<PAGE>
Registration No. 2-28316
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
Form N-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 48
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25
-------------------
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
(Exact Name of Registrant)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Insurance Company)
Prudential Plaza
Newark, New Jersey 07102-3777
(201) 802-8781
(Address and telephone number of Insurance Company's
principal executive offices)
--------------------------------------
C. CHRISTOPHER SPRAGUE
Assistant General Counsel
The Prudential Insurance Company of America
c/o Prudential Defined
Contribution Services
30 Scranton Office Park
Moosic, Pennsylvania
18507-1789
(Name and address of agent for service)
Copy to:
Lawrence J. Latto
Jeffrey C. Martin
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
-------------------------
Registrant has registered an indefinite amount of securities pursuant to Rule
24f-2 under the Investment Company Act of 1940. The 24f-2 notice for fiscal year
1994 was filed on February 27, 1995.
For the purpose of Amending the Registration Statement.
Fiscal year ending December 31, 1994
It is proposed that this filing will become effective (Check appropriate space):
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1995 pursuant to paragraph (b) of Rule 485
(date)
___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
___ on ____________ pursuant to paragraph (a)(i) of the Rule 485
(date)
___ 75 days after filing pursuant (a)(ii) of Rule 485
___ on ____________ pursuant to paragraph (a)(ii) of Rule 485
(date)
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495(a) under the Securities Act of 1933 indicating the location
in the Prospectus and Statement of Additional Information called for by the
Items of Parts A and B of Form N-3.
<TABLE>
<S> <C> <C>
Heading in Prospectus or Statement
Item Number and Caption of Additional Information
---------------------------------------- ----------------------------------------
1. Cover Page.............................. Cover Page
2. Definitions............................. Glossary of Terms Used in this
Prospectus
3. Synopsis or Highlights.................. Summary of Prospectus Information
4. Condensed Financial Information......... Condensed Financial Information
5. General Description of Registrant
and Insurance Company................... Description of The Prudential and VCA-2
6. Management.............................. Description of The Prudential and VCA-2
7. Deductions and Expenses................. Fee Tables; Charges; The Group Variable
Annuity Contracts
8. General Description of
Variable Annuity Contracts.............. Summary of Prospectus Information; The
Group Variable Annuity Contracts, The
Accumulation Period; Voting Rights
9. Annuity Period.......................... The Group Variable Annuity Contracts,
The Annuity Period
10. Death Benefit........................... The Group Variable Annuity Contracts,
Death Benefits before an Annuity is
Effected
11. Purchases and Contract Value............ Description of The Prudential and VCA-2;
Investment Practices of
VCA-2, Determination of Asset Value;
The Group Variable Annuity Contracts,
The Accumulation Period
12. Redemptions............................. The Group Variable Annuity Contracts,
Withdrawal (Redemption) of Purchase
Payments Prior to Death, Systematic
Withdrawal Plan, Texas Optional
Retirement Program
13. Taxes................................... Federal Tax Status
14. Legal Proceedings....................... Legal Proceedings
15. Table of Contents of the Statement
of Additional Information............... Table of Contents - Statement of
Additional Information
16. Cover Page.............................. Cover Page
17. Table of Contents....................... Table of Contents
18. General Information and History......... Not Applicable
19. Investment Objectives and Policies...... Investment Management and Administration
of VCA-2
20. Management.............................. The VCA-2 Committee
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
21. Investment Advisory and Other Investment Management and Administration
Services................................ of VCA-2
22. Brokerage Allocation.................... Investment Management and Administration
of VCA-2, Portfolio Brokerage and
Related Practices
23. Purchase and Pricing of Securities
Being Offered........................... Not Applicable
24. Underwriters............................ Investment Management and Administration
of VCA-2; Sale of Group Variable
Annuity Contracts
25. Calculation of Performance Data......... Not Applicable
26. Annuity Payments........................ The Group Variable Annuity Contracts,
The Annuity Period
27. Financial Statements.................... Financial Statements of VCA-2; Financial
Statements of
The Prudential
</TABLE>
<PAGE>
DATED MAY 1, 1995
GROUP TAX-DEFERRED VARIABLE ANNUITY CONTRACTS
issued through
THE PRUDENTIAL
VARIABLE CONTRACT ACCOUNT-2
For Persons Eligible For Such Annuities
In accordance with Section 403(b) of the Internal Revenue Code
- --------------------------------------------------------------------------------
The Prudential Variable Contract Account-2 will invest its assets primarily in
common stocks selected with the objective of long-term growth, taking into
account both income and capital appreciation.
This Prospectus provides information a prospective investor should know before
investing. Additional information about the Contracts has been filed with the
Securities and Exchange Commission in a Statement of Additional Information,
dated May 1, 1995, which information is incorporated herein by reference, and is
available without charge upon written or oral request directed to the address or
telephone number shown below. The Table of Contents of the Statement of
Additional Information appears on page 23 of this Prospectus.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The Prudential Insurance Company of America
c/o Prudential Defined Contribution Services
30 Scranton Office Park
Moosic, Pennsylvania 18507-1789
Telephone 1-800-458-6333
The Prudential Rock Logo
- -------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
GLOSSARY OF TERMS USED IN THIS PROSPECTUS......................................................................... 2
FEE TABLE......................................................................................................... 3
SUMMARY OF PROSPECTUS INFORMATION................................................................................. 4
CONDENSED FINANCIAL INFORMATION................................................................................... 6
DESCRIPTION OF THE PRUDENTIAL AND VCA-2........................................................................... 7
INVESTMENT PRACTICES OF VCA-2..................................................................................... 8
AGREEMENT FOR INVESTMENT MANAGEMENT SERVICES...................................................................... 9
CHARGES........................................................................................................... 9
THE GROUP VARIABLE ANNUITY CONTRACTS.............................................................................. 10
A. The Accumulation Period..................................................................... 10
1. Crediting Accumulation Units; Deduction for Sales and Administrative Expenses.... 10
2. Valuation of a Participant's Individual Accumulation Account..................... 11
3. The Accumulation Unit Value...................................................... 11
4. The Accumulation Unit Change Factor for Any Business Day......................... 11
5. Discontinuance of Purchase Payments.............................................. 11
6. Continuance Under Group Contract After Being Employed by New Employer............ 12
7. Withdrawal (Redemption) of Purchase Payments Prior to Death...................... 12
8. Systematic Withdrawal Plan....................................................... 13
9. Texas Optional Retirement Program................................................ 13
10. Death Benefits Before an Annuity is Effected..................................... 14
11. Transfer Payments................................................................ 15
12. Modified Procedures.............................................................. 16
B. The Annuity Period.......................................................................... 16
1. Variable Annuity Payments........................................................ 16
2. Electing the Annuity Date and the Form of Annuity................................ 16
3. Deductions for Taxes on Annuity Considerations................................... 17
4. Available Forms of Variable Annuity.............................................. 17
5. The Annuity Unit................................................................. 17
6. The Annuity Unit Value........................................................... 18
7. The Annuity Unit Change Factor for Any Month..................................... 18
8. Assumed Investment Result........................................................ 18
9. Schedule of Variable Annuity Purchase Rates...................................... 18
C. Assignment.................................................................................. 19
D. Changes in the Group Variable Annuity Contract.............................................. 19
E. Periodic Reports............................................................................ 20
F. Participation in Divisible Surplus.......................................................... 20
FEDERAL TAX STATUS................................................................................................ 20
VOTING RIGHTS..................................................................................................... 21
OTHER CONTRACTS ON A VARIABLE BASIS............................................................................... 21
STATE REGULATION.................................................................................................. 22
LEGAL PROCEEDINGS................................................................................................. 22
ADDITIONAL INFORMATION............................................................................................ 22
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION............................................................ 23
NOTE: All masculine references in this Prospectus are intended to include the feminine gender. The singular context also
includes the plural and vice versa where necessary.
</TABLE>
<PAGE>
GLOSSARY OF TERMS USED IN THIS PROSPECTUS
ACCUMULATION PERIOD: the period from the date a Participant's VCA-2 account is
opened to the date it is applied to provide an annuity or otherwise withdrawn
(see page 10).
ACCUMULATION UNIT: a measure used to determine the value of a Participant's
VCA-2 account (see page 11).
ACCUMULATION UNIT VALUE: the dollar value of one Accumulation Unit (see page
11).
ANNUITY: a series of payments made each month as long as a person, called the
annuitant, is living. In some forms of annuity, payments may continue after the
annuitant's death (see page 16).
ANNUITY-CERTAIN: a series of payments for a definite period, not dependent on
the length of a person's life (see page 17).
ANNUITY UNIT: a measure used to determine the value of a variable annuity
payment (see page 17).
ANNUITY UNIT VALUE: the dollar value of one Annuity Unit (see page 18).
ASSUMED INVESTMENT RESULT: the annual rate of investment result assumed for the
purpose of establishing the initial payment under a variable annuity and which
is used in determining Annuity Unit Values (see page 18).
CONTRACT: the Group Variable Annuity Contract described in this Prospectus which
is a written agreement between Prudential and the Contract-holder which sets
forth the rights, duties, and privileges of all parties (see page 10).
CONTRACT-HOLDER: ordinarily the employer of the Participants, but may also be an
association representing them or their employers (see page 10).
MORTALITY AND EXPENSE RISKS: the risks Prudential assumes because the amount of
variable annuity payments will not be affected by losses Prudential may incur if
annuitants live longer than expected, or if actual expenses are higher than
expected (see page 10).
PARTICIPANT: a person for whom purchase payments have been made to credit
Accumulation Units which remain in his account or have been applied to provide a
variable annuity for him (see page 10).
PARTICIPANT'S ACCOUNT, INDIVIDUAL ACCUMULATION ACCOUNT: a record of the number
of Accumulation Units credited to a Participant (see page 11).
"PROGRAM"--PRUDENTIAL'S GROUP TAX-DEFERRED ANNUITY PROGRAM: a Contract-holder's
program providing for purchase payments under the Contract, a companion
fixed-dollar annuity contract or a combination of the two (see page 4).
PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2 ("VCA-2" OR THE "ACCOUNT"): the separate
account in which the Contracts participate (see page 4).
PURCHASE PAYMENT: money paid under a contract on behalf of a Participant (see
page 11).
TAX-DEFERRED ANNUITY: an arrangement for deferring Federal income tax on the
portion of a person's income which is applied by his employer to the purchase of
an annuity, until annuity payments commence (see page 4).
VARIABLE ANNUITY: an annuity whose payments vary with the investment results of
VCA-2 (see page 16).
2
<PAGE>
FEE TABLE
The purpose of this table is to assist the Participant in understanding the
various charges that a Participant in the Account will bear, whether directly or
indirectly. For a more complete description of the various charges, see
"Charges" on pages 9 and 10.
PARTICIPANT TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of purchase payments):
2.5%
Maximum Annual Contract Fee*
Initial charge $60
Subsequent annual charge $30
ANNUAL ACCOUNT OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Management Fee .125%
Mortality and Expense* .375%
----------
Total Annual Expenses .500%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses $30 $41 $53 $87
on each $1,000 invested assuming a
5% annual return. You would pay the
same expenses whether you withdraw
from VCA-2, remain as a Participant
in the Account, or annuitize, at the
end of each time period.
</TABLE>
The above example is based on data for the Account's fiscal year ended December
31, 1994. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The example is intended to illustrate the dollar amount of the aggregate of all
the expenses, fees and charges shown above, on a cumulative basis over the
periods shown, that would be incurred on each $1000 invested. The annual
contract fee reflected in the above example is based upon the assumption that
the fee is deducted from the VCA-2 contract in the same proportion as the
aggregate annual contract fees are deducted from the fixed-dollar or VCA-2
contracts. The actual expenses paid by each Participant will vary depending upon
the total amount credited to that Participant and how that amount is allocated.
- ----------------------------
*During a participant's annuity period, the annual contract fee is not charged
and the mortality and expense charges are not made. See "The Annuity Period" on
pages 16 through 19 for further information.
3
<PAGE>
SUMMARY OF PROSPECTUS INFORMATION
The Group Variable Annuity Contracts (the "Contracts" or the "Variable
Contracts") described in this Prospectus are offered for use by public school
systems and certain tax-exempt organizations pursuant to Section 403(b) of the
Internal Revenue Code of 1986 (the "Code" or "Internal Revenue Code"). The
Contracts, together with fixed-dollar annuity contracts offered for the same
use, but which are not described in this Prospectus, comprise Prudential's Group
Tax-Deferred Annuity Program (the "Program"). A person for whom purchase
payments have been made under a Contract which remain credited to his account or
which have been applied to provide a variable annuity for him is referred to as
a "Participant." The following is a summary of information about the Contracts
and the rights of Participants. More detailed information can be found in the
referenced portions of this Prospectus. A glossary of certain terms used in this
Prospectus can be found on page 2.
REGISTRANT
The Prudential Variable Contract Account-2 ("VCA-2" or the "Account") is an
open-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). See "Description of
The Prudential and VCA-2," page 7.
INVESTMENT ADVISER AND PRINCIPAL UNDERWRITER
The Prudential Insurance Company of America ("Prudential") is the investment
adviser of VCA-2 and Prudential Retirement Services, Inc. ("PRSI"), a
wholly-owned indirect subsidiary of Prudential, is the principal underwriter of
the Contracts pursuant to an agreement between PRSI and VCA-2 (the "Distribution
Agreement"). Prudential is a mutual life insurance company incorporated in 1873
under the laws of the State of New Jersey. See "Description of The Prudential
and VCA-2," page 7.
INVESTMENT OBJECTIVE
The Account will invest primarily in common stocks selected with the objective
of long-term growth, taking into account both income and capital appreciation.
Investments will be made according to the standards of a prudent investor
concerned primarily with the preservation of his capital and the long-term
prospects for its growth in relation to both the growth of the economy and the
changing value of the dollar. There is no assurance that this investment
objective will be attained. There is no guarantee that the amount available to a
person for whom purchase payments have been made will equal or exceed the total
purchase payments made on his behalf. The value of the investments held in the
Account fluctuates daily and is subject to the risks of changing economic
conditions and risks inherent in the selection of investments necessary to meet
the Account's objective. See "Investment Practices of VCA-2," page 8, and see
"Investment Management and Administration of VCA-2" in the Statement of
Additional Information.
CONTRACTS OFFERED
The Contracts are generally offered pursuant to agreements between certain
eligible employers and their employees. Annuities issued pursuant to such
agreements are commonly called "tax-deferred annuities," because the
Participants enjoy certain federal income tax benefits provided by Section
403(b) of the Internal Revenue Code. A Participant is afforded an opportunity to
have his employer set aside funds for the purpose of providing retirement income
for him, with federal income tax upon those amounts deferred until the annuity
payments commence. The Contracts provide for variable annuity payments to each
Participant commencing on a date selected by him. The amounts of these annuity
payments will vary with the investment performance of VCA-2. The annuity
payments will reflect the investment performance of the Account not only during
the period in which the Participant is receiving annuity payments, but also from
the time he first becomes a Participant under the Contract until the
commencement of those payments. Certain of the rights provided by the Contracts
are granted to Participants, while other rights are exercisable by the Contract-
holder, usually the employer. See "The Group Variable Annuity Contracts," pages
10 through 20.
INVESTMENT REQUIREMENT
In order for an employee to become and remain a Participant, he must have signed
an agreement with his employer providing for minimum purchase payments under the
Program on his behalf of $200 during any 12-month period. See "The Accumulation
Period," pages 10 through 16.
CHARGES
A deduction of 2.5% (2.56% of the amount invested) for sales and marketing
expenses is made from each Participant's purchase payments. An annual
administration charge is made against each Participant's accumulation account in
an
4
<PAGE>
amount which varies with each Contract but which is not more than $60 for the
first accounting year and not more than $30 for any subsequent accounting year.
The sales and administration charges may be reduced in connection with a
particular Contract if Prudential estimates that its sales and administrative
expenses will be lower or that it will perform fewer sales or administrative
services in connection with the Contract. A daily charge is made against each
Participant's accumulation account, computed at an effective annual rate of 0.5%
( 1/2 of 1%), consisting of 0.125% ( 1/8 of 1%) for investment management
services, 0.125% ( 1/8 of 1%) for assuming mortality risks and 0.250% ( 1/4 of
1%) for assuming expense risks, and corresponding charges are made in computing
monthly annuity payments. See "Charges," pages 9 and 10.
All these charges, except those for investment management services, may be
changed by Prudential without the prior approval of Participants, except as
described under "Changes in the Group Variable Annuity Contract," page 19.
REDEMPTION AND TRANSFER
Federal tax law imposes restrictions on withdrawals from Section 403(b)
annuities. In addition, an employer may adopt a plan that limits the right of
Participants to obtain cash withdrawals upon request. In cases where such
restrictions or limitations do not apply, a Participant upon written request on
a form approved by Prudential, is entitled to withdraw all or a portion of the
amount then credited to his accumulation account. See "Withdrawal (Redemption)
of Purchase Payments Prior to Death," page 12. A Participant may transfer all or
a portion of his individual accumulation account from the Contract to a
fixed-dollar annuity contract. Prudential may limit the frequency of such
transfers. A Participant who changes employers may also transfer all of his
individual accumulation account to a similar group annuity contract issued by
Prudential which covers employees of his new employer. See "Transfer Payments,"
pages 15 and 16. Prudential may impose a redemption charge on any withdrawal or
transfer payment provided by the Contract. See "Changes in the Group Variable
Annuity Contract," page 19.
CONTACTING PRUDENTIAL
All written requests, notices and transfer requests required by the Contracts
(other than withdrawal requests and death benefit claims), should be sent to
Prudential at the address shown on the cover page of this Prospectus. Any
questions or inquiries may be sent to Prudential at that address or may be
communicated by telephone at 1-800-458-6333. All withdrawal requests or death
benefit claims relating to a Participant's interest in VCA-2 must be sent to
Prudential by one of the following three means: 1) By U.S. mail to: Prudential
Defined Contribution Services, P.O. Box 5410, Scranton, Pennsylvania 18505-5410;
2) Delivery service other than the U.S. mail (e.g., Federal Express, etc.) sent
to our office at the following address: Prudential Defined Contribution
Services, 30 Scranton Office Park, Moosic, Pennsylvania 18507-1789; or 3) Fax to
Prudential Defined Contribution Services, Attention: Client Payments at: (717)
340-4328. A withdrawal request or death benefit claim will be deemed received in
good order by Prudential as of the end of the valuation period within which all
the properly completed forms and other information required by Prudential to pay
such a request or claim (e.g., due proof of death) are received as specified
above. Receipt of a withdrawal request or death benefit claim in good order is
required by Prudential to process the transaction in the manner explained below
in this Prospectus. Under certain Contracts, the Contract-holder or a third
party acting on their behalf provides record-keeping services that would
otherwise be performed by Prudential. See "Modified Procedures," page 16.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT
(For an Accumulation Unit outstanding throughout the year)
(Covered by the Independent Auditors' Report in the Statement of Additional
Information)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Investment income........ $.1896 $.2823 $.1635 $.1629 $.2278 $.2061 $.1574 $.1983 $.1199 $.1113
Expenses
for investment
management fee......... .0151 .0138 .0111 .0094 .0079 .0078 .0064 .0064 .0052 .0040
for assuming mortality
and expense risks...... .0453 .0412 .0335 .0285 .0239 .0234 .0193 .0193 .0155 .0119
Net investment
income................. .1292 .2273 .1189 .1250 .1960 .1749 .1317 .1726 .0992 .0954
Capital changes
Net realized gain on
investments............ 1.0028 1.1147 1.2862 .6231 .1523 .8364 .5383 .4257 .6260 .7131
Net unrealized
appreciation
(depreciation) of
investments............ (1.2955) .9803 (.2121) 1.4671 (.5709) .1931 .4303 (.4720) (.1740) .0987
Net increase (decrease)
in Accumulation Unit
Value.................. (.1635) 2.3223 1.1930 2.2152 (.2226) 1.2044 1.1003 .1263 .5512 .9072
Accumulation Unit Value
Beginning of year...... 12.1567 9.8344 8.6414 6.4262 6.6488 5.4444 4.3441 4.2178 3.6666 2.7594
End of year............ $11.9932 $12.1567 $9.8344 $8.6414 $6.4262 $6.6488 $5.4444 $4.3441 $4.2178 $3.6666
Sum of average ratios for
the year of (a) charge
for investment manage-
ment fee to net assets*
and (b) charge for
assuming mortality and
expense risks to net
assets*................ .4991% .4984% .4975% .4970% .4999% .5009% .5016% .5068% .4990% .4986%
Average ratio for the
year of net investment
income to net assets... 1.0664% 2.056% 1.3253% 1.6372% 3.0779% 2.8084% 2.5657% 3.4026% 2.3907% 2.9727%
Portfolio turnover
rate.................. 36.85% 46.91% 73.24% 78.94% 107.56% 70.52% 30.51% 29.36% 68.75% 96.77%
Number of Accumulation
Units outstanding for
Participants at end of
year (000 omitted)..... 32,624 32,968 33,147 34,228 35,218 37,813 41,638 47,239 54,643 63,639
<FN>
*These calculations exclude Prudential's equity in VCA-2.
The above table does not reflect the annual administration charge, which does
not affect the Accumulation Unit Value. This charge, which is described on page
10, is made by reducing Participants' Accumulation Accounts by a number of
Accumulation Units equal in value to the charge.
While both income and capital changes are shown above, the distinction between
these sources of change in VCA-2 is not particularly significant to
Participants. There is no distinction between income and realized and
unrealized gains and losses on investments in determining the amount of the
Participant's benefits and the taxes payable by the Participant on them.
</TABLE>
6
<PAGE>
PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
GROUP VARIABLE ANNUITY CONTRACTS SOLD BY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DESCRIPTION OF THE PRUDENTIAL
AND VCA-2
Prudential is a mutual life insurance company incorporated in 1873 under the
laws of the State of New Jersey. It is authorized to transact business in all
states of the United States, the District of Columbia, the Territory of Guam,
the Commonwealth of Puerto Rico, the Virgin Islands of the United States, Canada
and United States military installations in foreign countries. Its corporate
office is located at Prudential Plaza, Newark, New Jersey 07102.
Prudential conducts a conventional life insurance business. Assets derived from
such business are invested in the manner permitted by applicable state laws. The
financial statements of Prudential contained in the Statement of Additional
Information should be considered by Participants only to the extent they may
bear upon the ability of Prudential to meet its obligations under the Contracts.
Since 1968, Prudential has been a registered broker-dealer under the Securities
Exchange Act of 1934 in connection with its marketing of certain variable
annuity contracts including those participating in VCA-2. Since 1976, Prudential
has been a registered investment adviser under the Investment Advisers Act of
1940 and prior to that time served as an investment adviser and manager to
various customers in accordance with applicable exemptions from registration.
On January 9, 1968, the Board of Directors of Prudential established VCA-2 in
accordance with certain provisions of the insurance statutes of the State of New
Jersey. The Account meets the definition of a "separate account" under the
federal securities laws. VCA-2 is empowered to hold only assets derived from
contributions under variable contracts issued by Prudential, assets that
Prudential may deem prudent to place in the Account for the purpose of
maintaining a surplus to support the obligations under the Contracts, and assets
derived from the dividends, interest and gains produced by the foregoing. The
portion of the assets in the Account equal to the reserve liability required by
law will be held for the sole benefit of Participants and persons entitled to
payment under the Contracts described herein and under other contracts which may
be offered by Prudential in the future and designated as participating in the
Account. The assets in the Accounts are the property of Prudential, but are
legally segregated from all other assets of Prudential and may not be charged
with liabilities arising out of any of Prudential's other business. All income,
gains and losses, whether or not realized, from assets allocated to the Account
are credited to or charged against the Account without regard to other income,
gains, or losses of Prudential. The obligations arising under the Contracts are
general corporate obligations of Prudential.
The Account is registered as an open-end, diversified management investment
company with the Securities and Exchange Commission (the "Commission") under the
1940 Act. This registration does not involve supervision by the Commission of
Prudential or of the management or investment practices or policies of the
Account.
Prudential acts as investment manager for VCA-2. The operation of the Account is
supervised by The Prudential Variable Contract Account-2 Committee (the "VCA-2
Committee" or the "Committee"). Beginning in June 1989, all Committee members
elected by persons having voting rights are elected for indefinite terms.
Vacancies may be filled by a majority vote of all the remaining Committee
members, provided that immediately after filling any such vacancy, at least
two-thirds of the members then holding office shall have been elected by persons
having voting rights. Members elected by the Committee, rather than by persons
having voting rights, hold their positions only until the next meeting of
persons having voting rights in respect to the Account. At that next meeting,
persons with voting rights fill the vacancy by electing a member for an
indefinite term. See "Voting Rights," page 21. A majority of the members of the
VCA-2 Committee are not affiliated with Prudential (nor are they "interested
persons" within the meaning of the 1940 Act). In addition, Prudential acts as
investment adviser to several other investment companies registered under the
1940 Act. Prudential also manages assets for certain pension fund customers on a
discretionary basis.
Prudential has entered into a Service Agreement with its wholly-owned
subsidiary, The Prudential Investment Corporation ("PIC"), pursuant to which PIC
provides such services as Prudential may require in connection with its
obligations as the Account's investment manager. See "Agreement for Investment
Management Services," page 9.
PRSI acts as principal underwriter for VCA-2 and is responsible for sales and
administrative functions relative to the Contracts and VCA-2 pursuant to an
Agreement for the Sale of Contracts between PRSI and VCA-2. This Agreement was
initially approved by unanimous vote of the Committee on April 15, 1993, and was
most recently
7
<PAGE>
renewed by unanimous vote of the Committee on November 12, 1993. Under this
Agreement, PRSI offers the Contracts through its agents and independent brokers.
Prudential's administrative responsibilities include receiving and allocating
contributions in accordance with the Contracts, making annuity payments as they
become due, preparing and filing all reports required to be filed by VCA-2,
recordkeeping, and expenses associated with these activities. Administrative
expenses include, but are not limited to, salaries, rent, postage, telephone,
travel, office equipment, stationery, and fees for legal, actuarial and
accountants' services.
Prudential has entered into a Service Agreement with its indirect wholly-owned
subsidiary, The Prudential Asset Management Company, Inc., which provides that
The Prudential Asset Management Company, Inc. may furnish certain administrative
and recordkeeping services in connection with Prudential's obligations under the
Contracts. For purposes of the Contracts, payments, notices and other
communications such as withdrawal and transfer requests will be deemed to have
been received by Prudential only if delivered to Prudential in the manner
described in the "Contacting Prudential" section of the summary of this
Prospectus. Certain alternative procedures apply if the Contract-holder or a
third party provides record-keeping services. See "Modified Procedures," page
16.
INVESTMENT PRACTICES OF VCA-2
A. INVESTMENT OBJECTIVE AND POLICIES
The investment policies set forth below are followed in making investments for
VCA-2. These policies are fundamental and may not be changed without the
approval of a majority vote of persons having voting rights in respect of VCA-2
(as defined by the 1940 Act).
1. Investments will be selected with the objective
of long-term appreciation of the assets held in VCA-2. Since no federal
income tax will be payable upon dividend income or realized capital
gains, consideration will be given to the sum of anticipated income and
capital appreciation potential without emphasizing either of these
factors. Investments will be made primarily in established corporations
according to the standards of a prudent investor concerned primarily with
the preservation of his capital and the long-term prospects for its
growth in relation to both the growth of the economy and the changing
value of the dollar.
2. The assets held in VCA-2 will be invested in a
portfolio consisting primarily of common stocks of established
corporations. A relatively small percentage of such assets may be
invested in preferred stocks, bonds, debentures, notes, and other
evidences of indebtedness of established corporations or governmental
entities which are of a character customarily acquired by institutional
investors, whether or not publicly distributed. These may or may not be
convertible into stock or accompanied by warrants or rights to acquire
stock. There may be times, however, when economic conditions or general
levels of common stock prices are such that continued investment
primarily in common stocks will be deemed not to be the best method of
attaining the objectives of VCA-2. At such times a larger than usual
portion of the assets held in VCA-2 may be invested in preferred stocks
and evidences of indebtedness. A moderate amount of cash and high grade,
short-term debt securities (including non-negotiable time deposits and
securities acquired through short-term repurchase transactions) may be
held at times in order to make possible the orderly and flexible
programming of investments.
Certain additional investment restrictions applicable to VCA-2 are set forth in
the Statement of Additional Information.
B. DETERMINATION OF ASSET VALUE
The value of securities (except fixed income securities including convertible
bonds) held in VCA-2 will be determined once daily as of 5:00 P.M., New York
time ("Valuation Time") using composite pricing which reflects prices as of the
close of business on all major exchanges, on each day on which the New York
Stock Exchange ("NYSE") is open for trading and on any other day in which there
is sufficient trading in VCA-2's portfolio securities to result in a material
change in the value of the Account. A security that is traded on a national
securities exchange will be valued at the last sale price for such security on
any major exchange on which such security is traded as of Valuation Time, or, in
the absence of recorded sales on such exchange on the valuation date, at the
average of readily available bid and asked prices on such exchange at the
Valuation Time. Any security not traded on a national securities exchange but
traded in the over-the-counter market for which quotations are furnished through
the nationwide automated quotation system approved by the National Association
of Securities Dealers, Inc. ("NASDAQ") will be valued based on the last sale
price as of the Valuation Time on each day on which the NYSE is open for
trading, or, in the absence of recorded sales on such day, at the average of
readily available bid and asked prices, as established by NASDAQ at the
Valuation Time. Unlisted securities not quoted on NASDAQ are valued at the
average of the quoted bid and asked prices in the over-the-counter market at the
Valuation Time.
Fixed income securities including convertible bonds are valued based on prices
provided by an industry-recognized pricing service when such prices are believed
to reflect the fair market value of such securities. Fixed income securities
including convertible bonds not priced in this manner are valued at the mean of
the last
8
<PAGE>
reported bid and asked prices provided by principal market makers and recognized
securities dealers in such securities. Portfolio securities for which market
quotations are not readily available will be valued at fair value as determined
in good faith under the direction of the Committee. Short-term investments
having maturities of sixty days or less are valued at amortized cost which, with
accrued interest, approximates market value. Amortized cost is computed using
the cost on the date of purchase, adjusted for constant accrual of discount or
amortization of premium to maturity.
AGREEMENT FOR INVESTMENT
MANAGEMENT SERVICES
Prudential acts as investment manager for VCA-2 pursuant to the Agreement for
Investment Management Services between Prudential and VCA-2 which was approved
initially by the Participants at their meeting on May 29, 1969, and most
recently renewed by unanimous vote of the Committee on November 12, 1993.
Subject to Prudential's supervision, substantially all of the services required
to be provided by Prudential under the Agreement for Investment Management
Services are furnished by PIC pursuant to a Service Agreement between them. This
Service Agreement was most recently renewed by unanimous vote of the Committee
at its meeting on November 12, 1993 and by the Participants on July 25, 1985.
PIC is registered as an investment adviser under the Investment Advisers Act of
1940.
Prudential continues to have responsibility for all investment advisory services
under its investment management agreement with the Account. Pursuant to the
service agreement between Prudential and PIC, Prudential reimburses PIC for its
costs and expenses. Prudential Investment Advisors ("PIA"), a division of PIC,
supplies the services with respect to equity securities. Under the service
agreement, as of December 31, 1994, PIA managed approximately $22.9 billion in
common stock investments for Prudential.
The Agreement for Investment Management Services between Prudential and VCA-2:
A. must be specifically approved, at least annually, by the affirmative vote of
the VCA-2 Committee, cast in person at a meeting called for the purpose of
voting on such approval, which affirmative vote shall include the votes of a
majority of the members of the Committee who are not "interested persons" of
Prudential, its affiliates or VCA-2, within the meaning of the 1940 Act; and
B. may not be amended to increase the compensation paid to Prudential
thereunder without prior approval by a majority vote of persons having
voting rights in respect of VCA-2 (as defined by the 1940 Act), and by the
affirmative vote of the Committee cast and constituted as described in a.
above; and
C. will continue in effect from year to year unless it is terminated, without
payment of any penalty, on sixty days' written notice to Prudential, either
by the Committee or by a majority vote of persons having voting rights in
respect of VCA-2 (as defined by the 1940 Act), or unless it is terminated by
Prudential on ninety days' written notice to the Committee. It will also
terminate automatically in the event of its assignment. Termination of the
Agreement does not terminate Prudential's obligations to the
Contract-holders or the Participants under the Contracts.
The Service Agreement between Prudential and PIC:
A. will continue in effect as to VCA-2 for a period of more than two years from
its execution, only so long as such continuance is specifically approved at
least annually in the same manner as the Agreement for Investment Management
Services between Prudential and VCA-2.
B. may be terminated by either party upon not less than thirty days prior
written notice to the other party, will terminate automatically in the event
of its assignment and will terminate automatically as to VCA-2 in the event
of the assignment or termination of the Agreement for Investment Management
Services between Prudential and VCA-2.
C. does not relieve Prudential of its responsibility for all investment
advisory services under the Agreement for Investment Management Services
between Prudential and VCA-2.
D. provides for Prudential to reimburse PIC for its costs and expenses incurred
in furnishing investment advisory services.
An affiliated broker may be employed to execute brokerage transactions on behalf
of VCA-2 as long as the commissions are reasonable and fair compared to the
commissions received by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time. For a more
complete description see the section "Portfolio brokerage and related practices"
in the Statement of Additional Information.
CHARGES
The purchase payments payable on behalf of a Participant will generally be set
forth in a salary-annuity agreement with his employer. Since the charges
discussed below may be a significant percentage of the purchase payments, a
person who is not reasonably certain of both his intention and ability to
continue as a Participant would be well-advised to refrain from participation
under the Contract.
Prudential and PRSI will be compensated for sales and administrative services in
the following manner:
FIRST, ninety-seven and one-half percent (97.5%) of each purchase payment under
a Contract made on the Participant's behalf will be credited to his individual
accumulation account in the form of Accumulation Units.
9
<PAGE>
The remaining two and one-half percent (2.5%), will be retained and used
primarily for sales and other marketing expenses. THESE MAXIMUM SALES CHARGES
MAY BE CHANGED BY PRUDENTIAL ON 90 DAYS' NOTICE (SEE SECTION D ON PAGE 19).
SECOND, an annual administration charge will be deducted from each Participant's
individual accumulation account for recordkeeping and other administrative
expenses. This charge consists of (a) an initial charge for the accounting year,
as defined in the Contract, during which the Participant's account is first
established, and (b) a regular charge for each subsequent twelve-month period or
part thereof until the Participant's account is cancelled. Any such charge will
be made on the last business day of the accounting year if the Participant's
account is still open. If the account is cancelled before the end of the
accounting year, any such charge will be made on the date of cancellation. After
such cancellation, a Participant may participate again only as a new Participant
and will be subject to a new annual administration charge. The initial charge
described above in (a) will be pro rated for new Participants for the first year
of their participation, based on the number of full months in the accounting
year remaining after the first contribution is received. If the Participant's
account is cancelled prior to the end of that accounting year, however, this
initial charge will not be pro rated.
The sum of the initial charges under a Variable Contract and a fixed-dollar
annuity contract (if the Participant is enrolled under such a contract) will not
be greater than $60 and the sum of the subsequent regular charges not greater
than $30 annually, to be divided between the contracts as determined by
Prudential. THESE MAXIMUM CHARGES MAY BE CHANGED BY PRUDENTIAL ON 90 DAYS'
NOTICE (SEE SECTION D ON PAGE 19).
The sales and annual administration charges described above may be reduced or
eliminated in connection with a particular Contract or Program, but only to the
extent that Prudential and PRSI estimate that they will incur lower sales or
administrative expenses or perform fewer sales or administrative services due to
economies arising from (1) the utilization of mass enrollment procedures or (2)
the performance of recordkeeping or sales functions by the Contract-holder or an
employee organization which Prudential and PRSI would otherwise be required to
perform or (3) an accumulated surplus of charges over expenses under the
Contract. The exact amount of the sales and annual administration charges
applicable to any Contract will be stated in the Contract.
THIRD, a daily deduction will be made from the value of a Participant's account
in an amount equal to a stated percentage of the current value of the account.
This is done in connection with the daily determination of the Accumulation Unit
Value (see page 11). A corresponding charge is made in computing monthly annuity
payments (see pages 17 through 19). This deduction (which will be in addition to
the investment management fee described below) will be equal to a percentage,
computed at an effective annual rate of 0.375% ( 3/8 of 1%), of the current
value of the Participant's account. Of this charge, 0.125% ( 1/8 of 1%) is for
assuming the mortality risks and 0.250% ( 1/4 of 1%) for assuming the expense
risks described below. THIS DEDUCTION MAY BE CHANGED BY PRUDENTIAL ON 90 DAYS'
NOTICE EXCEPT AS DESCRIBED IN SECTION D ON PAGE 19.
Prudential is compensated for investment management services through deductions
from the value of the units of a Participant's accumulation account and from the
value of the Annuity Units payable monthly to an annuitant. Deductions are
computed daily at an effective annual rate of 0.125% ( 1/8 of 1%) of the current
value of an accumulation account and an equivalent charge is made monthly in
determining the amount of annuity payments.
Although variable annuity payments will vary in accordance with the investment
performance of VCA-2, they will not be affected by adverse mortality experience
or by an increase in Prudential's expenses (to an amount in excess of the
expense deductions provided for in the Contract). Prudential assumes the risk
(i) that annuitants as a class may live longer than had been estimated, so that
payments will continue for longer than had been anticipated, and (ii) that
deductions for sales and administrative expenses may be insufficient to cover
the actual costs of these items. In either case, the loss would fall on
Prudential. On the other hand, the deductions that will be made for sales,
investment management and administrative expenses and for assuming mortality and
expense risks may exceed the cost that Prudential will ultimately incur over the
life of the Contract. As the actual experience under these Contracts is
realized, the amount of any excess will become known, and if it is greater than
the amount which must prudently be retained to fulfill Prudential's contractual
obligations, the balance becomes part of the divisible surplus of Prudential
(see "Participation in Divisible Surplus," page 20).
THE GROUP VARIABLE ANNUITY
CONTRACTS
Prudential will issue a Contract to the Contract-holder, which will ordinarily
be the employer of the Participants but may also be an association or trustee of
a trust representing them or their employers. Prudential will also issue a
certificate to the Contract-holder for delivery to each annuitant under the
Contract on the date his first annuity payment is made. The certificate will
describe the variable annuity benefits to which the annuitant is entitled under
the Contract. If any applicable law so requires, Prudential will issue a similar
certificate to the Contract-holder for delivery to each Participant for whom an
annuity has not yet been effected.
A. THE ACCUMULATION PERIOD
1. CREDITING ACCUMULATION UNITS; DEDUCTION FOR
SALES AND ADMINISTRATIVE EXPENSES
When a person first becomes a Participant under the
10
<PAGE>
Contract, he must designate, if there is a companion fixed-dollar annuity
contract, what portion of the purchase payments on his behalf is to be invested
under the Variable Contract. The remainder (or the entire purchase payment, if
there is no designation) will be invested under the fixed-dollar contract. This
designation may be changed from time to time. In order for an employee to become
and remain a Participant, he must have signed an agreement with his employer
providing for minimum purchase payments under the Program on his behalf of $200
during any 12-month period.
During the accumulation period--the period before the commencement of annuity
payments--ninety-seven and one-half percent (97.5%) (see "Charges," pages 9 and
10) of each purchase payment allocated to the Variable Contract on behalf of the
Participant will be credited to an individual accumulation account maintained
for him in the form of Accumulation Units. The number of Accumulation Units
credited is determined by dividing ninety-seven and one-half percent (97.5%) of
the amount allocated, by the Accumulation Unit Value for the business day on
which the purchase payment is received by Prudential. The term "business day"
means a day on which the New York Stock Exchange is open for trading. The New
York Stock Exchange is open for trading Monday through Friday, except on the
days on which the following holidays are observed: New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The initial contribution made for a Participant will be invested in VCA-2 no
later than two business days after it is received by Prudential and identified
as being for investment in VCA-2, if it is accompanied by enrollment information
in a form satisfactory to Prudential. Contributions for a Participant for whom
sufficient enrollment information has not been received will be held by
Prudential in a suspense account and no interest will be credited upon that
amount. A written notice will be mailed to the Participant requesting that
enrollment information be sent to Prudential at the address shown on the cover
of this Prospectus as soon as possible. The notice will state that unless the
Participant consents to retaining the money in the suspense account until the
enrollment information is received by Prudential, it will be returned within
five business days from the date of the receipt of the contribution. Consent may
be given by telephone but should be confirmed in writing. If neither
satisfactory enrollment information nor the necessary consent is received, the
contribution will be returned. Under certain Contracts, an entity other than
Prudential keeps certain records, and Participants under these Contracts must
contact the record-keeper. See "Modified Procedures" page 16.
The number of Accumulation Units credited to a Participant will not be affected
by any subsequent change in the value of an Accumulation Unit, but the dollar
value of an Accumulation Unit will vary from business day to business day
depending upon the investment experience of VCA-2. The number of Accumulation
Units will be reduced, however, as the result of the annual administration
charge, which will be made by cancelling that number of Accumulation Units which
is equal to the amount of the charge (see "Charges," pages 9 and 10) divided by
the Accumulation Unit Value for the business day on which the charge is made.
The annual administration charge is usually made on the last business day of
each accounting year. However, in certain circumstances (described below), such
charge will be made without reduction for the unexpired portion of the year, on
the date a Participant's individual accumulation account is cancelled, either
because a variable annuity is effected or otherwise.
2. VALUATION OF A PARTICIPANT'S INDIVIDUAL ACCUMULATION ACCOUNT
The value of a Participant's individual accumulation account on any day prior to
the commencement of annuity payments to him can be determined by multiplying the
total number of Accumulation Units credited to his account by the Accumulation
Unit Value for that day. Each Participant will be advised at least once during
the second and each subsequent accounting year of the number of Accumulation
Units credited to his account as of the end of the preceding accounting year and
of the Accumulation Unit Value at that time (see "Periodic Reports," page 20).
3. THE ACCUMULATION UNIT VALUE
The Accumulation Unit Value on July 1, 1968, the inception of VCA-2, was
approximately $1.0102. The Accumulation Unit Value for any subsequent business
day is determined as of the end of the day by multiplying the Accumulation Unit
Change Factor for the day (see below) by the Accumulation Unit Value for the
preceding business day.
4. THE ACCUMULATION UNIT CHANGE FACTOR FOR
ANY BUSINESS DAY
The Accumulation Unit Change Factor for any business day is obtained by (a)
dividing the assets at the end of the day (ignoring current day transfers,
redemptions and subscriptions) by the assets at the end of the previous business
day, and (b) dividing such value by the sum of 1.00 and the rate of the
deduction for assuming mortality and expense risks and the rate of investment
management fee for the number of days in such period computed at an effective
annual rate of 0.50% ( 1/2 of 1%). The result is the Accumulation Unit Change
Factor for the business day. The reduction in the Accumulation Unit Value
resulting from dividing by item (b) provides Prudential with funds intended to
be used for assuming mortality and expense risks (see "Charges," pages 9 and
10). THIS REDUCTION MAY BE CHANGED BY PRUDENTIAL, EXCEPT AS DESCRIBED IN SECTION
D ON PAGE 19.
5. DISCONTINUANCE OF PURCHASE PAYMENTS
Purchase payments on behalf of all Participants under any Contract may be
discontinued upon notice by the
11
<PAGE>
Contract-holder to Prudential. In addition, any Participant may cause purchase
payments on his behalf to be discontinued.
On 90 days' advance notice to the Contract-holder, Prudential may elect not to
accept any new Participant, or not to accept further contributions for existing
Participants under certain Contracts.
A Participant on whose behalf purchase payments have been discontinued may
either leave his individual accumulation account in force or exercise any of the
applicable options outlined below under the headings "Withdrawal (Redemption) of
Purchase Payments Prior to Death," below and on page 13, and "Transfer
Payments," pages 15 and 16.
6. CONTINUANCE UNDER GROUP CONTRACT AFTER
BEING EMPLOYED BY NEW EMPLOYER
A Participant who becomes employed by a new employer which is eligible to
provide for tax-deferred annuities may enter into an agreement with such new
employer under which purchase payments can be continued under the Contract by
the new employer on behalf of the Participant.
7. WITHDRAWAL (REDEMPTION) OF PURCHASE PAY-
MENTS PRIOR TO DEATH
The Internal Revenue Code imposes restrictions on withdrawals from the Contract.
Pursuant to Section 403(b) (11) of the Code, amounts in the Participant's
accumulation account attributable to salary reduction contributions (including
the earnings thereon) that are made under the Contract after December 31, 1988
can only be withdrawn when the Participant attains age 59 1/2, separates from
service with his employer, dies or becomes disabled (within the meaning of
Section 72(m) (7) of the Code). However, the Code permits the withdrawal at any
time of amounts attributable to salary reduction contributions (EXCLUDING THE
EARNINGS THEREON) that are made after December 31, 1988, in the case of a
hardship. If the plan adopted by an employer under which a Participant is
covered contains a financial hardship provision, cash withdrawals from the
Contract can be made in the event of hardship.
Subject to any restrictions upon withdrawals contained in the plan adopted by an
employer under which a Participant is covered, a Participant can withdraw at any
time any amount up to the dollar value of his accumulation account as of
December 31, 1988. Post December 31, 1988 earnings on accumulations attributable
to salary reduction contributions are, however, subject to the Section 403(b)
(11) withdrawal restrictions discussed above.
Subject to any conditions or limitations regarding transfers contained in the
plan adopted by an employer under which a Participant is covered, a Participant
can continue to make transfers of all or part of his accumulation account among
the available investment options offered by Prudential and can transfer directly
all or part of his interest in his accumulation account to a Section 403(b)
tax-deferred annuity contract of another insurance company or to a mutual fund
custodial account under Section 403(b)(7). (See "Transfer Payments," pages 15
and 16).
Furthermore, unless a plan adopted by an employer provides otherwise, the
Contract will provide that upon written request by any Participant, a single sum
cash payment will be made to him in any amount requested which is equal to or
less than the dollar value of his individual accumulation account attributable
to employer contributions or after tax Participant Contributions, if any, as of
the day Prudential receives notice of his request.
All requests must be made on a form approved by Prudential. If his account is
cancelled, the amount of this payment will be computed after deducting the full
annual administration charge that would otherwise be deducted at the end of the
accounting year. Such payment will be made within seven days after written
notice of the Participant's request has been received, except as deferment of
such payment may be permitted under the provisions of the 1940 Act as may be in
effect from time to time. Currently, deferment is permissible only when the New
York Stock Exchange is closed or trading thereon is restricted, when an
emergency exists as a result of which disposal of the securities held in VCA-2
is not reasonably practicable or it is not reasonably practicable for the value
of its assets to be fairly determined, or when the Securities and Exchange
Commission has provided for such deferment for the protection of Participants.
As of the day Prudential receives notice of the Participant's request, his
account will be reduced by the number of Accumulation Units obtained by dividing
the payment due by the Accumulation Unit Value for that day. The appropriate
address to which a withdrawal request should be sent is set out in the Summary
of this Prospectus. Under certain Contracts, an entity other than Prudential
keeps certain records, and Participants under those Contracts must contact the
record-keeper with regard to withdrawals. See "Modified Procedures," page 16.
If no further purchase payment under the Program is made on a Participant's
behalf within twelve months after the Participant's entire account under the
Program is withdrawn, thereafter he may participate under a Contract only as a
new Participant with Prudential's consent.
A Participant would be well-advised to obtain information about the federal
income tax consequences of any withdrawal and to check with a tax adviser
regarding the current state of the law before making a withdrawal. Generally, a
Participant who exercises his withdrawal rights will be taxed at ordinary income
rates on the amount withdrawn. In addition, withdrawals prior to age 59 1/2 will
generally be subject to a 10% premature distribution penalty tax. Certain
exceptions apply, however, and it is suggested that Participants consult a tax
adviser for additional information about this penalty tax
12
<PAGE>
before a withdrawal is made. (See "Federal Tax Status," pages 20 and 21.)
An employer may adopt a plan that limits the right of Participants to obtain
cash withdrawals upon request. Participants should ascertain whether their
employer has adopted such a plan and, if so, whether it includes withdrawal
limitations and what they are. Contracts issued to employers who have adopted
such plans will provide that requests for cash withdrawals for the benefit of
the Participants may be made by the Contract-holder, with the concurrence of the
Participant, and that payment of the amount requested, less any applicable
annual administration charge, will be made within seven days after Prudential
has received notice of the request.
Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 requires that in the case of a married Participant, a withdrawal request
include the consent of the Participant's spouse. This consent must contain the
signatures of the Participant and spouse and must be notarized or witnessed by
an authorized Plan representative.
8. SYSTEMATIC WITHDRAWAL PLAN
Subject to any restrictions upon withdrawals contained in the plan adopted by an
employer under which a Participant is covered, and subject to the restrictions
and limitations set forth below, a Participant may arrange for systematic
withdrawals to be made from his accumulation account. A Participant may arrange
for systematic withdrawals only if, at the time he elects to have such an
arrangement, the balance in his accumulation account is at least $5,000. A
Participant who has not reached age 59 1/2, however, may not elect a systematic
withdrawal arrangement unless he has first separated from service with his
employer. In addition, the $5,000 minimum balance does not apply to systematic
withdrawals made for the purpose of satisfying minimum distribution rules.
Generally, amounts withdrawn will be taxable at ordinary income tax rates. In
addition, withdrawals by Participants who have not reached age 59 1/2 will
generally be subject to a 10% premature distribution penalty tax. Withdrawals
made after a Participant has attained age 70 1/2 and certain withdrawals by
beneficiaries must satisfy certain minimum distribution rules. (See "Federal Tax
Status," pages 20 and 21, and "Death Benefits Before an Annuity is Effected,"
pages 14 and 15.)
Systematic withdrawals may be arranged only pursuant to an election on a form
approved by Prudential. Under certain types of Section 403(b) annuities, an
election to arrange for systematic withdrawals by a married Participant must be
consented to in writing by the Participant's spouse, with signatures notarized
or witnessed by an authorized plan representative. The election must specify
that the systematic withdrawals shall be made on a monthly, quarterly,
semi-annual, or annual basis.
All systematic withdrawals shall be made on the day of the month designated by
the Contract-holder, and shall continue until the Participant either has
withdrawn all of the balance in his accumulation account or has instructed
Prudential in writing to terminate his systematic withdrawal arrangement. The
Participant may elect to make systematic withdrawals in equal dollar amounts (in
which case each withdrawal must be at least $250, unless it is made to satisfy
minimum distribution rules) or over a specified period of time (at least three
years). Where the Participant elects to make systematic withdrawals over a
specified period of time, the amount of each withdrawal--which will vary,
reflecting investment experience during the withdrawal period--will be equal to
the sum of the balance then in the Participant's accumulation amount divided by
the number of systematic withdrawals remaining to be made during the withdrawal
period.
A Participant may change the frequency, amount or duration of his systematic
withdrawals by submitting a form to Prudential that Prudential will provide to
him upon request. A Participant may make such a change only once during each
calendar year.
A Participant may at any time instruct Prudential to terminate the Participant's
systematic withdrawal arrangement, and no systematic withdrawals will be made
for him after Prudential has received his instruction. A Participant who chooses
to stop making systematic withdrawals may not make them again until the next
calendar year and may be subject to federal tax consequences.
An arrangement to make systematic withdrawals will not affect any of the
Participant's other rights under the Contracts, including the right to make
withdrawals (redemptions) as described on pages 12 and 13 of this Prospectus,
the right to make transfers as described on pages 15 and 16, and the right to
effect an annuity as described on pages 16 and 17.
Participants who have elected a systematic withdrawal may also continue to make
additional purchase payments. Purchase payments are generally reduced for sales
charges. See "Charges," pages 9 and 10. Participants should carefully review the
election of this option if they intend to continue making purchase payments and
consider the effect of sales charge expenses while making payments and
withdrawals at the same time. Different procedures may apply for Contracts under
which an entity other than Prudential provides record-keeping services. See
"Modified Procedures," page 16.
9. TEXAS OPTIONAL RETIREMENT PROGRAM
Special rules apply with respect to Contracts covering persons participating in
the Texas Optional Retirement Program ("Texas Program") in order to comply with
the provisions of Texas law relating to the Texas Program.
Under the terms of the Texas Program, Texas will contribute an amount somewhat
larger than a Participant's contribution. Texas' contributions, less the sales
charge described on pages 9 and 10, will be credited to the Participant's
individual accumulation account. Until the Participant begins his second year of
participation in the
13
<PAGE>
Texas Program as a "faculty member" as defined in Section 31.001(8) of Title
110B of the Texas Revised Civil Statutes, Prudential will have the right to
withdraw the value of the Accumulation Units purchased for his account with
Texas' contributions. If the Participant does not commence his second year of
the Texas Program participation, the value of those Units will be withdrawn and
Texas' contributions returned to the state.
Pursuant to Section 36.105 of Title 110B of the Texas Revised Civil Statutes and
a ruling of the State Attorney General, withdrawal rights of Contracts issued
under the Texas Program are available only in the event of a Participant's
death, retirement or termination of employment in all institutions of higher
education as defined in Section 61.003 of the Texas Education Code. Participants
will not, therefore, be entitled to exercise the right of withdrawal in order to
receive in cash the values credited to them under the Contract unless one of the
foregoing conditions has been satisfied. The value of a Participant's interests
under the Contract may, however, be transferred to another Prudential contract
or contracts of other carriers approved under the Texas Program during the
period of the Participant's Texas Program participation. For certain Contracts,
a death benefit claim should be sent to a designated record-keeper rather than
to Prudential. See "Modified Procedures," page 16.
10. DEATH BENEFITS BEFORE AN ANNUITY IS EFFECTED
When a Participant dies, subject to receipt by Prudential of due proof of death
and to the submission of a claim for benefits on a form approved by Prudential,
his individual accumulation account balance (after deduction of the full annual
administration charge) will be used to provide a death benefit for his
beneficiary. The appropriate address to which a death benefit claim should
be sent is set out in the Summary section of this Prospectus.
Unless the Participant has directed otherwise, any beneficiary may elect to
apply the Participant's accumulation account balance (after deduction of the
full annual administration charge):
A. to receive a single sum cash payment of the dollar
value of the Participant's account as of the date such election is made and
such proof of death is received by Prudential. If a single sum payment is
elected within one year after the Participant's death, an additional payment
will be made, if necessary, so that the total paid is equal to the purchase
payments paid in, minus any withdrawals or transfers paid out;
B. to have a variable annuity effected for himself on a
specified date on the basis of the Participant's account, using the same
annuity purchase rate basis that would have applied if the account had been
used to effect a variable annuity for the Participant;
C. to receive regular payments in accordance with the
systematic withdrawal plan; or
D. a combination of all or any two of (a), (b) and (c).
The beneficiary must make his election in writing before the first anniversary
of the Participant's death or at any time before the expiration of two months
after Prudential receives due proof of such death, whichever is later. With
respect to benefits accruing after December 31, 1986, IRS Proposed Regulations
under Section 401(a)(9) of the Internal Revenue Code provide that a designated
beneficiary must begin to receive payments no later than the earlier of (1)
December 31 of the calendar year which contains the fifth anniversary of the
Participant's date of death or (2) December 31 of the calendar year in which
annuity payments would be required to begin to satisfy the minimum distribution
requirements described below. As of such date the election must be irrevocable
and must apply to all subsequent years.
However, if the election includes systematic withdrawals, the beneficiary will
have the right to terminate them and receive the remaining balance in cash (or
effect an annuity with it), or to change their frequency, size or duration,
subject to the limitations described below.
Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 requires that, in the case of a married Participant, a death benefit be
payable to the Participant's spouse in the form of a "qualified pre-retirement
survivor annuity." A "qualified pre-retirement survivor annuity" is an annuity
for the lifetime of the Participant's spouse in an amount which can be purchased
with no less than 50% of the balance in the Participant's account as of his date
of death. Under the Retirement Equity Act, the spouse of a Participant in a
Section 403(b) annuity which is subject to these rules may consent to waive the
pre-retirement survivor annuity benefit. Such consent must acknowledge the
effect of waiving the coverage and contain the signatures of the Participant and
spouse and must be notarized or witnessed by an authorized Plan representative.
Unless the spouse of a Participant in a Plan which is subject to these
requirements properly waives the benefit, 50% of the Participant's account
balance will be paid to such spouse even if the designated beneficiary is
someone other than the spouse. Under these circumstances, the remaining 50% of
the Participant's account balance would be paid to the designated beneficiary.
With respect to benefits accrued before January 1, 1987, a beneficiary who
elects to have an annuity purchased for himself may choose from among the forms
of annuity described on page 17. The beneficiary may elect to have an annuity
effected immediately or at a future date (but not later than his 70th birthday,
or, if later, two months after the date of his election to have an annuity
effected).
Benefits accruing after December 31, 1986 under a Section 403(b) annuity
contract are subject to required minimum distribution rules which specify the
time when payment of benefits must begin and the minimum
14
<PAGE>
amount which must be paid annually. Generally, when a Participant dies before
payment of benefits has begun, the death benefit must be paid out entirely by
December 31 of the calendar year containing the fifth anniversary of the
Participant's date of death. Alternatively, a designated beneficiary may elect
an annuity from among Options 1, 2, or 4 described on page 17, with payments
required to begin by December 31 of the calendar year immediately following the
calendar year in which the Participant died or, if the Participant's spouse is
the designated beneficiary, December 31 of the calendar year in which the
Participant would have attained age 70 1/2, if later. Options 3 and 5 may not be
chosen. In addition, the duration of any period certain payments may not exceed
the beneficiary's life expectancy as determined under IRS Tables. If the amount
distributed to a beneficiary for a calendar year is less than the minimum
required amount, a federal excise tax is imposed equal to 50% of the amount of
the underpayment.
The requirements described above concerning the effecting of annuities or
annuity payments apply also to the commencement of a systematic withdrawal plan
and to withdrawals under it.
If the beneficiary elects to receive a single sum cash payment, such payment
will be made within seven days after the date of his election and receipt of due
proof of death, except in certain emergency situations when payment may be
deferred (see "Withdrawal (Redemption) of Purchase Payments Prior to Death,"
page 12). A beneficiary who elects to have a variable annuity effected for
himself will have the right to cancel such election by so notifying Prudential
in writing at least 15 days prior to the date on which such annuity would
otherwise be effected, and, within seven days after receipt of such notice, a
single sum cash payment will be made to the beneficiary in the amount of the
dollar value of the Participant's account (after deducting the full annual
administration charge) as of the date the notice is received.
11. TRANSFER PAYMENTS
A. Unless restricted by the retirement arrangement under which a Participant is
covered, upon the written request or properly authorized telephone transfer
request of a Participant who is also covered by a group fixed-dollar annuity
contract, all or a portion of the Participant's accumulation account will be
transferred from the Variable Contract to the fixed-dollar contract. As of
the date Prudential receives such a request, the portion of the
Participant's accumulation account specified in his request will be
cancelled and, within seven days after such date, a transfer payment of the
dollar value of such amount will be made. There is no minimum transfer
amount. Prudential reserves the right to limit the frequency of such
transfer payments to the fixed-dollar contract. Different procedures may
apply for Contracts under which an entity other than Prudential provides
record-keeping services. See "Modified Procedures," page 16.
Participants in certain Programs may be able to effect transfers and
exchanges by telephone or telecopy. Such privileges are available only if
state law permits, if the Contract-holder has so elected, and if the eligible
Participant has authorized telephone and/or telecopy transactions on an
approved form obtained from the Contract-holder. Prudential, the Account, and
their agents will not be liable for following instructions communicated by
telephone that they reasonably believe to be genuine. All telephone requests
will be recorded for the protection of the Participant, and Participants will
be asked to provide their personal identification number. During times of
unusual market activity, it may be difficult to transmit requests by
telephone or telecopy. The telephone and telecopy transfer and exchange
privileges may be discontinued at any time as to some or all Participants.
B. Transfer payments may be made to a Participant's individual accumulation
account under the Variable Contract from either the group fixed-dollar
annuity contract, if any, or from a similar group annuity contract issued by
Prudential to another employer. All such transfer payments will be treated
as purchase payments made to VCA-2 on the business day on which the transfer
payment is made, except that no transfer payment will count as a purchase
for purposes of calculating sales charges. Prudential reserves the right to
limit the frequency of such transfer payments.
If a Participant who is also covered by a group fixed-dollar annuity contract
transfers an amount to the Participant's accumulation account, the applicable
contracts or the terms of the Participant's retirement arrangement may
provide that amounts transferred may not for 90 days thereafter be
transferred into an investment option deemed to be "competing" with the
fixed-dollar contract with respect to investment characteristics.
C. If a Participant ceases to be employed by a Contract-holder and becomes an
employee of another employer whose employees are covered under a similar
group annuity contract issued by Prudential, the Participant may request on
a form approved by Prudential that Prudential make a transfer payment from
his individual accumulation account to such similar contract, in an amount
equal to the dollar value of the Participant's account as of the date
Prudential receives his request. The transfer payment described in this
paragraph will be made without charge within seven days after Prudential
receives the Participant's transfer request, and the Participant's account
will be cancelled accordingly. If such a transfer is made, the provisions of
the substituted contract will be applicable to him.
D. The Contract provides that upon discontinuance of purchase payments for all
Participants thereunder
15
<PAGE>
(see "Discontinuance of Purchase Payments," page 11) the Contract-holder may
on a form approved by Prudential request Prudential to make transfer
payments from VCA-2 to a designated alternate funding agency. Each
Participant and each beneficiary of a deceased Participant for whom an
individual accumulation account remains in force under the Contract will be
notified promptly that such a request has been received. Each recipient of
such a notice may within thirty days of such receipt elect in writing on a
form approved by Prudential to have his account transferred to the alternate
funding agency. If he does not so elect, his account will continue in force
under the Contract. The accumulation account of any Participant or
beneficiary who does so elect will be cancelled as of a "transfer date,"
which is the business day specified in the Contract-holder's request or 90
days after Prudential receives the request, whichever is later. A single
liquidation account for the Contract will be established equal to the sum of
the individual accumulation accounts so cancelled (after deducting the full
annual administration charge from each such account). Beginning on the
transfer date and each month thereafter until the liquidation account is
exhausted, an allocation will be made from the liquidation account of not
less than the number of Accumulation Units equal in value to two million
dollars or 3% of the number of Accumulation Units in such account on the
transfer date, whichever is greater (or the total amount of Accumulation
Units in the liquidation account, if less). Upon each such allocation, the
number of allocated Accumulation Units will be cancelled and a transfer
payment will be made which is equal to 100% of the product of (i) the number
of Accumulation Units so allocated, and (ii) the Accumulation Unit Value for
the date of allocation. Each transfer payment will be made to the designated
alternate funding agency within seven days of the date of allocation.
Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 provides that, in the case of a married Participant, a request for transfer
payments (other than to the group fixed dollar annuity contract) must include
the consent and signatures of the Participant and spouse and must be notarized
or witnessed by an authorized Plan representative.
12._ MODIFIED PROCEDURES
Under certain Contracts, the Contract-holder or a third party acting on their
behalf provides record-keeping services that would otherwise be performed by
Prudential. Such Contracts may require procedures somewhat different than those
set forth in this Prospectus. For example, such Contracts may require that
contribution allocation requests, withdrawal requests, and/or transfer requests
be directed to the Contract's record-keeper rather than Prudential. The
record-keeper is the Contract-holder's agent, not Prudential's agent.
Accordingly, transactions will be processed and priced as of the end of the
valuation period in which Prudential receives appropriate instructions and/or
funds from the record-keeper. Any such different procedures will be set forth in
the Contract.
B. THE ANNUITY PERIOD
1. VARIABLE ANNUITY PAYMENTS
Variable annuity payments are determined on the basis of (i) the value of the
Participant's accumulation account on the date it is applied to effect an
annuity, reflecting the investment performance of VCA-2 to that date, (ii) any
taxes on annuity considerations applicable when the annuity is effected, (iii) a
schedule of annuity rates specified in the Contract (see "Schedule of Variable
Annuity Purchase Rates," pages 18 and 19), and (iv) the investment performance
of VCA-2 after the annuity has been effected. The amount of the variable annuity
payments will not be affected by adverse mortality experience or by an increase
in Prudential's expenses in excess of the expense deductions provided for in the
Contract. The annuitant will receive the value of a fixed number of Annuity
Units each month. Changes in the value of such Units, and thus the amounts of
the monthly annuity payments, will reflect investment gains and losses and
investment income occurring after the date on which annuity payments commence.
2. ELECTING THE ANNUITY DATE AND THE FORM OF
ANNUITY
Subject to the withdrawal restrictions discussed above (See "Withdrawal
(Redemption) of Purchase Payments Prior to Death," page 12), a Participant may
at any time elect to have a variable annuity effected for him under the
Contract. A beneficiary may make a similar election (see "Death Benefits Before
an Annuity is Effected," pages 14 and 15). It may also be possible to effect a
fixed-dollar annuity if there is a companion fixed-dollar contract to which a
transfer payment may be made (see "Transfer Payments," pages 15 and 16).
In electing to have a variable annuity effected, the Participant may select from
the available forms of annuity described below. With respect to benefits
accruing after December 31, 1986, the duration of any period certain payments
may not exceed the life expectancy of the Participant or, if there is a
designated beneficiary, the joint life and last survivor expectancy of the
Participant and his designated beneficiary as determined under IRS Tables. In
addition, IRS Proposed Regulations under Section 401(a)(9) of the Internal
Revenue Code specify the maximum permissible duration of any period certain
payments and the maximum survivor benefit payable under a joint and survivor
annuity (expressed as a percentage of the benefit originally payable). The
annuity is effected on the first day of the second month following receipt by
Prudential of written notice that the Participant or beneficiary has elected to
have an annuity effected or on the first day of any subsequent month designated
by
16
<PAGE>
the Participant or beneficiary. Any such notice must be on a form approved by
Prudential and should include all the information Prudential requires to effect
the annuity. The first monthly annuity payment will be made to an annuitant on
the date an annuity is effected for him.
Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 provides that, in the case of a married Participant, the election of a
payout which is not a qualified joint and survivor annuity must include the
consent and signatures of the Participant and spouse and must be notarized or
witnessed by an authorized Plan representative. A "qualified joint and survivor
annuity" is an annuity for the Participant's lifetime with at least 50% of the
amount payable to the Participant during his lifetime payable to his spouse, if
living at the Participant's death.
If the dollar amount of the first monthly payment of an annuity effected under
the Contract would be less than the minimum amount specified in the Contract,
Prudential at its option may, in lieu of making any annuity payment whatsoever,
consider that the person who would receive the annuity had requested a
withdrawal of the individual accumulation account that would otherwise have been
applied to effect the annuity, as of the date the annuity was to begin.
Once annuity payments have commenced to an annuitant under Options 1, 2, 3 or 5
described below, the annuitant cannot surrender his annuity benefit and receive
a single sum payment in lieu thereof. An annuitant under Option 4 may, by
written request, surrender his annuity benefit and receive the commuted value of
the unpaid payments-certain. Under Options 2, 4 or 5, the annuitant's
beneficiary may, by a written request made after the death of the annuitant,
surrender his annuity benefit and receive the commuted value of the unpaid
payments-certain due him. The annuitant's beneficiary may also receive a lump
sum payment under certain circumstances as described below.
3. DEDUCTIONS FOR TAXES ON ANNUITY CONSIDERATIONS
Some states impose a premium tax with respect to annuity contracts. The tax
rates in those jurisdictions that impose a tax generally range from 0.5% to 5%.
When an annuity is effected, any applicable taxes on annuity considerations will
be deducted from the amount applied.
4. AVAILABLE FORMS OF VARIABLE ANNUITY
OPTION 1--VARIABLE LIFE ANNUITY. This is an immediate annuity payable monthly
during the lifetime of the annuitant and terminating with the last monthly
payment preceding his death. This option offers a higher level of monthly
payments than Option 2, Option 3 or Option 5 because no further payments are
payable after the death of the annuitant. IT WOULD BE POSSIBLE UNDER THIS OPTION
FOR THE ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT IF HE DIED (IN AN
AUTOMOBILE ACCIDENT, FOR EXAMPLE) WITHIN THE FIRST MONTH AFTER THE ANNUITY WAS
EFFECTED. Therefore, a life annuity under this option is generally appropriate
only for someone who has no dependents and wants higher income during his
lifetime.
OPTION 2--VARIABLE LIFE ANNUITY WITH 120 OR 180 PAYMENTS CERTAIN. This is an
immediate annuity payable monthly during the lifetime of the annuitant with the
guarantee that if, at the death of the annuitant, payments have been made for
less than the period-certain (which may be 120 or 180 months, as selected by the
annuitant), they will be continued during the remainder of the selected period
to his beneficiary.
OPTION 3--VARIABLE JOINT AND SURVIVOR ANNUITY. This is an immediate annuity
payable monthly during the lifetime of the annuitant with payments continued
after his death to his contingent annuitant, if surviving, for the latter's
lifetime. The payments continued to the contingent annuitant may be based on
100% of the Annuity Units originally payable each month, or a lower percentage
such as 50%, if the annuitant so elects.
OPTION 4--VARIABLE ANNUITY-CERTAIN. This is an immediate annuity payable monthly
for a period-certain of 120 months. If the annuitant dies during the
period-certain, payments will be continued to his beneficiary, but no further
payments are payable after the end of the period-certain. Since Prudential
assumes no mortality risks under Option 4, it makes no mortality risk charges in
determining annuity purchase rates for this option.
OPTION 5--VARIABLE JOINT AND SURVIVOR ANNUITY WITH 120 PAYMENTS CERTAIN. This is
an immediate annuity payable monthly during the lifetime of the annuitant with
payments continued after his death to his contingent annuitant, if surviving,
for the latter's lifetime. The payments to the contingent annuitant prior to the
expiration of the period-certain will be based on 100% of the Annuity Units
originally payable each month. Thereafter, they will be based on the same
percentage or a lower percentage such as 50%, if the annuitant so elects. If
both the annuitant and the contingent annuitant die before 120 payments have
been made, payments will be continued during the remainder of the 120-month
period to the properly designated beneficiary.
If the dollar amount of the first monthly payment to a beneficiary is less than
the minimum amount specified in the Contract or if in Options 2, 4 and 5, the
beneficiary is other than a natural person receiving payments in his own right
or is an estate, Prudential may elect to pay the commuted value of the unpaid
payments-certain in one sum.
5. THE ANNUITY UNIT
On the date a variable annuity is effected for any Participant or his
beneficiary, his accumulation account is cancelled and the full annual
administration charge withdrawn. The aggregate value of the remaining
Accumulation Units in the Participant's accumulation account is determined. This
value, less any applicable taxes on annuity considerations, is then applied to
provide an annuity under which each payment will be the
17
<PAGE>
value of a specified number of Annuity Units. The Annuity Unit Value is
discussed in the following section. The determination of each payment is
discussed under "Schedule of Variable Annuity Purchase Rates," pages 18 and 19.
6. THE ANNUITY UNIT VALUE
The Annuity Unit Value for the month of June, 1968 was approximately $1.0102.
The Annuity Unit Value for any subsequent month is determined as of the end of
the month by multiplying the Annuity Unit Change Factor for the month (see
below) by the Annuity Unit Value for the preceding month. The Annuity Unit Value
applicable to annuity payments due during any month is the Annuity Unit Value
for the second preceding month. The Annuity Unit Value differs from and is
necessarily smaller than the Accumulation Unit Value since the Annuity Unit
Value must be reduced by the Assumed Investment Result as discussed in the
following sections.
7. THE ANNUITY UNIT CHANGE FACTOR FOR ANY MONTH
The Annuity Unit Change Factor for any month is obtained by (a) adding to 1.00
the rates of investment income earned, if any, after applicable taxes (currently
none--see "Federal Tax Status," pages 20 and 21), and of asset value changes in
VCA-2 during the period from the end of the preceding month to the end of the
current month, (b) deducting from such sum the rate of investment management fee
for the number of days in the current month, computed at an effective annual
rate of 0.125% ( 1/8 of 1%), and (c) dividing such difference by the sum of 1.00
and the rate of interest for one-twelfth of a year, computed at the effective
annual rate specified in the Contract as the Assumed Investment Result (see
below). The result of this division is the Annuity Unit Change Factor for the
month. (Items (a) and (b) for a given month are equivalent to items (a) and (b)
used during such month to derive Accumulation Unit Change Factors. See page 11).
8. ASSUMED INVESTMENT RESULT
In order to convert the value of an accumulation account into an annuity and to
determine the initial payment, it is necessary to use an appropriate annuity
purchase rate (as discussed below and on page 19) which is based on, among other
things, an interest rate. The greater the assumed interest rate, the greater the
initial annuity payment provided by a given amount applied, since the annuity
payments are supported by the amount applied and the investment result on that
amount.
Where the annuity is a variable annuity, the payments remain level only if the
actual investment results each month thereafter are at the assumed rate. If, for
any month, the actual rate is greater, the payments increase. If the actual rate
is less, the payments decrease. For the variable annuities under the Contract,
the selection of the Assumed Investment Result is not made by Prudential but by
the Contract-holder who may choose, for example, 4 1/2% as the annual rate.
Rates of 3 1/2%, 4%, 5% and 5 1/2% may also be selected. Annuity purchase rates
appropriate for the Assumed Investment Result selected by the Contract-holder
will be inserted in the Contract.
The selection should reflect the Contract-holder's conservative estimate of the
average investment result that may be obtained from a diversified portfolio of
common stocks in a relatively stable economy. If a Contract-holder selects a
high Assumed Investment Result, the dollar amount of the first variable annuity
payment to each annuitant under that Contract will be greater than if the
Contract-holder has selected a lower Assumed Investment Result. For example, for
a given amount applied, a 4 1/2% assumption produces a first monthly payment (in
dollars) higher by about 8 or 9% than a 3 1/2% assumption. The offset to this
higher initial payment is that, in reflecting the investment results of VCA-2,
the variable annuity payments resulting from the 3 1/2% assumption will increase
at a faster rate or decrease at a slower rate than the variable annuity payments
resulting from the 4 1/2% assumption. The lower Assumed Investment Result
produces greater income later in life than does a higher assumption, and it may
be that in later years a retired person will have the greatest need for more
dollars of income.
As may be seen from the description of the Annuity Unit Change Factor in the
preceding section, the change each month in the Annuity Unit Value depends on
the extent to which the actual investment results of VCA-2, including investment
income and market value changes, differ from the Assumed Investment Result
selected by the Contract-holder. If the actual results are at a rate greater
than the monthly equivalent of the assumed result, the Annuity Unit Value
increases, thereby increasing the dollar amount of the monthly variable annuity
payment. If the actual investment results are at a rate lower than the Assumed
Investment Result, the Annuity Unit Value decreases, thereby decreasing the
dollar amount of the monthly payment.
Once the Assumed Investment Result is fixed under a Contract, it applies to all
annuitants covered by that Contract. However, the Contract may be amended with
respect to all annuities effected after the amendment.
9. SCHEDULE OF VARIABLE ANNUITY PURCHASE RATES
The annuity rates contained in the schedules of the Contract show how much
annuity is provided by the application of a given amount.
On July 6, 1983 the Supreme Court of the United States rendered a decision that
prohibits employers from providing for periodic retirement payments that vary in
amount depending upon the sex of the employee, to the extent that those payments
are derived from contributions made on or after August 1, 1983. While the
decision by its terms applies only to employers subject to the provisions of
Title VII of the Civil Rights Act of 1964, namely those with 15 or more
employees, it may be applicable to employers with fewer than 15 employees. To
facilitate employer compliance with the decision,
18
<PAGE>
Prudential has amended its Group Tax-Deferred Variable Annuity Contracts issued
through The Prudential Variable Contract Account-2. The amendment provides for
annuity purchase rates that do not vary with the sex of the annuitant with
respect to purchase payments made under the Contracts on and after August 1,
1983. Thus, as a result of this amendment, if a Participant's Annuity Units
include Annuity Units derived from purchase payments made before August 1, 1983,
those Annuity Units are applied to effect a variable annuity using schedules
which take into account the date on which the annuity is effected, the form of
annuity selected, and the date of birth and sex of the annuitant and of the
contingent annuitant, if any. Any remaining Annuity Units are applied using
schedules which take into account the form of annuity selected, the effective
date and the relevant dates of birth, but not the sex of any person. If a
Participant's Annuity Units are derived solely from purchase payments made
either before August 1, 1983 or on and after August 1, 1983, only one schedule
of annuity rates is used. The dollar amount of each monthly payment of the
variable annuity will be equal to the number of Annuity Units in each portion of
the variable annuity payment, multiplied by the Annuity Unit Value applicable to
annuity payments due in the month.
Here are a few sample rates for an Assumed Investment Result of 4 1/2% from the
schedules in use for variable annuities effected in 1994 under Contracts entered
into on or after May 1, 1980. (More favorable results would be obtained for
variable annuities effected in 1994 under Contracts entered into prior to May 1,
1980). They show the number of Annuity Units payable each month resulting from
an accumulation, after reduction by the full annual administration charge and
applicable taxes on considerations, equivalent in value to 10,000 Annuity Units,
being applied to purchase the annuity.
<TABLE>
<CAPTION>
POST--7/31/83 PRE--8/1/83
ANNUITY UNITS ANNUITY UNITS
----------------- ---------------------
<S> <C> <C> <C>
TYPE OF ANNUITY ANNUITANT AGE 65 MALE 65 FEMALE 65
Life Annuity with 120
Payments Certain 56.61 63.17 54.36
Life Annuity with 180
Payments Certain 54.22 58.80 52.48
</TABLE>
The interest rate used in constructing the schedules of annuity rates equals the
Assumed Investment Result less 0.375% ( 3/8 of 1%), which corresponds to the
daily deductions from accumulation accounts, also at an effective annual rate of
0.375% ( 3/8 of 1%), for assuming mortality and expense risks. The mortality
rates are based on the Prudential 1950 Group Annuity Valuation Table, with
adjustments to allow for improvements in mortality. In the case of the schedules
applicable to the variable annuity-certain option (the fourth option listed
under "Available Forms of Variable Annuity," page 17), the interest rate used is
equal to the Assumed Investment Result less 0.25% ( 1/4% of 1%), to reflect the
absence of any charge for the mortality risk. THE ANNUITY PURCHASE RATES MAY BE
CHANGED BY PRUDENTIAL, EXCEPT AS DESCRIBED IN SECTION D FOLLOWING. While the
Contract, in keeping with the preceding discussion, expresses the schedule of
annuity purchase rates in terms of annuity units, it may be helpful to describe
the application of these schedules in terms of the dollar amount of the monthly
annuity payment due one month after the date on which an annuity is effected.
For each $1,000 applied on the effective date, the dollar amount of this monthly
payment is shown in the following table.
<TABLE>
<CAPTION>
POST--7/31/83 PRE--8/1/83
ANNUITY UNITS ANNUITY UNITS
----------------- ---------------------
<S> <C> <C> <C>
TYPE OF ANNUITY ANNUITANT AGE 65 MALE 65 FEMALE 65
Life Annuity with 120
Payments Certain $5.661 $6.317 $5.436
Life Annuity with 180
Payments Certain $5.422 $5.880 $5.248
</TABLE>
Subsequent payments will be more or less depending upon the investment results
of the Account.
C. ASSIGNMENT
Unless contrary to applicable law, the right to any payment under the Contract
is neither assignable nor subject to the claim of any creditor.
D. CHANGES IN THE GROUP VARIABLE ANNUITY CONTRACT
The Contract provides that Prudential may limit the frequency of transfers to or
from the companion fixed-dollar contract, if any. The Contract also reserves to
Prudential the right to change the annual administration charge, uniformly
applicable to all accumulation accounts, and the percentage deducted from each
future purchase payment for sales expenses.
The Contract also provides that Prudential may change the annuity purchase
rates, may change the 0.375% ( 3/8 of 1%) charge described on page 10, and may
impose a redemption charge on any withdrawal or transfer payment provided by the
Contract. Any such change will apply only to Accumulation Units credited after
such change becomes effective, except that the initial basis will continue to
apply to all Accumulation Units credited before the fifth Contract anniversary
to any person who was a Participant before such change became effective, or
credited before such Participant makes a withdrawal, if sooner.
Changes discussed in this section become effective 90 days after notice thereof
has been given to the Contract-holder. Each person to whom the change is
applicable will also be notified.
It should be realized that the initial schedules of annuity purchase rates
remain in effect indefinitely with respect to all purchase payments made before
a change in rates. Since purchase payments on behalf of a Participant may be
made long before any annuity is effected for him and since his annuity payments
may continue long after that date, this risk assumed by Prudential extends many
years into the future.
19
<PAGE>
Although the Contract may be changed at any time by agreement between Prudential
and the Contract-holder, no such change may adversely affect rights with respect
to Accumulation Units credited or variable annuities effected prior to the
effective date of the change (unless the change is made to comply with a law or
government regulation or the consent of each Participant is obtained).
The Contract provides that if at any time an investment manager other than
Prudential is selected for VCA-2, Prudential may determine that no new
Participants will become covered under the Contract.
E. PERIODIC REPORTS
Participants will be sent semi-annual reports showing the financial condition of
VCA-2 including the investments held in the account. Each Participant will also
be sent, at least annually, a statement of the number of Accumulation Units
credited to his account as of the end of the preceding accounting year and of
the Accumulation Unit Value at that time.
F. PARTICIPATION IN DIVISIBLE SURPLUS
A mutual life insurance company differs from a stock life insurance company in
that it has no stockholders who are the owners of the enterprise.
A contract-holder of Prudential participates in the divisible surplus of
Prudential, according to the annual determination of the Board of Directors as
to the portion, if any, of the divisible surplus of Prudential which has accrued
on the contract. In the case of Contracts described herein, any surplus
determined to be payable as a dividend is credited to the persons participating
under such Contracts.
No assurance can be given as to the amount of divisible surplus, if any, that
will be available for distribution under these Contracts in the future. The
determination of such surplus is within the sole discretion of Prudential's
Board of Directors. When any payments of divisible surplus are made, they may
take the form of additional payments to annuitants and additions to the accounts
of other Participants and beneficiaries. The only payments of divisible surplus
made to date have taken the form of additional payments to annuitants.
Such payments amounted to $13,605 during 1994. This amount represented .5% of
the total amount of annuity payments from VCA-2 in 1994. The increase in the
amount received by individual annuitants varied from the .5%, depending on their
age, sex and form of annuity. The equivalent figures for 1993 were $13,535 and
.5% and for 1992 were $12,077 and .5%.
FEDERAL TAX STATUS
In the opinion of counsel, under the Internal Revenue Code, the operations of
VCA-2 form a part of and are taxed with the operations of Prudential. A ruling
to this effect has been received from the Internal Revenue Service. The effect
of this basis of taxation is that the Accumulation and Annuity Unit Values are
not reduced by federal income taxes under current law.
In the opinion of counsel, the Contract meets the requirements of Section 403(b)
of the Internal Revenue Code. Contributions on behalf of a Participant under
such a Contract are excludable from the Participant's gross income to the extent
the contributions do not exceed the "exclusion allowance" specified in the Code.
A further limit of $9,500 generally applies to salary reduction contributions.
Section 415 of the Code also imposes an overall limit on the maximum annual
contribution which can be made to the Contract by or on behalf of a Participant.
Generally, this limit on annual contributions is the lesser of $30,000 or 25% of
his compensation. Increases in the Accumulation and Annuity Unit Values are not
includable in the Participant's gross income in the year credited. Amounts
distributed to a Participant in the form of an annuity or otherwise are
includable in the Participant's gross income when received and are taxed at
ordinary income rates. However, an exclusion from federal income tax is provided
for distributions attributable to contributions which were includable in the
Participant's gross income when they were originally made.
In general, a death benefit consisting of amounts paid to a Participant's
beneficiary is includable in the Participant's estate for federal estate tax
purposes.
Benefits accruing after December 31, 1986 under Section 403(b) annuity contracts
are subject to required minimum distribution rules which specify the time when
payment of benefits must begin and the minimum amount which must be paid
annually. These rules apply to Participants and to beneficiaries. Generally,
payment of benefits to Participants must begin no later than April 1st of the
calendar year following the year in which the Participant attains age 70 1/2.
However, for Participants in governmental or church plans distributions may be
delayed until April 1 of the calendar year following the calendar year the
Participant retires, if that is later. If the Participant dies before the entire
interest in the contract has been distributed, the remaining interest must be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the Participant dies before payment of benefits has
begun (or is treated as having begun) the entire interest must be distributed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death. Alternatively, if there is a designated beneficiary, the
designated beneficiary may elect to receive payments beginning no later than
December 31 of the calendar year immediately following the year in which the
Participant died and continuing for the beneficiary's life or a period not
exceeding the beneficiary's life expectancy. If the Participant's spouse is the
designated beneficiary, payments can be deferred until December 31 of the year
in which the Participant would have attained
20
<PAGE>
age 70 1/2. An excise tax applies to Participants or beneficiaries who reach the
date when distributions are required to begin and fail to take the required
minimum distribution in any calendar year.
Payers of pension distributions (including insurance companies) are required to
withhold taxes on pension and annuity payments. This applies to payments made
under a tax-deferred annuity program (including total or partial withdrawals).
Certain distributions from qualified plans under Section 403(b) of the Code,
which are not directly rolled over or transferred to another eligible qualified
plan, are subject to a mandatory 20% withholding for federal income tax. The 20%
withholding requirement does not apply to: (a) distributions for the life or
life expectancy of the Participant or joint and last survivor expectancy of the
Participant and a designated beneficiary; or (b) distributions for a specified
period of 10 years or more; or (c) distributions which are required as minimum
distributions. A recipient of a distribution which is not subject to mandatory
withholding may elect not to have any taxes withheld from his distribution.
Participants must be notified annually of their right to change their
withholding elections. Payers of taxable pension payments must report such
payments to the Internal Revenue Service.
If a transfer is made from a Participant's accumulation account under this
Contract to another tax-deferred annuity program, no tax will be withheld from
the amount transferred.
A premature distribution penalty tax generally applies to withdrawals made prior
to age 59 1/2. Certain exceptions do, however, apply. In addition, Federal tax
law imposes restrictions on Withdrawals from Section 403(b) annuities (See
Withdrawal (Redemption) of Purchase Payments Prior to Death," page 12).
Therefore, persons contemplating participation in a Section 403(b) annuity
should consult a tax advisor concerning the tax consequences of a withdrawal
under the Contract.
The above description of certain federal income and estate tax rules that may
apply to a Participant is not exhaustive. A Participant should consult with
appropriate tax advisers concerning the applicability of the rules to the
Participant's personal tax circumstances.
VOTING RIGHTS
In addition to Prudential, each person who has an individual accumulation
account or a variable annuity as to which values or payments depend upon the
investment results of VCA-2 has the right to vote at meetings of such persons.
They are entitled to vote to:
A. approve any amendments of the Agreement for Investment Management Services
and approve any such new agreements negotiated by the Committee;
B. approve any recommendations made by the Committee regarding changes in the
fundamental investment policies of the Account; and
C. any matters requiring a vote of persons having voting rights with respect to
VCA-2.
Meetings of persons having voting rights are not required to be held annually.
The Rules and Regulations of VCA-2 provide that meetings of persons having
voting rights may be called by a majority of the Committee. The Committee is
required to call a meeting of persons having voting rights in the event that at
any time less than a majority of the members of the Committee holding office at
that time were elected by persons having voting rights. Such meeting must be
held within 60 days unless the Securities and Exchange Commission by order
extends such period. The Committee must also call a meeting of persons having
voting rights in order to submit the selection of the Account's independent
public accountant for ratification or rejection if the Committee selects an
accountant other than the accountant whose selection was most recently ratified
by persons with voting rights. In addition, the Committee is required to call
meetings of persons with voting rights in order to submit for a vote matters on
which such persons are entitled to vote (as listed above).
For the purpose of determining the persons having voting rights in respect of
VCA-2 who are entitled to notice of and to vote at meetings, the Committee may
fix, in advance, a date as the record date which shall not be more than 70 nor
less than 10 days before the date of such meeting.
The number of votes which each person may cast at a meeting of persons having
voting rights in VCA-2 is equal to the number of dollars and fractions thereof
in his accumulation account as of the record date or, if he is an annuitant, the
number of dollars and fractions thereof equal in value to the portion of the
assets in VCA-2 held to meet the annuity obligations to him on such date. This
number decreases as annuity payments are made. Votes may be cast either in
person or by proxy and persons entitled to vote receive all proxy materials.
Prudential is entitled to vote the number of votes and fractions thereof equal
to the number of dollars and fractions thereof of its own funds invested in
VCA-2 as of the record date. Prudential will cast its votes in the same
proportions as all other votes represented at the meeting, in person or by
proxy.
As defined by the 1940 Act and as referred to elsewhere in this Prospectus, a
majority vote of persons having voting rights in respect of VCA-2 means (a) 67%
or more of the votes of such persons present at a meeting if more than 50% of
all votes entitled to be cast are held by persons present in person or
represented by proxy at such meeting, or (b) more than 50% of all votes entitled
to be cast, whichever is less.
OTHER CONTRACTS ON A
VARIABLE BASIS
In addition to the Contracts, Prudential currently issues other forms of
contracts on a variable basis. At present,
21
<PAGE>
purchase payments under such other contracts are not held in VCA-2 but are held
in other separate accounts.
STATE REGULATION
Prudential is subject to regulation by the Department of Insurance of the State
of New Jersey as well as by the insurance departments of all the other states
and jurisdictions in which it does business. Prudential must file an annual
statement in a form promulgated by the National Association of Insurance
Commissioners. This annual statement is reviewed and analyzed by the New Jersey
Department, which makes an independent computation of Prudential's legal reserve
liabilities and statutory apportionments under its outstanding contracts. New
Jersey law requires a quinquennial examination of Prudential to be made.
Examination involves extensive audit including, but not limited to, an inventory
check of assets, sampling techniques to check the performance by Prudential of
its contracts and an examination of the manner in which divisible surplus has
been apportioned and distributed to policy and contract-holders. This regulation
does not involve any supervision or control over the investment policy of VCA-2
or over the selection of investments therefor except for verification of the
compliance of Prudential's investment portfolio with New Jersey law. See
"Investment restrictions imposed by state law" in the Statement of Additional
Information.
The laws of New Jersey also contain special provisions which relate to the
issuance and regulation of contracts on a variable basis. These laws set forth a
number of mandatory provisions which must be included in contracts on a variable
basis and prohibit such contracts from containing other specified provisions. No
variable contract may be issued for delivery in New Jersey prior to the written
acknowledgement by the Department of Insurance of its filing. The Department may
initially disapprove or subsequently withdraw approval of any contract if it
contains provisions which are "unjust, unfair, inequitable, ambiguous,
misleading, likely to result in misrepresentation or contrary to law." Approval
can also be withheld or withdrawn if sales are solicited by communications which
involve misleading or inadequate descriptions of the provisions of the contract.
In addition to the annual statement referred to above, Prudential is required to
file with New Jersey and other states a separate statement with respect to the
operations of all its variable contract accounts, in a form promulgated by the
National Association of Insurance Commissioners.
Persons engaged in the negotiation or sale of a variable annuity contract in New
Jersey are not subject to the provisions of the laws of New Jersey governing the
sale of securities. Such persons and such contracts may be subject to similar
laws (commonly known as "Blue-Sky Laws") in other states where such contracts
are sold.
LEGAL PROCEEDINGS
Prudential is engaged in routine litigation of various kinds which in its
judgment is not of material importance in relation to its total assets.
There is no litigation pending the outcome of which might have a material effect
on the operations of VCA-2.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
Participants may also receive further information about the Contracts at the
address and phone number set forth on the cover page of this Prospectus.
22
<PAGE>
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C> <C> <C> <C>
PAGE
INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-2................................................................. 2
Investment restrictions adopted by VCA-2............................................................... 2
Investment restrictions imposed by state law........................................................... 3
Loans of portfolio securities.......................................................................... 4
Portfolio turnover rate................................................................................ 4
Portfolio brokerage and related practices.............................................................. 4
Custody of securities.................................................................................. 5
THE VCA-2 COMMITTEE............................................................................................... 6
Remuneration of members of the committee and certain affiliated persons......................................... 6
DIRECTORS AND OFFICERS OF PRUDENTIAL.............................................................................. 7
SALE OF GROUP VARIABLE ANNUITY CONTRACTS.......................................................................... 10
EXPERTS........................................................................................................... 10
FINANCIAL STATEMENTS OF VCA-2..................................................................................... 11
FINANCIAL STATEMENTS OF THE PRUDENTIAL............................................................................ 20
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
Please
place
correct
postage
here
</TABLE>
The Prudential Insurance Company of America
c/o Prudential Defined Contribution Services
30 Scranton Office Park
Moosic, Pennsylvania 18507-1789
Attention: Defined Contributions Marketing
A "Statement of Additional
Information" about the
Contracts has been filed with
the Securities and Exchange
Commission. A copy of this
Statement is available
without charge.
To receive additional
information about the
Contracts and VCA-2 fill in
your name and address on
this card, tear it off, affix the
proper postage, and mail it
to us.
<PAGE>
YOU MUST DETACH BEFORE MAILING
Please send me the "Statement of Additional Information" describing The
Prudential's Group Tax-Deferred Variable
Annuity Contracts.
Name ___________________________________________________________________________
Address ________________________________________________________________________
_________________________________________________________________________
City ___________________________________________________________________________
State __________________________ Zip Code_______________________________________
PLEASE PRINT--will be used as mailing label!
2
<PAGE>
<TABLE>
<S> <C>
The Prudential Insurance Company of America BULK RATE
c/o Prudential Defined Contribution Services U.S. POSTAGE
30 Scranton Office Park PAID
Moosic, Pennsylvania 18507-1789 PERMIT No. 2145
Newark, N.J.
ADDRESS CORRECTION REQUESTED
FORWARDING AND
RETURN POSTAGE GUARANTEED
</TABLE>
GP-28 ED. 5/95
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
GROUP TAX-DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED THROUGH
THE PRUDENTIAL
VARIABLE CONTRACT ACCOUNT-2
These Contracts are designed for use in connection with retirement arrangements
that qualify for federal tax benefits under Section 403(b) of the Internal
Revenue Code of 1986. Contributions made on behalf of Participants are invested
in The Prudential Variable Contract Account-2, a separate account primarily
invested in common stocks.
-------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus, dated May 1, 1995, which is available
without charge upon written request to The Prudential Insurance Company of
America, c/o Prudential Defined Contribution Services, 30 Scranton Office Park,
Moosic, Pennsylvania 18507-1789, or by telephoning 1-800-458-6333.
TABLE OF CONTENTS
PAGE
INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-2............................. 2
Investment restrictions adopted by VCA-2.................................... 2
Investment restrictions imposed by state law................................ 3
Loans of portfolio securities............................................... 4
Portfolio turnover rate..................................................... 4
Portfolio brokerage and related practices................................... 4
Custody of securities....................................................... 5
THE VCA-2 COMMITTEE........................................................... 6
Remuneration of members of the committee and certain affiliated persons..... 6
DIRECTORS AND OFFICERS OF PRUDENTIAL.......................................... 7
SALE OF GROUP VARIABLE ANNUITY CONTRACTS......................................10
EXPERTS.......................................................................10
FINANCIAL STATEMENTS OF VCA-2.................................................11
FINANCIAL STATEMENTS OF THE PRUDENTIAL........................................20
The Prudential Insurance Company of
America
c/o Prudential Defined Contribution
Services
30 Scranton Office Park
Moosic, Pennsylvania 18507-1789
Telephone 1-800-458-6333
- ---------------------
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT MANAGEMENT
AND ADMINISTRATION OF
VCA-2
Prudential acts as investment manager for VCA-2 under an Agreement for
Investment Management Services. The Account's assets are invested and reinvested
in accordance with its investment objective and policies, subject to the general
supervision and authorization of the Account's Committee.
Subject to Prudential's supervision, substantially all of the investment
management services provided by Prudential are furnished by its wholly-owned
subsidiary, The Prudential Investment Corporation ("PIC"), pursuant to the
service agreement between Prudential and PIC (the "Service Agreement") which
provides that Prudential will reimburse PIC for its costs and expenses. PIC is
registered as an investment adviser under the Investment Advisers Act of 1940.
Prudential continues to have responsibility for all investment advisory services
under its advisory or subadvisory agreements with respect to its clients.
Prudential's Agreement for Investment Management Services with VCA-2 was
approved initially by the Participants at their meeting on May 29, 1969 and was
most recently renewed by unanimous vote of the Committee on November 11, 1994.
The Service Agreement was approved by participants in VCA-2 on July 25, 1985 and
its annual continuation was most recently approved by unanimous vote of the
VCA-2 Committee on November 11, 1994. The Account's Agreement for Investment
Management Services and the Service Agreement will continue in effect as long as
approved at least once a year by a majority of the non-interested members of the
Account's Committee and either by a majority of the entire Committee or by a
majority vote of persons entitled to vote in respect of the Account. The
Account's Agreement for Investment Management Services will terminate
automatically in the event of assignment, and may be terminated without penalty
on 60 days' notice by the Account's Committee or by the majority vote of persons
having voting rights in respect of the Account, or on 90 days' notice by
Prudential.
The Service Agreement will continue in effect as to the Account for a period of
more than two years from its execution only so long as such continuance is
specifically approved at least annually in the same manner as the Agreement for
Investment Management Services between Prudential and the Account. The Service
Agreement may be terminated by either party upon not less than thirty days'
prior written notice to the other party, will terminate automatically in the
event of its assignment and will terminate automatically as to the Account in
the event of the assignment or termination of the Agreement for Investment
Management Services between Prudential and the Account. Prudential is not
relieved of its responsibility for all investment advisory services under the
Agreement for Investment Management Services between Prudential and the Account.
The Service Agreement provides for Prudential to reimburse PIC for its costs and
expenses incurred in furnishing investment advisory services. For the meaning of
a majority vote of persons having voting rights with respect to the Account, see
"Voting Rights," page 21 of the Prospectus.
Prudential is responsible for the administrative and recordkeeping functions of
VCA-2 and pays the expenses associated with them. These functions include
enrolling Participants, receiving and allocating contributions, maintaining
Participants' Accumulation Accounts, preparing and distributing confirmations,
statements, and reports. The administrative and recordkeeping expenses borne by
Prudential include salaries, rent, postage, telephone, travel, legal, actuarial
and accounting fees, office equipment, stationery and maintenance of computer
and other systems. Prudential has entered into a service agreement with its
indirect wholly-owned subsidiary, The Prudential Asset Management Company, Inc.
("PAMCO") which provides that PAMCO may furnish certain administrative and
recordkeeping services in connection with Prudential's obligations under the
Contracts and provides that Prudential will reimburse PAMCO for its costs and
expenses. Prudential is reimbursed for these administrative and recordkeeping
expenses by the annual account charge and the daily charge against the assets of
the Account and Subaccount for administrative expenses.
A daily charge is made which is equal to an effective annual rate of 0.5% of the
net value of the assets of VCA-2. One-half (0.25%) of this charge is for
assuming expense risks; 1/4 (0.125%) of this charge is for assuming mortality
risks; and 1/4 (0.125%) is for investment management services. During 1994, 1993
and 1992 Prudential received $2,085,191, $1,918,423 and $1,593,662 respectively
from VCA-2 for assuming mortality and expense risks and for providing investment
management services.
There is also an annual administration charge made against each Participant's
accumulation account in an amount which varies with each Contract but which is
not more than $60 for the first accounting year and not more than $30 for any
subsequent accounting year. During 1994, 1993 and 1992 Prudential collected
$42,008, $42,616 and $44,104 respectively from VCA-2 in those annual account
charges.
A sales charge is also imposed on certain purchase payments made under a
Contract on behalf of a Participant. The sales charges imposed on purchase
payments to VCA-2 during 1994, 1993 and 1992 were $108,110, $155,991 and
$114,557 respectively.
INVESTMENT RESTRICTIONS ADOPTED BY VCA-2
In addition to the investment policies described in the Prospectus, the
following investment restrictions are fundamental investment policies of VCA-2
and may not be changed without the approval of a majority vote of persons having
voting rights in respect of the Account.
2
<PAGE>
1. The investments held in VCA-2 will not be concentrated
in particular industries; that is to say that no more than 25% of
the value of the assets in VCA-2 will be invested in any one industry.
They will be diversified in an attempt to reduce the risks of losses due
to adverse developments affecting the securities of a single company or
industry. Seventy-five percent of the assets held in VCA-2 are subject to
the limitation that no purchase of a security, other than a security of
the United States Government or federal instrumentality, will be made for
the account of VCA-2 if as a result of such purchase more than 5% of the
total value of the assets held in VCA-2 will be invested in the
securities of one issuer.
2. No purchase of or investment in real estate will
be made for the account of VCA-2.
3. No commodities or commodity contracts will be
purchased or sold for the account of VCA-2.
4. Loans up to 10% of the value of the assets held
in VCA-2 may be made through the purchase of privately placed bonds,
debentures, notes and other evidences of indebtedness of established
corporations or governmental entities which are of a character
customarily acquired by institutional investors. These may or may not be
convertible into stock or accompanied by warrants or rights to acquire
stock.
5. No money will be borrowed for the account of
VCA-2.
6. No securities of any company will be acquired
for VCA-2 for the purpose of exercising control or management thereof.
7. No securities of other investment companies
will be held in VCA-2.
8. Investments for the account of VCA-2 will be
made for long-term growth of capital and it is not intended to place
emphasis upon obtaining short-term profits. However, because no tax
disadvantage results if short-term profits are realized, the right is
reserved to make such changes in the VCA-2 portfolio as may be considered
appropriate.
9. Short sales of securities will not be made for the
account of VCA-2.
10. Purchases of securities for the account of VCA-
2 will not be made on margin, except that short-term credits necessary
for the clearance of transactions may be employed.
11. The securities of other issuers will not be underwritten
by VCA-2, except insofar as it may be deemed an underwriter for
purposes of the Securities Act of 1933 in connection with the loans
described in paragraph 4 above.
12. Loans of the portfolio securities of VCA-2 may
be made to the extent that such loans are fully collateralized and
subject to such other safeguards and limitations as may be approved by
the VCA-2 Committee. For a discussion of the risks involved in lending
portfolio securities, see "Loans of portfolio securities," on page 4.
As a matter of investment practice, no more than 10% of the value of the total
assets held in VCA-2 will be invested in securities (including repurchase
agreements and non-negotiable time deposits maturing in more than 7 days) that
are subject to legal or contractual restrictions on resale or for which no
readily available market exists, or in the securities of issuers (other than
U.S. Government agencies or instrumentalities) having a record, together with
predecessors, of less than three years' continuous operation.
INVESTMENT RESTRICTIONS IMPOSED BY STATE LAW
In addition to the investment objectives, policies and restrictions that VCA-2
has adopted, the Account must limit its investments to those authorized for
variable contract accounts of life insurance companies by the laws of the State
of New Jersey. In the event of future amendments of the applicable New Jersey
statutes, the Account will comply, without the approval of Participants or
others having voting rights in respect of the Account, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
currently read are, in summary form, as follows:
1. An account may not purchase any evidence of
indebtedness issued, assumed or guaranteed by any institution created or
existing under the laws of the U.S., any U.S. state or territory,
District of Columbia, Puerto Rico, Canada or any Canadian province, if
such evidence of indebtedness is in default as to interest. "Institution"
includes any corporation, joint stock association, business trust,
business joint venture, business partnership, savings and loan
association, credit union or other mutual savings institution.
2. The stock of a corporation may not be purchased
unless (i) the corporation has paid a cash dividend on the class of
stock during each of the past five years preceding the time of purchase,
or (ii) during the five-year period the corporation had aggregate
earnings available for dividends on such class of stock sufficient to pay
average dividends of 4% per annum computed upon the par value of such
stock, or upon stated value if the stock has no par value. This
limitation does not apply to any class of stock which is preferred as to
dividends over a class of stock whose purchase is not prohibited.
3. Any common stock purchased must be (i) listed
or admitted to trading on a securities exchange in the United States or
Canada; or (ii) included
3
<PAGE>
in the National Association of Securities Dealers' national price
listings of "over-the-counter" securities; or (iii) determined by the
Commissioner of Insurance of New Jersey to be publicly held and traded
and as to which market quotations are available. As of the date of this
Prospectus no such determination has been made.
4. Any security of a corporation may not be purchased
if after the purchase more than 10% of the market value of the assets
of an Account would be invested in the securities of such corporation.
The currently applicable requirements of New Jersey law impose substantial
limitations on the ability of VCA-2 to invest in the stock of companies whose
securities are not publicly traded or who have not recorded a five-year history
of dividend payments or earnings sufficient to support such payments. This means
that the Account will not generally invest in the stock of newly organized
corporations. Nonetheless, an investment not otherwise eligible under paragraph
1 or 2 above may be made if, after giving effect to the investment, the total
cost of all such non-eligible investments does not exceed 5% of the aggregate
market value of the assets of the Account.
Investment limitations may also arise under the insurance laws and regulations
of the other states where the Contracts are sold. Although compliance with the
requirements of New Jersey law set forth above will ordinarily result in
compliance with any applicable laws of other states, under some circumstances
the laws of other states could impose additional restrictions on the portfolios
of the Account.
LOANS OF PORTFOLIO SECURITIES
VCA-2 may from time to time lend its portfolio securities to broker-dealers,
provided that such loans are made pursuant to written agreements and are
continuously secured by collateral in the form of cash, U.S. Government
securities or irrevocable standby letters of credit in an amount equal to at
least the market value at all times of the loaned securities. During the time
portfolio securities are on loan, VCA-2 continues to receive the interest and
dividends, or amounts equivalent thereto, on the loaned securities while
receiving a fee from the borrower or earning interest on the investment of the
cash collateral. The right to terminate the loan is given to either party
subject to appropriate notice. Upon termination of the loan, the borrower
returns to the lender securities identical to the loaned securities. VCA-2 does
not have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment. The primary risk in lending securities is that the borrower may
become insolvent on a day on which the loaned security is rapidly advancing in
price. In such event, if the borrower fails to return the loaned securities, the
existing collateral might be insufficient to purchase back the full amount of
stock loaned, and the borrower would be unable to furnish additional collateral.
The borrower would be liable for any shortage but VCA-2 would be an unsecured
creditor as to such shortage and might not be able to recover all or any of it.
However, this risk may be minimized by a careful selection of borrowers and
securities to be lent.
VCA-2 will not lend its portfolio securities to broker-dealers affiliated with
Prudential, including Prudential Securities Incorporated. This will not affect
VCA-2's ability to maximize its securities lending opportunities.
PORTFOLIO TURNOVER RATE
VCA-2 has no fixed policy with respect to portfolio turnover, which is an index
determined by dividing the lesser of the purchases or sales of portfolio
securities during the year by the monthly average of the aggregate value of the
portfolio securities owned during the year. VCA-2 seeks long term growth of
capital rather than short-term trading profits. However, during any period when
changing economic or market conditions are anticipated, successful management
requires an aggressive response to such changes which may result in portfolio
shifts that may significantly increase the rate of portfolio turnover. The rate
of portfolio activity will normally affect the brokerage expenses of VCA-2. The
annual portfolio turnover rate was 36.85% in 1994, 46.91% in 1993 and 73.24% in
1992.
PORTFOLIO BROKERAGE AND RELATED PRACTICES
In connection with decisions to buy and sell securities for VCA-2, brokers and
dealers to effect the transactions must be selected and brokerage commissions,
if any, negotiated. Transactions on a stock exchange in equity securities will
be executed primarily through brokers that will receive a commission paid by
VCA-2. Fixed income securities, on the other hand, as well as equity securities
traded in the over-the-counter market, will not normally incur any brokerage
commissions. These securities are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. Certain of these securities may also be
purchased directly from an issuer, in which case neither commissions nor
discounts are paid.
In placing orders of securities transactions, primary consideration is given to
obtaining the most favorable price and efficient execution. An attempt is made
to effect each transaction at a price and commission, if any, that provides the
most favorable total cost or proceeds reasonably attainable in the
circumstances. However, a higher commission than would otherwise be necessary
for a particular transaction may be paid when to do so would appear to further
the goal of obtaining the best available execution.
4
<PAGE>
In connection with any securities transaction that involves a commission
payment, the commission is negotiated with the broker on the basis of the
quality and quantity of execution services that the broker provides, in light of
generally prevailing commission rates. Periodically, Prudential and PIC review
the allocation among brokers of orders for equity securities and the commissions
that were paid.
When selecting a broker or dealer in connection with a transaction for VCA-2,
consideration is given to whether the broker or dealer has furnished PIC with
certain services, provided this does not jeopardize the objective of obtaining
the best price and execution. These services, which include statistical and
economic data and research reports on particular companies and industries, are
services that brokerage houses customarily provide to institutional investors.
PIC uses these services in connection with all of its investment activities, and
some of the data or services obtained in connection with the execution of
transactions for VCA-2 may be used in connection with the execution of
transactions for other investment accounts. Conversely, brokers and dealers
furnishing such services may be selected for the execution of transactions of
such other accounts, while the data or service may be used in connection with
investment management for VCA-2. Although Prudential's present policy is not to
permit higher commissions to be paid for transactions for VCA-2 in order to
secure research and statistical services from brokers or dealers, Prudential
might in the future authorize the payment of higher commissions, but only with
the prior concurrence of the VCA-2 Committee, if it is determined that the
higher commissions are necessary in order to secure desired research and are
reasonable in relation to all of the services that the broker or dealer
provides.
When investment opportunities arise that may be appropriate for more than one
entity for which Prudential serves as investment manager or adviser, one entity
will not be favored over another and allocations of investments among them will
be made in an impartial manner believed to be equitable to each entity involved.
The allocations will be based on each entity's investment objectives and its
current cash and investment positions. Because the various entities for which
Prudential acts as investment manager or adviser have different investment
objectives and positions, from time to time a particular security may be
purchased for one or more such entities while, at the same time, such security
may be sold for another.
An affiliated broker may be employed to execute brokerage transactions on behalf
of VCA-2 as long as the commissions are reasonable and fair compared to the
commissions received by other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. During 1994, 1993 and 1992, $5,851, $12,588
and $13,961, respectively, was paid to Prudential Securities Incorporated, an
affiliated broker. For 1994, the commissions paid to this affiliated broker
constitutes 1.13% of the total commissions paid by VCA-2 for that year, and the
transactions through this affiliated broker accounted for 0% of the aggregate
dollar amount of transactions for VCA-2 involving the payment of commissions.
VCA-2 may not engage in any transactions in which Prudential or its affiliates,
including Prudential Securities Incorporated, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal.
Prudential or PIC may enter into business transactions with brokers or dealers
for purposes other than the execution of portfolio securities transactions for
accounts Prudential manages. These other transactions will not affect the
selection of brokers or dealers in connection with portfolio transactions for
VCA-2.
During the calendar year 1994, $516,567 was paid to various brokers in
connection with securities transactions for VCA-2. Of this amount, approximately
71.03% was allocated to brokers who provided research and statistical services
to Prudential. The equivalent figures for 1993 were $583,064 and 75.15% and for
1992 were $669,217 and 85.77%.
CUSTODY OF SECURITIES
Chemical Bank, 4 New York Plaza, New York, NY 10004, is custodian of the equity
securities allocated in VCA-2 and is authorized to use the facilities of the
Depository Trust Company. Morgan Guaranty Trust Company of New York, 23 Wall
Street, New York, NY 10015, is custodian of the short-term debt securities
allocated to
VCA-2.
5
<PAGE>
THE VCA-2 COMMITTEE
VCA-2 is managed by The Prudential Variable Contract Account-2 Committee ("VCA-2
Committee"). The members of the Committee are elected by the persons having
voting rights in respect of the VCA-2 Account. The affairs of the Account are
conducted in accordance with the Rules and Regulations of the Account. The
members of the Account's Committee, the Account's Secretary and Assistant
Secretaries and the principal occupation of each during the past five years are
shown below.
VCA-2 COMMITTEE
MARK R. FETTING*, CHAIRMAN AND MEMBER OF THE COMMITTEE--President & Chief
Operating Officer, Prudential Institutional Fund Management, Inc. (an indirect
subsidiary of Prudential) since 5/92; President, Prudential Defined Contribution
Services (a unit of PAMCO) since 4/92; Vice President, PIC since 10/91; Vice
President, Prudential since 10/91. Investment Management Consultant from 9/89 to
9/91; Partner, Greenwich Associates from 2/88 to 9/89; President, Review
Management Corp. from 2/87 to 12/87; Vice President, T. Rowe Price Associates,
Inc. from 4/83 to
1/87. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507.
SAUL K. FENSTER, MEMBER OF THE COMMITTEE--President, New Jersey Institute of
Technology (education). Address: 323 Martin Luther King Jr. Boulevard, Newark,
New Jersey 07102.
W. SCOTT McDONALD, JR., MEMBER OF THE COMMITTEE--Executive Vice President,
Fairleigh Dickinson University since 9/91; prior to 9/91, Executive Vice
President, Drew University. Address: 23 Forest Road, Madison, New Jersey 07940.
JAMES H. SCOTT, JR.*, MEMBER OF THE COMMITTEE--Chief Executive Officer,
Prudential Diversified Investment Strategies (PDI) an investment unit of PIC,
since 1/94; and President, PTC Services, Inc. (a Prudential subsidiary) since
8/91. Managing Director, PDI since 12/87. Mr. Scott is also a Second Vice
President of Prudential. Address: Prudential Plaza, Newark, New Jersey 07102.
JOSEPH WEBER, MEMBER OF THE COMMITTEE--Vice President, Interclass (International
corporate learning) since 10/90. President, Alliance for Learning from 3/88 to
10/90. Consultant since 3/87. Address: 37 Beachmont Terrace, North Caldwell, New
Jersey 07006.
ROSANNE J. BARUH, ASSISTANT SECRETARY TO THE COMMITTEE--Assistant General
Counsel of Prudential since 11/86. Address: Prudential Plaza, Newark, New Jersey
07102.
THOMAS A. EARLY, SECRETARY TO THE COMMITTEE--Vice President and General Counsel,
Prudential Defined Contribution Services since 4/94. Associate General Counsel,
Frank Russell Company from 1988 to 1994. Address: 30 Scranton Office Park,
Moosic, Pennsylvania 18507.
C. CHRISTOPHER SPRAGUE, ASSISTANT SECRETARY TO THE COMMITTEE--Assistant General
Counsel, Prudential Defined Contribution Services since 12/94. Staff Attorney
and Senior Counsel, U.S. Securities and Exchange Commission from 9/88 to 11/94.
Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507.
MICHAEL G. WILLIAMSON, ASSISTANT SECRETARY TO THE COMMITTEE--Director,
Prudential Defined Contribution Services since 11/93; Manager, Prudential
Defined Contribution Services from 10/88 to 11/93. Address: 30 Scranton Office
Park, Moosic, Pennsylvania 18507.
*These members of the Committee are interested persons of Prudential, its
affiliates or VCA-2 as defined in the Investment Company Act of 1940 (the "1940
Act"). Certain actions of the Committee, including the annual continuance of the
Agreement for Investment Management Services between VCA-2 and Prudential, must
be approved by a majority of the members of the Committee who are not interested
persons of Prudential, its affiliates or VCA-2. Messrs. Fetting and Scott,
members of the Committee, are interested persons of Prudential and VCA-2, as
that term is defined in the 1940 Act, because they are officers of Prudential,
the investment adviser of VCA-2. Doctors Fenster, McDonald and Weber are not
interested persons of Prudential, its affiliates or VCA-2. However, Dr. Fenster
is President of the New Jersey Institute of Technology. Prudential has issued a
group annuity contract to the Institute and provides group life and group health
insurance to its employees.
REMUNERATION OF MEMBERS OF THE COMMITTEE AND CERTAIN AFFILIATED PERSONS
No member of the VCA-2 Committee nor any other person (other than Prudential)
receives remuneration from the Account. Prudential pays certain of the expenses
relating to the operation of, including all compensation paid to members of the
Committee, its Chairman, its Secretary and Assistant Secretaries. No member of
the VCA-2 Committee, its Chairman, its Secretary or Assistant Secretaries who is
also an officer, Director or employee of Prudential or an affiliate of
Prudential is entitled to any fee for his services as a member or officer of the
Committee.
6
<PAGE>
DIRECTORS AND OFFICERS OF PRUDENTIAL
The names of all Directors and certain officers of Prudential and the positions
and offices and principal occupation of each during the past five years are
shown below. The Contract-holder under each Contract will be entitled to one
vote for the election of Prudential Directors. Participants will not be entitled
to vote.
DIRECTORS
FRANKLIN E. AGNEW, DIRECTOR since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee. Business consultant
since 1987. Senior Vice President H.J. Heinz from 1971 to 1986. Mr. Agnew is
also a director of Bausch & Lomb Inc. and John Wiley & Sons, Inc. Age 60.
Address: One Mellon Bank Center, Suite 2120, Pittsburgh, PA 15129.
FREDERICK K. BECKER, DIRECTOR since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics. President,
Wilentz Goldman and Spitzer (law firm) since 1989, with firm since 1960. Age 59.
Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
WILLIAM W. BOESCHENSTEIN, DIRECTOR since 1982 (current term expires April,
1997). Chairman, Executive Committee; Member, Auditing Committee. Retired since
1990. Chairman of the Board and Chief Executive Officer, Owens-Corning Fiberglas
Corporation from 1981 to 1990. Mr. Boeschenstein is also a director of FMC Corp.
and Owens-Corning Fiberglas Corporation. Age 69. Address: Fiberglas Tower,
Toledo, OH 43659.
LISLE C. CARTER, JR., DIRECTOR since 1987 (current term expires April, 1997).
Chairman, Committee on Nominations; Member Executive Committee; Member Finance
Committee. Retired since 1991. Senior Vice President and General Counsel, United
Way of America from 1988 to 1991. Age 69. Address: 1307 Fourth Street, S.W.,
Washington, DC 20024.
JAMES G. CULLEN, DIRECTOR since 1994 (current term expires April, 2001). Member,
Compensation Committee; Member, Committee on Business Ethics. President, Bell
Atlantic Corporation since 1993. President New Jersey Bell 1989-1993. Mr. Cullen
is also a director of First Fidelity Bancorporation. Age 52. Address: 1310 North
Court House Road, 11th Floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS, DIRECTOR since 1989 (current term expires April, 1997).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Health Care Advisor, Ernst & Young since 1985. Dr. Davis
is also a director of Merck & Co., Inc., Beckman Instruments, Inc.,
Pharmaceutical Marketing Services, Inc. and Science Applications International.
Age 63. Address: 1200 Nineteenth Street, N.W., Washington, DC 20036.
ROGER A. ENRICO, DIRECTOR since 1994 (current term expires April, 1998). Member,
Committee on Nominations; Member, Compensation Committee. Vice Chairman, Pepsi
Co. Inc. since 1993. Chairman and CEO, Pepsi Co. Worldwide Food, from 1991 to
1993. President and CEO, Pepsi Co. Worldwide Beverage from 1986-1991. Mr. Enrico
is also a director of Dayton Hudson Corporation. Age 50. Address: 7701 Legacy
Drive, Plano, TX, 75024.
ALLAN D. GILMOUR, DIRECTOR since 1995 (current term expires April, 1999).
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
USWest, Inc. and Whirlpool Corporation. Age 60. Address: 751 Broad Street,
Newark, NJ 07102.
WILLIAM H. GRAY, III, DIRECTOR since 1991 (current term expires April, 1996).
Member, Finance Committee; Member, Committee on Nominations. President and Chief
Executive Officer, United Negro College Fund, Inc. since 1991. Mr. Gray served
in Congress from 1979 to 1991. Mr. Gray is also a director of Warner-Lambert
Co., Chase Manhattan Corp., Municipal Bond Investors Assurance Corp.,
Westinghouse Electric Corp., Union Pacific Corp., Lotus Development Corp., Scott
Paper Company and Rockwell International Corp. Age 53. Address: 500 East 62nd
Street, New York, NY 10021.
JON F. HANSON, DIRECTOR since 1991 (current term expires April, 1997). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Co. since 1976. Mr. Hanson is also a director of New Jersey Bell,
Wickes Lumber Co. and United Water Resources. Age 58. Address: 235 Moore Street,
Suite 200, Hackensack, NJ 07601.
CONSTANCE J. HORNER, DIRECTOR since 1994 (current term expires April, 1998).
Member, Auditing Committee; Member, Committee on Nominations. Guest Scholar, The
Brookings Institution since 1993. Assistant to the President and Director of
Presidential Personnel, U.S. Government, 1991-1992. Deputy Secretary, Department
of Health & Human Services from 1989 to 1991. Ms. Horner is also a director of
Pfizer, Inc. and Ingersoll-Rand Company. Age 53. Address: 1775 Massachusetts
Ave., N.W. Washington, D.C. 20036-2188.
7
<PAGE>
DIRECTORS (CONTINUED)
ALLEN F. JACOBSON, DIRECTOR since 1992 (current term expires April, 1997).
Member, Auditing Committee; Member Compensation Committee. Retired since 1991.
Chairman of the Board and Chief Executive Officer, Minnesota Mining &
Manufacturing Co. from 1986 to 1991. Mr. Jacobson is also a director of Abbott
Laboratories, Alliant Techsystems, Inc., Deluxe Corp., Northern States Power
Co., Silicon Graphics, Inc., Valmont Industries, 3M, Mobil Corporation, U.S.
West, Inc., Sara Lee Corporation and Potlatch Corporation. Age 68: Address: 30
Seventh Street East, St. Paul, MN 55101-4901.
GARNETT L. KEITH, JR., DIRECTOR since 1984 (current term expires April, 1999).
Vice Chairman of Prudential since 1984. Mr. Keith is also a director of Super
Valu Stores, Inc., AEA Investors, Inc., and Pan-Holding, Societe Anonyme. Age
59. Address: 751 Broad Street, Newark, NJ 07102-3777.
BURTON G. MALKIEL, DIRECTOR since 1978 (current term expires April, 1998).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Nominations. Chemical Bank Chairman's Professor of Economics, Princeton
University, since 1988. Dr. Malkiel is also a director of The Jeffrey Co.,
Vanguard Group, Inc., Amdahl Corp., Baker Fentress & Co., and Southern New
England Telecommunications Co. Age 62. Address: 110 Fisher Hall, Prospect
Avenue, Princeton University, Princeton, NJ 08544-1021.
JOHN R. OPEL, DIRECTOR since 1984 (current term expires April, 1996). Chairman,
Committee on Dividends; Member, Compensation Committee; Member, Committee on
Dividends; Member Executive Committee; Member Finance Committee. Retired
Chairman, International Business Machines Corporation since 1986. Chairman of
the Executive Committee, IBM, from 1986 to 1993. Mr. Opel is also a director of
Pfizer, Inc. Age 70. Address: 590 Madison Avenue, New York, NY 10022.
ARTHUR F. RYAN, Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 52. Address: 751 Broad
Street, Newark, NJ 07102-3777.
CHARLES R. SITTER, DIRECTOR since 1995 (current term expires April, 1999).
President, Exxon Corporation since 1993. Mr. Sitter began his career with Exxon
in 1957; he is currently a director of Exxon. Age 64. Address: 225 John W.
Carpenter Freeway, Irving, TX 75062.
DONALD L. STAHELI, DIRECTOR since 1995 (current term expires April, 1999).
Chairman and Chief Executive Officer, Continental Grain Company since 1994. Mr.
Staheli was Chairman of Continental Grain from 1988 to 1994. Age 63. Address:
277 Park Avenue, New York, NY 10172.
RICHARD M. THOMSON, DIRECTOR since 1976 (current term expires April, 1996).
Chairman, Compensation Committee; Member, Committee on Nominations, Member,
Executive Committee. Chairman of the Board and Chief Executive Officer, The
Toronto-Dominion Bank since 1978. Mr. Thomson is also a director of CGC, Inc.,
Eaton's of Canada, Ltd., INCO, Ltd., The Thomson Corp., S.C. Johnson & Son,
Ltd., TEC Leaseholds Limited. Age 61. Address: P.O. Box 1, Toronto-Dominion
Centre, Toronto, Ontario, M5K 1A2, Canada.
P. ROY VAGELOS, M.D., DIRECTOR since 1989 (current term expires April, 1997).
Chairman, Auditing Committee; Member, Committee on Dividends; Member, Executive
Committee. Chairman, Regeneron Pharmaceuticals since 1995. Chairman and Chief
Executive Officer, Merck & Co., Inc. from 1986 to 1994. Dr. Vagelos is also a
director of Pepsi Co., Inc. and McDonnell Douglas Corp. Age 65. Address: 126
East Lincoln Avenue, Rahway, NJ 07065.
STANLEY C. VAN NESS, DIRECTOR since 1990 (current term expires April, 1996).
Chairman, Committee on Business Ethics; Member, Auditing Committee; Member,
Executive Committee. Attorney, Picco Mack Herbert Kennedy Jaffe Perrella and
Yoskin (law firm) from 1990. Partner of Jamieson, Moore, Peskin & Spicer from
1984 to 1990. Mr. Van Ness is also a director of Jersey Central Power & Light
Company. Age 61. Address: One State Street Square, Suite 1000, Trenton, NJ
08607-1388.
PAUL A. VOLCKER, DIRECTOR since 1988 (current term expires April, 1996). Member,
Committee on Dividends; Member, Committee on Nominations. Chairman, James D.
Wolfensohn, Inc. since 1988; Chairman, J. Rothschild, Wolfensohn & Co. since
1992. Mr Volcker is also a director of Fuji-Wolfensohn International, Nestle,
S.A., Imperial Chemical Industries, PLC, Municipal Bond Investors Assurance
Corp., UAL Corp. and the Board of Governors, American Stock Exchange. Age 67.
Address: 599 Lexington Avenue, New York, NY 10022.
JOSEPH H. WILLIAMS, DIRECTOR since 1994 (current term expires April, 1998).
Member, Auditing Committee; Member, Committee on Dividends. Chairman of the
Board, The Williams Companies since 1994. Chairman & Chief Executive Officer,
The Williams Companies 1979-1993. Age 61. Address: P.O. Box 2400, Tulsa, OK
74102.
8
<PAGE>
EXECUTIVE OFFICERS OF PRUDENTIAL
ARTHUR F. RYAN, CHAIRMAN, CHIEF EXECUTIVE OFFICER, AND PRESIDENT since 1994;
1990-94 President and Chief Operating Officer, Chase Manhattan Corp. Age 52.
GARNETT L. KEITH, JR., VICE CHAIRMAN since 1984. Age 59.
WILLIAM P. LINK, EXECUTIVE VICE PRESIDENT since 1990; 1987-90: Senior Vice
President. Age 48.
EUGENE B. HEIMBERG, EXECUTIVE VICE PRESIDENT since 1994; 1987-94; Senior Vice
President. Age 61.
ROBERT P. HILL, EXECUTIVE VICE PRESIDENT since 1990. Age 54.
ERIC A. SIMONSON, EXECUTIVE VICE PRESIDENT since 1994; 1989-94 Senior Managing
Director. Age 49.
WILLIAM M. BETHKE, SENIOR VICE PRESIDENT since 1986. Age 47.
STEPHEN R. BRASWELL, SENIOR VICE PRESIDENT since 1983. Age 55.
JOHN D. BROOKMEYER, SENIOR VICE PRESIDENT since 1988. Age 52.
E. MICHAEL CAULFIELD, SENIOR VICE PRESIDENT since 1992; 1989-92 Managing
Director. Age 48.
ROBERT M. CHMELY, SENIOR VICE PRESIDENT since 1988. Age 60.
MARTHA CLARK GOSS, SENIOR VICE PRESIDENT since 1993; 1989-93; Vice President.
Age 45.
WILLIAM D. FRIEL, SENIOR VICE PRESIDENT since 1993; 1988-92: Vice President. Age
55.
JAMES R. GILLEN, SENIOR VICE PRESIDENT AND GENERAL COUNSEL since 1984. Age 57.
BRUCE J. GOODMAN, SENIOR VICE PRESIDENT since 1993; 1992-93 Senior Vice
President, Metropolitan Life; 1977-91 Vice President, Metropolitan Life. Age 53.
NICHOLAS M. GRAVES, SENIOR VICE PRESIDENT since 1988. Age 54.
SAMUEL H. HAVENS, SENIOR VICE PRESIDENT since 1989; 1985-89: Vice President. Age
51.
MILAN E. JOHNSON, SENIOR VICE PRESIDENT since 1992; 1987-92: Vice President. Age
57.
IRA J. KLEINMAN, SENIOR VICE PRESIDENT since 1992; 1978-92: Vice President. Age
47.
DONALD C. MANN, SENIOR VICE PRESIDENT since 1990; 1985-90: Vice President. Age
52.
JOHN P. MURRAY, SENIOR VICE PRESIDENT since 1984. Age 58.
EUGENE M. O'HARA, SENIOR VICE PRESIDENT AND COMPTROLLER since 1982. Age 57.
I. EDWARD PRICE, SENIOR VICE PRESIDENT SINCE 1993; 1990-93; Senior Vice
President and Company Actuary.
1986-90: Senior Vice President. Age 52.
DONALD G. SOUTHWELL, SENIOR VICE PRESIDENT since 1989. Age 43.
JOSEPH V. TARANTO, SENIOR VICE PRESIDENT since 1994; 1986-94 President,
Transatlantic Holdings. Age 46.
MARTIN PFINSGRAFF, VICE PRESIDENT AND TREASURER since 1991; 1989-91: Managing
Director, Corporate Finance. Age 40.
DOROTHY K. LIGHT, VICE PRESIDENT AND SECRETARY since 1987. Age 57.
9
<PAGE>
SALE OF GROUP VARIABLE ANNUITY CONTRACTS
Prudential offers the Contracts on a continuous basis through Corporate Office,
regional home office and group sales office employees in those states in which
the Contracts may be lawfully sold. It may also offer the Contracts through
licensed insurance brokers and agents, or through appropriately registered
direct or indirect subsidiary(ies) of Prudential, provided clearances to do so
are secured in any jurisdiction where such clearances may be necessary or
desirable. As noted above, Prudential is registered with the Commission under
the Securities Exchange Act of 1934 as a broker-dealer. During 1994, 1993 and
1992 Prudential received $108,110, $155,991 and $114,557 respectively, as sales
charges in connection with the sale of these contracts. Prudential credited
$93,324.95, $77,715.51 and $54,615 respectively to other broker-dealers in
connection with such sales.
EXPERTS
The financial statements included in this Statement of Additional Information
and the condensed financial information in the Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and the financial statements have been included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing. The Committee approves their employment annually. If the Commitee
selects an accountant other than Deloitte & Touche then a meeting of persons
having voting rights with respect to the Account must be called to ratify such
selection made by the Committee. Deloitte & Touche's business address is Two
Hilton Court, Parsippany, New Jersey 07054-0319.
Financial statements for VCA-2 and Prudential, as of December 31, 1994, are
included in this Statement of Additional Information, beginning at page 11.
10
<PAGE>
REPORT OF MANAGEMENT
(From the 1994 VCA-2 Report to Participants)
The accompanying financial statements and all information in the annual report
are the responsibility of management of The Prudential Insurance Company of
America (The Prudential). These financial statements have been prepared in
accordance with generally accepted accounting principles, and necessarily
include amounts based on best estimates and judgments. Information presented in
one section of the annual report is consistent with information dealing with the
same or substantially similar subject matter presented elsewhere in the annual
report.
The system of internal controls for VCA-2 is an integral part of that for The
Prudential. This system is designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and executed in
accordance with proper authorization. The concept of reasonable assurance is
based on the premise that the cost of internal controls should not exceed the
benefits derived. In addition, The Prudential maintains a professional staff of
internal auditors who monitor VCA-2's control structure through periodic reviews
and tests of the control aspects of accounting, financial and operating
activities. The internal auditors coordinate their program with that of the
independent certified public accountants.
The financial statements have been audited by Deloitte & Touche LLP, Certified
Public Accountants. The Independent Auditors' Report, which appears in this
annual report, expresses an independent professional opinion on the fairness of
presentation, in all material respects, of management's financial statements.
The auditors review VCA-2's financial and accounting controls and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement.
The Prudential's Board of Directors, through its Auditing Committee, and the
VCA-2 Committee monitor management's fulfillment of its responsibilities for
accurate accounting, statement preparation and protection of assets. The
Auditing Committee is composed solely of outside directors and the VCA-2
Committee has a majority of outside members. Both The Prudential's Auditing
Committee and the outside members of the VCA-2 Committee meet with the
independent certified public accountants, management and internal auditors
periodically to evaluate each party's execution of their respective
responsibilities. Each has free and separate access to the Auditing and VCA-2
Committees to discuss accounting, financial reporting, internal control and
auditing matters.
Mark R. Fetting
Chairman
VCA-2 Committee
Eugene M. O'Hara
Chief Financial Officer
The Prudential Insurance Company of America
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE COMMITTEE OF AND PERSONS PARTICIPATING IN THE PRUDENTIAL VARIABLE
CONTRACT ACCOUNT-2:
We have audited the accompanying statement of net assets of The Prudential
Variable Contract Account-2 of The Prudential Insurance Company of America as of
December 31, 1994, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the condensed financial information for each of the five years
in the period then ended. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994, by correspondence with the custodians and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and condensed financial information
present fairly, in all material respects, the financial position of The
Prudential Variable Contract Account-2 as of December 31, 1994, the results of
its operations, the changes in its net assets and the condensed financial
information for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 16, 1995
12
<PAGE>
Financial Statements of VCA-2
Statement of Net Assets December 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (2.7%)
Gen Corp. 218,500 $ 2,594,687
General Motors Corp. (Class 'H' Stock) 116,900 4,076,887
Littelfuse, Inc.+ 75,000 2,193,750
Litton Industries, Inc.+ 70,000 2,590,000
------------
11,455,324
- ---------------------------------------------------
AUTOS & TRUCKS (3.3%)
Automotive Industries Holding, Inc.+ 243,600 4,932,900
Ford Motor Co. 120,000 3,345,000
General Motors Corp. 49,200 2,072,550
Modine Manufacturing Co. 117,000 3,363,750
------------
13,714,200
- ---------------------------------------------------
CHEMICALS (1.6%)
Imperial Chemical Industries (ADRs) 100,000 4,650,000
W. R. Grace & Co. 49,800 1,923,525
------------
6,573,525
- ---------------------------------------------------
COMMERCIAL SERVICES (0.3%)
UNC, Inc.+ 213,200 1,279,200
- ---------------------------------------------------
COMPUTER SOFTWARE & SERVICES (2.0%)
General Motors Corp. (Class 'E' Stock) 106,700 4,094,613
National Data Corp. 158,700 4,086,525
------------
8,181,138
- ---------------------------------------------------
CONTAINERS & PACKAGING (2.0%)
Aptargroup, Inc. 33,600 966,000
Ball Corp. 126,000 3,969,000
Owens-Illinois, Inc. (New)+ 191,000 2,101,000
Seda Specialty Packaging+ 105,400 1,238,450
------------
8,274,450
- ---------------------------------------------------
CONSUMER CYCLICAL INDICES (0.1%)
Florsheim Shoe Company+ 44,980 253,012
- ---------------------------------------------------
CONSUMER SERVICES (2.0%)
ADT Ltd.+ 204,300 2,196,225
Diebold, Inc. 144,900 5,959,013
------------
8,155,238
- ---------------------------------------------------
COSMETICS & SOAPS (0.5%)
Bush Boake Allen, Inc.+ 84,700 2,286,900
- ---------------------------------------------------
DIVERSIFIED CONSUMER PRODUCTS (2.0%)
Eastman Kodak Co. 75,000 3,581,250
Whitman Corp. 269,900 4,655,775
------------
8,237,025
- ---------------------------------------------------
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
DRUGS & MEDICAL SUPPLIES (4.4%)
Gelman Sciences, Inc.+ 122,100 $ 1,816,238
Schering Plough Corp. 52,200 3,862,800
Sterile Concepts Holdings+ 171,000 2,736,000
Warner Lambert Co. 57,900 4,458,300
Zeneca Group PLC (ADRs) 132,000 5,428,500
------------
18,301,838
- ---------------------------------------------------
ELECTRICAL EQUIPMENT (1.8%)
Belden, Inc. 180,900 4,002,413
Cable Design Technologies+ 202,600 3,342,900
------------
7,345,313
- ---------------------------------------------------
ENGINEERING & CONSTRUCTION (0.6%)
Giant Cement Holding, Inc.+ 200,000 2,375,000
- ---------------------------------------------------
ELECTRONICS (2.0%)
Marshall Industries+ 166,900 4,464,575
Methode Electronics, Inc. 230,000 3,910,000
------------
8,374,575
- ---------------------------------------------------
EXPLORATION & PRODUCTION (3.1%)
Cabot Oil & Gas Corp. 203,500 2,950,750
Enron Oil & Gas 52,200 978,750
Mesa Incorporated+ 303,000 1,477,125
Murphy Oil Corp. 12,500 531,250
Oryx Energy Co.+ 300,000 3,562,500
Parker & Parsley Petroleum Co. 62,700 1,285,350
Seagull Energy Corp.+ 121,800 2,329,425
------------
13,115,150
- ---------------------------------------------------
FINANCIAL SERVICES (5.0%)
American Express Co. 125,000 3,687,500
Dean Witter Discover & Co. 188,300 6,378,663
Financial Security Assurance Holdings
Ltd. 94,700 1,988,700
ITT Corp. 49,200 4,360,350
Safecard Services, Inc. 225,000 4,246,875
------------
20,662,088
- ---------------------------------------------------
FOOD/DRUG RETAIL (0.5%)
Rite Aid Corp. 91,000 2,127,125
- ---------------------------------------------------
FOODS (0.2%)
Universal Foods Corp. 36,800 1,012,000
- ---------------------------------------------------
FOREST PRODUCTS (1.5%)
Mead Corp. 125,000 6,078,125
- ---------------------------------------------------
HOSPITAL MANAGEMENT (4.8%)
Community Health Systems+ 200,000 5,450,000
Healthtrust, Inc.+ 250,100 7,940,675
National Medical Enterprises+ 480,000 6,780,000
------------
20,170,675
- ---------------------------------------------------
</TABLE>
13
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
HOUSING RELATED (3.4%)
Leggett & Platt, Inc. 43,700 $ 1,529,500
Mueller Industries, Inc.+ 141,400 4,224,325
Owens Corning Fiberglass Corp. (New)+ 135,300 4,312,687
Ply-Gem Industries, Inc. 216,900 4,148,213
------------
14,214,725
- ---------------------------------------------------
INSURANCE (7.1%)
Emphesys Financial Group 86,600 2,749,550
Equitable of Iowa Companies 240,000 6,780,000
Life Reinsurance Corp. 71,700 1,263,712
NAC Re Corp. 40,000 1,340,000
National Re Corp. 103,000 2,703,750
Provident Life & Accident Insurance
(Class 'B' Stock) 132,200 2,875,350
Reinsurance Group of America 52,100 1,282,963
TIG Holdings, Inc. 150,000 2,812,500
Trenwick Group, Inc. 60,000 2,542,500
Western National Corp. 277,600 3,574,100
W. R. Berkley Corp. 42,000 1,575,000
------------
29,499,425
- ---------------------------------------------------
INTEGRATED PRODUCERS (1.3%)
Societe Nat Elf Aquitane (ADRs)+ 150,000 5,287,500
- ---------------------------------------------------
LODGING/GAMING (1.2%)
Caesars World, Inc.+ 73,600 4,912,800
- ---------------------------------------------------
MACHINERY (6.2%)
Applied Power Co. (Class 'A' Stock) 180,000 4,567,500
Donaldson Co., Inc. 220,000 5,255,932
Idex Corp.+ 90,000 3,802,500
Indresco, Inc.+ 296,700 4,227,975
Kaydon Corp. 106,400 2,553,600
Parker-Hannifan Corp. 25,700 1,169,350
Regal Beloit Corp. 307,900 4,195,137
------------
25,771,994
- ---------------------------------------------------
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
MEDIA (9.7%)
American Publishing Co. (Class 'A'
Stock) 218,300 $ 2,401,300
Central Newspapers (Class 'A' Stock) 65,300 1,836,562
Comcast Corp. (Class 'A' Stock) 180,000 2,767,500
Comcast Corp. Special (Class 'A' Stock) 90,000 1,411,875
Harcourt General, Inc. 68,800 2,425,200
Lee Enterprises 114,500 3,950,250
Pulitzer Publishing Co. 44,600 1,789,575
Scripps (EW) Co. (Class 'A' Stock) 80,000 2,420,000
T C A Cable TV, Inc. 120,000 2,610,000
Tele-Communications, Inc. (New) (Class
'A' Stock)+ 240,000 5,220,000
Time Warner, Inc. 206,900 7,267,362
Times Mirror Co. Ser A 115,700 3,630,088
Western Publishing Group, Inc.+ 296,100 2,812,950
------------
40,542,662
- ---------------------------------------------------
MISCELLANEOUS-INDUSTRIAL (8.9%)
Ametek, Inc. 227,800 3,844,125
Coltec Industries, Inc.+ 105,300 1,803,262
Danaher Corp. 65,500 3,422,375
Itel Corp. (New)+ 64,900 2,247,162
Jason, Inc.+ 285,400 2,568,600
Mark IV Industries, Inc. 204,000 4,029,000
Material Sciences Corp.+ 262,500 4,167,188
Pentair, Inc. 124,300 5,313,825
Rockwell International Corp. 64,000 2,288,000
Varlen Corp. 150,000 3,900,000
Wolverine Tube, Inc.+ 138,500 3,289,375
------------
36,872,912
- ---------------------------------------------------
MONEY CENTER BANKS (1.2%)
First Interstate Bancorp 75,000 5,071,875
- ---------------------------------------------------
RAILROADS (2.4%)
Chicago & Northwestern Transp.+ 110,000 2,145,000
Greenbrier Companies, Inc. 231,200 3,814,800
Illinois Central Corp. 124,500 3,828,375
------------
9,788,175
- ---------------------------------------------------
REGIONAL BANKS (6.7%)
Cullen Frost Bankers, Inc. 150,000 4,631,250
First Bank System Inc. 187,310 6,219,273
Keycorp (New) 241,000 6,025,000
Norwest Corp. 328,500 7,678,687
Summit Bancorp 173,360 3,358,850
------------
27,913,060
- ---------------------------------------------------
</TABLE>
14
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
RESTAURANTS (1.7%)
CKE Restaurants, Inc. 99,300 $ 682,688
Morrison Restaurants, Inc. 66,600 1,631,700
Sbarro, Inc. 187,500 4,875,000
------------
7,189,388
- ---------------------------------------------------
RETAIL (1.1%)
Ethan Allen Interiors, Inc.+ 70,800 1,716,900
Haverty Furniture, Inc. 100,500 1,180,875
K Mart Corp. 128,900 1,675,700
------------
4,573,475
- ---------------------------------------------------
SPECIALTY CHEMICALS (3.0%)
Ferro Corp. 227,400 5,429,175
M.A. Hanna Co. 144,100 3,422,375
OM Group, Inc. 151,000 3,624,000
------------
12,475,550
- ---------------------------------------------------
TELECOMMUNICATION SERVICES (3.5%)
Airtouch Communications, Inc.+ 65,000 1,893,125
Century Telephone Enterprises, Inc. 150,000 4,425,000
MCI Communications Corp. 217,700 4,000,238
Rochester Telephone Corp. 200,000 4,225,000
------------
14,543,363
- ---------------------------------------------------
TEXTILES/APPAREL (1.3%)
Interco, Inc.+ 306,600 2,069,550
Paxar Corp.+ 343,750 3,437,500
------------
5,507,050
- ---------------------------------------------------
TRUCKING/SHIPPING (0.5%)
Ryder System, Inc. 90,000 1,980,000
- ---------------------------------------------------
TOTAL COMMON STOCK INVESTMENTS (99.6%)
(Cost: $365,724,336) $414,115,855
<CAPTION>
- ---------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Bell Atlantic Network Funding Corp.,
6.00%
Loan Participation, Due 01/03/95 $ 2,902,000 $ 2,902,000
- ---------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (0.7%)
(Cost: $2,902,000) $ 2,902,000
- ---------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(Cost: $368,626,336) $417,017,855
- ---------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Bank Overdraft $ (1,998,081)
Dividends and Interest Receivable 334,101
Receivables for Investments Sold 16,932
Payables for Investments Purchased (502,931)
Pending Transfers 1,011,360
- ---------------------------------------------------
TOTAL OTHER ASSETS, LESS
LIABILITIES (-0.3%) $ (1,138,619)
- ---------------------------------------------------
NET ASSETS (100.0%) $415,879,236
- ---------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
32,623,680 Accumulation Units at an
Accumulation Unit Value of
$11.9932 (rounded) $391,261,951
Equity of Annuitants 21,164,456
Equity of The Prudential Insurance
Company of America 3,452,829
- ---------------------------------------------------
$415,879,236
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipts
PLC Public Limited Company
+Non income producing securities
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME [NOTE 2]
Dividends $ 6,498,407
Interest 307,902
- ------------------------------------------------------------------------------------------------------------
6,806,309
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Services 544,330
Fees Charged to Participants (other than Annuitants) for Assuming Mortality and Expense
Risks 1,540,861
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME--NET 4,721,118
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--NET
Realized Gain on Investments--Net 35,115,467
Unrealized Decrease in Value of Investments--Net (45,435,899)
- ------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (10,320,432)
- ------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (5,599,314)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income--Net $ 4,721,118 $ 8,014,542
Realized Gain on Investments--Net 35,115,467 40,030,376
Unrealized Increase/(Decrease) in Value of
Investments--Net (45,435,899) 35,197,371
- -------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS (5,599,314) 83,242,289
- -------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In [Note 3] 18,494,103 15,597,429
Withdrawals and Transfers Out (22,143,730) (16,927,292)
Annual Administration Charges Deducted From Participants'
Accumulation
Accounts [Note 3] (42,008) (42,616)
Mortality & Expense Risk Charges Deducted From Annuitants'
Accounts [Note 3] (92,130) (95,183)
Variable Annuity Payments (2,855,584) (2,749,317)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (6,639,349) (4,216,979)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] (13,605) (7,513,535)
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE/(DECREASE)IN NET ASSETS (12,252,268) 71,511,775
NET ASSETS
Beginning of Year 428,131,504 356,619,729
- -------------------------------------------------------------------------------------------------------
End of Year $ 415,879,236 $ 428,131,504
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
Notes to Financial Statements of VCA-2
Years Ended December 31, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 1: GENERAL
The Prudential Variable Contract Account-2 (VCA-2 or the Account) was
established by The Prudential Insurance Company of America (The
Prudential) under the laws of the State of New Jersey and is registered
as an open-end, diversified management investment company under the
Investment Company Act of 1940, as amended. VCA-2 has been designed for
use by public school systems and certain tax-exempt organizations to
provide for the purchase and payment of tax-deferred variable
annuities. Its investments are composed primarily of common stocks. All
contractual and other obligations arising under contracts participating
in VCA-2 are general corporate obligations of The Prudential, although
Participants' payments from the Account will depend upon the investment
experience of the Account.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. INVESTMENTS
EQUITY SECURITIES
The value of securities (except convertible bonds) held in VCA-2 will
be determined once daily as of 5:00 P.M., New York time ("Valuation
Time") using composite pricing which reflects prices as of the close of
business on all major exchanges, on each day on which the New York
Stock Exchange ("NYSE") is open for trading and, as provided below, on
any other day in which there is sufficient trading in VCA-2's portfolio
securities to result in a material change in the value of the Account.
A security that is traded on a national securities exchange will be
valued at the last sale price for such security on any major exchange
on which such security is traded as of Valuation Time, or, in the
absence of recorded sales on such exchange on the valuation date, at
the average of readily available bid and asked prices on such exchange
at the Valuation Time. Any security not traded on a national securities
exchange but traded in the over-the-counter market for which quotations
are furnished through the nationwide automated quotation system
approved by the National Association of Securities Dealers, Inc.
("NASDAQ") will be valued based on the last sale price as of the
Valuation Time on each day on which the NYSE is open for trading, or,
in the absence of recorded sales on such day, at the average of readily
available bid and asked prices, as established by NASDAQ at the
Valuation Time. Unlisted securities not quoted on NASDAQ are valued at
the average of the quoted bid and asked prices in the over-the-counter
market at the Valuation Time. Portfolio securities for which market
quotations are not readily available will be valued at fair value as
determined in good faith under the direction of the Account's
Committee.
FIXED INCOME SECURITIES
Fixed income securities including convertible bonds are valued based on
prices provided by an industry-recognized pricing service when such
prices are believed to reflect the fair market value of such
securities. Fixed income securities including convertible bonds not
priced in this manner are valued at the mean of the last reported bid
and asked prices provided by principal market makers and recognized
securities dealers in such securities.
SHORT-TERM INVESTMENTS
Short-term investments having maturities of sixty days or less are
valued at amortized cost, which approximates market value. Amortized
cost is computed using the cost on the date of purchase, adjusted for
constant accrual of discount or amortization of premium to maturity.
B. INCOME RECOGNITION
Income and realized and unrealized gains and losses on investments are
allocated to the Participants (including Annuitants) and The Prudential
on a daily basis in proportion to their respective equities in VCA-2.
Realized gains and losses from equity transactions are determined and
accounted for on the basis of average cost. Realized gains and losses
from convertible bond transactions are determined and accounted for on
the basis of identified cost. Dividend income is recorded on the
ex-dividend date at the declared value. Interest income is accrued
daily. Equity and long-term bond transactions are recorded on the first
business day following the trade date, except that transactions on the
last business day of the year are recorded on that date. Short-term
security transactions are recorded on the trade date.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
C. TAXES
The operations of VCA-2 are part of, and are taxed with, the operations
of The Prudential. Under the current provisions of the Internal Revenue
Code, The Prudential does not expect to incur federal income taxes on
earnings of VCA-2 to the extent the earnings are credited under the
Contracts. As a result, the Unit Value of VCA-2 has not been reduced by
federal income taxes.
D. EQUITY OF ANNUITANTS
Reserves are computed for purchased annuities using The Prudential 1950
Group Annuity Valuation (GAV) Table, adjusted, and a valuation interest
rate related to the Assumed Investment Result (AIR). The valuation
interest rate is equal to the AIR less .5% which is a charge defined in
Note 3A. The AIRs are selected by the Contract-holder and are described
in the prospectus.
NOTE 3: CHARGES
A. The expenses charged to VCA-2 consist of the following contract
charges which are paid to The Prudential:
(i) An investment management fee is calculated daily at an
effective annual rate of 0.125% of the current value of the
accounts of Participants (other than Annuitants). An
equivalent charge is made monthly in determining the amount
of Annuitants' payments.
(ii) A daily charge for assuming mortality and expense risks is
calculated at an effective annual rate of 0.375% of the
current value of the accounts of Participants (other than
Annuitants). A one-time equivalent charge is deducted when
the initial Annuity Units for Annuitants are determined.
Thus, the first and subsequent annuity payments reflect the
reduced number of Annuity Units.
B. An annual administration charge is deducted from the accumulation
account of each Participant at the time of withdrawal of the value
of all of the Participant's accounts or at the end of the
accounting year by cancelling Accumulation Units. This deduction
may be made from a fixed-dollar annuity contract if the Participant
is enrolled under such a contract. The charge is not greater than
$60 in a Participant's first year of coverage and not greater than
$30 annually thereafter.
C. A deduction of 2.5% for sales and other marketing expenses is made
from each Participant's purchase payments.
NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the year ended December 31, 1994, excluding short-term investments
and U.S. government securities, the aggregate cost of purchases and the
proceeds from sales of securities were $157,752,797 and $153,958,850,
respectively.
NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the years
ended December 31, 1994 and 1993 is as follows:
<TABLE>
<S> <C> <C>
1994 1993
--------------------------------------------
Units issued 1,540,899 1,419,600
--------------------------------------------
Units redeemed 1,885,478 1,597,909
--------------------------------------------
</TABLE>
NOTE 6: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents
the net withdrawals from the Equity of The Prudential from VCA-2.
NOTE 7: RELATED PARTY TRANSACTIONS
For the year ended December 31, 1994, Prudential Securities
Incorporated, an indirect, wholly-owned subsidiary of The Prudential,
earned $5,851 in brokerage commissions from portfolio transactions
executed on behalf of VCA-2.
18
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
REPORT OF MANAGEMENT
(FROM PRUDENTIAL'S 1994 ANNUAL REPORT)
The accompanying consolidated financial statements and all information in the
annual report are the responsibility of management. They have been prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities and generally accepted accounting principles. The
statements necessarily include amounts based on management's best estimates and
judgments. Information presented in one section of the annual report is
consistent with information dealing with the same or substantially similar
subject matter presented elsewhere in the annual report.
Management depends upon the Company's system of internal controls in meeting its
responsibilities for reliable financial statements. This system is designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. The concept of reasonable assurance is based on the premise that
the cost of internal controls should not exceed the benefits derived. The
control environment is enhanced by the selection and training of competent
management, a business ethics policy demanding the highest standards of conduct
by employees in carrying out the Company's affairs, organizational arrangements
that provide for segregation of duties and delegation of authority, and the
communication of accounting and operating procedures throughout the
organization. In addition, the Company maintains a professional staff of
internal auditors who monitor the Company's control structure through periodic
reviews and tests of the control aspects of accounting, financial and operating
activities. The internal auditors coordinate their program with that of the
independent certified public accountants.
Deloitte & Touche LLP, independent accountants, have audited and reported on the
Company's consolidated financial statements. Their audits were performed in
accordance with generally accepted auditing standards.
The Board of Directors, through the Auditing Committee, monitors management's
fulfillment of its responsibilities for accurate accounting, statement
preparation and protection of assets. The Auditing Committee is composed solely
of outside directors and meets with the independent public accountants,
management and internal auditors periodically to evaluate the discharge by each
of their respective responsibilities. Each has free and separate access to the
Committee to discuss accounting, financial reporting, internal control and
auditing matters.
Arthur F. Ryan
Chairman, Chief Executive Officer and President
Eugene M. O'Hara
Chief Financial Officer
19
<PAGE> 1
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities....................... $ 78,743 $ 79,061
Equity securities...................... 2,327 2,216
Mortgage loans......................... 26,199 27,509
Investment real estate................. 1,600 1,903
Policy loans........................... 6,631 6,456
Other long-term investments............ 5,147 4,739
Short-term investments................. 10,630 6,304
Securities purchased under
agreements to resell................. 5,591 9,656
Trading account securities............. 6,218 8,586
Cash................................... 1,109 1,666
Accrued investment income.............. 1,932 1,826
Premiums due and deferred.............. 2,712 2,549
Broker-dealer receivables.............. 7,311 9,133
Other assets........................... 7,119 9,997
Assets held in Separate Accounts....... 48,633 48,110
-------- --------
TOTAL ASSETS............................... $211,902 $219,711
======== ========
LIABILITIES, AVR AND SURPLUS
Liabilities:
Policy liabilities and insurance
reserves:
Future policy benefits and claims...... $101,589 $100,030
Unearned premiums...................... 1,144 1,146
Other policy claims and benefits
payable.............................. 1,848 1,935
Policy dividends....................... 1,686 2,018
Other policyholders' funds............. 9,097 9,874
Securities sold under agreements
to repurchase........................ 8,919 14,703
Notes payable and other borrowings..... 12,009 13,354
Broker-dealer payables................. 5,144 5,410
Other liabilities...................... 13,036 13,075
Liabilities related to
Separate Accounts...................... 47,946 47,475
-------- --------
TOTAL LIABILITIES.......................... 202,418 209,020
-------- --------
Asset valuation reserve (AVR).............. 2,035 2,687
-------- --------
Surplus:
Capital notes.......................... 298 298
Special surplus fund................... 1,097 1,091
Unassigned surplus..................... 6,054 6,615
-------- --------
TOTAL SURPLUS.............................. 7,449 8,004
-------- --------
TOTAL LIABILITIES, AVR
AND SURPLUS............................ $211,902 $219,711
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF
OPERATIONS AND CHANGES IN SURPLUS AND ASSET
VALUATION RESERVE (AVR)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE
Premiums and annuity
considerations............. $29,698 $29,982 $29,858
Net investment income........ 9,595 10,090 10,318
Broker-dealer revenue........ 3,677 4,025 3,592
Realized investment
(losses)/gains............. (450) 953 720
Other income................. 1,037 924 833
------- ------- -------
TOTAL REVENUE.................... 43,557 45,974 45,321
------- ------- -------
BENEFITS AND EXPENSES
Current and future benefits
and claims................. 30,788 30,573 32,031
Insurance and underwriting
expenses................... 4,830 4,982 4,563
Limited partnership
matters.................... 1,422 390 129
General, administrative
and other expenses......... 5,794 5,575 5,394
------- ------- -------
TOTAL BENEFITS AND
EXPENSES..................... 42,834 41,520 42,117
------- ------- -------
Income from operations
before dividends
and income taxes............. 723 4,454 3,204
Dividends to
policyholders................ 2,290 2,339 2,389
------- ------- -------
Income/(loss) before
income taxes................. (1,567) 2,115 815
Income tax
(benefit)/provision.......... (392) 1,236 468
------- ------- -------
NET INCOME/(LOSS)................ (1,175) 879 347
SURPLUS, BEGINNING
OF YEAR...................... 8,004 7,365 6,527
Issuance of capital notes
(after net charge-off
of non-admitted prepaid
postretirement benefit
cost of $113 in 1993)........ 0 185 0
Net unrealized
investment (losses)
and change in AVR............ 620 (425) 491
------- ------- -------
SURPLUS, END OF
YEAR......................... 7,449 8,004 7,365
------- ------- -------
AVR, BEGINNING OF YEAR........... 2,687 2,457 3,216
(Decrease)/increase in AVR (652) 230 (759)
------- ------- -------
AVR, END OF YEAR................. 2,035 2,687 2,457
------- ------- -------
TOTAL SURPLUS AND
AVR.......................... $ 9,484 $10,691 $ 9,822
======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 2
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income/(loss)................ $(1,175) $ 879 $ 347
Adjustments to reconcile
net income/(loss) to cash flows
from operating activities:
Increase in policy liabilities
and insurance reserves..... 1,289 2,747 3,428
Net increase in
Separate Accounts.......... (52) (59) (69)
Realized investment
losses/(gains)............. 450 (953) (720)
Depreciation, amortization
and other non-cash
items...................... 379 261 380
Decrease/(increase)
in operating assets:
Mortgage loans........... (226) (226) (1,952)
Policy loans............. (175) (174) (216)
Securities purchased
under agreements
to resell.............. 2,979 (2,049) (1,420)
Trading account
securities............. 2,447 (2,087) 351
Broker-dealer
receivables............ 1,822 (1,803) (161)
Other assets............. 1,873 (2,277) (1,041)
(Decrease)/increase in
operating liabilities:
Securities sold under
agreements to
repurchase........... (3,247) 1,134 1,967
Broker-dealer
payables............. (266) 1,067 (653)
Other liabilities...... (2,116) 2,007 841
------ ------ ------
CASH FLOWS FROM
OPERATING ACTIVITIES............ 3,982 (1,533) 1,082
------ ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from the
sale/maturity of:
Fixed maturities.............. 82,834 87,840 73,326
Equity securities............. 1,426 1,725 957
Mortgage loans................ 4,154 4,789 3,230
Investment real estate........ 935 441 243
Other long-term
investments................. 1,022 1,352 2,046
Property and equipment........ 637 6 5
Payments for the purchase of:
Fixed maturities.............. (83,075) (89,034) (72,397)
Equity securities............. (1,535) (1,085) (977)
Mortgage loans................ (3,446) (3,530) (3,087)
Investment real estate........ (161) (196) (240)
Other long-term
investments................. (1,687) (531) (2,039)
Property and equipment........ (392) (640) (733)
Short-term investments (net)...... (4,281) (2,150) (1,160)
Net change in cash placed as
collateral for securities
loaned........................ 2,011 (589) (1,032)
------ ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES.......... (1,558) (1,602) (1,858)
------ ------ ------
</TABLE>
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Net (payments)/proceeds
of short-term borrowings.... $ (1,115) $ 1,106 $ 70
Proceeds from the issuance of
long-term debt.............. 345 1,228 217
Payments for the settlement
of long-term debt........... (760) (721) (204)
Proceeds/(payments) of
unmatched securities
purchased under
agreements to resell........ 1,086 (47) (170)
(Payments)/proceeds of
unmatched securities sold
under agreements to
repurchase.................. (2,537) 1,707 1,201
Proceeds from the issuance of
capital notes............... 0 298 0
------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES.......... (2,981) 3,571 1,114
------- ------- -------
Net (decrease)/increase
in cash..................... (557) 436 338
Cash, beginning of year........ 1,666 1,230 892
------- ------- -------
CASH, END OF YEAR.............. $ 1,109 $ 1,666 $ 1,230
======== ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income tax payments made, net of refunds, during 1994, 1993 and 1992 were $64
million, $933 million and $555 million, respectively. Interest payments made
during 1994, 1993 and 1992 were $1,429 million, $1,171 million and $1,272
million, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The Prudential Insurance Company of America ("The Prudential"), a mutual
life insurance company, and its subsidiaries (collectively, "the
Company"). The activities of the Company cover a broad range of financial
services, including life and health insurance, property and casualty
insurance, reinsurance, group health care, securities brokerage, asset
management, investment advisory services, mortgage banking and servicing,
and real estate development and brokerage. All significant intercompany
balances and transactions have been eliminated in consolidation.
B. BASIS OF PRESENTATION
The consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by regulatory authorities in
the domiciliary states. Certain reclassifications have been made to the
1993 and 1992 financial statements to conform to the 1994 presentation.
In 1994, The American Institute of Certified Public Accountants issued
Statement of Position 94-5, "Disclosures of Certain Matters in the
Financial Statements of Insurance Enterprises" ("SOP 94-5"), which
requires insurance enterprises to disclose in their financial statements
the accounting methods used in their statutory financial statements that
are permitted by the state insurance departments rather than prescribed
statutory accounting practices.
The Prudential, domiciled in the State of New Jersey, prepares its
statutory financial statements in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Insurance ("the
Department"). Its insurance subsidiaries prepare statutory financial
statements in accordance with accounting practices prescribed or permitted
by their respective domiciliary home state insurance departments.
Prescribed statutory accounting practices include publications of the
National Association of Insurance Commissioners ("NAIC"), state laws,
regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
In 1993, The Prudential issued Fixed Rate Capital Notes ("the notes").
Interest payments on the notes are pre-approved by the Department, and
principal repayment is subject to a Risk-Based Capital test. This
permitted accounting practice differs from that prescribed by the NAIC.
The NAIC practices provide for Insurance Commissioner approval of every
interest and principal payment before the payment is made. The Prudential
has included the notes as part of surplus (see Note 7).
The Prudential has established guaranty fund liabilities for the
insolvencies of certain life insurance companies. The liabilities were
established net of estimated premium tax credits and federal income tax.
Prescribed statutory accounting practices do not address the establishment
of liabilities for guaranty fund assessments.
The Company, with permission from the Department, prepares an Annual
Report that differs from the Annual Statement filed with the Department in
that subsidiaries are consolidated and certain financial statement
captions are presented differently.
C. FUTURE APPLICATION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued Financial
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," which, as
amended, is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of mutual life
insurance companies with respect to utilizing statutory basis financial
statements for general purposes in that it would not allow such financial
statements to be referred to as having been prepared in accordance with
GAAP. Interpretation No. 40 requires GAAP financial statements of mutual
life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will
require significant effort and judgment as to determining GAAP for mutual
insurance companies' insurance operations. The Company is currently
assessing the impact of Interpretation No. 40 on its consolidated
financial statements.
D. INVESTED ASSETS
Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost. Equity securities, which
consist primarily of common stocks, are carried at market value, which is
based on quoted market prices, where available, or prices provided by
state regulatory authorities.
F-3
<PAGE> 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
As of January 1, 1994, the non-insurance subsidiaries of The Prudential
adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Under SFAS No. 115, debt and marketable equity securities are classified
in three categories: held-to-maturity, available-for-sale and trading. The
effect of adopting SFAS No. 115 for the non-insurance subsidiaries was not
material.
Mortgage loans are stated primarily at unpaid principal balances. In
establishing reserves for losses on mortgage loans, management considers
expected losses on loans which they believe may not be collectible in full
and expected losses on foreclosures and the sale of mortgage loans.
Reserves established for potential or estimated mortgage loan losses are
included in the "Asset valuation reserve."
Policy loans are stated primarily at unpaid principal balances.
Investment real estate, except for real estate acquired in satisfaction of
debt, is carried at cost less accumulated straight-line depreciation ($748
million in 1994 and $859 million in 1993), encumbrances and permanent
impairments in value. Real estate acquired in satisfaction of debt,
included in "Other assets," is carried at the lower of cost or fair value
less disposition costs. Fair value is considered to be the amount that
could reasonably be expected in a current transaction between willing
parties, other than in forced or liquidation sale.
Included in "Other long-term investments" is the Company's net equity in
joint ventures and other forms of partnerships, which amounted to $3,357
million and $3,745 million as of December 31, 1994 and 1993, respectively.
The Company's share of net income from such entities was $354 million,
$375 million and $185 million for 1994, 1993 and 1992, respectively.
Short-term investments are stated at amortized cost, which approximates
fair value.
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are collateralized financing transactions and are
carried at their contract amounts plus accrued interest. These agreements
are generally collateralized by cash or securities with market values in
excess of the obligations under the contract. It is the Company's policy
to take possession of securities purchased under resale agreements and to
value the securities daily. The Company monitors the value of the
underlying collateral and collateral is adjusted when necessary.
Trading account securities from broker-dealer operations are reported
based upon quoted market prices with unrealized gains and losses reported
in "Broker-dealer revenue."
The Company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
As of December 31, 1994 and 1993, the estimated fair values of loaned
securities were $6,765 million and $6,520 million, respectively. Company
and NAIC policies require a minimum of 102% and 105% of the fair value of
the domestic and foreign loaned securities, respectively, to be separately
maintained as collateral for the loans. Cash collateral received is
invested in "Short-term investments," which are reflected as assets in the
Consolidated Statements of Financial Position. The offsetting collateral
liability is included in the Consolidated Statements of Financial Position
in "Other liabilities" in the amounts of $2,385 million and $374 million
at December 31, 1994 and 1993, respectively. Non-cash collateral is
recorded in memorandum records and not reflected in the consolidated
financial statements.
Net unrealized investment gains and losses result principally from changes
in the carrying values of invested assets. Net unrealized investment
losses were $(32) million, $(195) million and $(268) million for the years
ended December 31, 1994, 1993 and 1992, respectively.
The asset valuation reserve (AVR) and the interest maintenance reserve
(IMR) are required reserves for life insurance companies. The AVR is
calculated based on a statutory formula and is designed to mitigate the
effect of valuation and credit-related losses on unassigned surplus.
F-4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The components of AVR at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----- -----
(IN MILLIONS)
<S> <C> <C>
Fixed maturities, equity securities
and short-term investments............. $ 930 $1,591
Mortgage loans.......................... 674 722
Real estate and other invested assets... 431 374
------ ------
Total AVR............................... $2,035 $2,687
====== ======
</TABLE>
In 1993, the Company made a voluntary contribution to the mortgage loan
component of the AVR in the amount of $305 million.
The IMR is designed to reduce the fluctuations of surplus resulting from
market interest rate movements. Interest rate-related realized capital
gains and losses are generally deferred and amortized into investment
income over the remaining life of the investment sold. The IMR balance,
included in "Other policyholders' funds," was $502 million and $1,539
million at December 31, 1994 and 1993, respectively. Net realized
investment (losses)/gains of $(929) million, $1,082 million and $626
million were deferred during the years ended December 31, 1994, 1993 and
1992, respectively. IMR amounts amortized into investment income were $107
million, $118 million and $51 million for the years ended December 31,
1994, 1993 and 1992, respectively.
E. FUTURE POLICY BENEFITS, LOSSES AND CLAIMS
Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables, which produce reserves that
meet the aggregate requirements of state laws and regulations.
Approximately 39% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of a net level
premium reserve or the policy cash value. About 56% of individual life
insurance reserves are calculated according to the Commissioner's Reserve
Valuation Method ("CRVM") or methods which compare CRVM reserves to policy
cash values.
For group life insurance, 24% of reserves are determined using net level
premium methods and various mortality tables and interest rates. About 53%
of group life reserves are associated with extended death benefits. For
the most part, these are calculated using modified group tables at various
interest rates. The remainder of group life reserves are unearned premium
reserves (calculated using the 1960 Commissioner's Standard Group Table),
reserves for group life fund accumulations and other miscellaneous
reserves. Reserves for group and individual annuity contracts are
determined using the Commissioner's Annuity Reserve Valuation Method.
For life insurance and annuities, unpaid claims include estimates of both
the death benefits on reported claims and those which are incurred but not
reported. Unpaid claims and claim adjustment expenses for other than life
insurance and annuities include estimates of benefits and associated
settlement expenses for reported losses and a provision for losses
incurred but not reported.
F-5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Activity in the liability for unpaid claims and claim adjustment
expenses is:
<TABLE>
<CAPTION>
1994 1993
----------------------- ------------------------
ACCIDENT PROPERTY ACCIDENT PROPERTY
AND AND AND AND
HEALTH CASUALTY HEALTH CASUALTY
--------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at January 1 ......... $ 2,654 $ 4,869 $ 2,623 $ 4,712
Less reinsurance recoverables 15 1,070 22 1,107
-------- -------- -------- --------
Net balance at January 1 ..... 2,639 3,799 2,601 3,605
-------- -------- -------- --------
Incurred related to:
Current year ................ 7,398 2,541 7,146 2,364
Prior years ................. (105) 158 (167) 109
-------- -------- -------- --------
Total incurred ............... 7,293 2,699 6,979 2,473
-------- -------- -------- --------
Paid related to:
Current year ................ 5,568 1,237 5,336 1,119
Prior years ................. 1,649 1,163 1,605 1,160
-------- -------- -------- --------
Total paid ................... 7,217 2,400 6,941 2,279
-------- -------- -------- --------
Net balance at December 31 ... 2,715 4,098 2,639 3,799
Plus reinsurance recoverables 23 1,018 15 1,070
-------- -------- -------- --------
Balance at December 31 ....... $ 2,738 $ 5,116 $ 2,654 $ 4,869
======== ======== ======== ========
</TABLE>
As a result of changes in estimates of insured events in prior years, the
declines of $105 million and $167 million in the provision for claims and
claim adjustment expenses for accident and health business in 1994 and
1993, respectively, were due to lower-than-expected trends in claim costs
and an accelerated decline in indemnity health business.
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expenses for property and
casualty business (net of reinsurance recoveries of $47 million and $120
million in 1994 and 1993, respectively) increased by $158 million and $109
million in 1994 and 1993, respectively, due to increased loss development
and reserve strengthening for asbestos and environmental claims.
F. REVENUE RECOGNITION AND RELATED EXPENSES
Life premiums are recognized as income over the premium paying period of
the related policies. Annuity considerations are recognized as revenue
when received.
Health and property and casualty premiums are earned ratably over the
terms of the related insurance and reinsurance contracts or policies.
Unearned premium reserves are established to cover the unexpired portion
of premiums written. Such reserves are computed by pro rata methods for
direct business and are computed either by pro rata methods or using
reports received from ceding companies for reinsurance. Premiums which
have not yet been reported are estimated and accrued.
Expenses incurred in connection with acquiring new insurance business,
including such acquisition costs as sales commissions, are charged to
operations as incurred in "Insurance and underwriting expenses."
Commission revenues in "Broker-dealer revenue" and related broker-dealer
expenses in "General, administrative and other expenses" are accrued when
transactions are executed.
F-6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
G. INCOME TAXES
Under the Internal Revenue Code ("the Code"), The Prudential and its life
insurance subsidiaries are taxed on their gain from operations after
dividends to policyholders. In calculating this tax, the Code requires the
capitalization and amortization of policy acquisition expenses.
The Code also imposes an "equity tax" on mutual life insurance companies
based on an imputed surplus which, in effect, reduces the deduction for
policyholder dividends. The amount of the equity tax is estimated in the
current year based on the anticipated equity tax rate, and is adjusted in
subsequent years as the rate is finalized.
The Prudential files a consolidated federal income tax return with all of
its domestic subsidiaries. The provision for taxes reported in these
financial statements also includes tax liabilities for the foreign
subsidiaries. Net operating losses of the non-life subsidiaries may be
used in this consolidated return, but are limited each year to the lesser
of 35% of cumulative eligible non-life subsidiary losses or 35% of life
company taxable income.
As of January 1, 1993, the non-insurance subsidiaries of The Prudential
adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, such subsidiaries
recognize deferred tax liabilities or assets for the expected future tax
consequences of events that have been recognized in their financial
statements. Included in "Income tax (benefit)/provision" are deferred
taxes of $(477) million, $21 million and $(8) million for the years ended
December 31, 1994, 1993 and 1992, respectively. The cumulative effect of
adopting SFAS No. 109 was not material.
At December 31, 1994, the Company had consolidated non-life tax loss
carryforwards of $598 million which will expire between 1998 and 2009, if
not utilized.
H. SEPARATE ACCOUNTS
Separate Account assets and liabilities, reported in the Consolidated
Statements of Financial Position at estimated market value, represent
segregated funds which are administered for pension and other clients. The
assets consist of common stocks, long-term bonds, real estate, mortgages
and short-term investments. The liabilities consist of reserves
established to meet withdrawal and future benefit payment contractual
provisions. Investment risks associated with market value changes are
generally borne by the clients, except to the extent of minimum guarantees
made by the Company with respect to certain accounts. Separate Account net
investment income, realized and unrealized capital gains and losses,
benefit payments and change in reserves are included in "Current and
future benefits and claims."
I. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives used for trading purposes are recorded in the Consolidated
Statements of Financial Position at fair value at the reporting date.
Realized and unrealized changes in fair values are recognized in
"Broker-dealer revenue" and "Other income" in the Consolidated Statements
of Operations in the period in which the changes occur. Gains and losses
on hedges of existing assets or liabilities are included in the carrying
amount of those assets or liabilities and are deferred and recognized in
earnings in the same period as the underlying hedged item. For interest
rate swaps that qualify for settlement accounting, the interest
differential to be paid or received under the swap agreements is accrued
over the life of the agreements as a yield adjustment. Gains and losses on
early termination of derivatives that modify the characteristics of
designated assets and liabilities are deferred and are amortized as an
adjustment to the yield of the related assets or liabilities over their
remaining lives.
Derivatives used in activities that support life and health insurance and
annuity contracts are recorded at fair value with unrealized gains and
losses recorded in "Net unrealized investment (losses) and change in AVR."
Upon termination of derivatives supporting life and health insurance and
annuity contracts, the interest-related gains and losses are amortized
through the IMR.
2. RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets in the amounts of $5,901 million and $5,164 million at December 31,
1994 and 1993, respectively, were on deposit with governmental authorities or
trustees as required by law.
Assets valued at $5,855 million and $4,430 million at December 31, 1994 and
1993, respectively, were maintained as compensating balances or pledged as
collateral for bank loans and other financing agreements.
F-7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Restricted cash of $455 million and $444 million at December 31, 1994 and
1993, respectively, was included in "Cash" in the Consolidated Statements of
Financial Position and Cash Flows.
3. FIXED MATURITIES
The carrying value and estimated fair value of fixed maturities at December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------- -----------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies .......... $13,624 $ 123 $ 647 $13,100 $14,979 $ 754 $ 94 $15,639
Obligations of U.S. .....
states and their
political subdivisions 2,776 32 165 2,643 3,212 187 3 3,396
Fixed maturities issued
by foreign governments
and their agencies and
political subdivisions 3,101 37 153 2,985 2,716 188 3 2,901
Corporate securities .... 54,144 1,191 1,772 53,563 51,548 4,390 300 55,638
Mortgage-backed
securities ............ 4,889 82 148 4,823 6,478 257 220 6,515
Other fixed maturities .. 209 0 0 209 128 0 0 128
------- ------- ------- ------- ------- ------- ------- -------
Total ................... $78,743 $ 1,465 $ 2,885 $77,323 $79,061 $ 5,776 $ 620 $84,217
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The carrying value and estimated fair value of fixed maturities at December
31, 1994 categorized by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less .............. $ 2,746 $ 2,760
Due after one year through five years 24,405 24,000
Due after five years through ten years 18,972 18,536
Due after ten years .................. 27,731 27,204
------- -------
73,854 72,500
Mortgage-backed securities ........... 4,889 4,823
------- -------
Totals ............................... $78,743 $77,323
======= =======
</TABLE>
Proceeds from the sale and maturity of fixed maturities during 1994, 1993 and
1992 were $82,834 million, $87,840 million and $73,326 million, respectively.
Gross gains of $693 million, $2,473 million and $2,034 million, and gross
losses of $2,009 million, $698 million and $530 million were realized on such
sales during 1994, 1993 and 1992, respectively (see Note 1D).
The Company invests in both investment grade and non-investment grade
securities. The Securities Valuation Office of the NAIC rates the fixed
maturities held by insurers (which account for approximately 98% of the
Company's total fixed maturities balance at December 31, 1994 and 1993) for
regulatory purposes and groups investments into six categories ranging from
highest quality bonds to those in or near default. The lowest three NAIC
categories represent, for the most part, high-yield securities and are
defined by the NAIC as including any security with a public agency rating of
B+ or B1 or less.
F-8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Included in "Fixed maturities" are securities that are classified by the NAIC
as being in the lowest three rating categories. These approximate 1.6% and
2.0% of the Company's assets at December 31, 1994 and 1993, respectively. At
December 31, 1994 and 1993, their estimated fair value varied from the
carrying value by $(78) million and $42 million, respectively.
4. MORTGAGE LOANS
Mortgage loans at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------- -------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
(IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial and agricultural loans:
In good standing ......... $ 19,752 75.4% $ 20,916 76.0%
In good standing
with restructured terms 1,412 5.4% 1,177 4.3%
Past due 90 days or more . 339 1.3% 590 2.2%
In process of foreclosure 387 1.5% 415 1.5%
Residential loans .......... 4,309 16.4% 4,411 16.0%
-------- ------ -------- ------
Total mortgage loans ....... $ 26,199 100.0% $ 27,509 100.0%
======== ====== ======== ======
</TABLE>
At December 31, 1994, the Company's mortgage loans were collateralized by the
following property types: office buildings (30%), retail stores (20%),
residential properties (17%), apartment complexes (12%), industrial buildings
(11%), agricultural properties (7%) and other commercial properties (3%). The
mortgage loans are geographically dispersed throughout the United States and
Canada with the largest concentrations in California (25%) and New York (8%).
Included in these balances are mortgage loans with affiliated joint ventures
of $684 million and $689 million at December 31, 1994 and 1993, respectively.
5. EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
The Company has several defined benefit pension plans which cover
substantially all of its employees. The benefits are generally based on
career average earnings and credited length of service.
The Company's funding policy is to contribute annually the amount necessary
to satisfy the Internal Revenue Service contribution guidelines. The
pension plans are accounted for in accordance with Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS
No. 87").
Employee pension benefit plan status at September 30, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of
$2,956 in 1994 and $3,053 in 1993 ........................ $(3,255) $(3,401)
======= =======
Projected benefit obligation ............................... (4,247) (4,409)
Plan assets at fair value .................................... 5,704 5,950
------- -------
Plan assets in excess of projected benefit obligation ........ 1,457 1,541
Unrecognized net asset existing at the date of the initial
application of SFAS No. 87 ................................. (980) (1,086)
Unrecognized prior service cost since initial application of
SFAS No. 87 ................................................ 228 253
Unrecognized net loss from actuarial experience since initial
application of SFAS No. 87 ................................. 9 25
Additional minimum liability ................................. (8) 0
------- -------
Prepaid pension cost ......................................... $ 706 $ 733
======= =======
</TABLE>
F-9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $4,155 million are included in the
Consolidated Statement of Financial Position at December 31, 1994.
In compliance with statutory accounting principles, The Prudential's
prepaid pension costs of $765 million and $784 million at December 31,
1994 and 1993, respectively, were considered non-admitted assets. These
assets are excluded from the consolidated assets and the changes in these
non-admitted assets of ($19) million and $142 million in 1994 and 1993,
respectively, are reported in "General, administrative and other expenses"
in the Consolidated Statements of Operations.
The components of the net periodic pension expense/(benefit) for 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 163 $ 133 $ 133
Interest cost on projected benefit obligation 311 301 296
Actual return on assets ...................... 56 (854) (367)
Net amortization and deferral ................ (639) 301 (150)
Net charge for special termination benefits .. 156 0 0
----- ----- -----
Net periodic pension expense/(benefit) ...... $ 47 $(119) $ (88)
===== ===== =====
</TABLE>
The net expense relating to the Company's pension plans is $28 million, $23
million and $29 million in 1994, 1993 and 1992, respectively, which considers
the changes in The Prudential's non-admitted prepaid pension asset of $(19)
million, $142 million and $117 million, respectively.
As a result of a special early retirement program, net curtailment gains and
special termination benefits of approximately $156 million are included in
the net periodic pension expense for the year ended December 31, 1994.
The assumptions used in 1994 and 1993 to develop the accumulated pension
benefit obligation were:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Discount rate ................................ 8.25-8.5% 7.0%
Expected long-term rate of return on assets... 8.5-9.0% 8.5-9.0%
Rate of increase in compensation levels ...... 5.0-5.5% 4.5-5.0%
</TABLE>
B. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides certain life insurance and health care benefits for
its retired employees. Substantially all of the Company's employees may
become eligible to receive a benefit if they retire after age 55 with at
least 10 years of service.
Effective in 1993, the costs of postretirement benefits, with respect to
The Prudential, are recognized in accordance with the accounting policy
issued by the NAIC. The NAIC's policy is similar to Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," except that the NAIC policy excludes
non-vested employees. The Prudential has elected to amortize its
transition obligation over 20 years.
Prior to 1993, the Company's policy was to fund the cost of providing
these benefits in the years that the employees were providing services to
the Company. The Company defined this service period as originating at an
assumed entry age and terminating at an average retirement age. Annual
deposits to the fund were determined using the entry age normal actuarial
cost method, including amortization of prior service costs for employees'
services rendered prior to the initial funding of the plan. The provision
for the year ended December 31, 1992 was $143 million.
The Prudential's net periodic postretirement benefit cost required to be
recognized for 1994 and 1993, under the NAIC policy is $110 million and
$125 million, respectively. In 1994 and 1993, The Prudential voluntarily
accrued an additional $10 million and $62 million, respectively, which
represents a portion of the obligation for active non-vested employees
(the total of this obligation is $520 million and $594 million as of
December 31, 1994 and 1993, respectively).
Company funding of its postretirement benefit obligations totaled $31
million and $404 million in 1994 and 1993, respectively. The Company
contributes amounts to the plan in excess of covered expenses being paid.
F-10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The postretirement benefit plan status as of September 30, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees ........................................... $(1,337) $(1,211)
Fully eligible active plan participants ............ (188) (445)
------- -------
Total APBO ...................................... (1,525) (1,656)
Plan assets at fair value ............................ 1,304 1,335
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets .............................. (221) (321)
Unrecognized transition obligation ................... 448 525
Unrecognized net (gain)/loss from actuarial experience (41) 69
------- -------
Prepaid postretirement benefit cost in accordance
with the NAIC accounting policy .................... 186 273
Additional amount accrued ............................ (72) (62)
------- -------
Prepaid postretirement benefit cost .................. $ 114 $ 211
======= =======
</TABLE>
Plan assets consist of group and individual variable life insurance policies,
group life and health contracts and short-term investments, of which $996
million are included in the Consolidated Statement of Financial Position at
December 31, 1994.
In compliance with statutory accounting principles, The Prudential's prepaid
postretirement benefit costs of $127 million and $217 million at December 31,
1994 and 1993, respectively, are considered non-admitted assets. These assets
are excluded from the consolidated assets and the changes in these
non-admitted assets of $(90) million and $217 million in 1994 and 1993,
respectively, are reported in "General, administrative and other expenses" in
1994 and in "Issuance of capital notes" in 1993.
Net periodic postretirement benefit cost for 1994 and 1993 includes the
following components:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Cost of newly eligible or vested employees... $ 38 $ 41
Interest cost ................................ 112 124
Actual return on plan assets ................. (98) (86)
Net amortization and deferral ................ (13) 15
Amortization of transition obligation ........ 23 39
Net charge for special termination benefits... 58 0
Additional contribution expense .............. 10 62
----- -----
Net periodic postretirement benefit cost ..... $ 130 $ 195
===== =====
</TABLE>
The net reduction to surplus relating to the Company's postretirement benefit
plans is $40 million and $412 million in 1994 and 1993, respectively, which
considers the changes in the non-admitted prepaid postretirement benefit cost
of $(90) million and $217 million in 1994 and 1993, respectively.
As a result of a special early retirement program, curtailment expenses and
special termination benefits of approximately $58 million are included in the
net periodic postretirement benefit cost for the year ended December 31,
1994.
The assumptions used in 1994 and 1993 to measure the accumulated
postretirement benefits obligation were:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Discount rate ...................................... 8.25-8.5% 7.0-7.5%
Expected long-term rate of return on plan assets.... 9.0% 9.0%
Salary scale ....................................... 5.5% 5.0%
</TABLE>
F-11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The health care cost trend rates used varied from 9.1% to 13.9%, depending
on the plan, with one plan being graded to 6.5% by the year 2012 and all
others being graded to 6.0% by 2006. Increasing the health care cost trend
rate by one percentage point in each year would increase the
postretirement benefit obligation as of September 30, 1994, by $243
million and the total of the cost of newly eligible or vested employees
and interest cost for 1994 by $21 million.
In 1994, the Company changed its method of accounting for the recognition
of costs and obligations relating to severance, disability and related
benefits to former or inactive employees after employment, but before
retirement, to an accrual method. Previously, these benefits were expensed
when paid. The effect of this change was to decrease surplus by
approximately $160 million in 1994.
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following at December 31,
1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
BALANCE COST OF FUNDS BALANCE COST OF FUNDS
-------- ---------------- -------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Short-term debt..... $ 9,188 5.7% $ 9,435 3.7%
Long-term debt...... 2,821 6.5% 3,919 5.3%
------- -------
$12,009 $13,354
======= =======
</TABLE>
Scheduled repayments of long-term debt as of December 31, 1994, are as
follows: $594 million in 1995, $269 million in 1996, $362 million in 1997,
$268 million in 1998, $666 million in 1999, and $662 million thereafter. As
of December 31, 1994, the Company had $8,120 million in lines of credit from
numerous financial institutions of which $3,925 million were unused.
7. CAPITAL NOTES
In 1993, The Prudential issued 6.875% Fixed Rate Capital Notes ("the notes")
in the aggregate principal amount of $300 million. The notes mature on April
15, 2003, and may not be redeemed prior to maturity and will not be entitled
to any sinking fund. The notes are subordinated in right of payment to all
claims of policyholders and to senior indebtedness. Payment of the principal
amount of the notes at maturity is subject to the following conditions: (i)
The Prudential shall not be in payment default with respect to any senior
indebtedness or class of policyholders, (ii) no state or federal agency shall
have instituted proceedings seeking reorganization, rehabilitation or
liquidation of The Prudential, and (iii) immediately after making such
payment, Total Adjusted Capital would exceed 200% of its Authorized Control
Level Risk-Based Capital. The terms "Total Adjusted Capital" and "Authorized
Control Level" are defined by the Risk-Based Capital for Life and/or Health
Insurers Model Act. The payment of interest on the notes is subject to
satisfaction of conditions (i) and (ii) above. Unpaid accrued interest
amounted to $25 million at December 31, 1994 and 1993. The net proceeds from
the notes, approximately $298 million, were contributed to a voluntary
employee benefit association trust to prefund certain obligations of The
Prudential to provide postretirement medical and other benefits. This
resulted in a prepaid asset, which is non-admitted for statutory purposes.
The net increase to surplus from the issuance of the notes, including a tax
benefit of $104 million less the charge-off of the non-admitted asset of $217
million, was $185 million (see Note 5B).
8. SPECIAL SURPLUS FUND
The special surplus fund includes required contingency reserves of $1,097
million and $1,091 million as of December 31, 1994 and 1993, respectively.
9. FAIR VALUE INFORMATION
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies for those accounts for
which fair value disclosures are required. Considerable judgment is
necessarily applied in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented may not be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values. The
following methods and assumptions were used in calculating the fair values.
(For all other financial instruments presented in the table, the carrying
value is a reasonable estimate of fair value.)
F-12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
FIXED MATURITIES. Fair values for fixed maturities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the current
market spreads between the U.S. Treasury yield curve and corporate bond yield
curve, adjusted for the type of issue, its current quality and its remaining
average life. The fair value of certain non-performing private placement
securities is based on amounts provided by state regulatory authorities.
MORTGAGE LOANS. The fair value of residential mortgages is based on recent
market trades or quotes, adjusted where necessary for differences in risk
characteristics. The fair value of the commercial mortgage and agricultural
loan portfolio is primarily based upon the present value of the scheduled
cash flows discounted at the appropriate U.S. Treasury rate, adjusted for the
current market spread for a similar quality mortgage. For certain
non-performing and other loans, fair value is based upon the value of the
underlying collateral.
POLICY LOANS. The estimated fair value of policy loans is calculated using a
discounted cash flow model based upon current U.S. Treasury rates and
historical loan repayments.
DERIVATIVE FINANCIAL INSTRUMENTS. The fair value of swap agreements is
estimated based on the present value of future cash flows under the
agreements discounted at the applicable zero coupon U.S. Treasury rate and
swap spread. The fair value of forwards and futures is estimated based on
market quotes for a transaction with similar terms, while the fair value of
options is based principally on market quotes. The fair value of loan
commitments is estimated based on fees actually charged or those currently
charged for similar arrangements, adjusted for changes in interest rates and
credit quality subsequent to origination.
INVESTMENT-TYPE INSURANCE CONTRACT LIABILITIES. Fair values for the Company's
investment-type insurance contract liabilities are estimated using a
discounted cash flow model, based on interest rates currently being offered
for similar contracts.
NOTES PAYABLE AND OTHER BORROWINGS. The estimated fair value of notes payable
and other borrowings is based on the borrowing rates currently available to
the Company for debt with similar terms and maturities.
The following table discloses the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities ..................... $78,743 $77,323 $79,061 $84,217
Equity securities .................... 2,327 2,327 2,216 2,216
Mortgage loans ....................... 26,199 24,955 27,509 28,004
Policy loans ......................... 6,631 6,018 6,456 6,568
Short-term investments ............... 10,630 10,630 6,304 6,304
Securities purchased under
agreements to resell ............... 5,591 5,591 9,656 9,656
Trading account securities ........... 6,218 6,218 8,586 8,586
Cash ................................. 1,109 1,109 1,666 1,666
Broker-dealer receivables ............ 7,311 7,311 9,133 9,133
Assets held in Separate Accounts ..... 48,633 48,633 48,110 48,110
Financial liabilities:
Investment-type insurance contracts .. 39,747 38,934 41,149 42,668
Securities sold under agreements
to repurchase ...................... 8,919 8,919 14,703 14,703
Notes payable and other borrowings ... 12,009 11,828 13,354 13,625
Broker-dealer payables ............... 5,144 5,144 5,410 5,410
Liabilities related to Separate
Accounts ............................. 47,946 47,946 47,475 47,475
Derivative financial instruments - net
(see Note 10) ...................... 392 397 253 303
</TABLE>
F-13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
10. DERIVATIVE AND OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS
A. DERIVATIVE FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial
Instruments," effective for 1994, requires certain disclosures about
derivative financial instruments and other financial instruments with
similar characteristics ("derivatives"). Derivatives include swaps,
forwards, futures, options and loan commitments subject to market risk,
all of which are used by the Company in the normal course of business in
both trading and other than trading activities.
The Company uses derivatives in trading activities primarily to meet the
financing and hedging needs of its customers and to trade for its own
account. The Company also uses derivatives for purposes other than
trading to reduce exposure to interest rate, currency and other forms of
market risk.
The table below summarizes the Company's outstanding positions by
derivative instrument as of December 31,1994. 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 fair
values of associated financial and non-financial assets and liabilities,
which generally offset derivative fair values. The fair value amounts
presented do not reflect the netting of amounts pursuant to rights of
setoff, qualifying master netting agreements with counterparties or
collateral arrangements. The table shows that less than 5% of derivative
fair values were not reflected in the Company's Consolidated Statement
of Financial Position.
DERIVATIVE FINANCIAL INSTRUMENTS
AS OF DECEMBER 31, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING
-------------------- ----------------------
ESTIMATED ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Swaps Assets $13,852 $ 837 $ 184 $ 9
Liabilities 14,825 1,216 4,993 48
Forwards Assets 21,988 300 2,720 24
Liabilities 19,898 289 3,112 19
Futures Assets 1,520 40 4,296 17
Liabilities 1,878 35 505 3
Options Assets 2,924 31 2,407 8
Liabilities 3,028 38 2,217 2
Loan commitments Assets 0 0 212 2
Liabilities 0 0 1,543 15
------- ------- ------- -------
Total Assets $40,284 $ 1,208 $ 9,819 $ 60
======= ======= ======= =======
Liabilities $39,629 $ 1,578 $12,370 $ 87
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
TOTAL
----------------------------------------------
CARRYING ESTIMATED
NOTIONAL AMOUNT FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C> <C>
Swaps Assets $14,036 $ 845 $ 846
Liabilities 19,818 1,236 1,264
Forwards Assets 24,708 312 324
Liabilities 23,010 299 308
Futures Assets 5,816 30 57
Liabilities 2,383 35 38
Options Assets 5,331 34 39
Liabilities 5,245 40 40
Loan commitments Assets 212 (2) 2
Liabilities 1,543 1 15
------- ------- -------
Total Assets $50,103 $ 1,219 $ 1,268*
======= ======= =======
Liabilities $51,999 $ 1,611 $ 1,665*
======= ======= =======
</TABLE>
* $1,233 of Assets and $1,596 of Liabilities are reflected in the Consolidated
Statement of Financial Position
F-14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
DERIVATIVES HELD FOR TRADING PURPOSES. The Company uses derivatives for
trading purposes in securities broker-dealer activities and in a
limited-purpose swap subsidiary. Net trading revenues for the year ended
December 31, 1994, relating to forwards, futures and swaps were $107 million,
$33 million and $8 million, respectively. Net trading revenues for options
were not material. Average fair value for trading derivatives in an asset
position during the year ended December 31, 1994, was $1,526 million and for
derivatives in a liability position was $1,671 million. Of those derivatives
held for trading purposes at December 31, 1994, 60.0% of notional consisted
of interest rate derivatives, 33.7% consisted of foreign exchange
derivatives, and 6.3% consisted of equity and commodity derivatives.
DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING. Of the total notional of
derivatives held for purposes other than trading at December 31, 1994, 23.0%
were used by the Company to hedge its investment portfolio to reduce interest
rate, currency and other market risks, 75.8% were used to hedge interest rate
risk related to the Company's mortgage banking subsidiary activities, and
1.2% were used to hedge interest and currency risks associated with the
Company's debt issuances. Of those derivatives held for purposes other than
trading at December 31, 1994, 85.0% of notional consisted of interest rate
derivatives, 13.9% consisted of foreign exchange derivatives, and 1.1%
consisted of equity and commodity derivatives.
Derivatives used to hedge the Company's investment portfolio, including
futures, options and forwards, are typically short-term in nature and are
intended to minimize exposure to market fluctuations or to change the
characteristics of the Company's asset/liability mix, consistent with the
Company's risk management activities. At December 31, 1994, net gains of $0.7
million relating to futures used as hedges of anticipated bond investments
were deferred and included in "Other liabilities." The investments being
hedged are expected to be made in the first quarter of 1995. The Company's
mortgage banking subsidiary hedges the interest rate risk associated with
mortgage loans and mortgage-backed securities held for sale and with unfunded
loans for which a rate of interest has been guaranteed. At December 31, 1994,
net gains of $0.8 million relating to forwards, futures and options used as
hedges of unfunded loan commitments were deferred as "Other liabilities." The
deferred gains were included in the carrying amounts of the loans when
funded, which is generally within sixty days from the commitment date. The
Company's mortgage banking subsidiary also hedges its exposure to future
changes in interest rates on interest-sensitive liabilities and hedges the
prepayment risk associated with its mortgage servicing portfolio. At December
31, 1994, net gains of $6.5 million relating to futures used as hedges of
anticipated borrowings were deferred and included in "Other liabilities." The
borrowings being hedged are expected to be issued by early 1996. The Company
also uses derivatives, particularly swaps and forwards, to manage the
interest rate and foreign exchange risks associated with its notes payable
and other borrowings.
B. OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS
During the normal course of its business, the Company is party to financial
instruments with off-balance-sheet credit risk such as commitments, financial
guarantees, loans sold with recourse and letters of credit. Commitments
include commitments to purchase and sell mortgage loans, the unfunded portion
of commitments to fund investments in private placement securities, and
unused credit card and home equity lines. The Company also provides financial
guarantees incidental to other transactions and letters of credit that
guarantee the performance of customers to third parties. These credit-related
financial instruments have off-balance-sheet credit risk because only their
origination fees, if any, and accruals for probable losses, if any, are
recognized in the Consolidated Statements of Financial Position until the
obligation under the instrument is fulfilled or expires. These instruments
can extend for several years and expirations are not concentrated in any
period. The Company seeks to control credit risk associated with these
instruments by limiting credit, maintaining collateral where customary and
appropriate, and performing other monitoring procedures.
The notional amount of these instruments, which represents the Company's
maximum exposure to credit loss from other parties' non-performance, was
$17,389 million and $18,666 million at December 31, 1994 and 1993,
respectively. Because many of these amounts expire without being advanced in
whole or in part, the amounts do not represent future cash flows. The above
notional amounts include $4,150 million and $3,066 million of unused
available lines of credit under credit card and home equity commitments as of
December 31, 1994 and 1993, respectively. The Company has not experienced,
and does not anticipate experiencing, all of its customers exercising their
entire available lines of credit at any given point in time.
The estimated fair value of off-balance-sheet credit related instruments was
$(91.3) million and $13.0 million at December 31, 1994 and 1993,
respectively. The total fair value at December 31, 1994, includes $(13.3)
million for fixed-rate loan commitments, which are subject to market risk.
The estimated fair value was determined based on fees currently charged for
similar arrangements, adjusted for changes in interest rate and credit
quality that occurred subsequent to origination.
F-15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
11. CONTINGENCIES
A. ENVIRONMENTAL-RELATED CLAIMS
The Company receives claims under expired contracts which assert alleged
injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances. The liabilities for such claims
cannot be estimated by traditional reserving techniques. As a result of
judicial decisions and legislative actions, the coverage afforded under
these contracts may be expanded beyond their original terms. Extensive
litigation between insurers and insureds over these issues continues and
the outcome is not predictable, nor is there any clear emerging trend.
In establishing the unpaid claim reserves for these losses, management
considered the available information. However, given the expansion of
coverage and liability by the courts and legislatures in the past, and
potential for other unfavorable trends in the future, the ultimate cost
of these claims could increase from the levels currently established.
B. LAWSUITS
Various lawsuits against the Company have arisen in the course of the
Company's business. In certain of these matters, large and/or
indeterminate amounts are sought.
In 1993, Prudential Securities Incorporated (PSI), a subsidiary of The
Prudential, entered into an agreement with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
state securities commissions whereby PSI agreed to pay $330 million into
a settlement fund to pay eligible claims on certain limited partnership
matters. Under this agreement, if partnership matter claims exceed the
established settlement fund, PSI is obligated to pay such additional
claims.
In October 1994, the United States Attorney for the Southern District of
New York (the "U.S. Attorney") filed a complaint against PSI in
connection with its sale of certain limited partnerships.
Simultaneously, PSI entered into an agreement to comply with certain
conditions for a period of three years, and to pay an additional $330
million into the settlement fund. At the end of the three-year period,
assuming PSI has fully complied with the terms of the agreement, the
U.S. Attorney will institute no further action.
In the opinion of management, PSI is in compliance with all provisions
of the aforementioned agreements and, after consideration of applicable
accruals, the ultimate liability of such litigation, including
partnership settlement matters, will not have a material adverse effect
on the Company's financial position.
12. SUBSEQUENT EVENTS
Several purported class actions and individual actions have been
brought against the Company on behalf of those persons who purchased life
insurance policies allegedly because of deceptive sales practices engaged
in by the Company and its insurance agents in violation of state and
federal laws. The sales practices alleged to have occurred are contrary to
Company policy. Some of these cases seek very substantial damages while
others seek unspecified compensatory, punitive and treble damages. The
majority of these cases were filed after March 1, 1995. The Company intends
to defend these cases vigorously.
In response to this litigaton, several state insurance departments have
initiated investigations or market conduct examinations relating to
Prudential's sales practices. The Attorney General of two states have also
made inquires.
Litigation is subject to many uncertainties, and given the complexity
and scope of these suits, their outcome cannot be predicted. It is also not
possible to predict the likely results of any regulatory inquires or their
effect on this litigation or other litigation which might be initiated in
response to widespread media coverage of these matters.
Accordingly, management is unable to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome of
all pending litigation. It is possible that the results of operations or
cash flows of the Company in particular quarterly or annual periods could
be materially affected by an ultimate unfavorable outcome of certain
pending litigation matters.
Management believes, however, that the ultimate outcome of all pending
litigation should not have a material adverse effect on the Company's
financial position.
F-16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying consolidated statements of financial
position of The Prudential Insurance Company of America and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
operations and changes in surplus and asset valuation reserve and of cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Prudential Insurance Company
of America and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 1, 1995, except for Note 12,
as to which the date is April 25, 1995
F-17
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
The following financial statements relate to the conditions and operations of
The Prudential Insurance Company of America and its subsidiaries, and should be
distinguished from the financial statements set forth on the preceding pages
which relate solely to VCA-2. As explained above, the values of the interests of
Participants under the Contracts are affected by the investment results of
VCA-2. It should not be assumed that presentation of the following financial
statements alters or extends the benefits or protections to Participants
described in this Statement of Additional Information.
[Financial Statements of The Prudential Insurance Company of America and
Subsidiaries begin on page 22]
21
<PAGE>
<TABLE>
<S> <C>
The Prudential Insurance Company of America BULK RATE
c/o Prudential Defined Contribution Services U.S. POSTAGE
30 Scranton Office Park PAID
Moosic, Pennsylvania 18507-1789 PERMIT No. 2145
Newark, N.J.
ADDRESS CORRECTION REQUESTED
FORWARDING AND
RETURN POSTAGE GUARANTEED
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Item 28. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements of The Prudential Variable
Contract Account-2 (Registrant) consisting of the
Statement of Net Assets, as of December 31, 1994;
the Statement of Operations for the period ended
December 31, 1994; the Statements of Changes in
Net Assets for the periods ended December 31, 1994
and 1993; and the Notes relating thereto appear in
the statement of additional information (Part B of
the Registration Statement).
(2) Consolidated Financial Statements of The
Prudential Insurance Company of America
(Depositor) and subsidiaries consisting of the
Consolidated Statements of Financial Position as
of December 31, 1994 and 1993; the Consolidated
Statements of Operations and Changes in Surplus
and Asset Valuation Reserve (AVR)/Mandatory
Securities Valuation Reserve (MSVR) and the
Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992; and
the Notes relating thereto appear in the statement
of additional information (Part B of the
Registration Statement).
</TABLE>
<TABLE>
<S> <C> <C> <C>
(b) Exhibits
(1) Resolution of the Board of Directors of Incorporated by reference to Exhibit 1
The Prudential Insurance Company of to this Registrant's Form
America establishing The Prudential N-8B-1 Registration Statement, File
Variable Contract Account-2 No. 811-1612
(To be filed via EDGAR)
(2) Rules and Regulations of The Prudential Incorporated by reference to Exhibit (2)
Variable Contract Account-2 to Post-Effective Amendment No. 41 to
this Registration Statement
(To be filed via EDGAR)
(3) (i) Custodian Agreement with Morgan Incorporated by reference to Exhibit
Guaranty Trust Company (8)(i) to Post-Effective Amendment No.
of New York 25 to this Registration Statement
(To be filed via EDGAR)
(ii) Custodian Agreement with Incorporated by reference to Exhibit
Manufacturers Hanover Trust Company (8)(ii) to Post-Effective Amendment No.
25 to this Registration Statement
(To be filed via EDGAR)
(4) (i) Agreement for Investment Management Incorporated by reference to Exhibit 5
Services between Prudential and The to Registrant's
Prudential Variable Contract Account-2 Form N-8B-1 Registration Statement,
File No. 811-1612
(To be filed via EDGAR)
(ii) Amendment No. 1 to Agreement for Incorporated by reference to Exhibit
Investment Management Services between 1(5)(b) to Post-Effective Amendment No.
Prudential and The Prudential Variable 8 to this Registration Statement
Contract Account-2 (To be filed via EDGAR)
</TABLE>
C - 1
<PAGE>
<TABLE>
<S> <C> <C> <C>
(5) (i) Agreement Relating to the Sale Incorporated by reference to Exhibit 6
of Group Variable Annuity Contracts to this Registrant's
between Prudential and The Prudential Form N-8B-1 Registration Statement, File
Variable Contract Account-2 No. 811-1612
(To be filed via EDGAR)
(ii) Amendment to Agreement Relating to Incorporated by reference to Exhibit
the Sale of Group Variable Annuity 6(ii) to Post-Effective Amendment No. 25
Contracts between Prudential and The to this Registration Statement
Prudential Variable Contract Account-2 (To be filed via EDGAR)
(iii) Dealer Agreement between Incorporated by reference to Exhibit
Prudential, The Prudential Variable 6(iii) to Post-Effective Amendment No.
Contract Account-2 and Prudential-Bache 34 to this Registration Statement
Securities Inc. (To be filed via EDGAR)
(iv) Agreement for the Sale of VCA-2 Incorporate by reference to Exhibit
Contracts between Prudential, The 5(iv) to Post-Effective Amendment No. 46
Prudential Variable Contract Account-2 to this Registration Statement
and Prudential Retirement Services, Inc. (To be filed via EDGAR)
(6) (i) Specimen copy of group variable Incorporated by reference to Exhibit (4)
annuity contract Form GVA-120, with to Post-Effective Amendment No. 32 to
State modifications this Registration Statement
(To be filed via EDGAR)
(ii) Specimen copy of Group Annuity Incorporated by reference to Exhibit
Amendment Form GAA-7764 for (6)(ii) to Post-Effective Amendment No.
tax-deferred annuities 42 to this Registration Statement
(To be filed via EDGAR)
(iii) Specimen copy of Group Annuity Incorporated by reference to Exhibit
Amendment Form GAA-7852 for tax-deferred (6)(iii) to Post-Effective Amendment No.
annuities 45 to this Registration Statement
(To be filed via EDGAR)
(7) Application form Incorporated by reference to Exhibit (4)
of Post-Effective Amendment No. 32 to
this Registration Statement
(To be filed via EDGAR)
(8) (i) Certificate of Adoption of Incorporated by reference to Exhibit
Amendments to Amended Charter of (8)(i) to Post-Effective Amendment No.
Prudential and of the Adoption and 39 to this Registration Statement
Ratification of a New Amended charter of (To be filed via EDGAR)
such Corporation (includes restated
Amended Charter)
</TABLE>
C - 2
<PAGE>
<TABLE>
<S> <C> <C> <C>
(ii) Copy of the By-Laws of Prudential, Incorporated by reference to Exhibit
as amended January 10, 1995 99.2 to Post-Effective Amendment No. 26
to the Registration Statement of The
Prudential Variable Contract Account -
10, Registration No. 2-76580, filed
April , 1995
(11) (i) Service Agreement between Prudential Incorporated by reference to Exhibit
and The Prudential Investment (10)(i) to Post-Effective Amendment No.
Corporation 34 to this Registration Statement
(To be filed via EDGAR)
(ii) Service Agreement between Incorporated by reference to Exhibit
Prudential and The Prudential Asset (10)(ii) to Post-Effective Amendment No.
Management Company, Inc. 34 to this Registration Statement
(To be filed via EDGAR)
(13) (i) Consent of independent auditors Filed with this Amendment
(ii) Powers of Attorney
(a) Members of the Registrant's Incorporated by reference to Exhibit
Committee Messrs. Fenster, Fetting, 13(ii)(a) to Post-Effective Amendment
Weber and Scott No. 26 to the Registration Statement of
The Prudential Variable Contract
Account-10, Registration
No. 2-76580, filed April , 1995
Mr. McDonald Incorporated by reference to Exhibit
13(ii)(a) to Post-Effective Amendment
No. 26 to the Registration Statement of
The Prudential Variable Contract
Account-11, Registration No. 2-76581,
filed April , 1995
(b) Directors and Officers
of Prudential Incorporated by reference to Post-
F. Agnew, F. Becker, Effective Amendment No. 15 to the
W. Boeschenstein, Registration Statement of The Prudential
L. Carter, J. Cullen, Variable Appreciable Account,
C. Davis, R. Enrico, Registration No. 33-20000, filed April ,
A. Gilmour, W. Gray, 1995
J. Hanson, C. Horner, (To be filed via EDGAR)
A. Jacobson, G. Keith,
B. Malkiel, E. O'Hara,
J. Opel, A. Ryan, C. Sitter,
D. Staheli, R. Thomson
P. Vagelos, S. Van Ness
P. Volcker, J. Williams
(17) Financial Data Schedule Filed with this Amendment
</TABLE>
Item 29. Directors and Officers of Prudential
Information about Prudential's Directors and Executive Officers appears under
the heading "Directors and Officers of Prudential" in the Statement of
Additional Information (Part B of this Registration Statement).
C - 3
<PAGE>
Item 30. Persons Controlled by or Under Common Control with Registrant
Registrant is a separate account of The Prudential Insurance Company of America,
a mutual life insurance company organized under the laws of the State of New
Jersey. The subsidiaries of Prudential are shown on the Organization Chart on
the following pages.
In addition to the subsidiaries shown on the Organization Chart, Prudential
holds all of the voting securities of Prudential's Gibraltar Fund, a Delaware
corporation, in three of its separate accounts. Prudential also holds directly
and in four of its other separate accounts, shares of The Prudential Series
Fund, Inc., a Maryland corporation. The balance are held in separate accounts of
Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey,
wholly-owned subsidiaries of Prudential. All of the separate accounts referred
to above are unit investment trusts registered under the Investment Company Act
of 1940. Prudential's Gibraltar Fund and The Prudential Series Fund, Inc. are
registered as open-end, diversified management investment companies under the
Investment Company Act of 1940. The shares of these investment companies are
voted in accordance with the instructions of persons having interests in the
unit investment trusts, and Prudential, Pruco Life Insurance Company and Pruco
Life Insurance Company of New Jersey vote the shares they hold directly in the
same manner that they vote the shares that they hold in their separate accounts.
Registrant may also be deemed to be under common control with The Prudential
Variable Contract Account-10 and The Prudential Variable Contract Account-11,
separate accounts of Prudential registered as open-end, diversified management
investment companies under the Investment Company Act of 1940.
The Prudential is a mutual insurance company. Its financial statements include
the consolidated accounts of Prudential, its wholly-owned life insurance
subsidiary, Pruco Life Insurance Company, and its non-insurance subsidiaries on
a fully consolidated basis. The financial statements have been prepared in
conformity with generally accepted accounting principles, which as to The
Prudential and its insurance subsidiaries include statutory accounting practices
prescribed or permitted by state regulatory authorities for insurance companies.
C - 4
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ITS SUBSIDIARIES
(see page 2 for Direct and Indirect
Fine Homes, L.P. (1) subs)
Gibraltar Casualty Company
Health Venture Partners
HSG Health Systems Group Limited
Industrial Trust Company
Jennison Associates Capital Corp. JACC Services Corp.
Page & Gwyther Investments Limited
PGR Advisors I, Inc.
Clivco Nominees, Ltd.
Clive Discount Company, Ltd. Clive Agency Bond Broking Limited
Clivwell Securities, Ltd.
PRICOA Capital Group, Ltd.
PRICOA Funding Limited PRICOA Investment Company
PIC Holdings, Ltd.
PRICOA Property Investment Management Northern Retail Properties (General
Limited Partner) Limited
PRICOA P.I.M. (Regulated) Ltd.
TransEuropean Properties (General
Partnership) Ltd.
PRIcoa Realty Group Ltd.
PIC Realty Canada Limited
PREMISYS Real Estate Services, Inc.
PREMISYS Real Estate Services, Inc. of Colorado
The
PRICOA Vida, Sociedad Anonima de PRICOA Invest, Sociedad Anonima,
Seguros y Reaseguros S.G.C.
Prudential
PRICOA Vita S.p.A.
Insurance
(see pages 3-6 for Direct and
PRUCO, Inc. Indirect subs)
Company
Pruco Life Insurance Company of New
Jersey
of
The Prudential Life Insurance Company
Pruco Life Insurance Company of Arizona
America
Prudential Fund Management Limited
Prudential-Bache Capital Funding
Prudential Global Funding, Inc. (Swaps) Limited
Prudential Texas Residential Services
Prudential Homes Corporation Corporation
Prudential Mortgage Asset Corporation
Prudential Mortgage Asset Corporation
II
Prudential Mutual Fund Management,
Inc. (2)
Prudential of America General
Insurance Company (Canada) OTIP/RAEO Insurance Company, Inc. (3)
Prudential of America Life Insurance
Company (Canada) (4)
Prudential Private Placement
Investors, Inc.
Prudential Realty Securities II, Inc.
(5)
Prudential Select Life Insurance
Prudential Select Holdings, Inc. Company of America
Prudential Service Bureau, Inc.
PruServicos Participacoes, S.A. (6)
Residential Services Corporation of (see page 2 for Direct and Indirect
America subs)
The Prudential Insurance Company of
New Jersey
(see page 7 for Direct and Indirect
The Prudential Investment Corporation subs)
The Prudential Life Insurance Company
of Korea, Ltd.
The Prudential Life Insurance
Company, Ltd.
The Prudential Real Estate (see page 2 for Direct and Indirect
Affiliates, Inc. subs)
U.S. High Yield Management Company
<FN>
6/30/94 (1) Fine Homes, L.P. is a partnership which owns subsidiaries.
(2) Prudential Mutual Fund Management, Inc. is 85% owned by Prudential Securities
Incorporated and 15% owned by The Prudential.
(3) OTIP/RAEO Insurance Company, Inc. is 95% owned by Prudential of America General
Insurance Company (Canada) and 5% owned by OTIP Insurance Brokers, Inc.
(4) Prudential of America Life Insurance Company (Canada) is 75% owned by The
Prudential and 25% is owned by PPI Financial Group, Ltd.
(5) Prudential Realty Securities II, Inc. is 87% owned by The Prudential and 13%
owned by PRUCO, Inc.
(6) PRUCO, Inc. owns 13 shares (less than 1%) of PruServicos Participacoes, S.A.
</TABLE>
C - 5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Major Escrow Corp.
ML/MSB Acquisition Inc.
PRIcoa Relocation Management, Ltd.
PRS Escrow Services, Inc.
Fine Homes, LP
Prudential Community Interaction
Consulting, Inc.
(from p. 1)
Prudential New York Homes Corporation
Prudential Oklahoma Homes Corporation
The
Prudential Relocation Management
Prudential Company of Canada Ltd.
Insurance
The Relocation Funding Corporation of
America
Company
Lender's Service, Inc. Lender's Service Title Agency, Inc.
of Residential
Private Label Mortgage Services
Corporation
America Services
Corporation Securitized Asset Sales, Inc.
of America
Securitized Asset Services
Corporation
(from p. 1)
The Prudential Home Mortgage Company, The Prudential Home Mortgage
Inc. Securities Co. Inc.
The Prudential
Real Estate
The Prudential Real Estate Financial The Prudential Real Estate Financial
Services of America, Inc. Services of Long Island, Inc.
Affiliates, Inc.
The Prudential Referral Services,
Inc.
(from p. 1)
</TABLE>
C - 6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Capital Agricultural Property
Services, Inc.
Flor-Ag Corporation
P.G. Realty, Inc.
PIC Realty Corporation
Pruco Securities Corporation
Pruco Services, Inc.
Prudential Agricultural
Credit, Inc.
Prudential Capital and (See Pages 4-6 for Direct and
Investment Services, Inc. Indirect subs)
Prudential Dental Maintenance
Organization, Inc.
Prudential Direct, Inc.
Prudential Equity Investors,
Inc.
Prudential Funding
Corporation
Prudential Health Care Plan,
Inc.
Prudential Health Care Plan
of California, Inc.
Prudential Health Care Plan
of Connecticut, Inc.
The
Prudential Health Care Plan
of Georgia, Inc.
Prudential
PRUCO,
Prudential Health Care Plan
Insurance of New York, Inc.
Company Inc. (1)
Prudential Holdings, Inc.
of (from p. 1)
Prudential Institutional Fund
Management, Inc.
America
Prudential Commercial Prudential Insurance
Insurance Company Brokerage, Inc.
Prudential Property and Prudential General Insurance
Casualty Insurance Company
The Prudential Property and
Casualty General Agency, Inc.
The Prudential Property and
Casualty Insurance
Company of New Jersey
Prudential Realty
Partnerships, Inc.
Prudential Realty Securities,
Inc.
Prudential Realty Securities
II, Inc. (2)
Prudential Reinsurance Prudential Reinsurance
Holdings, Inc. Company Le Rocher Reinsurance, Ltd.
Prudential National Insurance
Company
Prudential Retirement
Services, Inc.
Prudential Trust Company PTC Services, Inc.
Prudential Uniformed Services
Administrators, Inc.
The Prudential Bank and Trust
Company PBT Mortgage Corporation
The Prudential Savings Bank,
F.S.B.
<FN>
(1) PRUCO, Inc. owns 13 shares (less than 1%) of PruServicos Participacoes, S.A.
(2) Prudential Realty Securities II, Inc. is 87% owned by The Prudential and 13%
owned by PRUCO, Inc.
</TABLE>
C - 7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Lapine Technology
Corporation
Lapine
Holding
Company
(1)
PruCapital Management,
Inc.
Prudential
Prudential Interfunding
Corp.
Capital
NNW Utility Funding II,
Corporation PruLease, Inc. Inc.
Bache Insurance Agency
of Arkansas, Inc.
Prudential-Bache
Bache Insurance Agency Securities (Germany)
of Louisiana, Inc. Inc.
BraeLoch Successor (See page 5 for Direct
Corporation and Indirect subs)
PB Bullion Company, Inc.
PB Services (U.K.)
PGR Advisors, Inc.
Prudential-Bache
Agriculture Inc.
Prudential-Bache Capital
Funding (Australia)
Limited
Prudential-Bache Capital
Funding BV Audley Finance BV
Prudential-Bache Energy
Corp.
Prudential-Bache Energy
Production Inc.
Prudential-Bache Prudential-Bache
Holdings Inc. Partners Inc.
Prudential-Bache
International (U.K.) (See page 6 for Direct
Limited and Indirect subs)
Prudential-Bache
Investor Services, Inc.
The
Prudential
Prudential-Bache
Investor Services II,
Inc.
Capital
Prudential and
Prudential-Bache Leasing
Inc.
Insurance
PRUCO,
Inc. Investment
Prudential
Prudential-Bache
Minerals, Inc.
Services,
Company Inc. Securities
Prudential-Bache Program
of Services Inc.
Group,
America from p.3) Inc.
Prudential-Bache Equitec Venture Corp.
Properties, Inc. III., Inc.
Prudential-Bache Real
Estate, Inc.
Prudential-Bache
Securities (Australia) (See page 5 for Direct
Limited Subs)
Prudential-Bache Trade
Services, Inc. PB Trade Ltd.
Prudential-Bache Forex
(Hong Kong) Limited
Prudential-Bache Forex Prudential Bache Forex
(USA) Inc. (U.K.) Limited
Prudential-Bache
Transfer Agent Services,
Inc.
Prudential Securities (See page 6 for Direct
Incorporated and Indirect subs)
Prudential Securities
Financial Asset Funding
Corp.
Prudential Securities
Lease Holding Inc.
Prudential Securities
Municipal Derivatives,
Inc.
Prudential Securities
Realty Funding
Corporation
Prudential Securities
Secured Financing
Corporation
Prudential Securities
Structured Assets, Inc. P-B Finance, Ltd.
R&D Funding Corp.
Seaport Futures
Management, Inc.
Special Situations
Management Inc.
The PRICOA International
Bank S.A.
<FN>
(1) Lapine Holding Company is 66.7% owned by Prudential Capital and Investment
Services, Inc., 28.3% owned by Kyocera Corp. and 5% owned by Kyocera (Hong Kong)
Ltd.
</TABLE>
C - 8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BraeLoch
Successor
Corporation BraeLoch Holdings, Inc.
The (from p. 4)
Prudential Prudential
Bache Nominees, Limited
Capital
and
Insurance Prudential
PRUCO,
Corcarr Funds Management
Limited
Investment Securities
Company Inc. Prudential-Bache
Corcarr Management Pty.
Limited
Services, Group,
of Inc. Inc. Securities
Corcarr Nominees Pty.
Limited
America (Australia)
Corcarr Superannuation
Limited Pty. Limited
(from p. 4)
Divsplit Nominees Pty.
Limited
PruBache Nominees Pty.
Limited
Graham Depository Company
II
Graham Depository Company
Series IV
Graham Energy, Ltd.
Graham
Crescent Drilling &
Graham Exploration, Ltd. Development, Inc.
Resources, Inc.
Graham Royalty, Ltd. Graham Production Company
Graham Securities
Corporation
</TABLE>
C - 9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Clive Discount Holdings
International Limited
Page & Gwyther Holdings
Limited
Prudential-
Bache Page & Gwyther Limited
International
Prudential-Bache Capital
Funding (Equities) Limited Circle (Nominees) Limited
(U.K.) Limited
Prudential-Bache Capital
Funding (Gilts) Limited
(from p. 4)
Prudential-Bache Capital
Funding (Money Brokers)
Limited
Prudential-Bache (Futures)
Limited
Prudential-Bache
Interfunding (U.K.) Limited
Bache & Co. (Lebanon) S.A.L.
Bache & Co. S.A. de C.V.
(Mexico)
Bache Halsey Stuart Shields
(Antilles) N.V.
Bache Insurance Agency,
Incorporated
Bache Insurance of Arizona
Inc.
Bache Insurance of Kentucky,
Inc.
Bache Shields Securities
Corporation
Banom Corporation
Gelfand, Quinn & Associates
Inc.
The
Prudential Securities
P-B Holding Japan Inc. (Japan) Ltd.
Prudential
Prudential
Prudential
Prudential
Prudential-Bache Brokerage
(Hong Kong) Limited
Insurance
Capital
PRUCO, and Securities Securities
Prudential-Bache Futures
Asia Pacific Ltd.
Investment
Company Services, Group, Incorporated
of Inc. Inc. Inc. (from p. 4)
Prudential-Bache Futures
(Hong Kong) Limited
America
Prudential-Bache Securities
Asia Pacific Ltd.
Prudential-Bache Securities
(Belgium) Inc.
Prudential-Bache Securities
(Espana) S.A.
Prudential-Bache Securities
(France) S.A.
Prudential-Bache Securities
(Greece) S.A.
Prudential-Bache Securities Prudential-Bache Securities
(Holland) Inc. (Holland) N.V.
Prudential-Bache Securities
(Hong Kong) Limited
Prudential-Bache Securities
(Luxembourg) Inc.
Prudential-Bache Securities
(Monaco) Inc.
Prudential-Bache Securities
(Switzerland) Inc.
Prudential-Bache Securities
(U.K.) Inc. Shields Model Roland Company
Prudential Mutual Fund
Distributors, Inc.
Prudential Mutual Fund Prudential Mutual Fund
Management, Inc. (1) Services, Inc.
Prudential Securities
Futures Management, Inc.
Prudential Securities
(Argentina) Inc.
Prudential Securities (South Prudential Securities
America) Inc. (Uruguay) S.A.
Shields Model Roland
Securities Incorporated
<FN>
(1) Prudential Mutual Fund Management, Inc. is 85% owned by Prudential Securities
Incorporated and 15% owned by The Prudential.
</TABLE>
C - 10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Amicus Investment Company
Global Income Fund Management Company, S.A.
Global Series Fund II Management Company, S.A.
Gateway Holdings, S.A.
Jennison Long Bond Management Company
PAEC Management Company
Prudential Asset Sales and Syndications, Inc.
Prudential Home Building Investors, Inc.
PruSupply, Inc. PruSupply Capital Assets, Inc.
The
The
CSI Asset Management, Inc.
Prudential Prudential
The Enhanced Investment Technologies, Inc.
Insurance Investment
Mercator Asset Management, Inc.
Company Corporation
PCM International, Inc.
of (from p.1)
America Prudential Asia Investments
The Prudential Asset Management Company, Inc.
Limited (1)
The Prudential Asset Management Company
Securities Corporation
Prudential Timber Investments, Inc. (2)
The Prudential Investment Advisory Company,
Ltd.
The Prudential Property Company, Inc.
The Prudential Realty Advisors, Inc.
Texas Rio Grande Other Assets Group Company,
Inc.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
PAMA (Indonesia) Limited (4)
PAMA (Singapore) Private Limited
Prudential Asset Management
Prudential Asia DBS Limited
(3)
Asia Hong Kong Ltd.
PT PAMA Indonesia (5)
Prudential Asset Management
Asia Limited (BVI)
Prudential-Bache Capital
Prudential-Bache Capital
Funding Asia (Hong Kong) Limited
Funding Asia Limited
S.J. Bedding B.V.
Simmons Company Limited (6)
Prudential Asia Fund
Management Limited (BVI)
Simmons Bedding & Furniture (HK) Ltd
(6) Simmons Asia Limited (7)
Simmons (Southeast Asia)
Private Limited
Prudential Asia Fund
Management Limited
Prudential Asia Fund
Managers (HK) Limited
<FN>
(1) The Prudential Asset Management Company, Inc. and Prudential Securities Group,
Inc. each own 50% of preferred stock and The Prudential Asset Management
Company, Inc. owns 100% common stock.
(2) The Prudential owns 6 shares (100%) of preferred stock in Prudential Timber
Investments, Inc.
(3) Prudential Asia DBS Limited is 50% owned by Prudential Asia Investments Limited
and 50% owned by DBS, Inc.
(4) PAMA (Indonesia) Limited is 75% owned by Prudential Asset Management Asia
Limited (BVI), 15% owned by BDNI and 10% by IFC.
(5) PT PAMA Indonesia is 65% owned by Prudential Asset Management Asia Limited
(BVI), 20% owned by BDNI and 15% by IFC.
(6) Simmons Co. Limited and Simmons Bedding & Furniture (HK) Ltd. are 66.24% owned
by S.J. Bedding B.V. and 6.8% owned by Simmons U.S.A., 15% owned by others and
12% by management.
(7) Simmons Asia Limited is 90% owned by Simmons Bedding & Furniture (HK) Ltd. and
10% owned by Simmons U.S.A.
</TABLE>
C - 11
<PAGE>
06/30/94
SHORT DESCRIPTION OF EACH SUBSIDIARY
<TABLE>
<S> <C>
A. SUBSIDIARIES OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
1. FINE HOMES, L.P. (A Limited Partnership) (99% owned by Prudential, the limited
partner, and 1% owned by Prudential Homes Corporation, the general partner) (See
Section C for direct and indirect subsidiaries)
A limited partnership to hold real estate related subsidiaries.
2. GIBRALTAR CASUALTY COMPANY (Incorporated in Delaware) (100%)
Previously wrote unusual and non-standard property and casualty risks on a
Surplus Line basis. The company is currently servicing policies that it had
issued, but is not actively seeking new business.
3. HEALTH VENTURE PARTNERS (Incorporated in Illinois) (100%)
Operates as a general partner of the joint venture Rush Prudential Health Plans.
4. HSG HEALTH SYSTEMS GROUP LIMITED (Incorporated in Canada) (100%)
Provides consulting and administrative services to corporate fitness facilities
and wellness programs in Canada.
5. INDUSTRIAL TRUST COMPANY (Incorporated in Prince Edward Island, Canada) (100%)
Holds a permit to operate as a trust and loan company in Prince Edward Island.
Currently inactive.
6. JENNISON ASSOCIATES CAPITAL CORP. (Incorporated in New York) (100%)
Provides institutional clients (employee benefit plans, endowments, foundations,
etc.) with discretionary management of portfolios investing in stocks and bonds
and acts as an advisor to The Prudential Institutional Fund.
6a. JACC SERVICES CORP. (Incorporated in New York) (Owned by Jennison Associates
Capital Corp.) (100%)
Provides computer and accounting support necessary to handle portfolio
accounting and reporting.
7. PAGE & GWYTHER INVESTMENTS LIMITED (Incorporated in U.K.) (100%)
Inactive. In liquidation.
8. PGR ADVISORS I, INC. (Incorporated in Delaware) (100%)
A general partner which provides management, advisory, and administrative
services to Global Realty Advisors, a Bermudian partnership that acts as
investment manager to the Prudential Global Real Estate Investment Programme.
9. PIC HOLDINGS, LTD. (Incorporated in U.K.) (100%) (See section B for direct and
indirect subsidiaries)
</TABLE>
C - 12
<PAGE>
<TABLE>
<S> <C>
Acts as a holding company to house the operating entities of Clive Discount
Company, Ltd., Clivco Nominees, Clive Agency Bond Broking, Ltd., Clivwell
Securities, Ltd., PRICOA Capital Group, Ltd., PRICOA Property Investment
Management, Ltd., PRICOA P.I.M. (Regulated) Ltd., TransEuropean Properties
(General Partnership) Ltd., and Northern Retail Properties (General Partnership)
Ltd.
10. PIC REALTY CANADA LIMITED (Incorporated in Canada) (100%)
Owns, develops, operates, manages and leases real estate in Canada.
11. PREMISYS REAL ESTATE SERVICES INC. (Incorporated in Pennsylvania) (100%)
Provides real estate properties/facilities management for The Prudential and
third parties and advisory services with respect to activities of this type.
11a. PREMISYS REAL ESTATE SERVICES INC. OF COLORADO (Incorporated in Colorado) (Owned
by Premisys Real Estate Services, Inc.) (100%)
Provides real estate management and related services to unrelated third parties
in Colorado.
12. PRICOA VIDA, SOCIEDAD ANONIMA DE SEGUROS Y REASEGUROS (Incorporated in Spain)
(Less than 1% owned by PRICOA Vida, Sociedad Anonima de Seguros y Reaseguros,
PRUCO, Inc., and The Prudential Investment Corporation. The remainder is owned
by The Prudential)
Conducts individual life, group pension and group life business in Spain.
12a. PRICOA INVEST, SOCIEDAD ANONIMA, S.G.C. (Incorporated in Spain) (100% owned by
PRICOA Vida Sociedad Anonima de Seguros y Reaseguros)
Licensed to engage in third party investment management and actuarial consulting
in Spain.
13. PRICOA VITA S.P.A. (Incorporated in Italy) (100%)
Organized to sell life insurance and related financial products within Italy.
14. PRUCO, INC. (Incorporated in New Jersey) (100%) (See Section F for direct and
indirect subsidiaries)
A holding company for other subsidiaries.
15. PRUCO LIFE INSURANCE COMPANY (Incorporated in Arizona) (100%)
Conducts individual life insurance and single pay deferred annuity business in
all states except New York. In addition, the Company markets individual life
insurance through it's branch office in Taiwan.
15a. PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY (Incorporated in New Jersey) (Owned
by Pruco Life Insurance Company) (100%)
Issues a product line corresponding to that of Pruco Life Insurance Company in
the states of New Jersey and New York.
15b. THE PRUDENTIAL LIFE INSURANCE COMPANY OF ARIZONA (Incorporated in Arizona)
(Owned by Pruco Life Insurance Company) (100%)
A company licensed to sell life insurance in the state of Arizona.
</TABLE>
C - 13
<PAGE>
<TABLE>
<S> <C>
16. PRUDENTIAL FUND MANAGEMENT LIMITED (Incorporated in Canada) (100%)
Manages and distributes mutual funds in Canada.
17. PRUDENTIAL GLOBAL FUNDING, INC. (Incorporated in Delaware) (100%)
Provides interest rate and currency swaps and other derivative products.
18. PRUDENTIAL-BACHE CAPITAL FUNDING (SWAPS) LIMITED (Incorporated in Canada) (Owned
by Prudential Global Funding, Inc.) (100%)
In liquidation.
19. PRUDENTIAL HOMES CORPORATION (Incorporated in New York) (100%)
Acts as the sole general partner of Fine Homes, L.P. and Prudential Residential
Services, Limited Partnership. It also acts as one of the two general partners
of
The Prudential Relocation Management, Limited Partnership.
19a. PRUDENTIAL TEXAS RESIDENTIAL SERVICES CORPORATION (Incorporated in Texas) (Owned
by Prudential Homes Corporation) (100%)
Acts as one of the two general partners of The Prudential Relocation Management,
Limited Partnership
20. PRUDENTIAL MORTGAGE ASSET CORPORATION (Incorporated in Delaware) (100%)
Formed to invest in mortgage related assets, mortgage loans and mortgage
pass-through certificates.
21. PRUDENTIAL MORTGAGE ASSET CORPORATION II (Incorporated in Delaware) (100%)
Formed to invest in mortgage pass-through certificates.
22. PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (Incorporated in Delaware) (15% owned by
The Prudential and 85% owned by Prudential Securities Incorporated)
Acts as a registered investment advisor under the Investment Advisors Act of
1940 and engages in investment supervisory and related functions associated with
developing and servicing mutual funds. The company commenced operation on July
1, 1987.
23. PRUDENTIAL OF AMERICA GENERAL INSURANCE COMPANY (CANADA) (Incorporated in
Canada) (100%)
Provides automobile and homeowner insurance in Canada.
23a. OTIP/RAEO INSURANCE COMPANY, INC. (Incorporated in Canada) (95% owned by
Prudential of America General Insurance Company [Canada])
Provides automobile and homeowner insurance in Canada. This company markets its
products to those employed in the education sector.
24. PRUDENTIAL OF AMERICA LIFE INSURANCE COMPANY (CANADA) (Incorporated
in Canada) (75%)
Markets specialized life insurance products to the upper income segment of the
Canadian market place.
25. PRUDENTIAL PRIVATE PLACEMENT INVESTORS, INC. (Incorporated in New Jersey) (100%)
</TABLE>
C - 14
<PAGE>
<TABLE>
<S> <C>
Serves as General Partner to a newly formed partnership, Prudential Private
Placement Investors, L.P. ("PPPI, LP"), a Delaware limited Partnership. It is
anticipated that PPPI, LP will provide investment advisory services to pension
plans and other institutional investors.
26. PRUDENTIAL REALTY SECURITIES II, INC. (Incorporated in Delaware) (87% owned by
The Prudential and 13% owned by PRUCO, Inc.)
Issues bonds secured by real estate mortgages.
27. PRUDENTIAL SELECT HOLDINGS, INC. (Incorporated in Delaware) (100%)
A holding company for the Prudential Select Life Insurance Company of America.
28. PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA (Incorporated in Minnesota)
(Owned by Prudential Select Holdings, Inc.) (100%)
Intends to sell universal life insurance products to upper income and high net
worth individuals and corporations in all states except New York.
29. PRUDENTIAL SERVICE BUREAU, INC. (Incorporated in Kentucky) (100%)
Provides administrative services for employee benefits packages (i.e. COBRA and
FLEX) and pays medical and dental claims.
30. PRUSERVICOS PARTICIPACOES, S.A. (Incorporated in Brazil) (Less than 1% owned by
PRUCO, Inc. The remainder owned by The Prudential Insurance Company of America.)
A holding company owning preferred shares, having certain limited voting rights,
representing 49 percent of the share capital of Atlantica-Prudential
Participacoes S.A., which in turn owns approximately 95 percent of the share
capital of Prudential-Atlantica Companhia Brasileria de Seguros, a Brazilian
property and casualty insurer.
31. RESIDENTIAL SERVICES CORPORATION OF AMERICA (Incorporated in Delaware) (100%)
(See Section D for direct and indirect subsidiaries)
A company which engages in the activities of its direct wholly owned
subsidiaries: Lender's Service, Inc., Private Label Mortgage Services
Corporation, Securitized Asset Sales, Inc., Securitized Asset Services
Corporation and The Prudential Home Mortgage Company, Inc., and their
subsidiaries.
32. THE PRUDENTIAL INSURANCE COMPANY OF NEW JERSEY (Incorporated in New Jersey)
(100%)
A life insurance company which presently is qualified only in New Jersey. It has
not yet commenced as an insurance business.
33. THE PRUDENTIAL INVESTMENT CORPORATION (Incorporated in New Jersey) (100%) (See
Section H for direct and indirect subsidiaries)
Has responsibility for the investment business of The Prudential. It in turn
owns all the outstanding stock of Gateway Holdings, S.A., Prudential Asset Sales
and Syndications, Inc., Prudential Home Building Investors, Inc., PruSupply,
Inc., The Prudential Asset Management Company, Inc., The Prudential Investment
Advisory Company, Ltd., The Prudential Mortgage Capital Company, Inc. (a
Delaware corporation), The Prudential Property Company, Inc., and The Prudential
Realty Advisors, Inc.
34. THE PRUDENTIAL LIFE INSURANCE COMPANY OF KOREA, LTD. (Incorporated in Korea)
(100%)
</TABLE>
C - 15
<PAGE>
<TABLE>
<S> <C>
Organized to sell life insurance products within Korea.
35. THE PRUDENTIAL LIFE INSURANCE COMPANY, LTD. (Incorporated in Japan) (100%)
Organized to sell traditional and variable life insurance products within Japan.
36. THE PRUDENTIAL REAL ESTATE AFFILIATES, INC. (Incorporated in Delaware)
(100%) (See Section E for direct and indirect subsidiaries)
Offers independently owned residential real estate brokerage franchises.
37. U.S. HIGH YIELD MANAGEMENT COMPANY (Incorporated in New Jersey) (100%)
Provides management services (through the Capital Markets Group) to the U.S.
High Yield Fund, a high yield corporate bond fund organized in Luxembourg.
B. SUBSIDIARIES OF PIC HOLDINGS, LTD.
1. CLIVE DISCOUNT COMPANY, LTD. (Incorporated in U.K.) (Owned by PIC Holdings,
Ltd.) (100%)
Operates as a discount house in the London market.
1a. CLIVCO NOMINEES (Incorporated in the U.K.) (Owned by Clive Discount Company,
Ltd.) (100%)
Inactive.
1b. CLIVE AGENCY BOND BROKING, LIMITED (Incorporated in U.K.) (Owned by Clive
Discount Company, Ltd.) (100%)
Identifies attractive investment opportunities in the business of brokering
Government Bonds in the United Kingdom and continental Europe.
2. CLIVWELL SECURITIES, LTD. (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.)
(100%)
An investment company which consists of Mithras Investment Trust holdings and an
8.5% interest in a real estate investment trust which holds a leasehold interest
in a 12 story commercial building in London, England.
3. PRICOA CAPITAL GROUP, LTD. (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.)
(100%)
Identifies attractive investment opportunities in the United Kingdom and
continental Europe.
4. PRICOA FUNDING LIMITED (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.)
(100%)
A finance company borrowing capital from The Prudential, and lending the capital
to its subsidiary company PRICOA Investment Company to fund its investment
activities.
4a. PRICOA INVESTMENT COMPANY (Incorporated in U.K.) (Owned by PRICOA Funding
Limited) (100%)
To identify attractive investment opportunities in the United Kingdom and
continental Europe for sale to, or manged on behalf of, third party clients.
</TABLE>
C - 16
<PAGE>
<TABLE>
<S> <C>
5. PRICOA PROPERTY INVESTMENT MANAGEMENT, LIMITED (Incorporated in U.K.) (Owned by
PIC Holdings, Ltd.) (100%)
Provides investment management and investment advisory services to international
institutional clients who invest in U.K. and continental European real estate.
5a. NORTHERN RETAIL PROPERTIES (GENERAL PARTNER) LTD. (Incorporated in U.K.) (Owned
by PRICOA Property Investment Management, Ltd.) (100%)
Serves as general partner to Northern Retail Property Ltd. Partnership. A U.K.
limited partnership whose principle activity is investment in three retail units
in northern Britain.
5b. PRICOA P.I.M. (REGULATED) LTD. (Incorporated in the U.K.) (Owned by PRICOA
Property Investment Management, Ltd.) (100%)
Provides investment management and investment advisory services to international
institutional clients who invest in U.K. and continental European real estate.
5c. TRANSEUROPEAN PROPERTIES (GENERAL PARTNERSHIP) LTD. (Incorporated in the U.K.)
(Owned by PRICOA Property Investment Management, Ltd.) (100%)
Serves as general partner to TransEuropean Property Limited Partnership, A U.K.
limited partnership. The principal activity of TransEuropean Property Limited
Partnership is investment in European property.
6. PRICOA REALTY GROUP LIMITED (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.)
(100%)
Provides international real estate services to PGR Advisors I, Inc. in
connection with the Prudential Global Real Estate Programme, and provides The
Prudential with a presence in London to monitor developments and identify
attractive investment opportunities in European property markets.
C. SUBSIDIARIES OF FINE HOMES, L.P.
Subsidiaries C.1 through C.9 are 100% owned by Prudential Residential Services,
Limited Partnership ("PRS LP").
1. MAJOR ESCROW CORP. (Incorporated in California) (100%)
Inactive.
2. ML/MSB ACQUISITION INC. (Incorporated in Delaware) (100%)
Acts as the general partner of Moran, Stahl & Boyer, L.P.
3. PRICOA RELOCATION MANAGEMENT, LTD. (Incorporated in U.K.) (100%)
Involved in the relocation consulting business.
4. PRS ESCROW SERVICES, INC. (Incorporated in California) (100%)
Inactive.
5. PRUDENTIAL COMMUNITY INTERACTION CONSULTING, INC. (Incorporated in Delaware)
(100%)
</TABLE>
C - 17
<PAGE>
<TABLE>
<S> <C>
Acts as a holding company for subsidiaries which are involved the residential
real estate referral business.
6. PRUDENTIAL NEW YORK HOMES CORPORATION (Incorporated in New York) (100%)
General partner of Prudential Louisiana Homes General Partnership, a New York
Partnership, Prudential Insurance Services Limited Partnership, a New York
Partnership, Landvest, a New York general partnership, Moran, Stahl & Boyer, a
New York general partnership, and Prudential Relocation Management, a New York
general partnership.
7. PRUDENTIAL OKLAHOMA HOMES CORPORATION (Incorporated in Oklahoma) (100%)
Inactive.
8. PRUDENTIAL RELOCATION MANAGEMENT COMPANY OF CANADA LTD. (Incorporated in
Ontario, Canada) (100%)
Involved in the relocation business.
9. THE RELOCATION FUNDING CORPORATION OF AMERICA (Incorporated in California)
(100%)
Involved in the relocation business.
D. SUBSIDIARIES OF RESIDENTIAL SERVICES CORPORATION OF AMERICA
1. LENDER'S SERVICE, INC. (Incorporated in Delaware) (100%)
Obtains residential mortgage appraisals on behalf of mortgage lenders, provides
title agency services, and manages the provision of closing services.
1a. LENDER'S SERVICE TITLE AGENCY, INC. (Incorporated in Ohio) (Owned by Lender's
Service, Inc.) (100%)
Acts as a title agent in the state of Ohio.
2. PRIVATE LABEL MORTGAGE SERVICES CORPORATION (Incorporated in Delaware) (100%)
Provides residential mortgage loan underwriting and origination services to
other companies for a fee.
3. SECURITIZED ASSET SALES, INC. (Incorporated in Delaware) (100%)
Offers residential mortgage loan securitization services and sells public and
private mortgage-backed securities.
4. SECURITIZED ASSET SERVICES CORPORATION (Incorporated in New Jersey) (100%)
Offers security administration services and master servicing.
5. THE PRUDENTIAL HOME MORTGAGE COMPANY, INC. (Incorporated in New Jersey) (100%)
Finances residential mortgage loans, through direct origination and purchases,
services and sells residential mortgage loans, and engages in other residential
mortgage banking activities.
5a. THE PRUDENTIAL HOME MORTGAGE SECURITIES COMPANY, INC. (Incorporated in Delaware)
(Owned by The Prudential Home Mortgage Company, Inc.) (100%)
</TABLE>
C - 18
<PAGE>
<TABLE>
<S> <C>
Sells public and private mortgage-backed securities.
E. SUBSIDIARIES OF THE PRUDENTIAL REAL ESTATE AFFILIATES
1. THE PRUDENTIAL REAL ESTATE FINANCIAL SERVICES OF AMERICA, INC. (Incorporated in
California) (100%)
Acts as a general partner in mortgage brokerage limited partnerships with
affiliates of franchisees of The Prudential Real Estate Affiliates, Inc.
1a. THE PRUDENTIAL REAL ESTATE FINANCIAL SERVICES OF LONG ISLAND, INC. (Incorporated
in California) (Owned by The Prudential Real Estate Financial Services of
America, Inc.) (100%)
Acts as a general partner in a New York based mortgage brokerage limited
partnership with a franchisee of The Prudential Real Estate Affiliates, Inc.
2. THE PRUDENTIAL REFERRAL SERVICES, INC. (Incorporated in Delaware) (100%)
Operates a residential real estate referral network.
F. SUBSIDIARIES OF PRUCO, INC.
1. CAPITAL AGRICULTURAL PROPERTY SERVICES, INC. (Incorporated in Delaware) (100%)
Provides management and real estate brokerage services for agricultural
properties of The Prudential and others.
2. FLOR-AG CORPORATION (Incorporated in Florida) (100%)
Engages primarily in the purchase, development, operation, lease and sale of
farmland in Florida.
3. P.G. REALTY, INC. (Incorporated in Nebraska) (100%)
Engages primarily in the purchase, development, operation, lease and sale of
farmland in Nebraska.
4. PIC REALTY CORPORATION (Incorporated in Delaware) (100%)
Owns, develops, operates, manages and leases real estate in the United States.
5. PRUCO SECURITIES CORPORATION (Incorporated in New Jersey) (100%)
Acts as a registered securities broker-dealer, licensed in every state,
Washington D.C. and Guam. Serves primarily as the medium through which
registered agents of The Prudential sell Prudential Securities Incorporated
mutual funds and offer variable products from Pruco Life and The Prudential.
6. PRUCO SERVICES, INC. (Incorporated in New Jersey) (100%)
Provides clinical bioanalytical services to The Prudential, as well as to other
insurance companies and industries in the United States and Canada.
7. PRUDENTIAL AGRICULTURAL CREDIT, INC. (Incorporated in Tennessee) (100%)
</TABLE>
C - 19
<PAGE>
<TABLE>
<S> <C>
Provides a broad range of financial services to agriculture, including farm real
estate mortgages, short term financing and equipment leasing.
8. PRUDENTIAL CAPITAL AND INVESTMENT SERVICES, INC. (Incorporated in Delaware)
(100%) (See Section G for direct and indirect subsidiaries)
A holding company for other subsidiaries.
9. PRUDENTIAL DENTAL MAINTENANCE ORGANIZATION, INC. (Incorporated in Texas) (100%)
A Dental Maintenance Organization which serves the state of Texas.
10. PRUDENTIAL DIRECT, INC. (Incorporated in Georgia) (100%)
Provides direct response and direct marketing services to The Prudential and its
subsidiaries.
11. PRUDENTIAL EQUITY INVESTORS, INC. (Incorporated in New York) (100%)
As a registered investment advisor, it makes private equity investments for
The Prudential and others.
12. PRUDENTIAL FUNDING CORPORATION (Incorporated in New Jersey) (100%)
Serves as a financing company for The Prudential and its subsidiaries. Funds are
obtained primarily through the issuance of commercial paper, private placement
medium term notes, Eurobonds, Eurocommercial paper, Euro-medium term notes and
master notes.
13. PRUDENTIAL HEALTH CARE PLAN, INC. (Incorporated in Texas) (100%)
A federally-qualified Health Maintenance Organization which serves the New
Jersey; Houston, Dallas, San Antonio and Austin, Texas; Nashville and Memphis,
Tennessee; Chicago, Illinois; Jacksonville, Tampa, Orlando and South Florida,
Florida; Richmond, Virginia; St. Louis and Kansas City, Missouri; Columbus,
Cleveland and Cincinnati, Ohio; Charlotte, North Carolina; Denver, Colorado;
Oklahoma City and Tulsa, Oklahoma; Baltimore, Maryland; Washington, D.C.;
Philadelphia, Pennsylvania; Kansas City, Kansas; Little Rock, Arkansas;
Massachusetts and Indiana areas.
14. PRUDENTIAL HEALTH CARE PLAN OF CALIFORNIA, INC. (Incorporated in California)
(100%)
A Health Maintenance Organization which serves the California area.
15. PRUDENTIAL HEALTH CARE PLAN OF CONNECTICUT, INC. (Incorporated in Connecticut)
(100%)
A Health Maintenance Organization which serves the Connecticut area.
16. PRUDENTIAL HEALTH CARE PLAN OF GEORGIA (Incorporated in Georgia) (100%)
A Health Maintenance Organization which serves the Georgia area.
17. PRUDENTIAL HEALTH CARE PLAN OF NEW YORK, INC. (Incorporated in New York) (100%)
A Health Maintenance Organization which serves the New York area.
18. PRUDENTIAL HOLDINGS, INC. (Incorporated in Delaware) (100%)
A holding company that does not currently hold any other companies.
</TABLE>
C - 20
<PAGE>
<TABLE>
<S> <C>
19. PRUDENTIAL INSTITUTIONAL FUND MANAGEMENT, INC. (Incorporated in Pennsylvania)
(100%)
A registered investment advisor which manages a series of mutual funds. The
funds are offered to institutional investors, principally employer-sponsored
defined contribution plans.
20. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY (Incorporated in Indiana)
(100%)
Provides dwelling, fire, automobile, homeowners or personal catastrophe
insurance for all states except New Jersey.
20a. PRUDENTIAL COMMERCIAL INSURANCE COMPANY (Incorporated in Delaware) (Owned by
Prudential Property and Casualty Insurance Company) (100%)
Writes automobile insurance and various commercial coverage in many states. The
company's contract as a servicing carrier, for the New Jersey Automobile Full
Insurance Underwriting Association, expired in March, 1989. The company will
continue to service claims during the run-off period.
20b. PRUDENTIAL INSURANCE BROKERAGE, INC. (Incorporated in Arizona) (Owned by
Prudential Commercial Insurance Company) (100%)
Acts as an insurance broker and agency in many states.
20c. PRUDENTIAL GENERAL INSURANCE COMPANY (Incorporated in Delaware) (Owned by
Prudential Property and Casualty Insurance Company) (100%)
Provides coverage for preferred homeowners and private passenger automobiles in
many states.
20d. THE PRUDENTIAL PROPERTY AND CASUALTY GENERAL AGENCY, INC. (Incorporated in
Texas) (Owned by Prudential Property and Casualty Insurance Company) (100%)
Acts as Managing General Agency in the state of Texas.
21. THE PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY OF NEW JERSEY
(Incorporated in New Jersey) (100%)
Writes automobile, homeowner and personal catastrophe liability lines of
business in the state of New Jersey.
22. PRUDENTIAL REALTY PARTNERSHIPS, INC. (Incorporated in Delaware) (100%)
Acts as a general partner in limited partnerships which own real estate.
23. PRUDENTIAL REALTY SECURITIES, INC. (Incorporated in Delaware) (100%)
Issues zero coupon bonds secured by residential mortgages.
24. PRUDENTIAL REALTY SECURITIES II, INC. (Incorporated in Delaware) (87% owned by
The Prudential and 13% owned by Pruco, Inc.)
Issues bonds secured by real estate mortgages.
25. PRUDENTIAL REINSURANCE HOLDINGS (Incorporated in Delaware) (100%)
A holding company which is the sole owner of Prudential Reinsurance Company.
</TABLE>
C - 21
<PAGE>
<TABLE>
<S> <C>
25a. PRUDENTIAL REINSURANCE COMPANY (Incorporated in Delaware) (Owned by Prudential
Reinsurance Holdings) (100%)
Writes substantially all types of property and casualty reinsurance.
25b. LE ROCHER REINSURANCE LTD. (Incorporated in U.K.) (Owned by Prudential
Reinsurance Company) (100%)
Engages in the property and casualty reinsurance business, principally in
Europe.
25c. PRUDENTIAL NATIONAL INSURANCE COMPANY (Incorporated in Arizona) (Owned by
Prudential Reinsurance Company) (100%)
Writes commercial property and casualty insurance in the alternative risk
market.
26. PRUDENTIAL RETIREMENT SERVICES, INC. (Incorporated in New Jersey) (100%)
Acts as the broker-dealer which distributes securities on behalf of Prudential
Defined Contribution Service. These securities consist of shares of the
Prudential Institutional Fund and four registered separate accounts of The
Prudential.
27. PRUDENTIAL TRUST COMPANY (Incorporated in Pennsylvania) (100%)
Responsible for the management of assets in trust of certain employee benefit
trusts and other tax exempt trusts.
27a. PTC SERVICES, INC. (Incorporated in New Jersey) (Owned by Prudential Trust
Company) (100%)
Oversees the activities of investment advisers who manage certian assets held in
trust by Prudential Trust Company.
28. PRUDENTIAL UNIFORMED SERVICES ADMINISTRATORS, INC. (Incorporated in Oklahoma)
(100%)
Established to administer CHAMPUS (Civilian Health and Medical Program of
Uniformed Service) Insurance for all CHAMPUS eligibles in the states of Texas,
Oklahoma, Arkansas and Louisiana.
29. THE PRUDENTIAL BANK AND TRUST COMPANY (Incorporated in Georgia) (100%)
As a "non-bank" bank, provides commercial and consumer loans, deposit products
(other than demand deposits), and trust services throughout the U.S.
29a. PBT MORTGAGE CORPORATION (Incorporated in Georgia) (Owned by The Prudential Bank
and Trust Company) (100%)
As a wholly-owned subsidiary of The Prudential Bank and Trust Company, it
originates home equity loans in states which would otherwise exclude the bank.
30. THE PRUDENTIAL SAVINGS BANK, F.S.B. (Incorporated in Georgia) (100%)
Operating as a federal savings bank, it provides commercial and consumer loans
and deposit products in the state of Georgia. It also originates consumer
products in various other states.
G. SUBSIDIARIES OF PRUDENTIAL CAPITAL AND INVESTMENT SERVICES, INC.
</TABLE>
C - 22
<PAGE>
<TABLE>
<S> <C>
1. LAPINE HOLDING COMPANY (Incorporated in Delaware) (66.7%)
Holding company for Lapine Technology Corporation.
2. LAPINE TECHNOLOGY CORPORATION (Incorporated in California) (Owned by Lapine
Holding Company) (100%)
Inactive.
3. PRUDENTIAL CAPITAL CORPORATION (Incorporated in Delaware) (100%)
Holding company which has through its subsidiaries, an investment portfolio
inclusive of loans, leases and other forms of financing. Holding company for
PruCapital Management, Inc., Prudential Interfunding Corp. and Prulease, Inc.
4. PRUCAPITAL MANAGEMENT, INC. (Incorporated in Delaware) (Owned by Prudential
Capital Corporation) (100%)
Provides various marketing and administrative services to PruLease, Inc.,
Prudential Interfunding Corp., Prudential Capital Corporation and The Prudential
Insurance Company of America.
5. PRUDENTIAL INTERFUNDING CORP. (Incorporated in Delaware) (Owned by Prudential
Capital Corporation) (100%)
Has an investment portfolio of loans, leases and other forms of financing.
6. PRULEASE, INC. (Incorporated in Delaware) (Owned by Prudential Capital
Corporation) (100%)
Has an investment portfolio of loans, leases and other forms of financing.
7. NNW UTILITY FUNDING II, INC. (Incorporated in California) (Owned by PruLease,
Inc.) (100%)
Acting to expedite Prudential Departure from the multi-asset floating rate lease
business.
8. PRUDENTIAL SECURITIES GROUP INC. (Incorporated in Delaware) (PRUCO, Inc. owns
100% preferred and Prudential Capital & Investment Services, Inc. owns 100%
common.)
A holding company.
9. BACHE INSURANCE AGENCY OF ARKANSAS, INC. (Incorporated in Arkansas) (Owned by
Prudential Securities Group Inc.) (100%)
Insurance agent in the state of Arkansas.
10. BACHE INSURANCE AGENCY OF LOUISIANA, INC. (Incorporated in Louisiana) (Owned by
Prudential Securities Group Inc.) (100%)
Insurance agent in the state of Louisiana. Holding company for Prudential-Bache
Securities (Germany) Inc.
11. PRUDENTIAL-BACHE SECURITIES (GERMANY) INC. (Incorporated in Delaware) (Owned by
Bache Insurance Agency of Louisiana, Inc.) (100%)
Correspondent of Prudential-Bache Securities Incorporated in Germany.
</TABLE>
C - 23
<PAGE>
<TABLE>
<S> <C>
12. BRAELOCH SUCCESSOR CORPORATION (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Owns Braeloch Holdings Inc. which is an oil and gas company engaged in
partnership management, oil and gas property management and gas marketing and
transportation.
13. BRAELOCH HOLDINGS, INC. (Incorporated in Delaware) (Owned by BraeLoch Successor
Corporation) (100%)
Holding company.
14. GRAHAM RESOURCES, INC. (Incorporated in Delaware) (Owned by BraeLoch
Holdings Inc. ) (100%)
Holding company for all partnership management and administration activities.
Sole general partner is Graham Acquisition 1984-I.
15. GRAHAM DEPOSITORY COMPANY II (Incorporated in Delaware) (Owned by Graham
Resources, Inc.) (100%)
Growth Fund depository company.
16. GRAHAM DEPOSITORY COMPANY SERIES IV (Incorporated in Delaware) (Owned by Graham
Resources, Inc.) (100%)
Series IV depository company.
17. GRAHAM ENERGY, LTD. (Incorporated in Louisiana) (Owned by Graham Resources,
Inc.) (100%)
General Partner in Growth Fund and related products involved primarily in the
investment in oil and gas related companies and assets. General Partner in (1)
SPG Reserve Program 1981 (2) SPG Reserve Program (3) Graham Income Fund 82A.
18. GRAHAM EXPLORATION, LTD. (Incorporated in Louisiana) (Owned by Graham
Resources, Inc.) (100%)
General Partner in various limited and general partnerships involved in
exploratory oil and gas operations. General partner to Graham Limited
Partnership 83A and Graham Limited Partnership 83B. Managing General Partner to
Graham Drilling Partnership 83A and Graham Drilling Partnership 83B.
19. CRESCENT DRILLING & DEVELOPMENT, INC. (Incorporated in Delaware) (Owned by
Graham Exploration, Ltd.) (100%)
Managing Partner of the following partnerships: Crescent Associates Partnership
1982, Crescent (NDL) Partnership 1985, Crescent (ICW) Partnership 1985, Crescent
(CLF) Partnership 1985 and Crescon Partnership 1982.
20. GRAHAM ROYALTY, LTD. (Incorporated in Louisiana) (Owned by Graham Resources,
Inc.) (100%)
General Partner of Prudential-Bache Energy Income Funds. Named operator of oil
and gas properties.
21. GRAHAM PRODUCTION COMPANY (Incorporated in Delaware) (Owned by Graham Royalty,
Ltd.) (100%)
Managing General Partner of GOP which has been terminated.
</TABLE>
C - 24
<PAGE>
<TABLE>
<S> <C>
22. GRAHAM SECURITIES CORPORATION (Incorporated in Delaware) (Owned by Graham
Resources, Inc.) (100%)
A NASD member firm responsible for marketing various Graham financial products.
23. PB BULLION COMPANY INC. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Purchases metals for resale to processors, fabricators, and other dealers.
24. P-B SERVICES (U.K.) (Incorporated in U.K.) (Owned by Prudential Securities Group
Inc.) (100%)
Holds unsecured subordinated loan stock for Prudential-Bache International (U.K)
Limited.
25. PGR ADVISORS, INC. (Incorporated in Delaware) (Owned by Prudential Securities
Group Inc.) (100%)
Vehicle utilized in home office relocation.
26. PRUDENTIAL-BACHE AGRICULTURE INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Inactive.
27. PRUDENTIAL-BACHE CAPITAL FUNDING (AUSTRALIA) LIMITED (Incorporated in Australia)
(Owned by Prudential Securities Group Inc.) (100%)
Dealer in fixed interest securities.
28. PRUDENTIAL-BACHE CAPITAL FUNDING BV (Incorporated in The Netherlands) (Owned by
Prudential Securities Group Inc.) (100%)
Management company for special purpose vehicle (Audley Finance BV).
29. AUDLEY FINANCE BV (Incorporated in The Netherlands) (Owned by Prudential-Bache
Capital Funding BV) (100%)
Investment vehicle.
30. PRUDENTIAL-BACHE ENERGY CORP. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Engages through limited partnerships, in acquisitions of oil drilling properties
and financing secondary and tertiary recovery systems.
31. PRUDENTIAL-BACHE ENERGY PRODUCTION INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Acts as a general partner for oil and gas limited partnerships.
32. PRUDENTIAL-BACHE HOLDINGS INC. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Holding company for Prudential-Bache Partners Inc.
33. PRUDENTIAL-BACHE PARTNERS INC. (Incorporated in Nevada) (Owned by
Prudential-Bache Holdings Inc.) (100%)
</TABLE>
C - 25
<PAGE>
<TABLE>
<S> <C>
Insurance agent in the State of Nevada and a general partner to an employee
investment partnership.
34. P-B CAPITAL PARTNERS (UK) LIMITED (Incorporated in U.K.) (Owned by
Prudential-Bache Capital Partners I, LP, a general partnership of
Prudential-Bache Partners Inc.) (100%)
Inactive.
35. PRUDENTIAL-BACHE INTERNATIONAL (UK) LIMITED (Incorporated in U.K.) (Owned by
Prudential Securities Group Inc.) (100%)
Holding & service company for U.K. subsidiaries.
36. CLIVE DISCOUNT HOLDINGS INTERNATIONAL LIMITED (Incorporated in U.K.) (Owned by
Prudential-Bache International [UK] Limited) (100%)
Inactive.
37. PAGE & GWYTHER HOLDINGS LIMITED (Incorporated in U.K.) (Owned by
Prudential-Bache International [UK] Limited) (100%)
Inactive.
38. PAGE & GWYTHER LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache
International [U.K.] Limited) (100%)
Inactive.
39. PRUDENTIAL-BACHE CAPITAL FUNDING (EQUITIES) LIMITED (Incorporated in U.K.)
(Owned by Prudential-Bache International (UK) Limited) (100%)
London Stock Exchange broker and group custodian services.
40. CIRCLE (NOMINEES) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache
Capital Funding [Equities] Limited) (100%)
Holds stock for Prudential-Bache Capital Funding (Equities) Limited and
Prudential Securities Incorporated customers in nominee name.
41. PRUDENTIAL-BACHE CAPITAL FUNDING (GILTS) LIMITED (Incorporated in U.K.) (Owned
by Prudential-Bache International [UK] Limited) (100%)
Inactive.
42. PRUDENTIAL-BACHE CAPITAL FUNDING (MONEY BROKERS) LIMITED (Incorporated in U.K.)
(Owned by Prudential-Bache International [UK] Limited) (100%)
London Stock Exchange money broker.
43. PRUDENTIAL-BACHE (FUTURES) LIMITED (Incorporated in U.K.) (Owned by Prudential-
Bache International [U.K.] Limited) (100%)
Broker/trader in financial futures and commodities.
44. PRUDENTIAL-BACHE INTERFUNDING (U.K.) LIMITED (Incorporated in Delaware) (Owned
by Prudential- Bache International [U.K.] Limited) (100%)
Established to act as a principal in leveraged buyouts but is currently in
liquidation.
</TABLE>
C - 26
<PAGE>
<TABLE>
<S> <C>
45. PRUDENTIAL-BACHE INVESTOR SERVICES INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Serves as an assignor limited partner for public deals offered by the Direct
Investment Department.
46. PRUDENTIAL-BACHE INVESTOR SERVICES II, INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Serves as an assignor limited partner for public deals offered by the Direct
Investment Department.
47. PRUDENTIAL-BACHE LEASING INC. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Leasing company which advises limited partnerships in the leasing business.
48. PRUDENTIAL-BACHE MINERALS INC. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Acts as co-general partner in the Prudential Securities/Barrick Gold Acquisition
Fund.
49. PRUDENTIAL-BACHE PROGRAM SERVICES INC. (Incorporated in New York) (Owned by
Prudential Securities Group Inc.) (100%)
Leases equipment and furniture to Prudential Securities Incorporated. Issuer of
puts in municipal bond offerings underwritten by Prudential Securities
Incorporated.
50. PRUDENTIAL-BACHE PROPERTIES INC. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Monitors syndicated private placements of investments in real estate and acts as
general partner for real estate and other limited partnerships.
51. EQUITEC VENTURE CORP. III , INC. (Incorporated in California) (Owned by
Prudential-Bache/Equitec Real Estate Partnership - a limited partnership of
Prudential-Bache Properties Inc.) (100%)
Owns real estate.
52. PRUDENTIAL-BACHE REAL ESTATE, INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Inactive.
53. PRUDENTIAL-BACHE SECURITIES (AUSTRALIA) LIMITED (Incorporated in Australia)
(Owned by Prudential Securities Group Inc.) (100%)
Stock brokerage.
54. BACHE NOMINEES LTD. (Incorporated in Australia) (Owned by Prudential-Bache
Securities [Australia] Limited)
Nominee company for the fixed income department.
55. CORCARR FUNDS MANAGEMENT LIMITED (Incorporated in Australia) (Owned by
Prudential-Bache Securities [Australia] Limited) (100%)
Fund manager.
</TABLE>
C - 27
<PAGE>
<TABLE>
<S> <C>
56. CORCARR MANAGEMENT PTY. LIMITED (Incorporated in Australia) (Owned by
Prudential-Bache Securities [Australia] Limited) (100%)
Nominee and management company.
57. CORCARR NOMINEES PTY. LIMITED (Incorporated in Australia) (Owned by Prudential-
Bache Securities [Australia] Limited) (100%)
Nominee company for the safe custody of clients' scrip.
58. CORCARR SUPERANNUATION PTY. LIMITED (Incorporated in Australia) (Owned by
Prudential-Bache Securities [Australia] Limited) (100%)
Trustee company for the staff Superannuation Fund.
59. DIVSPLIT NOMINEES PTY. LIMITED (Incorporated in Australia) (Owned by Prudential-
Bache Securities [Australia] Limited) (100%)
Nominee company for the protection of client dividends, new issues and
takeovers.
60. PRUBACHE NOMINEES PTY. LTD. (Incorporated in Australia) (Owned by
Prudential-Bache Securities [Australia] Limited) (100%)
Nominee/custodian for clients of Prudential-Bache Securities (Australia) Limited
and Prudential Securities Incorporated.
61. PRUDENTIAL-BACHE TRADE SERVICES INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Holding company for PB Trade Finance Co., S.A. (PB Trafco), PB Trade Ltd., and
Prudential-Bache Forex (USA) Inc.
62. PB TRADE LTD. (Incorporated in U.K.) (Owned by Prudential-Bache Trade Services
Inc.) (100%)
Inactive.
63. PRUDENTIAL-BACHE FOREX (USA) INC. (Incorporated in Delaware) (Owned by
Prudential-Bache Trade Services Inc.) (100 To engage in the foreign exchange
business; holding company for Prudential-Bache Forex (Hong Kong) Limited and
Prudential-Bache Forex (U.K.) Limited.
64. PRUDENTIAL-BACHE FOREX (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned by
Prudential-Bache Forex [USA] Inc.) (100%)
Engages in the foreign exchange business.
65. PRUDENTIAL-BACHE FOREX (U.K.) LIMITED (Incorporated in U.K.) (Owned by
Prudential-Bache Forex [USA] Inc.) (100%)
Engages in trade, finance and foreign exchange.
66. PRUDENTIAL-BACHE FUTURES (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned
by Prudential Securities, Inc.) (100%)
To introduce customers to Prudential Securities and affiliates for futures
transactions on U.S. exchanges and execute futures orders on behalf of
Prudential Securities on the Hong Kong Futures Exchange.
</TABLE>
C - 28
<PAGE>
<TABLE>
<S> <C>
67. PRUDENTIAL-BACHE TRANSFER AGENT SERVICES, INC. (Incorporated in New York) (Owned
by Prudential Securities Group Inc.) (100%)
Acts as transfer agent for limited partnerships sponsored by Prudential
Securities Group Inc. or sold by Prudential Securities Incorporated.
68. PRUDENTIAL SECURITIES INCORPORATED (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Securities and commodity broker-dealer; underwriter.
69. BACHE & CO. (LEBANON) S.A.L. (Incorporated in Lebanon) (Owned by Prudential
Securities Incorporated) (100%)
Inactive.
70. BACHE & CO. S.A. DE C.V. (MEXICO) (Incorporated in Mexico) (Owned by Prudential
Securities Incorporated) (100%)
Inactive.
71. BACHE HALSEY STUART COMMODITIES S.A. (Incorporated in France) (Owned by
Prudential Securities Incorporated) (100%)
Inactive.
72. BACHE INSURANCE AGENCY, INCORPORATED (Incorporated in Massachusetts) (Owned by
Prudential Securities Incorporated) (100%)
Insurance agent in Massachusetts.
73. BACHE INSURANCE OF ARIZONA INC. (Incorporated in Arizona) (Owned by Prudential
Securities Incorporated) (100%)
Insurance agent in Arizona.
74. BACHE INSURANCE OF KENTUCKY, INC. (Incorporated in Kentucky) (Owned by
Prudential Securities Incorporated) (100%)
Insurance agent in Kentucky.
75. BACHE SHIELDS SECURITIES CORPORATION (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
Inactive.
76. BANOM CORPORATION (Incorporated in New York) (Owned by Prudential Securities
Incorporated) (100%)
Holds securities as nominee; otherwise inactive.
77. GELFAND, QUINN & ASSOCIATES INC. (Incorporated in Ohio) (Owned by Prudential
Securities Incorporated) (100%)
Inactive.
78. P-B HOLDING JAPAN INC. (Incorporated in Delaware) (Owned by Prudential
Securities Incorporated) (100%)
Holds the stock of Prudential Securities (Japan) Ltd.
</TABLE>
C - 29
<PAGE>
<TABLE>
<S> <C>
79. PRUDENTIAL SECURITIES (JAPAN) LTD. (Incorporated in Delaware) (Owned by P-B
Holding Japan Inc.) (100%)
Service affiliate of Prudential Securities Incorporated in Japan. Registered
broker-dealer in Japan.
80. PRUDENTIAL-BACHE BROKERAGE (HONG KONG) LIMITED (Incorporated in Delaware) (Owned
by Prudential Securities Incorporated) (100%)
Inactive.
81. PRUDENTIAL-BACHE FUTURES ASIA PACIFIC LTD. (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
To introduce customers to Prudential Securities Incorporated for futures
transactions on U.S. Exchanges and execute futures orders on behalf of
Prudential Securities Incorporated on SIMEX.
82. PRUDENTIAL-BACHE SECURITIES ASIA PACIFIC LTD. (Incorporated in New York) (Owned
by Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Singapore.
83. PRUDENTIAL-BACHE SECURITIES (BELGIUM) INC. (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Belgium.
84. PRUDENTIAL-BACHE SECURITIES (ESPANA), S.A. (Incorporated in Spain) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Spain.
85. PRUDENTIAL-BACHE SECURITIES (FRANCE) S.A. (Incorporated in France) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in France.
86. PRUDENTIAL-BACHE SECURITIES (GREECE) S.A. (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
Inactive.
87. PRUDENTIAL-BACHE SECURITIES (HOLLAND) INC. (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Holland.
88. PRUDENTIAL-BACHE SECURITIES (HOLLAND) N.V. (Incorporated in Holland) (Owned by
Prudential Securities [Holland] Inc.) (100%)
Inactive.
89. PRUDENTIAL-BACHE SECURITIES (HONG KONG) LIMITED (Incorporated in Hong Kong)
(Owned by Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Hong Kong.
90. PRUDENTIAL-BACHE SECURITIES (LUXEMBOURG) INC. (Incorporated in Delaware) (Owned
by Prudential Securities Incorporated) (100%)
</TABLE>
C - 30
<PAGE>
<TABLE>
<S> <C>
Service affiliate of Prudential Securities Incorporated in Luxembourg.
91. PRUDENTIAL-BACHE SECURITIES (MONACO) INC. (Incorporated in New York) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Monaco.
92. PRUDENTIAL-BACHE SECURITIES (SWITZERLAND) INC. (Incorporated in Delaware) (Owned
by Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in Switzerland.
93. PRUDENTIAL-BACHE SECURITIES (U.K.) INC. (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in U.K.
94. SHIELDS MODEL ROLAND COMPANY (Incorporated in U.K.) (Owned by Prudential-Bache
Securities [U.K.] Inc.) (100%)
Inactive.
95. PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (Incorporated in Delaware) (15% owned by
The Prudential and 85% owned by Prudential Securities Incorporated)
Mutual fund management company.
96. PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (Incorporated in Delaware) (Owned by
Prudential Mutual Fund Management, Inc.) (100%)
Principal underwriter of new mutual funds.
97. PRUDENTIAL MUTUAL FUND SERVICES, INC. (Incorporated in New Jersey) (Owned by
Prudential Mutual Fund Management, Inc.) (100%)
Mutual fund transfer agent and shareholder services company.
98. PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. (Incorporated in Delaware) (Owned
by Prudential Securities Incorporated) (100%)
1) General partner of a limited partnership with assets invested in commodities,
futures contracts and commodity related products and 2) Commodities and futures
contract business.
99. PRUDENTIAL SECURITIES (SOUTH AMERICA) INC. (Incorporated in Delaware) (Owned by
Prudential Securities Incorporated) (100%)
Service affiliate of Prudential Securities Incorporated in South America;
holding company for Prudential Securities (Argentina) Incorporated and
Prudential Securities (Uruguay) S.A.
100. PRUDENTIAL SECURITIES (ARGENTINA) INC. (Incorporated in Delaware) (Owned by
Prudential Securities [South America] Inc.) (100%)
Service affiliate of Prudential Securities Incorporated in Argentina.
101. PRUDENTIAL SECURITIES (URUGUAY) S.A. (Incorporated in Uruguay) (Owned by
Prudential Securities [South America] Inc.) (100%)
Service affiliate of Prudential Securities Incorporated in Uruguay.
</TABLE>
C - 31
<PAGE>
<TABLE>
<S> <C>
102. SHIELDS MODEL ROLAND SECURITIES INCORPORATED (Incorporated in New York) (Owned
by Prudential Securities Incorporated
Inactive.
103. PRUDENTIAL SECURITIES FINANCIAL ASSET FUNDING CORP. (Incorporated in Delaware)
(Owned by Prudential Securities Group Inc.) (100%)
Creation of trusts which issue bonds backed by GNMA, FNMA or FHLMC collateral.
104. PRUDENTIAL SECURITIES LEASE HOLDING INC. (Incorporated in New York) (Owned by
Prudential Securities Group Inc.) (100%)
Owns IBM computers and leases them to Prudential Securities Incorporated.
105. PRUDENTIAL SECURITIES MUNICIPAL DERIVATIVES (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Serves as a general partner in a limited partnership structure providing
floating rate & inverse floating rate municipal securities.
106. PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION (Incorporated in Delaware)
(Owned by Prudential Securities Group Inc.) (100%)
Involved in the purchase and sale of residential first mortgage whole loans,
including purchase and sales under repurchase agreements. Sales may be in whole
loan, participation certificates, agency or securitized format.
107. PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION (Incorporated in Delaware)
(Owned by Prudential Securities Incorporated) (100%)
Purchase and securitization of mortgages and other assets.
108. PRUDENTIAL SECURITIES STRUCTURED ASSETS (Incorporated in Ohio) (Owned by
Prudential Securities Group Inc.) (100%)
Inactive.
109. P-B FINANCE LTD. (Incorporated in The Cayman Islands) (Owned by Prudential
Securities Structured Assets) (100%)
Finances commodity margin calls, both original and variation, and does other
financing transactions for a select group of international and domestic
customers.
110. R & D FUNDING CORP. (Incorporated in Delaware) (Owned by Prudential Securities
Group Inc.) (100%)
Acts as a general partner in research and development partnerships.
111. SEAPORT FUTURES MANAGEMENT, INC. (Incorporated in Delaware) (Owned by Prudential
Securities Group Inc.) (100%)
Acts as a general partner of limited partnerships with assets invested in
commodities, futures contracts and commodity related products. Also engages in
commodities and futures contracts business.
112. SPECIAL SITUATIONS MANAGEMENT INC. (Incorporated in Delaware) (Owned by
Prudential Securities Group Inc.) (100%)
Owns limited partnerships interests in Special Situations Fund, L.P.
</TABLE>
C - 32
<PAGE>
<TABLE>
<S> <C>
113. THE PRICOA INTERNATIONAL BANK, S.A. (Incorporated in Luxembourg) (Owned by
Prudential Securities Group Inc.) (100%)
A Luxembourg licensed universal bank that provides private banking services
internationally.
H. SUBSIDIARIES OF THE PRUDENTIAL INVESTMENT CORPORATION
1. GATEWAY HOLDINGS, S.A. (Incorporated in Luxembourg) (100%)
A financial holding company which owns Luxembourg registered investment
management companies. Gateway Holdings S.A. is the parent of Amicus Investment
Company, Global Income Fund Management Company, S.A., Global Series Fund II
Management Company, S.A., Jennison Long Bond Management Company, and PAEC
Management Company.
2. AMICUS INVESTMENT COMPANY (Incorporated in the Cayman Islands) (Owned by Gateway
Holdings, S.A.) (100%)
Provides promotion and sponsorship functions for the Amicus Equity Fund, an
open-ended investment trust established under the jurisdiction of the Cayman
Islands.
3. GLOBAL INCOME FUND MANAGEMENT COMPANY, S.A. (Incorporated in Luxembourg) (Owned
by Gateway Holdings, S.A.) (100%)
Acts as the management company for Global Income Fund, an investment fund
organized in Luxembourg.
4. GLOBAL SERIES FUND II MANAGEMENT COMPANY, S.A. (Incorporated in Luxembourg)
(Owned by Gateway Holdings, S.A.) (100%)
Acts as the management company for Global Series Fund II, an investment fund
organized in Luxembourg.
5. JENNISON LONG BOND MANAGEMENT COMPANY (Incorporated in Luxembourg) (Owned by
Gateway Holdings, S.A.) (100%)
Acts as the management company for Jennison Long Bond Fund, an investment fund
organized in Luxembourg. The Fund invests in a diversified portfolio of
securities issued or guaranteed by the U.S. Government of which units of the
fund are offered privately to Japanese institutional investors through PIC's
Japan representative office in Tokyo.
6. PAEC MANAGEMENT COMPANY (Incorporated in Luxembourg) (Owned by Gateway Holdings,
S.A.) (100%)
Acts as the management company for Prudential Asia Emerging Companies Fund, an
investment fund organized in Luxembourg.
7. PRUDENTIAL ASSET SALES AND SYNDICATIONS, INC. (Incorporated in Delaware) (100%)
Registered broker/dealer which engages in the investment banking business. Also
responsible for the syndication or sale of Prudential originated private
placement deals.
8. PRUDENTIAL HOME BUILDING INVESTORS, INC. (Incorporated in New Jersey) (100%)
</TABLE>
C - 33
<PAGE>
<TABLE>
<S> <C>
Acts as the general partner of a limited partnership, Prudential Home Building
Advisors, L.P. Through this partnership it provides investment advisory services
in a portfolio of residential land improvement and/or single family home
construction projects.
9. PRUSUPPLY, INC. (Incorporated in Delaware) (100%)
Serves as an inventory facility, holding investments pending sale for Prudential
Asset Sales and Syndications, Inc. Enters into contracts for the supply of
fossil fuel and other inventory.
10. PRUSUPPLY CAPITAL ASSETS, INC. (Incorporated in New Jersey) (Owned by PruSupply,
Inc.) (100%)
Serve as a capital base for the syndication activity of Prudential Asset Sales
and Syndications, Inc. It will hold, invest, and reinvest stocks, bonds, etc. to
support the borrowing capacity of PruSupply, Inc.
11. THE PRUDENTIAL ASSET MANAGEMENT COMPANY, INC. (Incorporated in New Jersey)
(100%)
Provides various record keeping, benefit payment, and plan consulting services
to The Prudential and its clients. It also acts as a solicitor on behalf of
affiliates who are investments advisors.
12. CSI ASSET MANAGEMENT, INC. (Incorporated in Delaware) (Owned by The Prudential
Asset Management Company, Inc.) (100%)
Provides institutional clients (primarily state and municipal employee benefit
plans) with discretionary management of portfolios investing in U.S. stocks and
bonds.
13. ENHANCED INVESTMENT TECHNOLOGIES, INC. (Incorporated in New Jersey) (Owned by
The Prudential Asset Management Company, Inc.) (100%)
Provides investment advisory services to institutional clients using domestic
equity portfolios.
14. MERCATOR ASSET MANAGEMENT, INC. (Incorporated in Florida) (Owned by The
Prudential Asset Management Company, Inc.) (100%)
Serves as an investment advisor with a focus on global and international
investing for institutional clients.
15. PRUDENTIAL ASIA INVESTMENTS LIMITED (Incorporated in the British Virgin Islands)
(Common stock 100% owned by The Prudential Asset Management Company, Inc. and
preferred stock 50% owned by the Prudential Asset Management Company, Inc. and
50% owned by Prudential Securities Group Inc.)
A holding company for subsidiaries engaged in investment management, merchant
banking , portfolio management and direct investment activities in the Far East.
16. PRUDENTIAL ASIA DBS LIMITED (Incorporated in Hong Kong) (Owned by Prudential
Asia Investments Limited) (50%)
Provides corporate finance services in the Far East
17. PRUDENTIAL ASSET MANAGEMENT ASIA LIMITED (BVI) (Incorporated in the British
Virgin Islands) (Owned by Prudential Asia Investments Limited) (100%)
</TABLE>
C - 34
<PAGE>
<TABLE>
<S> <C>
Makes direct investments and provides investment advisory services in China,
Taiwan, Korea, Japan, Australia and New Zealand.
18. PRUDENTIAL ASSET MANAGEMENT ASIA (INDONESIA) LIMITED (Incorporated British
Virgin Islands) (Owned by Prudential Asset Management Asia Limited (BVI)) (75%)
Engaged in the management and operation of PT PAMA Indonesia, an Indonesian
Venture Capital Company, and a unit trust which makes direct investments in
Indonesian companies.
19. PT PAMA INDONESIA (Incorporated in Indonesia) (Owned by Prudential Asset
Management Asia Limited [BVI]) (65%)
An Indonesian Venture Capital Company which invests directly in Indonesian
companies or in a trust that invests inIndonesian Companies.
20. PAMA (SINGAPORE) PRIVATE LIMITED (Incorporated in Singapore) (Owned by
Prudential Asset Management Asia Limited [BVI]) (100%)
Engaged in direct investments, corporate finance and portfolio management
activities in Singapore.
21. PRUDENTIAL ASSET MANAGEMENT ASIA (HONG KONG) LIMITED (Incorporated in Hong Kong)
(Owned by Prudential Asset Management Asia Limited [BVI]) (100%)
Engaged in direct investments and portfolio management activities in Hong Kong.
22. PRUDENTIAL-BACHE CAPITAL FUNDING ASIA LIMITED (Incorporated in the British
Virgin Islands) (Owned by Prudential Asia Investments Limited) (100%)
Inactive.
23. PRUDENTIAL-BACHE CAPITAL FUNDING ASIA (HONG KONG) LIMITED (Incorporated in Hong
Kong) (Owned by Prudential-Bache Capital Funding Asia Limited) (100%)
Inactive.
24. S J BEDDING B.V. (Incorporated in the Netherlands) (Owned by Prudential Asia
Investments Limited) (100%)
A holding company for Prudential Asia Investments Limited's investment in the
shares of Simmons Co., Limited.
25. SIMMONS BEDDING AND FURNITURE (HK) LIMITED (Incorporated in Hong Kong) (Owned by
S J Bedding BV) (66.24%)
Collectively with its affiliates engages in the manufacturing, sales and
distribution of bedding products, furniture and accessories in Japan, Hong Kong,
Singapore and Macau.
26. SIMMONS ASIA LIMITED (Incorporated in the British Virgin Islands) (Owned by
Simmons Bedding & Furniture [HK] Limited) (90%)
Engages in the business of licensing Simmons related trademarks and technology
in Asia Pacific countries other than those covered by Simmons Co., Limited.
27. SIMMONS (SOUTHEAST ASIA) PRIVATE LIMITED (Incorporated in Singapore) (Owned by
Simmons Asia Limited) (100%)
</TABLE>
C - 35
<PAGE>
<TABLE>
<S> <C>
Carries out manufacturing and distribution activities of the bedding products,
furniture and accessories in Singapore.
28. SIMMONS CO., LIMITED (Incorporated in Japan) (Owned by SJ Bedding B.V.) (66.24%)
A holding company for Simmons Bedding and Furniture (HK) Limited.
29. PRUDENTIAL ASIA FUND MANAGEMENT LIMITED (BVI) (Incorporated in the British
Virgin Islands) (Owned by Prudential Asia Investments Limited) (100%)
A holding company for Prudential Asia Fund Management Limited and Prudential
Asia Fund Managers (HK) Limited and engages in portfolio investment management
and advisory services with a concentration on publicly traded securities.
30. PRUDENTIAL ASIA FUND MANAGEMENT LIMITED (Incorporated in Hong Kong) (Owned by
Prudential Asia Fund Management Limited [BVI]) (100%)
Provides investment advisory activities in the United States.
31. PRUDENTIAL ASIA FUND MANAGERS (HK) LIMITED (Incorporated in Hong Kong) (Owned by
Prudential Asia Fund Management Limited [BVI]) (100%)
Provides investment advisory activities in Hong Kong.
32. PRUDENTIAL ASSET MANAGEMENT COMPANY SECURITIES CORPORATION (Incorporated in
Delaware) (Owned by The Prudential Asset Management Company, Inc.) (100%)
Markets to institutional clients investment products developed by other
Prudential affiliates including products which can only be sold by a NASD and
SEC registered broker-dealer.
33. PRUDENTIAL TIMBER INVESTMENTS, INC. (Incorporated in New Jersey) (Owned by The
Prudential Asset Management Company, Inc.) (100%) (100% of preferred stock owned
by the Prudential Insurance Company of America.)
Provides timber investment management services to institutional clients.
Acquires and manages commercial timber properties with the goal of generating
competitive returns.
34. PCM INTERNATIONAL, INC. (Incorporated in New Jersey) (Owned by The Prudential
Asset Management Company, Inc.) (100%)
Serves as an investment advisor with a focus on global and international
investing for institutional clients.
35. TEXAS RIO GRANDE OTHER ASSETS GROUP COMPANY, INC. (Incorporated in Delaware)
(100%)
Originates and services residential and commercial mortgages
36. THE PRUDENTIAL INVESTMENT ADVISORY COMPANY, LTD. (Incorporated in Japan) (100%)
Provides investment management services to Japanese institutional investors and
for Prudential's General Account with respect to Japanese and global securities.
37. THE PRUDENTIAL PROPERTY COMPANY, INC. (Incorporated in New Jersey) (100%)
Conducts real estate management and development programs for the General Account
and all separate and single-client accounts.
38. THE PRUDENTIAL REALTY ADVISORS, INC. (Incorporated in New Jersey) (100%)
</TABLE>
C - 36
<PAGE>
<TABLE>
<S> <C>
Provides advice and administrative services to others with respect to the
ownership, sale, and management of real property.
</TABLE>
C - 37
<PAGE>
Item 31. Number of Contractowners
As of February 28, 1995, the number of contractowners of qualified contracts
offered by Registrant was 666. and the number of contractowners of non-qualifed
contracts offered by Registrant was 0.
Item 32. Indemnification
The Prudential Directors' and Officers' Liability and Corporation Reimbursement
Program, purchased by The Prudential from Aetna Casualty & Surety Company, CNA
Insurance Company, Lloyds of London, Great American Insurance Company, Reliance
Insurance Company, Corporate Officers & Directors Assurance Ltd., A.C.E.
Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American
Insurance Company, provides coverage for "Loss" (as defined in the policies)
arising from any claim or claims by reason of any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties solely in their capacities as directors or
officers of The Prudential, any of its subsidiaries, or certain investment
companies affiliated with The Prudential. Coverage is also provided to the
individual directors or officers for such Loss, for which they shall not be
indemnified. Loss essentially is the legal liability on claims against a
director or officer, including adjudicated damages, settlements and reasonable
and necessary legal fees and expenses incurred in defense of adjudicatory
proceedings and appeals therefrom. Loss does not include punitive or exemplary
damages or the multiplied portion of any multiplied damage award, criminal or
civil fines or penalties imposed by law, taxes or wages, or matters which are
insurable under the law pursuant to which the policies are construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or deliberate fraudulent acts of a director or officer, and (2)
claims arising from actual or alleged performance of, or failure to perform,
services as, or in any capacity similar to, an investment adviser, investment
banker, underwriter, broker or dealer, as those terms are defined in the
Securities Act of 1933, the Securities Exchange Act of 1934, the Investment
Advisers Act of 1940, the Investment Company Act of 1940, any rules or
regulations thereunder, or any similar federal, state or local statute, rule or
regulation.
The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey Law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text
of The Prudential's by-law 27, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 8(ii) to this Registration
Statement.
Insofar as indemnification for liability 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 33. Business and Other Connections of Investment Adviser
Prudential does have other business of a substantial nature besides activities
relating to the assets of the registrant. Prudential is involved in insurance,
reinsurance, securities, pension services, real estate and banking.
The Prudential Investment Corporation (PIC) is the investment unit of Prudential
and is actively engaged in the business of giving investment advice. The
officers and directors of Prudential and PIC who are engaged directly or
indirectly in activities relating to the registrant have no other business,
profession, vocation, or employment of a substantial nature, and have not had
such other connections during the past two years.
The business and other connections, including principal business address, of
Prudential's Directors are listed under "Directors and Officers of Prudential"
in the Statement of Additional Information (Part B of this Registration
Statement).
C - 38
<PAGE>
<TABLE>
<S> <C> <C> <C>
Item 34. Principal Underwriter
Prudential Retirement Services, Inc., an indirect
wholly-owned subsidiary of Prudential acts as the
principal underwriter and Prudential acts as the
(a) investment adviser for The Prudential Variable Contract
Account-10, The Prudential Variable Contract Account-11
and for the Registrant, all registered as open-end
management investment companies under the Investment
Company Act of 1940.
</TABLE>
<TABLE>
<S> <C> <C> <C>
(b) (1) (2) (3)
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
Mark R. Fetting President, Director Chairman, The Prudential
751 Broad Street Variable Contract Account-2
Newark, NJ 07102-3777 Committee
Nancy Lindgren Vice President, Comptroller None
Robert E. Lee Vice President None
Martin Pfinsgraff Treasurer None
Thomas A. Early Vice President, Secretary Secretary
Walter E. Watkins Vice President, Chief None
Compliance Officer
Michael G. Williamson Assistant Comptroller Assistant Secretary, The
Prudential Variable Contract
Account-2 Committee
Carl L. McGuire Assistant Secretary None
(c) Reference is made to the Section entitled "Description of The Prudential and VCA-2" on
page 7 of the prospectus and "Charges" on page 9 of the prospectus (Part A of this
Registration Statement) and "Investment Management and Administration of VCA-2" on page
2 of the Statement of Additional Information (Part B of this Registration Statement).
</TABLE>
C - 39
<PAGE>
<TABLE>
<S> <C> <C> <C>
Item 35. Location of Accounts and Records
The names and addresses of the persons who maintain physical
possession of the accounts, books and documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder are:
The Prudential Insurance Company of America
and The Prudential Investment Corporation
Prudential Plaza
Newark, New Jersey 07102-3777
The Prudential Insurance Company of America
and The Prudential Investment Corporation
Gateway Three Building and Gateway Four Building
100 Mulberry Street
Newark, New Jersey 07102
The Prudential Insurance Company of America and
The Prudential Investment Corporation
56 North Livingston Avenue
Roseland, New Jersey 07068
The Prudential Insurance Company of America
c/o The Prudential Asset Management Company, Inc.
71 Hanover Road
Florham Park, New Jersey 07932
The Prudential Insurance Company of America
c/o The Prudential Asset Management Company, Inc.
30 Scranton Office Park
Moosic, Pennsylvania 18507-1789
Item 36. Management Services
Not Applicable
Item 37. Undertakings
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary
and periodic information, documents and reports as may be prescribed
by any rule or regulation of the Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that section.
Registrant also undertakes (1) to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than 16 months old as long as payment under the
contracts may be accepted; (2) to affix to the prospectus a postcard
that the applicant can remove to send for a Statement of Additional
Information; and (3) to deliver any Statement of Additional
Information promptly upon written or oral request.
</TABLE>
C - 40
<PAGE>
<TABLE>
<S> <C> <C> <C>
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.
Representation Pursuant to Rule 6c-7
Registrant represents that it is relying upon Rule 6c-7 under the
Investment Company Act of 1940 in connection with the sale of its
group variable contracts to participants in the Texas Optional
Retirement Program. Registrant also represents that it has complied
with the provisions of paragraphs (a) - (d) of the Rule.
</TABLE>
C - 41
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant has caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newark, and State of New Jersey, on the 26th day
of April, 1995 and certifies that this Amendment is filed solely for one or more
of the purposes specified in Rule 485(b)(1) under the Securities Act of 1933 and
that no material event requiring disclosure in the prospectus, other than one
listed in Rule 485(b)(1), has occurred since the effective date of the most
recent Post-Effective Amendment to the Registration Statement which included a
prospectus.
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
By: __/s/ MARK R. FETTING___________________
Mark R. Fetting
Chairman
C - 42
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
Member and Chairman, The)
*MARK R. FETTING Prudential Variable
- ------------------------- Contract )
Mark R. Fetting Account-2 Committee )
Member, The Prudential )
*SAUL K. FENSTER Variable Contract
- ------------------------- Account-2 ) April 26, 1995
Saul K. Fenster Committee )
Member, The Prudential )
*W. SCOTT McDONALD, JR. Variable Contract
- ------------------------- Account-2 )
W. Scott McDonald, Jr. Committee )
Member, The Prudential )
*JAMES H. SCOTT, JR. Variable Contract
- ------------------------- Account-2 )
James H. Scott, Jr. Committee )
Member, The Prudential )
*JOSEPH WEBER Variable Contract
- ------------------------- Account-2 )
Joseph Weber Committee )
</TABLE>
*By: __/s/ C. CHRISTOPHER SPRAGUE________________
C. CHRISTOPHER SPRAGUE
(Attorney-in-Fact)
C - 43
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, The Prudential Insurance Company of America has caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, and State of New Jersey, on
the 26th day of April, 1995.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: __/s/ MARK R. FETTING___________________
Mark R. Fetting
Vice President
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following Directors and
Officers of The Prudential Insurance Company of America in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- -------------------- ----------
<S> <C> <C>
Chairman of the
*Arthur F. Ryan Board, )
Chief Executive April 26,
- -------------------------------- Officer ) 1995
Arthur F. Ryan and President )
*Garnett L. Keith, Jr.
) April 26,
- -------------------------------- Vice Chairman and ) 1995
Garnett L. Keith, Jr. Director )
</TABLE>
*By __/s/ C. CHRISTOPHER SPRAGUE________________
C. CHRISTOPHER SPRAGUE
(Attorney-in-Fact)
C - 44
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
*Eugene M. O'Hara Senior Vice President )
and Comptroller and ) April 26, 1995
- ------------------------- Principal Financial )
Eugene M. O'Hara Officer )
*Franklin E. Agnew
- ------------------------- Director )
Franklin E. Agnew )
*Frederic K. Becker
- ------------------------- Director )
Frederic K. Becker )
*William W. Boeschenstein
- ------------------------- Director )
William W. Boeschenstein )
*Lisle C. Carter, Jr.
- ------------------------- Director )
Lisle C. Carter, Jr. )
*James G. Cullen
- ------------------------- Director )
James G. Cullen )
*Carolyne K. Davis
- ------------------------- Director )
Carolyne K. Davis )
*Roger A. Enrico
- ------------------------- Director )
Roger A. Enrico )
*Allan D. Gilmour
- ------------------------- Director )
Allan D. Gilmour )
*William H. Gray, III
- ------------------------- Director )
William H. Gray, III )
*Jon F. Hanson
- ------------------------- Director )
Jon F. Hanson )
</TABLE>
*By: __/s/ C. CHRISTOPHER SPRAGUE________________
C. CHRISTOPHER SPRAGUE
(Attorney-in-Fact)
C - 45
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
*Constance J. Horner
- ------------------------- Director )
Constance J. Horner ) April 26, 1995
*Allen F. Jacobson
- ------------------------- Director )
Allen F. Jacobson )
*Burton G. Malkiel
Director )
- -------------------------
Burton G. Malkiel )
*John R. Opel
- ------------------------- Director )
John R. Opel )
*Charles R. Sitter
- ------------------------- Director )
Charles R. Sitter )
*Donald L. Staheli
- ------------------------- Director )
Donald L. Staheli )
*Richard M. Thomson
- ------------------------- Director )
Richard M. Thomson )
*P. Roy Vagelos, M.D.
- ------------------------- Director )
P. Roy Vagelos, M.D. )
*Stanley C. Van Ness
- ------------------------- Director )
Stanley C. Van Ness )
*Paul A. Volcker
- ------------------------- Director )
Paul A. Volcker )
*Joseph H. Williams
- ------------------------- Director )
Joseph H. Williams )
</TABLE>
*By: __/s/ C. CHRISTOPHER SPRAGUE________________
C. CHRISTOPHER SPRAGUE
(Attorney-in-Fact)
C - 46
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C>
Ex-99.13 (i) Consent of independent auditors C - 48
Ex-99.17 Financial Data Schedule C -
</TABLE>
C - 47
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 48 to
Registration Statement No. 2-28316 on Form N-3 of The Prudential Variable
Contract Account - 2 of The Prudential Insurance Company of America (1) of our
report dated February 16, 1995, relating to the financial statements of The
Prudential Variable Contract Account - 2, and (2) of our report dated March 1,
1995, except for Note 12, as to which the date is April 25, 1995, relating to
the consolidated financial statements of The Prudential Insurance Company of
America and subsidiaries appearing in the Statement of Additional Information,
which is part of such Registration Statement and to the reference to us under
the heading "Experts" also appearing in the Statement of Additional Information.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 26, 1995
C - 48
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 368,626,336
<INVESTMENTS-AT-VALUE> 417,017,855
<RECEIVABLES> 351,033
<ASSETS-OTHER> 1,011,360
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 418,380,248
<PAYABLE-FOR-SECURITIES> (502,931)
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (1,998,081)
<TOTAL-LIABILITIES> (2,501,012)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 32,623,680
<SHARES-COMMON-PRIOR> 32,968,259
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 415,879,236
<DIVIDEND-INCOME> 6,498,407
<INTEREST-INCOME> 307,902
<OTHER-INCOME> 0
<EXPENSES-NET> 2,085,191
<NET-INVESTMENT-INCOME> 4,721,118
<REALIZED-GAINS-CURRENT> 35,115,467
<APPREC-INCREASE-CURRENT> (45,435,899)
<NET-CHANGE-FROM-OPS> (5,599,314)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,540,899
<NUMBER-OF-SHARES-REDEEMED> 1,885,478
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,252,268)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 544,330
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,085,191
<AVERAGE-NET-ASSETS> 424,662,959
<PER-SHARE-NAV-BEGIN> 12.157
<PER-SHARE-NII> 0.129
<PER-SHARE-GAIN-APPREC> (0.293)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.993
<EXPENSE-RATIO> 0.005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
