21% 21.96% 10.26% 4.90% N/A N/A 106.86% WITH
SINCE INCPT % OF RETURN 78.74% 375.50% 134.38% 102.61% 146.71% 70.50%
ERV(ENDING REDEEMABLE VALUE) 1,787.36 4,754.97 2,343.83 2,026.10 2,467.10 1,705.03
ANNUALIZED RETURN W/O SALE LOAD 6.08% 17.17% 9.21% 7.58% 27.91% 15.65% 158.77% W/OUT
AMT SUBJ TO LOAD IF + RETURN 821.26 524.50 765.62 797.39 753.29 829.50
AMT SUBJ TO LOAD IF - RETURN 1608.62 4279.48 2109.45 1823.49 2220.39 1534.53
AMT SUBJ TO LOAD 821.26 524.50 765.62 797.39 753.29 829.50
SINCE INCEPTION SALES LOAD * 0.00% 0.00% 0.00% 0.00% 4.00% 4.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 30.13 33.18
ERV LESS LOAD 1787.36 4754.97 2343.83 2026.10 2436.96 1671.85
YRS IN EXISTENCE 9.83984 9.83984 9.66735 9.66735 3.66872 3.66872
ANNUALIZED RETURN W/SALE LOAD 6.08% 17.17% 9.21% 7.58% 27.48% 15.04% 157.72% WITH
* Sales Load percentage should change after each year. Check prospectus and update as necessary.
Rate of Return (ROR) = (Current UV - Prior UV)/(Prior UV) Ending Redeemable Value (ERV) = ((ROR+1)*1000)
Annualized Rate of Return = (ERV/1000)^(1/N)-1, N = # OF YEARS
Prepared By:
Reviewed By:
</TABLE>
