Registration No. 2-52715
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 37 to Form S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
FOR
---------------
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
(Exact name of trust)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza, Newark, New Jersey 07102-3777
(Name of depositor and complete address of principal executive offices)
---------------
And Also to Form N-1A for Registration Under the
Securities Act of 1933 and Registration Statement
Under the Investment Company Act of 1940
FOR
---------------
PRUDENTIAL'S GIBRALTAR FUND
Prudential Plaza
Newark, N.J. 07102-3777
(Exact name of co-registrant
and address of principal executive offices)
---------------
Thomas C. Castano
Assistant Secretary
Prudential's Gibraltar Fund
The Prudential Insurance Company of America
Prudential Plaza
Newark, N.J. 07102-3777
(Name and complete address of agent for service)
---------------
Copies to:
Thomas C. Castano
The Prudential Insurance Company of
America
Prudential Plaza
Newark, N.J. 07102-3777
---------------
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) of Rule 485
[ ] on __________ pursuant to paragraph (a) of Rule 485
(date)
<PAGE>
SYSTEMATIC INVESTMENT PLAN CONTRACTS
Cross Reference Sheet to Prospectus
Information Required by
Item of Form N-8B-2 Location in Prospectus
- ----------------------- ----------------------
1......................Prudential's Investment Plan and Annuity Plan
Accounts
2......................The Prudential's Administrative Role
The Contracts of the Prudential Financial Security
Program
3......................Custodian for Prudential's Investment Plan Account
4......................The Prudential's Administrative Role
The Contracts of the Prudential Financial Security
Program
5......................Prudential's Investment Plan and Annuity Plan
Accounts
6......................Prudential's Investment Plan and Annuity Plan
Accounts
Custodian for Prudential's Investment Plan Account
9......................Not Applicable
10 (a)..................Purchase Payments and the Crediting of SIP Shares
(b)..................Distributions
Differences Under Old Form Contracts
(c)..................Not Applicable
(d)..................Liquidation (Redemption) of SIP Shares
Transferring SIP Shares
Assignment
Naming a Beneficiary
Differences Under Old Form Contracts
(e)..................Not Applicable
(f)..................Description of Fund Shares and Voting Rights
(g)-(h)..............Substitution of Fund Shares
Changing the Contract
(i)..................Purchase Payments and the Crediting of SIP Shares
Changing the Contract
Differences Under Old Form Contracts
11......................Summary
Prudential's Investment Plan and Annuity Plan
Accounts
12......................Prudential's Gibraltar Fund
The Prudential's Administrative Role
The Contracts of the Prudential Financial Security
Program
Custodian, Transfer Agent and Dividend-Paying Agent
13......................Summary
The Prudential's Administrative Role
Sales and Related Charges
Letter of Intent
Other Charges
Annuity Rate Protection
Custodian, Transfer Agent and Dividend-Paying Agent
Custodian for Prudential's Investment Plan Account
<PAGE>
Cross Reference Sheet (Systematic Investment Plan) -- Page 2
Information Required by
Item of Form N-8B-2 Location in Prospectus
- ----------------------- ----------------------
13 continued...........Differences Under Old Form Contracts
14.....................Purchase Payments and the Crediting of SIP Shares
Differences Under Old Form Contracts
15.....................Purchase Payments and the Crediting of SIP Shares
The Prudential's Administrative Role
Differences Under Old Form Contracts
16.....................Prudential's Investment Plan and Annuity Plan
Accounts
Redemption of Fund Shares
17.....................Liquidation (Redemption) of SIP Shares Supplement
18.....................Purchase Payments and the Crediting of SIP Shares
Distributions
The Prudential's Administrative Role
Financial Statements of Prudential's Annuity Plan
Account
19.....................The Prudential's Administrative Role
20.....................Custodian for Prudential's Investment Plan Account
21.....................Not Applicable
22.....................Custodian for Prudential's Investment Plan Account
23.....................Directors and Officers of The Prudential
24.....................Not Applicable
25.....................The Contracts of the Prudential Financial Security
Program
26.....................Sales and Related Charges
Other Charges
Prudential's Gibraltar Fund
27.....................The Contracts of the Prudential Financial Security
Program
The Prudential as Manager of the Fund's Investments
28.....................Directors and Officers of the Prudential
29-34..................Not Applicable
35.....................Summary
37.....................Not Applicable
38-39..................The Contracts of the Prudential Financial Security
Program
40.....................Sales and Related Charges
Other Charges
Prudential's Gibraltar Fund
41.....................The Contracts of the Prudential Financial Security
Program
The Prudential as Manager of the Fund's Investments
<PAGE>
Cross Reference Sheet (Systematic Investment Plan) -- Page 3
Information Required by
Item of Form N-8B-2 Location in Prospectus
- ----------------------- ----------------------
42......................Directors and Officers of The Prudential
43......................Not Applicable
44......................Purchase Payments and the Crediting of SIP Shares
Sales and Related Charges
Letter of Intent
Other Charges
Differences Under Old Form Contracts
45......................Liquidation (Redemption) of SIP Shares
46......................Liquidation (Redemption) of SIP Shares
Purchase Payments and the Crediting of SIP Shares
Other Charges
Differences Under Old Form Contracts
47-50...................Custodian for Prudential's Investment Plan Account
51......................Annuity Rate Protection
52......................Summary
Substitution of Fund Shares
53......................Federal Income Taxes
54......................Purchase Payments and the Crediting of SIP Shares
55-58...................Not Applicable
59......................Financial Statements of Prudential's Investment
Plan Account
Consolidated Financial Statements of The Prudential
Insurance Company of America and Subsidiaries
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
Cross Reference Sheet to Prospectus
Information Required by
Item of Form N-1A Location in Prospectus
- ----------------------- ----------------------
1. Cover Page Cover Page
2. Synopsis Summary
Fee Table
3. Condensed Financial Prudential's Gibraltar Fund--
Information Financial Highlights
4. General Description of Prudential's Gibraltar Fund
Registrant Investment Policies
Restrictions on Investment
Description of Fund Shares and Voting Rights
5. Management of the Fund Directors and Officers of the Fund
Prudential's Gibraltar Fund
The Prudential's Administrative Role
Custodian, Transfer Agent and Dividend-
Paying Agent
Summary of Investment Advisory Contract
The Prudential as Manager of the Fund's
Investments
Brokerage
6. Capital Stock and Other Description of Fund Shares and Voting Rights
Securities Redemption of Fund Shares
Federal Income Taxes
7. Purchase of Securities Prudential's Gibraltar Fund
Being Offered Determination of Net Asset Value
8. Redemption or Repurchase Redemption of Fund Shares
9. Pending Legal Proceedings Not Applicable
10. Cover Page Not Applicable
11. Table of Contents Prospectus Contents
12. General Information Not Applicable
13. Investment Objective and Prudential's Gibraltar Fund
Policies Investment Policies
Restrictions on Investment
New Jersey Investment Laws
The Prudential as Manager of the Fund's
Investments
14. Management of the Fund Directors and Officers of the Fund
15. Control Persons and Prudential's Gibraltar Fund
Principal Holders of Description of Fund Shares and Voting Rights
Securities Directors and Officers of the Fund
16. Investment Advisory and Prudential's Gibraltar Fund
Other Services Summary of Investment Advisory Contract
The Prudential as Manager of the Fund's
Investments
17. Brokerage Allocation Brokerage
<PAGE>
Cross Reference Sheet (Prudential's Gibraltar Fund) -- Page 2
Information Required by
Item of Form N-1A Location in Prospectus
- ----------------------- ----------------------
18. Capital Stock and Other Description of Fund Shares and Voting Rights
Securities
19. Purchase, Redemption and Prudential's Gibraltar Fund
Pricing of Securities Determination of Net Asset Value
Being Offered Redemption of Fund Shares
Description of Fund Shares and Voting Rights
20. Tax Status Federal Income Taxes
21. Underwriters Not Applicable
22. Calculations of Yield Not Applicable
Quotations of Money
Market Funds
23. Financial Statements Financial Statements of Prudential's
Gibraltar Fund
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
(PROSPECTUS INCLUDES INFORMATION REQUIRED IN PART B)
<PAGE>
Prospectus
May 1, 1995
Systematic
Investment Plan
and Variable
Annuity Contracts
The net proceeds derived from the sale of these Systematic Investment Plan and
Variable Annuity Contracts are allocated to Prudential's Investment Plan Account
and Prudential's Annuity Plan Account, respectively, which are variable contract
accounts of The Prudential Insurance Company of America. The assets of these
accounts are invested solely in
Prudential's Gibraltar Fund
shares of a mutual fund concerned primarily with growth of capital to an extent
compatible with a concern for its preservation. Current income is a secondary
consideration. The Fund's investment objectives are pursued primarily through
the purchase of common stocks.
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.
Mailing Address:
The Prudential Insurance Company of America
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
FSP 110 Ed 5-95 YOU ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE. Printed in U.S.A.
<PAGE>
Page
GLOSSARY OF TERMS USED IN THIS PROSPECTUS................1
SUMMARY..................................................2
THE SYSTEMATIC INVESTMENT PLAN.........................3
THE VARIABLE ANNUITY CONTRACT..........................3
FEE TABLE................................................5
PRUDENTIAL'S GIBRALTAR FUND--FINANCIAL HIGHLIGHTS........6
GENERAL PROGRAM INFORMATION..............................7
The Contracts of the Prudential
Financial Security Program.............................7
Prudential's Investment Plan and
Annuity Plan Accounts..................................7
Prudential's Gibraltar Fund............................8
The Prudential's Administrative Role...................8
DESCRIPTION OF THE SYSTEMATIC INVESTMENT PLAN............9
What the Plan Is and Does..............................9
Purchase Payments and the Crediting of SIP Shares......9
Sales and Related Charges.............................10
Letter of Intent......................................11
Other Charges.........................................11
Annuity Rate Protection...............................12
Distributions.........................................12
Liquidation (Redemption) of SIP Shares................13
Transferring SIP Shares...............................14
Substitution of Fund Shares...........................14
DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT............14
Purchasing a Variable Annuity.........................14
Sales and Other Charges...............................14
Right to Cancel.......................................16
The Types of Annuity Available........................16
How Variable Annuity Payments are Determined..........16
The Risks Which The Prudential Assumes................17
Changing the Annuity Selected.........................18
Canceling the Annuity.................................18
The Continuing Right to Purchase an Annuity...........19
DESCRIPTION OF PRUDENTIAL'S GIBRALTAR FUND..............20
Investment Policies...................................20
Restrictions on Investment............................20
Page
New Jersey Investment Laws............................21
Summary of Investment Advisory Contract...............22
The Prudential as Manager of the Fund's Investments...23
Brokerage.............................................24
Determination of Net Asset Value......................25
Redemption of Fund Shares.............................25
Description of Fund Shares and Voting Rights..........25
Custodian, Transfer Agent and Dividend-Paying Agent...26
SUPPLEMENTARY INFORMATION ..............................26
Custodian for Prudential's Investment Plan Account....26
Naming a Beneficiary..................................27
Assignment............................................27
Changing the Contract.................................27
Differences Under Old Form Contracts..................27
Systematic Investment Plan Differences................28
State Regulation......................................30
Federal Income Taxes..................................30
Additional Information................................31
Experts...............................................31
Litigation............................................31
DIRECTORS AND OFFICERS OF THE FUND .....................31
DIRECTORS AND OFFICERS OF THE PRUDENTIAL ...............32
FINANCIAL STATEMENTS OF PRUDENTIAL'S
INVESTMENT PLAN ACCOUNT...............................A1
FINANCIAL STATEMENTS OF PRUDENTIAL'S
ANNUITY PLAN ACCOUNT..................................A4
FINANCIAL STATEMENTS OF PRUDENTIAL'S
GIBRALTAR FUND........................................B1
SCHEDULE OF INVESTMENTS.................................B2
CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES......................................C1
Effective January 1, 1984, sales of the contracts described in this prospectus
to new customers were discontinued. This decision does not affect inforce
planholders who may continue to make subsequent purchases on either a scheduled
or non-scheduled basis.
<PAGE>
GLOSSARY OF TERMS USED IN THIS PROSPECTUS
Annuity: A series of payments made each month as long as a person, called an
annuitant, is living. In some forms of annuity, payments may continue after the
annuitant's death.
Annuity Rate Protection: Protection against increases in annuity rates, acquired
by buying Annuity Rate Protection Rights in connection with Systematic
Investment Plan purchases.
Annuity Share: A measure used to determine the value of a variable annuity
payment.
Annuity Share Value: The monthly dollar value of one Annuity Share.
Business Day: Day on which the New York Stock Exchange is open for business.
Contracts: The Systematic Investment Plan, Annuity Rate Protection and Variable
Annuity Contracts described in this prospectus which are written agreements
between The Prudential and the contract owner which set forth the rights, duties
and privileges of all parties.
Mortality and Expense Risks: The risks The Prudential assumes because the amount
of variable annuity payments will not be affected by losses The Prudential may
incur if annuitants live longer than expected or if actual expenses are higher
than expected.
Old Form Contracts: Amended forms of Systematic Investment Plan and Variable
Annuity Contracts which were issued before the introduction in 1973 of revised
contracts, but which are not generally issued now.
Planholder: Individual for whom purchases are made under the Systematic
Investment Plan or Variable Annuity Contract.
Prudential Financial Security Program (Program): A number of contracts issued by
The Prudential, including the Systematic Investment Plan and Variable Annuity
Contracts described in this prospectus.
Prudential's Annuity Plan Account (APA): The separate account in which the
Variable Annuity Contracts described in this prospectus participate.
Prudential's Gibraltar Fund (Fund): The mutual fund in whose shares Prudential's
Investment Plan Account and Prudential's Annuity Plan Account invest.
Prudential's Investment Plan Account (IPA): The separate account in which the
Systematic Investment Plan Contracts described in this prospectus participate.
Purchase Payment: Money paid under a Contract on behalf of a Planholder.
Revised Contracts: The Contracts generally described in this prospectus, which
are revised forms of Systematic Investment Plan and Variable Annuity Contracts
first offered to the public in 1973.
Securities Shares: Contract interests credited to Planholders on purchases under
Old Form Systematic Investment Plans.
Separate Account: A separate portfolio of assets held by an insurance company
and whose investment experience is kept separate from that of the other
investment accounts of the company.
Share Value of Systematic Investment Plan Share (SIP Share or Securities Share):
The dollar value of one SIP Share or Securities Share.
SIP Share: Measure used to determine the value of a Planholder's Systematic
Investment Plan Contract.
Transfer Account or Transfer Schedule: Account and schedule used, by agreement
between The Prudential and an Accountholder, to receive and allocate funds in
connection with Old Form Contracts.
Variable Annuity: An annuity whose payments vary with the investment results of
APA.
1
<PAGE>
SUMMARY
THESE PAGES CONTAIN A BRIEF SUMMARY OF SOME OF THE IMPORTANT FEATURES
OF THE SYSTEMATIC INVESTMENT PLAN AND VARIABLE ANNUITY CONTRACTS
DESCRIBED IN THIS PROSPECTUS, PARTICULARLY THOSE RELATED TO THE
CHARGES MADE BY THE PRUDENTIAL. THIS SUMMARY DOES NOT PROVIDE A FULL
DESCRIPTION OF THE CONTRACTS. THE ENTIRE PROSPECTUS SHOULD BE READ FOR
THAT PURPOSE. YOU MAY FIND IT HELPFUL TO RE-READ THIS SUMMARY AFTER
YOU HAVE READ THE PROSPECTUS.
This prospectus describes several variable contracts issued by The Prudential
Insurance Company of America (The Prudential). These Contracts include a
Systematic Investment Plan Contract and an individual Variable Annuity Contract.
For each Contract, one form, which has been amended several times since it was
first offered in 1970, is called the Old Form Contract in this prospectus. This
prospectus also describes revised forms of these contracts, which were first
offered to the public on September 17, 1973.
The two forms of each Contract are similar in many respects; and since the
revised Contracts were issued more widely, they are the ones generally described
in this prospectus. Whenever there is a difference between the Old Form and the
revised Contracts, however, this will be noted or a reference will be made to
the section entitled Differences Under Old Form Contracts, page 27. That section
details how the Old Form Contracts, and the Program of which they are a part,
differ from the revised Contracts and Program. Old Form Contracts can be
identified by the letter A appearing as the 7th digit (and only letter) in the
plan number. Revised Contracts contain the letter B in that spot.
The revised Contracts were issued in all states. However, all persons who
purchased and still hold Old Form Contracts may continue to make additional
purchase payments in accordance with the provisions of those Contracts. Persons
holding Old Form Contracts may, under certain circumstances, exchange them for
revised Contracts. In such cases, any annuities effected prior to the exchange
would continue to be governed by the annuity payout provisions of the Old Form
Contract.
The net purchase payments made under the Systematic Investment Plan and Variable
Annuity Contracts, after the deductions described below, are allocated to
Prudential's Investment Plan Account and Prudential's Annuity Plan Account,
respectively. The assets of both Prudential's Investment Plan Account and
Prudential's Annuity Plan Account (Accounts) are invested at net asset value in
shares of Prudential's Gibraltar Fund (Fund). The value of interests in the
Accounts will increase or decrease depending on increases or decreases in the
market value of the portfolio securities owned by the Fund.
The Fund was organized by The Prudential to serve as the investment medium for
the variable contract accounts of the Prudential Financial Security Program
(Program), including these Accounts. The Fund does not sell its shares to the
public. It is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management investment company whose investment
objective is concerned primarily with growth of capital to an extent compatible
with a concern for its preservation. Current income is a secondary
consideration. The portfolio of the Fund consists primarily of common stock of a
diversified group of companies in a variety of industries. The Contracts are
subject to the risks associated with common stock investment, so there can be no
assurance that the investment objectives will be achieved. Investment policies
of the Fund permit, but limit, investments in two categories that could entail
special risks: up to 10% of the value of the Fund's assets may be invested in
securities which are not readily marketable; and up to 3% may be invested in
warrants or rights to acquire stock. See Special Risks, page 20. Of course, the
Contracts described in this prospectus will not necessarily provide an
individual with financial security.
The Prudential is a mutual insurance company, founded in 1875 under the laws of
New Jersey. The Prudential is subject to regulation by the Department of
Insurance of the State of New Jersey and by the insurance departments of all the
other states and jurisdictions in which it does business. The Prudential is the
investment advisor of the Fund. See The Prudential as Manager of the Fund's
Investments, page 23. The Prudential's consolidated financial statements begin
on page C1 and should be considered only as bearing upon The Prudential's
ability to meet its obligations under the Contracts.
Pruco Securities Corporation (Prusec), an indirect wholly-owned subsidiary of
The Prudential, acts as the principal underwriter of the Fund and the Accounts.
Prusec's principal business address is 1111 Durham Avenue, South Plainfield,
New Jersey, 07080.
2
<PAGE>
THE SYSTEMATIC INVESTMENT PLAN
Sales and Custodial Charges. The sales charge ranges from 8.5% on the first
$5,000 to 0.6% on any excess over $500,000. After deduction of the sales charge
and a $1 custodial charge, the net amount invested is allocated to Prudential's
Investment Plan Account and is credited to the Planholder in terms of a number
of units known as Systematic Investment Plan Shares (SIP Shares). (Under Old
Form Contracts such units are known as Securities Shares.) After the initial
purchase payment to provide SIP Shares for "any person," as defined under Sales
and Related Charges on page 10, the sales charge rate for subsequent Systematic
Investment Plan purchases is determined by adding to the amount of each such
purchase payment the total value of the SIP Shares already credited. For a
minimum $50 purchase payment, the maximum sales charge and the maximum deduction
from purchase payment (including sales charge and custodial charge) are 9.5% and
11.73%, respectively, of the net amount invested. See Sales and Related Charges,
page 10, and Differences Under Old Form Contracts, page 27.
The Planholder under the revised Contract may complete a Letter of Intent
indicating an intention, without obligation, to make SIP Share purchase payments
totaling at least $10,000 over a 13-month period. In this case, the sales charge
rate for each purchase made to fulfill the Letter of Intent will be determined
as if the total amount indicated were made as a single purchase payment on the
first business day of the 13-month period. See Letter of Intent, page 11.
Other Charges. The charges just described are made in connection with purchase
payments. In addition, other charges are made daily against the assets of
Prudential's Investment Plan Account and the Fund. These are an administration
charge applied against Account assets at a rate of 3/4 of 1% (0.75%) per year
and an investment advisory charge applied against the Fund assets underlying the
Account at a rate of 1/8 of 1% (0.125%) per year. In total these charges
represent on a yearly basis approximately 7/8 of 1% (0.875%) of the net assets
of the Account. In addition, the Fund has expenses which may be considered to be
an indirect charge against assets. See Summary of Investment Advisory Contract,
page 22.
An annual custodial charge of $0.95 per quarter is made for each Planholder.
This charge, for a continuing Planholder, will be deducted from and will not
exceed the amount of net investment income and capital gains distribution
remaining after any other deduction from that distribution. This other deduction
is, if SIP Share purchases were made since the previous distribution, a one-time
charge of 25 cents per right for any annuity rate protection rights required to
be bought in connection with those purchases. See Annuity Rate Protection, page
12. Planholders may liquidate their SIP Share interests totally or in part at
any time. A transaction charge is made upon each liquidation, except when the
proceeds of a total or partial liquidation of SIP Shares are used to provide a
variable annuity under the Program. The amount of this transaction charge is $1,
or 1% of the net amount liquidated if less. See Other Charges, page 11,
Differences Under Old Form Contracts, page 27, and Liquidation (Redemption) of
SIP Shares, page 13.
Illustration. To illustrate how the sales and other charges may operate over the
year, assume that a person opens a Systematic Investment Plan for an initial
purchase of $2,500. An 8 1/2% sales charge ($212.50) and $1 custodial charge are
deducted from the purchase payment, leaving $2,286.50 as the net amount to be
invested. If the share value for that business day is $10, this will result in
228.65 shares being credited to the Planholder ($2,286.50 (division sign) $10).
If there should be no daily change in the SIP Share Value during the ensuing
year, the total charges against assets for the year would be approximately
$20.01.
Assume that these shares remain credited to the Planholder for the year and
participate in a distribution of net investment income at the end of the year.
If the distribution is $0.20 a share, this Planholder's share of the
distribution will amount to $45.73 ($0.20 X 228.65 shares). From this amount the
charge for the annuity rate protection rights, $6.25 ($0.25 X 25, assuming 1
Right per $100) and for the annual custodial charge, $3.80 ($0.95 X 4) are
deducted leaving a balance of $35.68 to be reinvested, without sales charge, to
increase the number of the SIP Shares credited to the Planholder.
THE VARIABLE ANNUITY CONTRACT
Sales Charges. For a variable annuity purchased with funds which are not derived
from a liquidation of SIP Shares, the sales charge ranges from 8.5% on the first
$5,000 of purchase payment after deduction of any applicable premium tax to 0.6%
on the excess over $500,000. In determining what sales charge rate applies, all
purchase payments, whenever made, for annuities under the Program on the life of
the Planholder, his/her spouse and his/her children below age 21, are added
together. This is illustrated in the paragraph headed Accumulation of Purchases
on page 15.
3
<PAGE>
For purchases made with the proceeds of the liquidation of SIP Shares, the sales
charge is 1.5% on the first $5,000 of such proceeds and lower for aggregated
payments exceeding $5,000. If a Planholder makes a minimum variable annuity
purchase using the liquidation proceeds of SIP Shares acquired by a series of
minimum purchases, and if there was no change in the SIP Share Value after the
initial purchase, this sales charge, together with the sales and custodial
charges for the SIP Share purchases and the cost of the annuity rate protection
rights, would total approximately 11.8% of the SIP purchase payments.
Some of the states impose a premium tax, which ranges from 1% to 5% of the
purchase payment or on the value of the account upon annuitization, depending on
the jurisdiction. The sales charges and state premium taxes are discussed in
greater detail in the section Sales and Other Charges on page 14.
Other Charges. The charges described above are made in connection with purchase
payments. In addition, other charges are made daily against the assets of
Prudential's Annuity Plan Account and the Fund. The charges applied against
Account assets held for the benefit of contracts participating in the Account
are for administrative services and for the assumption by The Prudential of
mortality and expense risks. These charges are made at an aggregate rate of
0.375% per year. Considering the investment advisory charge applied against Fund
assets, these other charges, exclusive of premium taxes and sales charges, in
total, represent on a yearly basis approximately 1/2 of 1% (0.5%) of the net
assets of the Account. See Sales and Other Charges, page 14.
Cancellation. A variable annuity may be canceled no later than the date of
commencement of annuity payments. It may not be canceled after annuity payments
begin. The termination value paid on cancellation is equal to the net amount
which was required to provide the annuity, adjusted for interest and changes in
the annuity share value. If a state premium tax was deducted from the purchase
payment, the amount of the tax or a portion of it may, in certain cases, be
returned. See Canceling the Annuity, page 18.
Future Changes in Charges and Annuity Rates. The Prudential reserves the right,
under certain conditions, to change all charges, including sales charges and
annuity rates, upon 90 days' notice to Planholders. However, it may not increase
any charge unless it first obtains an order of exemption from the Securities and
Exchange Commission, and it may not change annuity rates applicable upon the
exercise of annuity rate protection rights already purchased. See Changing the
Contract, page 27, and Annuity Rate Protection, page 12.
4
<PAGE>
FEE TABLE
Planholder Transaction Expenses
Systematic Investment Plan (SIP)
Sales Load Imposed on Purchases (as a percentage of purchase payments)
First $ 5,000 8.50%
Next $ 5,000 7.00%
Next $ 10,000 5.00%
Next $ 30,000 3.00%
Next $ 50,000 2.00%
Next $400,000 1.00%
Excess over $500,000 0.60%
Sales Load Imposed on Purchases of Variable Annuity Contract purchased with
proceeds of SIP (as a percentage of purchase payments)
First $ 5,000 1.50%
Next $ 5,000 1.00%
Next $ 5,000 0.50%
Excess over $15,000 0.25%
Custodial Charge...................$1.00 from each purchase payment.
Transaction Charge.................$1.00 for each liquidation, or 1% of the
net amount liquidated (whichever is less).
Annual Custodial Charge............$3.80.
Annuity Rate Protection Rights
Charge ...........................$0.25 for each $100 Right purchased
(equivalent to 0.25% of the purchase
payment -- see section on Annuity Rate
Protection).
Separate Account Annual Expenses (as a percentage of average
account value)
Total IPA Annual Fees and Expenses (Administrative Charge)........... 0.750%
Total APA Annual Fees and Expenses
(Administrative Charge and Mortality and Expense Risk Fees) ........ 0.375%
Prudential's Gibraltar Fund Annual Expenses (as a percentage of the Fund's
average net assets)
Investment Management Fees........................................... 0.13%
Other Expenses ...................................................... 0.02%
-----
Total Prudential's Gibraltar Fund Annual Expenses .................. 0.15%
=====
Examples
--------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
If you surrender your contract at the
end of the applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $102 $127 $153 $227
If you annuitize at the end of the
applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $115 $141 $169 $245
If you do not surrender your contract:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets: $101 $126 $152 $226
The purpose of the foregoing table is to assist the Planholder in understanding
the expenses of the account and the Fund that he/she will bear, directly or
indirectly. Upon effecting an annuity, the Annuitant will be subject to
different expenses. See the sections on Prudential's Gibraltar Fund, Sales and
Related Charges/Sales and Other Charges, and Other Charges for more complete
descriptions of the various costs and expenses. The above table does not include
any charge for annuity rate protection rights or state premium taxes.
The Examples should not be considered to be a representation of past or future
expenses; actual expenses may be greater or lesser than those shown.
5
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND--FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
(COVERED BY THE INDEPENDENT AUDITORS' REPORT ON PAGE B6)
The following average per share data, ratios and supplemental information have
been derived from information provided in the financial statements.
<TABLE>
<CAPTION>
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88
TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at beginning of
period........................ $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290 $ 9.190
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations:
Net investment income........... 0.214 0.180 0.184 0.220 0.340 0.360 0.310
Net realized and unrealized
gains (losses) on
investments................... (0.405) 2.426 1.771 2.900 (0.640) 1.920 2.000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations.................. (0.191) 2.606 1.955 3.120 (0.300) 2.280 2.310
Distributions to Shareholders:
Distributions from net
investment income............. (0.216) (0.188) (0.193) (0.260) (0.370) (0.370) (0.370)
Distributions from net realized
gains......................... (1.482) (2.264) (2.019) (0.870) (0.520) (1.610) (0.840)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions......... (1.698) (2.452) (2.212) (1.130) (0.890) (1.980) (1.210)
Net increase (decrease) in Net
Asset Value................... (1.889) 0.154 (0.257) 1.990 (1.190) 0.300 1.100
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value at end of
period........................ $ 9.398 $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290
=========== =========== =========== =========== =========== =========== ===========
Total Investment Rate of
Return:**..................... (1.33%) 23.79% 17.60% 34.40% (2.80%) 22.30% 25.60%
Ratios/Supplemental Data:
Net assets at end of period (in
millions)..................... $242.5 $264.3 $230.1 $214.2 $174.4 $197.0 $183.3
Ratio of expenses net of
reimbursement to average net
assets........................ 0.15 % 0.16 % 0.19 % 0.19 % 0.21 % 0.16 % 0.16%
Ratio of net investment income
to average net assets......... 1.98 % 1.45 % 1.58 % 1.98 % 3.38 % 3.19 % 2.95%
Portfolio turnover rate......... 92.49 % 91.83 % 72.82 % 76.35 % 108.08 % 66.79 % 31.69%
Number of shares outstanding at
end of period (in millions)... 25.8 23.4 20.7 18.8 18.6 18.6 17.8
<CAPTION>
01/01/87 01/01/86 01/01/85
TO TO TO
12/31/87 12/31/86 12/31/85
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value at beginning of
period........................ $ 12.440 $ 14.660 $ 12.600
----------- ----------- -----------
Income From Investment
Operations:
Net investment income........... 0.400 0.360 0.470
Net realized and unrealized
gains (losses) on
investments................... 0.230 1.650 3.310
----------- ----------- -----------
Total from investment
operations.................. 0.630 2.010 3.780
Distributions to Shareholders:
Distributions from net
investment income............. (0.650) (0.450) (0.510)
Distributions from net realized
gains......................... (3.230) (3.780) (1.210)
----------- ----------- -----------
Total distributions......... (3.880) (4.230) (1.720)
Net increase (decrease) in Net
Asset Value................... (3.250) (2.220) 2.060
----------- ----------- -----------
Net Asset Value at end of
period........................ $ 9.190 $ 12.440 $ 14.660
=========== =========== ===========
Total Investment Rate of
Return:**..................... 2.53% 15.73% 32.68%
Ratios/Supplemental Data:
Net assets at end of period (in
millions)..................... $170.0 $186.5 $181.1
Ratio of expenses net of
reimbursement to average net
assets........................ 0.15 % 0.16 % 0.17 %
Ratio of net investment income
to average net assets......... 3.11 % 2.76 % 3.28 %
Portfolio turnover rate......... 31.53 % 67.56 % 108.28 %
Number of shares outstanding at
end of period (in millions)... 18.5 15.0 12.4
</TABLE>
**Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
All calculations are based on average month-end shares outstanding, where
available.
Further information concerning the Fund, its investment policies and
restrictions upon its investments and The Prudential's role as an investment
advisor to the Fund, may be found beginning on page 19. The Fund's Directors
and Officers are listed beginning on page 30.
The above table does not reflect charges against Account assets. Those charges
are described under Other Charges on page 11.
6
<PAGE>
GENERAL PROGRAM INFORMATION
The Contracts of the Prudential Financial Security Program. The Prudential
Financial Security Program (Program) consists of a number of contracts offered
by The Prudential Insurance Company of America (The Prudential), a mutual life
insurance company organized in 1875 under the laws of the State of New Jersey.
Its corporate office is located at Prudential Plaza, Newark, New Jersey
07102-3777. The Contracts are sold by registered representatives of Pruco
Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of The
Prudential. Prusec acts as principal underwriter of the Contract. It was
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
1111 Durham Avenue, South Plainfield, New Jersey 07080-2398.
The Contracts include a Systematic Investment Plan Contract to accumulate funds,
an Annuity Rate Protection Contract, and a Variable Annuity Contract to provide
retirement payments you cannot outlive. The Systematic Investment Plan and
Variable Annuity Contracts are described briefly in the following paragraphs and
in detail beginning on pages 9 and 14, respectively. Annuity Rate Protection
provides for interests, which are called Rights, to be acquired in connection
with the acquisition of Systematic Investment Plan interests. It is described on
page 12. Also see Differences Under Old Form Contracts, page 27.
The mailing address of the office which services these Contracts is The
Prudential Insurance Company of America, Prudential Plaza, Newark, New Jersey
07102-3777. The Prudential is registered as a broker-dealer with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
and is a member of the National Association of Securities Dealers, Inc.
Net purchase payments under the Systematic Investment Plan (Plan) are credited
in terms of units known as Systematic Investment Plan Shares (SIP Shares) in
Prudential's Investment Plan Account. See Purchase Payments and the Crediting of
SIP Shares, page 9. A person in whose name purchases are made under the Plan, or
under the Variable Annuity Contracts of the Program, is known as a Planholder.
Systematic investment does not, of course, assure a profit from your investment
or growth equal to the sales charge paid, or protect you against loss in a
declining market.
(Units credited to the Plan under Old Form Contracts are known as Securities
Shares rather than SIP Shares. However, what is said of SIP Shares throughout
this prospectus will generally apply to Securities Shares, except where
specifically noted. In such cases any differences are either described at the
time or by reference to Differences Under Old Form Contracts, page 27.
Securities Shares and SIP Shares are equal in value.)
Net purchase payments under the Variable Annuity Contract are allocated to
Prudential's Annuity Plan Account. The variable annuities effected under the
Contract provide monthly payments for life. Annuity payments ordinarily begin
soon after a variable annuity is purchased, but a Planholder for whom an annuity
is purchased may defer the commencement of payments for up to three years. The
amount of each variable annuity payment varies depending on the investment
results of a designated portfolio consisting primarily of common stocks. The
amount of each payment is, therefore, subject to market fluctuations and in
declining markets is likely to be lower than earlier payments.
Prudential's Investment Plan and Annuity Plan Accounts. These Accounts were
established on June 11, 1968, by resolution of The Prudential's Board of
Directors, as separate variable contract accounts of The Prudential under the
laws of the State of New Jersey. They are administered by The Prudential under
the general direction of The Prudential's officers and managerial staff. The
Accounts are registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (1940 Act), as unit investment
trusts. Registration does not imply supervision by the Securities and Exchange
Commission of the management or investment policies and practices of the
Accounts or The Prudential.
Prudential's Investment Plan Account (IPA) is currently used only in connection
with Prudential's Systematic Investment Plan Contracts. Similarly, Prudential's
Annuity Plan Account (APA) is now used only in connection with the individual
Variable Annuity Contracts described in this prospectus. The assets in each
Account are legally segregated from all other assets of The Prudential and, in
APA, such assets will always be equal to or greater in value than The
Prudential's liabilities under the Variable Annuity Contracts, calculated in
accordance with sound actuarial principles. The assets of both Accounts are
invested in shares of Prudential's Gibraltar Fund (Fund) at net asset value
without sales load.
7
<PAGE>
Prudential's Gibraltar Fund. The Fund was incorporated in the State of Delaware
on March 14, 1968. It is registered under the 1940 Act as a diversified open-end
management investment company. Registration does not imply supervision by the
Securities and Exchange Commission of the management or investment policies and
practices of the Fund or The Prudential. The Board of Directors of the Fund is
responsible for the management of the Fund and, in addition to reviewing the
actions of the Fund's investment advisor, decides upon matters of general
policy. The Fund's officers conduct and supervise the daily business operations
of the Fund.
The Fund's portfolio, which is set forth on pages B2 and B3, is composed
primarily of common stocks of a diversified group of companies in a variety of
industries. The investment objective of the Fund is concerned primarily with
growth of capital to an extent compatible with a concern for its preservation.
Current income is a secondary consideration.
The investments of the Fund are subject to the risks of changing economic
conditions and the ability of management and the investment advisor of the Fund
to anticipate such changes. There can be no assurance that the Fund's investment
aims will be achieved.
Fund shares are sold only to separate accounts of The Prudential including
Prudential's Investment Plan Account and Prudential's Annuity Plan Account. The
investment performance of the Fund determines the dollar value of interests in
these accounts.
The Prudential is the investment advisor to the Fund. The Prudential has entered
into a service agreement with its wholly-owned subsidiary, The Prudential
Investment Corporation (PIC), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with The
Prudential's performance of its obligations under advisory agreements with
clients which are registered investment companies. For its investment advisory
services, The Prudential is paid 1/8 of 1% (0.125%) per year of the average
daily market value of the Fund's net assets ($1.25 per year for each $1,000 of
assets). The Fund paid The Prudential $318,934 for these services in 1994 and
$316,383 in 1993. In addition, the Fund has expenses which may be considered to
be an indirect charge against assets; in 1994 these expenses amounted to
slightly less than 1/38 of 1% of average net assets of the Fund. In 1993 these
expenses were slightly less than 1/25 of 1% of average net assets of the Fund.
See Summary of Investment Advisory Contract on page 22, The Prudential as
Manager of the Fund's Investments on page 23, and Financial Statements of
Prudential's Gibraltar Fund and Notes to Financial Statements on pages B1
through B5. For the years ended December 31, 1994 and 1993, the Fund's total
expenses were 0.15% and 0.16%, respectively, of the Fund's average net assets.
Investment Results. The table on page 6 shows the per share computation of net
asset value together with operating expense and net investment income ratios for
the years indicated.
The Prudential's Administrative Role. The Prudential acts as transfer agent and
dividend-paying agent and performs all administrative services relative to the
Contracts and necessary to the operation of the Accounts. The Accounts have no
officers or employees. The Prudential pays all expenses relating to their
operation.
For IPA and the Systematic Investment Plan Contracts, many of the bookkeeping
and other administrative services are performed by The Prudential in accordance
with an agreement between The Prudential and the Custodian for the Account, the
Chemical Bank Corporation, New York, New York, in compensation for which The
Prudential receives the charges described under the heading Other Charges on
page 11. Also see Custodian for Prudential's Investment Plan Account, page 26.
These services include:
(1) maintaining a record of all transactions relating to the crediting,
liquidation and transfer of Shares under the Systematic Investment Plan;
(2) furnishing notices of the number of Shares credited, liquidated or
transferred, and the number of Shares standing to the credit of each
Planholder;
(3) furnishing copies of the prospectus and of periodic reports of the
financial condition of Prudential's Investment Plan Account and of
Prudential's Gibraltar Fund (or any other fund or funds substituted
therefor);
(4) furnishing net investment income and capital gains statements and any
pertinent tax notices;
(5) causing the required audit of the books of Prudential's Investment Plan
Account; and
(6) preparing and filing for Prudential's Investment Plan Account required
Federal and State periodic statements and tax reports.
8
<PAGE>
The Prudential performs similar administrative services, as applicable, for APA
and the Variable Annuity Contracts. In addition, it holds the assets of APA for
safekeeping, and performs such additional services for both IPA and APA as
accounting for the assets in the Accounts, applying payments made for the
purchase of SIP Shares or variable annuities after making the authorized
deductions, making liquidation and annuity payments and furnishing voting
material.
In addition to the Plan charges discussed under Other Charges on page 11, those
discussed under Sales and Related Charges on page 10 and the variable annuity
charges discussed under Sales and Other Charges on page 14 compensate The
Prudential for its services.
DESCRIPTION OF THE SYSTEMATIC INVESTMENT PLAN
What the Plan Is and Does. The Systematic Investment Plan provides the
Planholder with a means of investing funds for possible growth. The Planholder
may make a single purchase, make occasional investments of varying amounts from
time to time, invest regular amounts periodically according to his/her own
schedule, or employ any combination of these investment patterns. Annuity Rate
Protection described on page 12, which is acquired in respect to each purchase
under the Plan, permits the Planholder to use his/her Plan interests at a later
time to obtain variable annuity payments based upon a guaranteed schedule of
rates.
Purchase Payments and the Crediting of SIP Shares. The minimum initial purchase
payment for a Planholder under the Systematic Investment Plan is $300. For
subsequent purchases under that Plan the minimum payment is $50. However, under
certain arrangements for periodic purchases on a regular basis, such as deferred
compensation plan arrangements for employees of federal, state or municipal
agencies, the minimum amount for both initial and subsequent purchase payments
is $50. In addition to the normal investment risk, deferred compensation plan
arrangements may involve the risk of the employer's future unwillingness or
financial or administrative inability to continue the plan. For minimum purchase
requirements under Old Form Contracts, see Differences Under Old Form Contracts
on page 27.
From each Systematic Investment Plan purchase payment made for the Planholder,
the sales charge and custodial charge described under Sales and Related Charges,
page 10, will be deducted. The remainder is the net amount invested and is used
to determine the number of SIP Shares credited. That number is determined by
dividing the net amount invested by the net asset value per Share (Share Value).
The Share Value for any business day (a day on which the New York Stock Exchange
is open for business) is determined as of the end of such day and is equal to
the net assets of Prudential's Investment Plan Account divided by the aggregate
number of Shares credited under the Account. The net assets of the Account are
its total assets (after establishing any liability for distributions to
Planholders) reduced by the liability for transfer taxes, if any, and by the
administration charge described under the heading Other Charges on page 11.
Since the assets of the Account are invested in shares of the Fund, the value of
SIP Shares will vary as a reflection of the investment experience of the Fund.
Crediting of SIP Shares will be effected at the close of the day on which the
purchase payment is received at The Prudential, if that is a business day,
otherwise at the close of the first business day thereafter.
SIP Shares are not evidenced by the issuance of certificates. Instead, after
each purchase payment is made under the Plan, the Planholder will receive a
notice that will indicate the number of SIP Shares credited to the Planholder as
a result of that payment, the price per Share and the total number of SIP Shares
then standing to the Planholder's credit.
Shown below are Share Values under the Plan as of the last business day of each
year of the 10 year period ending December 31, 1994. Also shown for each date
are the total number of Shares then outstanding, and the amount per Share of any
investment income and capital gains distributions declared during the year
ending on that date, before any deductions which may be made from such
distributions as described on page 12 under Distributions. The remainder of the
distributions after any such deductions were reinvested at net asset value to
provide additional shares unless cash payment was requested by the Planholder.
9
<PAGE>
Distributions Per Share During Period
<TABLE>
<CAPTION>
As of the Last
Business Day of Share Value Total Shares Outstanding Investment Income Capital Gains
- --------------- ----------- ------------------------ ----------------- -------------
<S> <C> <C> <C> <C>
1985 14.63 8,761,352 0.4081 1.2024
1986 12.42 10,766,733 0.3573 3.7640
1987 9.20 13,535,196 0.5492 3.0428
1988 10.30 13,455,712 0.2888 0.8457
1989 10.60 14,410,118 0.2836 1.6180
1990 9.39 14,471,985 0.2954 0.5359
1991 11.38 14,706,725 0.1785 0.8650
1992 11.10 16,322,024 0.1045 2.0436
1993 11.26 18,454,695 0.0898 2.2692
1994 9.26 20,641,598 0.1427 1.5380
</TABLE>
Sales and Related Charges. The sales charges applicable to purchase payments
made to acquire SIP Shares under the Systematic Investment Plan are as follows:
<TABLE>
<CAPTION>
Total Purchase Payments Percent of Percent of Net
Received During the Contract Year Purchase Payment Amount Invested*
--------------------------------- ---------------- ----------------
<S> <C> <C> <C>
First $ 5,000 8.50% 9.29%
Next $ 5,000 7.00% 7.53%
Next $ 10,000 5.00% 5.26%
Next $ 30,000 3.00% 3.09%
Next $ 50,000 2.00% 2.04%
Next $400,000 1.00% 1.01%
Excess over $500,000 0.60% 0.60%
</TABLE>
*Without taking into account deduction of the custodial charge.
The scale of sales charges is applicable to purchase payments to acquire SIP
Shares made at one time by "any person." "Any person" is defined as either (1)
an individual Planholder, or that Planholder, his/her spouse if also a
Planholder and their children below age 21 who are Planholders, provided in any
case that the purchase is being made for one of these Planholders, or (2) a
trustee or other fiduciary purchasing, subject to The Prudential's rules
regarding participation in the Program through a fiduciary, for a single trust
estate or fiduciary account, even if more than one beneficiary Planholder is
involved.
After the initial purchase payment, the sales charge rate for subsequent
purchases under the Plan is determined by adding to the combined total of the
purchase payments then being made by "any person," the total value of SIP Shares
already credited to such persons. For example, a Planholder submits a purchase
payment of $5,000. As of the current purchase date the Planholder and spouse,
who is also a Planholder, already are credited with SIP Shares with a total
value of $10,000. When the $5,000 is added to the $10,000, it can be seen from
the table at the beginning of this section that the sales charge rate applicable
to the current $5,000 purchase is 5%. The amount of the sales charge on the
current purchase is, therefore, $250.
Reduced sales charges are also available to "any person" through a Letter of
Intent. This is described in the following section.
Full-time registered sales representatives of The Prudential, and retired sales
representatives of The Prudential who have retained their sales licenses and
registered status with The Prudential, may make purchases under their Systematic
Investment Plan Contracts at net asset value without sales charge. These
representatives must provide written assurance that their purchases will be made
for their personal investment purposes and that the interests acquired under the
Contracts will not be transferred to another person.
A $1 custodial charge is deducted from each purchase payment to cover the
custodial and administrative services connected with receipt of money and
crediting of SIP Shares.
For initial purchase payments of $300 and $10,000, for example, the sales charge
is 9.32% and 8.40%, respectively, of the net amount that will be invested in the
Account, after deducting payment of the $1 custodial charge. When the custodial
charge is considered with the sales charge, the total deductions are 9.69% and
8.41%, respectively, of the net amount invested.
For a subsequent Plan purchase payment of $50, made at a time when that payment
together with the value of SIP Shares then credited totals $5,000 or less, the
sales charge is 9.50% of the net amount invested after deducting the $1
custodial charge. When the custodial charge is considered with the sales charge,
the total deduction is 11.73% of the net amount invested.
10
<PAGE>
See Differences Under Old Form Contracts on page 27 for the determination of
sales charges and other charges under such contracts.
During 1994, The Prudential received $66,808 in sales charges and $1,572 in
custodial charges for purchases under the Systematic Investment Plan. The
equivalent figures for 1993 were $71,850 and $1,546.
These sales and custodial charges may be changed by The Prudential subject to
certain conditions. See Changing the Contract, page 27.
Letter of Intent. A Letter of Intent form, which should be read carefully, may
be completed under the revised Contracts at any time for "any person" (as
defined in the preceding section) indicating an intention to make SIP Share
purchase payments over a 13-month period for any specific selected amount
totaling $10,000 or more. A Letter of Intent is not binding and creates no
obligation on the part of the Planholder. Under a Letter of Intent, the sales
charge rate for each purchase payment made to fulfill the Letter of Intent is
determined as if the total amount indicated in the Letter of Intent had been
paid as a single SIP Share purchase payment on the first business day of the
13-month period. In determining the applicable sales charge rate, the value of
any SIP Shares already credited will be considered, as described in the second
paragraph beneath the scale of sales charges in the preceding section.
For example, a Planholder submits a Letter of Intent indicating his/her
intention to make SIP Share purchase payments totaling $20,000 over the next 13
months. He/She already has SIP Shares with a net asset value of $10,000. This
means that the sales charge rate for each payment made during the next 13 months
to fulfill his/her $20,000 intention will be the rate which would have applied
had the $20,000 been paid as a single payment. Considering $10,000 in existing
SIP Shares, the sales charge rate (as shown in the preceding section) for a
single $20,000 payment is 5% on the first $10,000 and 3% on the next $10,000, or
4% overall. Thus the sales charge rate for each payment made by this Planholder
under his/her Letter of Intent will be 4%.
An initial purchase payment of at least $1,000, or 1% of the intended total
purchase payments, if greater, must accompany submission of a Letter of Intent.
The Prudential will restrict the disposition of SIP Shares equal in value to 1%
of the intended total purchase payments until either the intended purchases have
been made or the Letter of Intent has otherwise terminated. Termination occurs
if, before the total intended purchases have been made, either the 13-month
period expires or a liquidation or transfer of SIP Shares is requested which
would require the release of restricted shares. Upon termination, The Prudential
will recalculate the sales charge for the purchases actually made under the
Letter of Intent as if they had all been made at one time on the first business
day of the period, and will effect a liquidation of such number of the
restricted SIP Shares as may be required to pay The Prudential for any necessary
adjustment in sales charges. Any remaining restricted SIP Shares will then be
released from restriction.
Old Form contracts do not provide for Letter of Intent.
Other Charges. A transaction charge is made to cover the expenses of providing
the particular services involved in processing liquidations of SIP Shares. This
charge is a maximum of $1 for each liquidation payment, or 1% of the net amount
being liquidated (after any transfer taxes and any other charges) if less. See
Liquidation (Redemption) of SIP Shares, page 13. During 1994 and 1993, The
Prudential received $2,807 and $2,757, respectively, in transaction charges.
An annual custodial charge is made against each Planholder to cover services
specifically related to the administration of individual Systematic Investment
Plans, other than services involving the receipt of purchase payments and the
liquidation of shares. The charge is $0.95 for each calendar quarter during
which shares are credited under the Systematic Investment Plan. The Prudential
will ordinarily deduct the charge from the net investment income and capital
gains distributions allocated to the Planholder for the calendar year, after
deducting any charges for annuity rate protection rights. See the following two
sections and Differences Under Old Form Contracts, page 27. The annual custodial
charge may not exceed the amount of those allocated distributions after
deduction of these other charges. However, in the event of total liquidation
during the year, the charge will be deducted from the liquidation proceeds. See
Liquidation (Redemption) of SIP Shares, page 13. During 1994 and 1993, The
Prudential received $63,497 and $66,748, respectively, in annual custodian
charges.
An administration charge is applied daily on the value of the net assets in
Prudential's Investment Plan Account, to cover services in connection with the
Account not specifically related to the administration of individual Plans. The
charge is at an effective annual rate of 3/4 of 1% (0.75%) on the first $250
million of such assets, 11/20 of 1% (0.55%) on the next $250 million, 3/8 of 1%
(0.375%) on the next $500 million and 9/40 of 1% (0.225%) on any excess over $1
billion. During 1994 and 1993, The Prudential received $1,494,725 and
$1,491,590, respectively, in administrative charges.
11
<PAGE>
The annual custodial charge and the administration charge are designed only to
reimburse The Prudential for the development, administration and modification
costs of the Program allocable to the Systematic Investment Plan. The Prudential
expects to maintain these charges at a level not in excess of the amount
required to achieve this purpose.
The charges described in this section and under Sales and Related Charges on
page 10 are either deducted from purchase or liquidation payments or
distributions under the Plan, or are made against the net assets of Prudential's
Investment Plan Account. In addition, an investment advisory fee, determined
daily at the rate of 0.125% (1/8 of 1%) per year of the average net assets of
the Fund, is paid by the Fund to The Prudential. Thus, at present, a total
charge against assets at a yearly rate of about 0.875% (7/8 of 1%) is made in
respect to Systematic Investment Plans. See Prudential's Gibraltar Fund, page 8.
The charges described above may all be changed by The Prudential, subject to
certain conditions. See Changing the Contract, page 27.
Annuity Rate Protection. Annuity rate protection rights must be purchased with
respect to each purchase under the Systematic Investment Plan. Each right
assures the Planholder that if, at some future date, he/she should purchase a
Variable Annuity under the Program or a Prudential Fixed-Dollar Annuity outside
the Program and elect to use that right, the schedule of annuity rates in effect
at the time the right was acquired, rather than any higher rate that may then be
in effect, will be applied to $100 of the annuity purchase price (after any
premium taxes). Rights would not be used if an annuity purchase is made at a
time when the schedule of annuity rates assured by the rights is not more
favorable than the rates currently in effect.
Annuity rate protection rights are provided in units of $100. One, three or five
rights may be purchased for each $100 of Systematic Investment Plan purchase
payment, up to the current limit of a total of 1,000 rights accumulated for a
Planholder. A rights charge of 25 cents is made for each $100 Right purchased
(equivalent to 0.25% of the purchase price), which will be deducted from the
Planholder's allocated share of the annual net investment income and capital
gains distributions next determined after the Plan purchase payment for which
the right was acquired. See Distributions on this page. If the distribution is
insufficient to pay the rights charge, a sufficient number of SIP Shares
credited to the Planholder will be liquidated to pay the deficiency. Thus, for
example, if election is made to purchase 5 rights with each $100 purchase
payment under the Plan and a $250 purchase payment is made, the Planholder would
acquire 12.5 rights, at a cost of $3.13 (12.5 X 25 cents, which is 1.25% of the
purchase price), to be deducted from his/her subsequent distribution, and would
be protected against future adverse changes in the schedule of annuity rates to
the extent of $1,250 of annuity purchase price.
Annuity rate protection rights may be used only on the life of the Planholder
for whom they were purchased, the co-Planholder, if any, or, at the Planholder's
death, his/her spouse if also a Planholder. Each right shall terminate (1) one
year after the death of the Planholder or after the death of the survivor of the
Planholder and a co-Planholder, if any, or (2) one year after the last date on
which SIP Shares or purchased annuities were in effect for the Planholder under
the Program, whichever is the earlier.
If a Planholder exchanges his/her interests in Prudential's Investment Plan
Account for a variable annuity (whether or not annuity rate protection rights
are used), a sales charge is made upon the exchange. The amount of this charge
is 1.5% of the first $5,000 paid for a variable annuity. The charge is lower for
aggregated payments exceeding $5,000. In addition, the Planholder may have to
pay a capital gains tax if SIP Shares are liquidated as part of the exchange.
See, for the variable annuity contract, Sales and Other Charges on page 14.
For Plans issued for delivery in Maryland and New York, an additional purchase
of annuity rate protection rights will, under most circumstances, be required
each year out of the Planholder's allocated share of the annual net investment
income and capital gains distributions, to provide for any increases in the
value of the Plan during the year for which rights have not otherwise been
provided, as described in the first two paragraphs of this section. Where
required, one right will be purchased for each $100 of any such increase during
the period from the close of business on the date of determining the
Planholder's allocated share of such distributions in one year to the close of
business on the corresponding date in the next.
For differences in the provisions of annuity rate protection and in the method
of paying the rights charge, under Old Form Contracts, see Differences Under Old
Form Contracts, page 27.
Distributions. The Prudential will determine each Planholder's allocated share
of the annual net investment income and capital gains distributions, if any, of
Prudential's Investment Plan Account. From this allocated share will be deducted
first, any charge for annuity rate protection rights, as described above under
Annuity Rate Protection,
12
<PAGE>
and then the annual custodial charge. The remainder will be applied, at net
asset value without sales charge as of the date of distribution, to increase the
number of SIP Shares credited to the Planholder. The date of distribution will
ordinarily occur once a year in December.
See Differences Under Old Form Contracts on page 27 for a description of
distributions under such contracts.
Liquidation (Redemption) of SIP Shares. The Planholder may at any time effect a
total liquidation of the SIP Shares credited under his/her Plan. The Prudential
will pay the total value of such shares, determined as of the end of the
business day on which the request for liquidation is received, less any
applicable transfer taxes, the transaction charge, and the annual custodial
charge if not already collected. Currently no transfer taxes are being imposed.
The value per share is calculated as described under Purchase Payments and the
Crediting of SIP Shares, page 9.
Partial liquidations of SIP Shares may be made from time to time. The minimum
partial liquidation is $100 and it must leave a minimum value of $200 for the
shares remaining credited under the Plan after the transaction. Sufficient
shares and fractions of shares will be liquidated to pay the amount requested,
plus the transaction charge and any applicable transfer taxes. If a requested
partial liquidation would result in shares remaining credited under the Plan
with a total value below $200, the request will be treated as if it had been a
request for total liquidation. However, these minimums will not apply, nor will
a transaction charge be required, upon a liquidation of the SIP Shares credited
as a result of an annual distribution, if the request for liquidation is made
within 30 days after the date of distribution.
When the proceeds of a total or partial liquidation of SIP Shares are used to
provide a variable annuity under the Program, no transaction charge is made.
Reinvestment of Total or Partial Liquidation. With respect to one total or
partial liquidation in each calendar year, the Planholder may reinvest the
amount liquidated without sales charge. A single reinvestment purchase may be
made within twelve months after the date of the liquidation, in an amount not
exceeding the net proceeds of the liquidation reduced by any part of the
liquidation used to purchase an annuity under the Program. Annuity rate
protection rights are not purchased in respect to such reinvestments.
Systematic Liquidation (Periodic Withdrawal). Under this arrangement the
Planholder liquidates each month either a specific number of SIP Shares or the
number of full and fractional shares required to provide a specific cash amount.
For each payment, sufficient shares will be liquidated to provide the payment
requested and to pay the transaction charge and any applicable transfer taxes.
In addition the annual custodial charge, if not previously collected, will be
deducted from the final payment. A requested systematic liquidation will be
rejected if the first payment under the arrangement requested would be less than
$20. Purchases of SIP Shares during a period of systematic liquidation would in
effect involve duplicate sales charges. For this reason, The Prudential will not
ordinarily permit a purchase of less than $5,000 during a systematic
liquidation, and will permit purchases of $5,000 or more only if the particular
purchase transaction is deemed suitable. Since systematic liquidation payments
represent proceeds from the liquidation of SIP Shares credited to the
Planholder, they serve to reduce his/her invested capital to the extent that
they exceed reinvested net investment income and capital gains distributions.
Any requested liquidation payment during a Letter of Intent period is subject to
any prior claim for sales charges The Prudential may have to the share proceeds,
as described under Letter of Intent, page 11.
All liquidation payments will be made to the Planholder unless he/she directs
otherwise. Each liquidation payment may result in a gain or loss which the
Planholder would report on his/her income tax return. Each payment will be made
within seven days after the request for liquidation is received, except as The
Prudential may be permitted under any valid and applicable law to suspend the
payment.
Suspension is currently permissible only when the New York Stock Exchange is
closed on other than a regular holiday or weekend or when, as determined by rule
or regulation of the Securities and Exchange Commission, trading thereon is
restricted, or an emergency exists as a result of which disposal of securities
held by the Fund is not reasonably practicable or it is not reasonably
practicable for the value of the Fund's assets to be fairly determined, or when
the Securities and Exchange Commission has provided for such suspension for the
protection of Planholders.
There are certain differences in the liquidation provisions under Old Form
Contracts. See Differences Under Old Form Contracts, page 27.
13
<PAGE>
Transferring SIP Shares. At the Planholder's request all or a part of the SIP
Shares credited under his/her Plan may be transferred to another person. If only
a portion of the shares are transferred, they must have a net value of at least
$100, with shares having a value of at least $200 remaining credited under the
Plan of the transferring Planholder. Any transferee who is not a Planholder must
become one at the time of transfer, and in this case the net value of the shares
transferred must be at least $300, the purchase minimum for a Planholder's
initial purchase under a Plan.
A requested transfer during a Letter of Intent period is subject to any prior
claim The Prudential may have to the share proceeds. See Letter of Intent,
page 11.
Substitution of Fund Shares. Subject to any applicable law or regulation, The
Prudential may, in the interest of Planholders and upon any required approval of
the Securities and Exchange Commission, substitute in Prudential's Investment
Plan Account (either as to Fund shares to be purchased or as to Fund shares both
to be purchased and already purchased) registered fund shares of a mutual fund
with investment objectives similar to those of the Fund and whose shares are
generally of comparable quality to Fund shares.
Before any such substitution The Prudential will give each Planholder 90 days
written notice of what is planned, including the reasons for the change and a
reasonable description of the shares to be substituted. Each Planholder who does
not then totally liquidate his/her shares before the effective date of the
proposed substitution shall be conclusively deemed to have agreed to the
substitution and to bearing a pro rata share of any expense which it entails.
DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT
The Variable Annuity Contract provides the Planholder with a means of obtaining
a lifetime monthly annuity under which the monthly annuity payments vary
according to the investment results of a portfolio consisting primarily of
common stocks. The Planholder may use either the value of Systematic Investment
Plan interests or funds from other sources as the purchase payment. Several
types of variable annuity are available, as described on page 16.
Purchasing a Variable Annuity. A person who wishes to purchase a variable
annuity, either with the amount accumulated under a Systematic Investment Plan
or with funds from other sources, must furnish The Prudential with (1) written
instructions in a form satisfactory to The Prudential as to the type of annuity
desired, (2) proof satisfactory to The Prudential of the date of birth of the
Planholder and, if a last survivor life annuity is selected, of the contingent
annuitant, and (3) sufficient funds to carry out the instructions for the
purchase.
The purchase of the variable annuity is made on the first business day on which
the office of The Prudential which services these contracts has all of the
above, at the annuity share value next determined. That day is called the
purchase date. The Prudential will send a Planholder's first monthly annuity
payment on the first day of any calendar month chosen, so long as the day
selected is at least one month but no more than 37 months after the purchase
date. The day on which the first monthly annuity payment is due is called the
initial payment date.
The purchase of a variable annuity is subject to The Prudential's rules in
effect at the time in respect to age and amount, and to any requirements imposed
by federal or state laws or regulations. Currently the minimum amount that must
be applied to purchase a variable annuity under the Program is $2,000 for the
initial annuity purchased and $1,000 for any subsequent annuity for the same
Planholder. See Differences Under Old Form Contracts, page 27, for minimum
purchase requirements under such contracts.
Sales and Other Charges. A sales charge and any applicable premium taxes are
deducted from each gross purchase payment applied to purchase a variable
annuity. The sales charge is expressed as a percentage of the adjusted gross
purchase payment, which is the gross purchase payment reduced by any applicable
taxes.
The applicable sales charges are as follows. In certain cases, described on the
following page, the sales charges will be lower.
14
<PAGE>
Sales Charge as a Percentage of:
- --------------------------------
Amount of Adjusted Adjusted Gross Net
Gross Purchase Payment Purchase Payment Amount Invested*
- ---------------------- ---------------- ---------------
First $ 5,000 8.50% 9.29%
Next $ 5,000 7.00% 7.53%
Next $ 10,000 5.00% 5.26%
Next $ 30,000 3.00% 3.09%
Next $ 50,000 2.00% 2.04%
Next $400,000 1.00% 1.01%
Excess over $500,000 0.60% 0.60%
*Without taking into account deduction for any premium tax.
Systematic Investment Plan Liquidations. The applicable Sales Charges for
purchases made with the proceeds of liquidation of Systematic Investment Plan
interests are as follows:
Sales Charge as a Percentage of:
- --------------------------------
Amount of Adjusted Adjusted Gross Net
Gross Purchase Payment Purchase Payment Amount Invested*
- ---------------------- ---------------- ---------------
First $ 5,000 1.50% 1.52%
Next $ 5,000 1.00% 1.01%
Next $ 5,000 0.50% 0.50%
Excess over $15,000 0.25% 0.25%
*Without taking into account deduction for any premium tax.
For these sales charges to apply, the proceeds from the Systematic Investment
Plan liquidation must be used to purchase a variable annuity within three months
after the liquidation. If a Planholder makes a minimum variable annuity
purchase, using the liquidation proceeds of SIP Shares acquired by a series of
minimum purchases, and if there were no change in the SIP Share Value after the
initial purchase, this sales charge, together with the sales and custodial
charges for the SIP Share purchases and the cost of the annuity rate protection
rights, would total approximately 11.8% of the SIP purchase payments.
Accumulation of Purchases. For purposes of determining the sales charge, annuity
purchases on the life of the Planholder and his/her spouse and his/her children
under age 21 are combined, and their previous annuity purchases under the
Program, whenever made, are included in determining which percentage applies.
For example, a man and his wife make two $5,000 adjusted gross purchase payments
a few months apart. Neither payment is from Systematic Investment Plan
liquidations. The sales charge is 8.5% of the first adjusted gross purchase
payment, and 7% of the second such payment. Purchases from Systematic Investment
Plan liquidations are not combined with other purchases for this purpose because
of the lower sales charges which apply to such purchases, as shown in the table
above.
For differences in the determination of sales charges and the accumulation of
purchases under Old Form Contracts, see Differences Under Old Form Contracts on
page 27.
Taxes. The amount and timing of any applicable premium tax varies depending on
the jurisdiction, and is subject to change by the legislature or other
authority. In many jurisdictions there is no tax at all. The current tax rates
for those jurisdictions imposing a tax range from 1% to 5%.
Other Charges. A mortality risk charge, an expense risk charge and an
administrative charge, at effective annual rates of 0.075%, 0.150% and 0.150%,
respectively, for a total of 0.375%, or 3/8 of 1%, per year, are applied daily
on the value of the net assets held for the benefit of the contracts
participating in Prudential's Annuity Plan Account. These charges are to cover
The Prudential's general administrative expenses in operating the Account and to
provide a surplus for use, if necessary, to help The Prudential fulfill its
contractual obligations discussed under the heading The Risks Which The
Prudential Assumes on page 17.
The administrative charge applied against Account assets is designed only to
reimburse The Prudential for the development, administration and modification
costs of the Program allocable to the Variable Annuity Contract. The Prudential
expects to maintain this charge at a level not in excess of the amount required
to achieve this purpose.
15
<PAGE>
During 1994, The Prudential received $0 in sales charges and $9,761 in charges
made against the net assets of the Account. The equivalent figures for 1993 were
$0 and $11,093.
In addition to the above charges, the investment advisory fee described under
Prudential's Gibraltar Fund on page 8, determined daily at the rate of 0.125%
(1/8 of 1%) per year of the average net assets of the Fund, is paid by the Fund
to The Prudential. Thus, at present, a total charge against assets at a yearly
rate of about 0.5% (1/2 of 1%) is made in respect to variable annuities.
The charges described above may all be changed by The Prudential, subject to
certain conditions. See Changing the Contract, page 27.
Right to Cancel. You have the right, within ten days after you receive your
Contract, to surrender the Contract by delivering or mailing it, with written
notice that you wish to surrender it, to an office of The Prudential or to the
agent through whom the Contract was purchased. Upon such surrender The
Prudential will cancel the Contract and pay the owner an amount equal to the sum
of (1) the difference between any purchase payments paid and the amounts
allocated to any separate accounts under the Contract and (2) the net asset
value of the Contract on the date of surrender attributable to the amounts so
allocated. However, if applicable state law so requires, the amount of the
purchase payment will be returned instead.
The Types of Annuity Available. The following types of variable annuity are
described in the Contract.
Type A -- Life Annuity. Annuity payments are payable only during the lifetime of
the Planholder. This type provides a larger monthly payment than do Types B and
C, described below, because payments cease when the Planholder dies. For
example, it would be possible under this type for the Planholder to receive only
one annuity payment if death were to occur within the first month after the
first monthly annuity payment. Accordingly, this type is primarily appropriate
where larger income during the Planholder's lifetime is of greater importance
than preservation of a remainder for dependents.
Type B -- Life Annuity -- 10 Years Certain. Annuity payments are payable during
the lifetime of the Planholder. If the Planholder dies before the 120th monthly
payment is due, monthly annuity payments do not continue to the beneficiary.
Instead, the discounted value of the remaining unpaid installments, to and
including the 120th monthly payment, is payable to the beneficiary in one sum.
Type C -- Last Survivor Life Annuity. Annuity payments are payable as long as
either the Planholder or the designated contingent annuitant is living. This
type of annuity has a particular appeal to a husband and wife. As with the Type
A -- Life Annuity above, it would be possible under this type of annuity for
only one monthly annuity payment to be made, if both the Planholder and the
contingent annuitant died within the first month after annuity payments begin.
How Variable Annuity Payments are Determined. The amount of the monthly variable
annuity payment depends on (1) the net purchase payment for the annuity, (2) the
type of annuity selected, (3) the date of birth and sex of the Planholder, and
of the contingent annuitant under a Type C Annuity, (4) the annuity rate table
selected by The Prudential for these Contracts (see Schedules of Annuity Rates,
below), (5) the number of complete months between the purchase date and the
initial payment date, and (6) the investment results of Prudential's Annuity
Plan Account, which, in turn, reflect the investment results of the Fund.
The first five items together provide the basis for determining the dollar
amount of monthly annuity that would be paid if there were no change in the
monthly value of an annuity share. This dollar amount is called the tabular
monthly annuity. It is converted to a monthly number of annuity shares by
dividing that amount by the annuity share value on the purchase date. The
monthly number of annuity shares thus established remains the same through the
duration of the annuity except for the possibility of temporary additional
annuity shares as described in the third paragraph under Schedules of Annuity
Rates, below.
The investment results of the Account, item (6), are reflected in changes in the
monthly value of an annuity share (the annuity share value) to the extent that
the rate of net investment return (after deducting the administrative and risk
charges described under Sales and Other Charges, page 14) is greater or less
than the effective annual interest rate assumed in the applicable schedule of
annuity rates. The amount payable on the first day of each month beginning with
the initial payment date is the product of (a) the monthly number of annuity
shares and (b) the annuity share value calculated as of one month and one
business day prior to the due date of the payment.
16
<PAGE>
Schedules of Annuity Rates. The schedules currently contained in the variable
annuity contract are based on the Annuity Table for 1949 with adjustments
described in the Contract to reflect improving mortality trends, and with
assumed effective annual interest rates of 3.5% or 5%. The 5% schedule is
applicable in all but a few states in which it is currently not available under
the state law or regulations. In these few states (Florida, New Mexico, Texas
and West Virginia) the 3.5% schedule applies. See Differences Under Old Form
Contracts on page 27 for the additional availability of the 3.5% schedule under
those Contracts.
The 5% schedule, because it is based upon a higher assumed effective annual
interest rate, results in a greater initial monthly annuity payment than is
provided under the 3.5% schedule. For example, under a Type B Annuity with the
initial payment deferred one month and one day, the initial payment per $1,000
of net purchase payment for a male born in 1930 and age 65 on the initial
payment date would be $6.70 under the 5% schedule and $5.84 under the 3.5%
schedule. However, in reflecting the investment results of the Fund, the annuity
share value for an annuity using the 5% schedule will increase more slowly and
decrease more quickly than will the annuity share value for an annuity using the
3.5% schedule. As a rough rule of thumb, the 3.5% schedule should turn out to be
more advantageous for Planholders who live longer than the average, while the 5%
schedule should be better for Planholders for whom the larger early payments are
especially important.
The variable annuity contracts are entitled to participate in the divisible
surplus of The Prudential, as may be determined annually at the sole discretion
of The Prudential's Board of Directors. The board has determined that
Planholders receiving annuity payments will so participate in 1995. They will be
temporarily credited with an additional number of monthly annuity shares on
which annuity payments in 1995 are based. There is no assurance that such
participation in the divisible surplus of The Prudential or temporary crediting
of annuity shares will occur for any future year. In the example given in the
previous paragraph, the initial payments are increased for 1995 from $6.70 to
$7.24 and from $5.84 to $6.41 for the 5% and 3.5% schedules, respectively.
Annuity Share Value. For these contracts, the annuity share value for July 1,
1969 was set at $1. The annuity share value for any subsequent business day is
determined by multiplying the annuity share change factor for that day (see
below) by the annuity share value for the immediately preceding business day.
The annuity share change factor for any business day is obtained by (1) adding
to 1.00 the rate, after provision for any taxes, of net investment income earned
and of asset value changes in Prudential's Annuity Plan Account from the end of
the preceding business day to the end of the current business day, and (2)
deducting from such sum the administrative and risk charges. See the paragraph
headed Other Charges on page 11. The remainder is then divided by the sum of
1.00 and the rate of interest on a daily basis at the effective annual rate
assumed in the applicable schedule of annuity rates. No provision is currently
made for federal income taxes in determining the change factor. See Federal
Income Taxes, page 30.
An alternative gradual investment in Prudential's Annuity Plan Account is
possible under Old Form Contracts. See Differences Under Old Form Contracts on
page 27.
Shown below are the annuity share values as of the last business day of each
year of the ten year period ending December 31, 1994. Each share value listed
was used to determine annuity payments for the second succeeding month. For
example, the share value as of the last business day in December is used to
compute the February annuity payment. Annuity share values are the same under
these Contracts and the Old Form Contracts.
Last Business Day of: 3.5%* 5%
----- ---
1985 ................ 1.78 1.44
1986 ................ 1.98 1.58
1987 ................ 1.96 1.54
1988 ................ 2.37 1.84
1989 ................ 2.79 2.14
1990 ................ 2.61 1.97
1991 ................ 3.38 2.51
1992 ................ 3.82 2.81
1993 ................ 4.55 3.30
1994 ................ 4.32 3.08
*3.5% schedule currently applies only in a few states.
The Risks Which The Prudential Assumes. The Prudential assumes the risk (1) that
annuitants as a class may live longer than estimated, with the result that
payments will continue for longer than expected, and (2) that charges under the
Contracts may not be enough to cover the actual expenses incurred. In either
event, the loss will fall on
17
<PAGE>
The Prudential. These risks assumed by The Prudential must be evaluated in the
light of The Prudential's right, upon 90 days notice to Planholders, to make
certain changes in the Contracts, including the charges and the schedule of
annuity rates, thereby reducing exposure to loss as a result of the guarantee.
However, such changes would apply only to new purchases after the effective date
of the change and not to any annuities already in effect or annuity rate
protection rights already acquired but not yet exercised. Moreover, any increase
in charges must be preceded by an order of exemption from the Securities and
Exchange Commission. See Changing the Contract, page 27.
Even though the assets of Prudential's Annuity Plan Account are separately
accounted for, the entire general account assets of The Prudential are available
to meet the expenses and fulfill The Prudential's obligations for the variable
annuities purchased under the variable annuity contracts. The charges The
Prudential makes for assuming these risks are described in the subsection headed
Other Charges, page 11.
On the other hand, the charges may exceed the expenses that The Prudential
ultimately incurs under these Contracts. As the actual experience is realized,
the amount by which any such excess is greater than the amount which must
prudently be retained to fulfill The Prudential's obligations will become a part
of the divisible surplus of The Prudential.
In the event the Fund suspends the redemption of its shares because of the
closing of the New York Stock Exchange or other emergency reason, The Prudential
will make annuity payments during the period of suspension out of its general
account assets. The amount of such payments will be determined in a fair and
equitable manner satisfactory to the Department of Insurance of the State of New
Jersey.
Changing the Annuity Selected. The Prudential will change the initial payment
date of a Planholder's Variable Annuity under certain conditions. The Planholder
must send a request for the change to The Prudential in a form satisfactory to
The Prudential, which is received at least seven days before the new initial
payment date requested by the Planholder and at least one month and seven days
before the original initial payment date. Also, the new initial payment date
must be one that the Planholder could have selected in the first place.
See Purchasing a Variable Annuity, page 14.
The Prudential will also change the type of annuity selected to one which the
Planholder could have selected when he/she purchased his/her variable annuity,
again subject to certain conditions. The Planholder must send a request for the
change to The Prudential in a form satisfactory to The Prudential and, if the
requested change is to a Type C Annuity, there must be proof satisfactory to The
Prudential of the date of birth of the contingent annuitant. This request and
information must be received at least one month and seven days before the
initial payment date selected by the Planholder.
Canceling the Annuity. The Planholder may cancel the annuity by making a request
in a form satisfactory to The Prudential, if The Prudential receives the request
no later than the initial payment date. The Prudential will cancel the annuity
as of the first business day not earlier than the day of such receipt and will
pay the Planholder the termination value of the annuity. An annuity may not be
canceled after the initial payment date.
If the Planholder dies before the initial payment date, The Prudential will
cancel the annuity on the first business day not earlier than the day on which
The Prudential receives due proof of death and claim forms satisfactory to it,
and will pay the termination value to the beneficiary entitled to settlement.
See Naming a Beneficiary, page 27.
The termination value is approximately equal to the net amount which was
required to provide the annuity as of the purchase date (after deduction of any
applicable premium tax and sales charge), increased at the assumed effective
annual interest rate and increased or decreased in accordance with the rate of
change in the annuity share value between the annuity purchase date and the
cancellation date.
If a tax was deducted at the time of purchase, there will also be a return of
the lesser of the amount deducted and the amount of tax credit granted by the
state because of cancellation of the annuity. There will also be an adjustment
for any annuity payments that may have been made before notice of death is
received. Payment of this termination value is in full settlement of all
liability of The Prudential for the canceled annuity. The termination value will
be paid within seven days after the date of cancellation, except as The
Prudential may be permitted under any valid and applicable law to suspend such
payment. Circumstances under which suspension may be permissible are described
under Redemption of Fund Shares on page 25.
No amount is payable upon the death of a Planholder after the initial payment
date of an annuity, except for any amount which may be payable under a Type B
Annuity, as described under The Types of Annuity Available on page
18
<PAGE>
16. Of course, upon the death of either the Planholder or the designated
contingent annuitant under a Type C Annuity (described on page 16) monthly
payments will continue in accordance with the provisions of the annuity for the
remaining lifetime of the survivor.
The Continuing Right to Purchase an Annuity. The Prudential will continue to
provide annuities in the following situations. First, Planholders who have
acquired annuity rate protection rights may exercise those Rights in accordance
with their terms. Second, Planholders with shares credited under the Systematic
Investment Plan of the Program will be able to exchange them at any time for
variable annuities. Also see Differences Under Old Form Contracts on page 27.
19
<PAGE>
DESCRIPTION OF PRUDENTIAL'S GIBRALTAR FUND
Investment Policies. The Fund invests primarily in common stocks and other
securities convertible into common stocks. Notwithstanding its growth objective,
the Fund may invest a relatively small percentage of assets, which Fund
management interprets to be not more than 15%, in preferred stocks, bonds,
debentures, notes and other evidences of indebtedness, 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.
At times, when economic conditions or general levels of common stock prices are
such that it may be deemed temporarily advisable to curtail investments in
common stocks, a larger than usual proportion of the Fund's assets may be
invested in such preferred stocks and evidences of indebtedness, or may be held
in cash or its equivalents, as a defensive measure. Nevertheless, not more than
10% of the assets of the Fund may be invested in loans made through the purchase
of privately placed evidences of indebtedness of a character customarily
acquired by institutional investors. See the subheading Special Risks, page 21.
In addition, the Fund may hold at times a moderate amount of cash and
high-grade, short-term debt securities to facilitate the orderly and flexible
programming of investments. Such debt securities may include securities acquired
through short-term repurchase transactions which will be "fully collateralized",
i.e., the value of the securities held by the Fund will be at least equal to the
repurchase price, including accrued interest.
Normally the Fund will hold securities purchased for one year or more, although
it will sell individual securities when their current price seems clearly
excessive in relation to estimated present or future value or when the situation
of the issuer appears to be deteriorating. The Fund's portfolio turnover is
discussed under the heading The Prudential as Manager of the Fund's Investments
on page 23. The Fund does not plan to trade for short-term profits, but may take
advantage of occasional opportunities for such profits if circumstances make
this advisable. To the extent that the Fund makes short-term investments, it
would incur greater brokerage charges than would otherwise be the case, and any
short-term capital gains would constitute ordinary income.
Restrictions on Investment. The Fund operates under a number of investment
restrictions. Some arise out of state laws and are summarized under New Jersey
Investment Laws on page 21. Those which follow, as well as the investment
policies described above, are self-imposed, fundamental policies of the Fund.
They may not be changed without the vote of a majority of the Fund's outstanding
voting securities.
The Fund does not:
(1) underwrite the securities of other issuers, except where it may be
deemed to be an "underwriter" for purposes of the Securities Act of 1933
as indicated under Special Risks on the following page;
(2) buy or sell commodities or commodity contracts;
(3) sell short or buy on margin, or buy, sell or write put or call options
or combinations of such options;
(4) invest for the purpose of exercising control or management;
(5) buy or hold the securities of any issuer if those officers and directors
of the Fund or officers of its investment advisor who own individually
more than one-half of 1% of the securities of such issuer or together
own more than 5% of the securities of such issuer;
(6) with respect to 75% of the value of its assets, buy the securities of an
issuer if the purchase would cause more than 5% of the value of the
Fund's total assets to be invested in the securities of any one issuer
(except for obligations of the United States government and its
instrumentalities) or result in the Fund owning more than 10% of the
voting securities of such issuer;
(7) concentrate its investments in any one industry (no more than 25% of the
value of the Fund's assets will be invested in any one industry);
(8) borrow money;
(9) buy or sell real estate, although the Fund may purchase shares of a real
estate investment trust;
(10) invest in the securities of other investment companies; or
(11) issue senior securities.
20
<PAGE>
Securities Lending. The Fund may from time to time lend its portfolio securities
to broker-dealers and/or banks, 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, the lender continues to
receive the interest and dividends, or amounts equivalent thereto, on the loaned
securities while receiving a fee from the borrower or earned 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.
The Prudential has advised the Fund's Directors that the lender does not have
the right to vote securities on loan, but The Prudential would terminate the
loan and cause the loaned securities to be returned to the Fund in order to
exercise the voting rights 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 the Fund would be an
unsecured creditor 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.
The Fund will not lend its portfolio securities to broker-dealers affiliated
with The Prudential, including Prudential Securities Incorporated. This will not
affect the Fund's ability to maximize its securities lending opportunities.
Special Risks. In addition to the previously mentioned restrictions, the Fund
may invest no more than 10% of the value of its assets in securities which,
because of legal or contractual restrictions upon resale or for other reasons,
are not readily marketable. Such securities include the privately placed
evidences of indebtedness referred to above. As of December 31, 1994, the Fund
did not hold any such restricted securities.
Any investment in such securities may entail special risks because of
difficulties in selling them. If the securities were to be sold publicly, the
Fund may be deemed an "underwriter" for purposes of the Securities Act of 1933
and may be required to register the securities under that Act. In that case, the
Fund might have to bear the expense of such registration, and the delays in the
sale pending the registration could result in a lower selling price. If the
securities were to be sold privately, the price obtainable might be lower than
would be obtained if the securities could be publicly marketed.
The value of any such securities will be determined in good faith by or under
the authority of the Fund's Board of Directors. A determination that the value
of particular securities is less than would have been the case had the
securities been freely marketable will make the net asset value of Fund shares
correspondingly lower.
Investment by the Fund in warrants or rights to acquire stock may also entail
risks. The Fund will not purchase any such warrants or rights if after giving
effect to such purchase the total cost to the Fund of all warrants and rights
then held by it will exceed 3% of the value of its assets. Warrants are
basically options to purchase securities at a specified price within a given
time. They are highly speculative, have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation that issues them.
The price of warrants does not necessarily move parallel with the price of the
underlying securities.
New Jersey Investment Laws. As long as The Prudential, or a subsidiary or
affiliate thereof, continues to be the investment advisor of the Fund, the
Fund's investments must meet requirements set forth in the Revised Statutes of
New Jersey. The Fund has, accordingly, adopted such requirements as part of its
investment policy while The Prudential, or a subsidiary or affiliate, continues
as the investment advisor.
The following is a summary of provisions of New Jersey law which impose
additional limitations on the investment policies of the Fund described in the
preceding two sections.
1. Evidences of indebtedness of a corporation, joint stock association, business
trust, business joint venture or business partnership may not be purchased if
in default as to interest.
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.
21
<PAGE>
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 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. Additional securities of a corporation may not be purchased if after the
purchase more than 10% of the market value of the assets of the Fund would be
invested in the securities of such corporation.
These currently applicable requirements of New Jersey law impose substantial
limitations on the ability of the Fund 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 Fund will not generally invest in the stock of newly organized
corporations. Nonetheless, an investment not otherwise eligible under items 1
and 2 of this section 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 Fund.
Investment limitations may also arise under the insurance laws and regulations
of other states where contracts of the Program 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 limitations of other states could impose additional restrictions on the
portfolio of the Fund.
Summary of Investment Advisory Contract. Under an Investment Advisory Contract,
The Prudential has agreed to furnish investment management to the Fund. Such
investment management entails the selection of securities for purchase or sale
by the Fund and the resulting placement of orders. Periodic reports of such
purchases and sales are submitted to the Fund for review by the Board of
Directors.
Subject to The Prudential's supervision, substantially all of the investment
management services provided by The Prudential are furnished by its wholly-owned
subsidiary, PIC, pursuant to the Service Agreement between The Prudential and
PIC which provides that The Prudential will reimburse PIC for its costs and
expenses. PIC is registered as an investment advisor under the Investment
Advisers Act of 1940.
The Prudential bears the expenses for investment advisory services incurred in
connection with the purchase and sale of securities (but not the brokers'
commissions and transfer taxes and other charges and fees attributable to
investment transactions), the salaries and expenses of all officers and
employees reasonably necessary for the Fund's operations (excluding members of
the Fund's Board of Directors who are not officers or employees of The
Prudential), and the office facilities of the Fund. The amount paid to The
Prudential for its investment advisory services to the Fund is shown under the
heading Prudential's Gibraltar Fund on page 8.
The Investment Advisory Contract and the Service Agreement will continue in
effect from year to year provided renewal is approved at least annually by the
Fund's Board of Directors, including approval by a majority of those directors
who are not interested persons of either party to the Contract or Agreement.
The Investment Advisory Contract also grants the Fund a royalty-free,
non-exclusive license to use the words "Prudential's Gibraltar" and the
registered service mark of a rock representing the Rock of Gibraltar which
appears on the cover of this prospectus. However, The Prudential may terminate
this license if The Prudential or a company controlled by it ceases to be the
Fund's investment advisor. The Prudential may also terminate the license for any
other reason upon 60 days written notice; but, in this event, the Contract shall
also terminate 120 days following receipt by the Fund of such notice, unless a
majority of the outstanding voting securities of the Fund vote to continue the
Contract notwithstanding termination of the license.
The Investment Advisory Contract may be terminated by the Board of Directors or
by the vote of a majority of the Fund's outstanding voting securities on 60 days
notice to The Prudential. The Prudential may terminate the Contract on 90 days
notice to the Fund. The Contract will also terminate automatically in the event
of its assignment.
The Prudential will continue to have responsibility for all investment advisory
services under its advisory or subadvisory agreements with respect to its
clients.
The Investment Advisory Contract with The Prudential was approved at the annual
meeting of stockholders held on May 21, 1970. The Board of Directors has
unanimously approved continuance of the Contract in each year since then, most
recently at a meeting held on February 28, 1995.
22
<PAGE>
The Service Agreement between The Prudential and PIC will continue in effect as
to the Fund 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 Investment Advisory Contract between The Prudential and the Fund.
The Agreement may be terminated by either party upon not less than 30 days prior
written notice to the other party, will terminate automatically in the event of
its assignment and will terminate automatically as to the Fund in the event of
the assignment or termination of the Investment Advisory Contract between The
Prudential and the Fund. The Prudential is not relieved of its responsibility
for all investment advisory services under the Investment Advisory Contract
between The Prudential and the Fund. The Agreement provides for The Prudential
to reimburse PIC for its costs and expenses incurred in furnishing investment
advisory services.
The Service Agreement between The Prudential and PIC was ratified by
stockholders at their annual meeting held on September 27, 1985. The Board of
Directors has unanimously approved continuance of the Agreement in each year
since then, most recently at a meeting held on February 28, 1995.
A separate contract between The Prudential and the Fund provides that, as long
as the Fund sells its shares only to The Prudential, its separate accounts or
organizations approved by it, The Prudential will pay all expenses of the Fund
not covered by the Investment Advisory Contract (except for the fees and
expenses of members of the Fund's Board of Directors who are not officers or
employees of The Prudential, brokers' commissions, transfer taxes and other
charges and fees attributable to investment transactions, and any other local,
state or federal taxes). The Prudential has accordingly paid the organizational
expenses of the Fund and such other expenses as those incurred in connection
with the registration of the Fund and Fund shares with the Securities and
Exchange Commission, the cost of preparing and printing Fund prospectuses, and
fees for auditors and lawyers. Under the present contractual arrangements, it
will continue to pay any such expenses incurred in the future.
The Prudential as Manager of the Fund's Investments. Prudential Investment
Advisors (PIA), a division of PIC, supplies the services with respect to equity
securities. PIA analyzes industries and companies within these industries in
order to recommend purchases and sales of equity securities. The personnel of
PIA comprised the Asset Management Department of The Prudential until
transferred to PIC on December 31, 1984, which Department had been responsible
since 1950 for recommending and supervising the investments that comprise the
substantial portfolio of common stocks held as part of The Prudential's general
assets. This portfolio approximated $243 million at the end of 1994. That
Department had also been responsible for a significant percentage of the common
stock investments of The Prudential's mutual funds, pension accounts and other
accounts. Those investments approximated $22.6 billion in market value at the
end of 1994.
Robert P. Fetch, Managing Director of PIA, a unit of PIC, is the portfolio
manager for the Gibraltar Fund. Mr. Fetch also manages The Prudential's Growth
Opportunity Fund, Prudential's Variable Contract-6, and Midco, a commingled
account .
PIA's investment staff selects companies and diversifies investments over many
firms and industries. It provides continuous supervision and management over the
performance of the investments. This is to reduce the risk of developments which
may adversely affect the market value of the securities of one company or
industry. But the emphasis is on the careful choice of investments believed to
have potential for growth, rather than upon diversification alone.
In implementing the Fund's investment objectives, each securities analyst is
assigned the responsibility of keeping abreast of developments in specific
industries and companies within those industries. On the basis of periodic
contacts with company managements, consultants and research staffs of investment
banking and brokerage firms, as well as analyses of company reports, business
periodicals and standard statistical services, each analyst makes projections of
earnings and dividends, and determines the relative attraction of the companies
he/she follows based on these projections in the light of current conditions and
market price. Securities will be purchased for the Fund's portfolio and sold
from it on the basis of these analyses.
These methods of selection and supervision, like diversification, while they do
not guarantee successful investment or eliminate the risks involved therein, are
ones which the average individual may not have the time, facilities, training or
funds to employ on his/her own.
Portfolio Turnover. The Fund's portfolio turnover rates for the last ten years
are shown in the table on page 6. (This rate is used to measure the activity of
a fund's portfolio securities. It is calculated by dividing purchases or sales,
whichever is less, by the average monthly value of the portfolio securities, in
each case excluding securities with maturities of one year or less.)
23
<PAGE>
As noted elsewhere in this prospectus, the Fund 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 increase the rate of
portfolio turnover. The rate of portfolio activity will usually affect the
brokerage costs of the Fund. It is anticipated that under normal circumstances
the portfolio turnover rate would not exceed 100%. During 1994 and 1993 the
portfolio turnover rates were each 92%.
The Prudential manages several other securities portfolios, including the
portfolios of The Prudential Series Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10 and The Prudential
Variable Contract Account-11, registered under the 1940 Act as open-end
management investment companies. Some of these portfolios invest in common
stock. Investment opportunities may become available from time to time that are
suitable both for the Fund and for these other common stock portfolios. On these
occasions, an allocation of the securities available will be made, taking into
account the suitability of the security in the light of the investment
objectives of each portfolio, the size and composition of the respective
portfolios and the availability of cash.
Brokerage. The Prudential is responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Transactions
on a stock exchange in equity securities will be executed primarily through
brokers that will receive a commission paid by the Fund. 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 for 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 if to do so appears to further the goal
of obtaining the best available execution.
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, The 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 any
portfolio, consideration is given to whether the broker or dealer has furnished
The Prudential or 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. The Prudential or PIC use these services in
connection with all investment activities, and some of the data or services
obtained in connection with the execution of transactions for the Fund 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 providing investment management for the Fund. Although The
Prudential's present policy is not to permit higher commissions to be paid on
transactions in order to secure research and statistical services from brokers,
The Prudential might in the future authorize the payment of higher commissions,
but only with the prior concurrence of the Board of Directors of the Fund, 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 provides.
When investment opportunities arise that may be appropriate for more than one
entity for which The Prudential serves as investment manager or advisor, one
entity will not be favored over another and allocation 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 The Prudential acts as investment manager or advisor 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
securities may be sold for another.
24
<PAGE>
Prudential Securities Incorporated (Prudential Securities) may act as a
securities broker for the Fund. In order for Prudential Securities to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow
Prudential Securities to receive no more than the remuneration that would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. The Fund may not engage in any transactions in which The Prudential
or its affiliates, including Prudential Securities, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal.
The Prudential or its affiliates, including PIC, may enter into business
transactions with brokers or dealers for purposes other than the execution of
portfolio securities transactions for accounts The Prudential manages. These
other transactions will not affect the selection of brokers or dealers in
connection with portfolio transactions for the Fund.
During the calendar year 1994, $774,338 was paid to various brokers in
connection with securities transactions for the Fund. Of this amount,
approximately 74.6% was allocated to brokers who provided research and
statistical services to The Prudential. The equivalent figures for 1993 were
$666,818 and 87.6%.
Of the total brokerage fees paid by the Fund during 1994, no money or percentage
was paid to Prudential Securities Incorporated (formerly Prudential-Bache
Securities, Inc.) an affiliated broker. The equivalent figures for 1993 were
$1,200 and 0.18%.
Determination of Net Asset Value. Shares of the Fund are sold to Prudential's
Investment Plan Account, Prudential's Annuity Plan Account and Prudential's
Annuity Plan Account-2, which invest the money paid for purchases under the
tax-qualified and non-tax-qualified contracts of the Program. Sales of Fund
shares are made at the net asset value next determined after such purchases are
made.
The Prudential determines the net asset value of Fund shares on each business
day (a day on which the New York Stock Exchange is open for business). The net
asset value is computed by dividing the net assets by the number of outstanding
shares of the Fund. Net assets are the total of cash and other assets, including
investment securities taken at value, minus liabilities.
Each security traded on a national securities exchange will be valued at the
price which, on the date of valuation, is the last sales price (or the last bid
price if there were no sales of the security that day) on the New York Stock
Exchange, or if not traded on such exchange, such last sales or bid price at the
time of close of the New York Stock Exchange on the principal exchange on which
such security is traded. For any security not traded on a national securities
exchange but traded in the over-the-counter market, the value will be the last
bid price available at the time of close of the New York Stock Exchange, except
that the securities for which quotations are furnished through a nationwide
automated quotation system approved by the National Association of Securities
Dealers, Inc. (NASDAQ) will be valued at the closing best bid price on the date
of valuation provided by a pricing service which utilizes NASDAQ quotations.
Debt obligations with maturities of less than 60 days are valued at amortized
cost. Portfolio securities or assets for which market quotations are not readily
available will be valued at fair value as determined in good faith by or under
authority of the Fund's Board of Directors.
Redemption of Fund Shares. Redemptions of Fund shares result from liquidations
of interests under the contracts of the Program, and are made at the net asset
value next determined after such liquidations are made. Payment for shares
redeemed will ordinarily be made within seven days after the redemption request
is received from The Prudential.
This right of redemption may, however, be suspended for any period during which
the New York Stock Exchange is closed on other than a regular holiday or
weekend, or trading thereon is restricted, or for any period during which an
emergency exists as a result of which it is not reasonably practicable for the
Fund either to dispose of securities owned by it or to determine the value of
its assets fairly. Redemption may also be suspended in the event the Securities
and Exchange Commission has provided for such suspension for the protection of
security holders.
Description of Fund Shares and Voting Rights. The Fund's authorized capital is
75,000,000 shares of common stock, $1 par value. Common stock is purchased with
amounts arising from payments made by participants in the separate accounts of
the Prudential Financial Security Program. All shares of Fund stock are entitled
to participate equally in dividends and distributions of the Fund and in its net
assets remaining upon liquidation after satisfaction of outstanding liabilities.
Fund shares are fully paid and nonassessable when issued and have no preemptive,
25
<PAGE>
conversion or exchange rights. Such shares are redeemable upon request, except
under the circumstances described in the preceding section, Redemption of Fund
Shares.
After a distribution of investment income and realized net capital gains in
December of each year, the balance of the Fund's investment income and realized
net capital gains for the calendar year then ending are normally distributed
during the first calendar quarter after the end of that calendar year. Any such
distributions to the accounts will ordinarily be credited in the form of
additional Fund shares at net asset value. However, partial distributions may be
made in cash to meet expenses of the accounts. See Federal Income Taxes, page
30.
Each share of common stock outstanding is entitled to one vote. A vote is taken
annually for the election of directors and with respect to the selection of the
independent public accountants of the Fund. Other matters of a nonrecurring
nature, such as any proposed change in the fundamental investment policies
described on page 19, would also be submitted to a vote of the common stock.
These shares have non-cumulative rights when voting on the election of
directors.
Fund shares are held only by separate accounts of The Prudential. At December
31, 1994, Prudential's Investment Plan Account and Prudential's Annuity Plan
Account, the two accounts discussed in this prospectus, held, respectively,
approximately 79% and 1% of all Fund shares outstanding. Prudential's Annuity
Plan Account-2, a separate account of The Prudential which is not discussed in
this prospectus, held approximately 20%. Fund shares are voted by The Prudential
in accordance with voting instructions received from participants in those
accounts. Planholders under a Systematic Investment Plan and Planholders (or
contingent annuitants or beneficiaries in cases where a Planholder is deceased)
under a Variable Annuity Contract will be notified of any meeting at which Fund
shares may be voted. Planholders in each Account will be given an opportunity to
vote a number of Fund shares proportionate to their interest in that Account by
providing voting instructions on forms furnished for this purpose by The
Prudential. If there are Fund shares held in either Account for which voting
instructions are not received, The Prudential will vote those shares on each
matter in the same proportion as it votes the Fund shares held in the account
for which it received instructions.
Custodian, Transfer Agent and Dividend-Paying Agent. Chemical Bank, New York
Plaza, New York, New York 10004, is custodian of the Fund's assets and transfer
agent and dividend-paying agent of the Fund. As custodian, Chemical Bank
maintains certain financial and accounting books and records on behalf of the
Fund pursuant to an agreement with the Fund.
SUPPLEMENTARY INFORMATION
Custodian for Prudential's Investment Plan Account. Chemical Bank is also
custodian for Prudential's Investment Plan Account. Chemical Bank is a banking
corporation organized under the laws of the State of New York. It is subject to
supervision by the Superintendent of Banks of New York and by the Federal
Reserve Board.
The custodian maintains custody of Fund shares and any other assets of the
Account and is responsible for any loss. However, the custodian will be relieved
of such responsibility to the extent that a loss was occasioned by other than
the negligence of, or robbery, burglary or theft by, its employees. The
custodian will not be liable for acting upon oral instructions from The
Prudential with respect to the Account prior to written confirmation, except in
the case of the negligence or willful misconduct of the custodian and/or its
employees. The custodian will not be liable for action taken in good faith upon
any certificate from The Prudential which the custodian in good faith believes
to have been validly executed. Neither The Prudential, the custodian nor any
other person may create a lien on the Account assets.
In order to reduce the number of times when Fund shares must be redeemed to meet
daily liquidation requests by Planholders, The Prudential is required under the
provisions of the custodian agreement to purchase shares of the Account on days
when liquidations by Planholders exceed their purchases and to liquidate those
shares on days when purchases by Planholders exceed their liquidations. The
Prudential may also liquidate shares thus credited to it when it believes its
holdings to be too large. The Prudential may realize profit or loss whenever it
liquidates shares, depending upon changes in the value of the shares since The
Prudential purchased them.
Fund shares related to shares of the Account credited to The Prudential will not
be voted.
Either party may terminate the custodian agreement between The Prudential and
the custodian after giving 30 days written notice of termination.
26
<PAGE>
Naming a Beneficiary. Subject to The Prudential's approval, a beneficiary may be
designated (1) for the Shares credited under a Systematic Investment Plan, (2)
for the termination value of an annuity if the Planholder dies on or after the
purchase date but before the initial payment date, and (3) if a Type B Annuity
is effected, for the discounted value of the unpaid installments if the
Planholder dies after the first but before the 120th monthly instalment is
payable.
The Prudential reserves the right, prior to making payment in accordance with a
beneficiary designation, to require due proof of the Planholder's death and such
completed claim forms and other evidence as may be required to properly
establish the claim.
Subject to the above, at the death of a Planholder who has SIP Shares credited,
the designated beneficiary, if a natural person taking in his/her own right,
will be credited with that number of the Planholder's SIP Shares which represent
the beneficiary's interest. If such beneficiary is not already a Planholder, The
Prudential will establish a Plan for the beneficiary and transfer the shares so
credited to that Plan. However, under the revised Plan described throughout this
prospectus, if the beneficiary is not a natural person taking in his/her own
right, The Prudential will, as of the date of receipt by The Prudential of the
required documents, liquidate such number of the deceased Planholder's SIP
Shares as represent that beneficiary's interest and will pay the proceeds of the
liquidation to that beneficiary. See Differences Under Old Form Contracts below.
For determination of the amount payable, if any, to the beneficiary upon the
death of a Planholder after the purchase date of a variable annuity, see
Canceling the Annuity on page 18.
Assignment. The Planholder's interest under his/her Systematic Investment Plan
is assignable only as collateral to a bank or other financial institution and
then only to the extent of the number of SIP Shares credited to the Planholder
on the date of the assignment, exclusive of any subsequent distribution, and
exclusive of any of the Planholder's SIP Shares restricted under a Letter of
Intent. See page 11. An assignee's only right shall be to liquidate such
assigned shares. The Prudential shall not be considered to have knowledge of any
assignment unless the original or a duplicate of the document evidencing the
assignment is filed with The Prudential. The Prudential assumes no
responsibility for the validity or sufficiency of any assignment, furnishes no
forms for that purpose, and recommends that if an assignment is contemplated, it
be prepared with the advice of the Planholder's legal counsel. Annuity rate
protection rights are not assignable. However, as described under Annuity Rate
Protection on page 12, such rights may, under certain conditions, be used by a
co-Planholder, if any, or by the Planholder's spouse after the Planholder's
death.
Neither the Variable Annuity Contracts nor any values or payments thereunder are
assignable except to The Prudential.
Changing the Contract. The Prudential may not change the Contract with respect
to any annuity already purchased. Neither may it change the schedules of annuity
rates applicable to annuity rate protection rights already purchased but not yet
exercised. Otherwise, upon 90 days notice to Planholders, The Prudential may
change the terms and provisions concerning the schedules of annuity rates,
annuity rate protection, the charges by The Prudential and the applicable
minimum requirements. However, it may not increase any charge unless it first
obtains an order of exemption from the Securities and Exchange Commission. The
Prudential may also refuse to accept any request for a purchase under the
Systematic Investment Plan, and it may add or substitute contracts under the
Program, provided, however, that unless the change is required by law or
regulation, it will not affect purchases already made unless the Planholder
accepts the substituted contracts as applying to any such purchases. Also see
Differences Under Old Form Contracts which follows.
Except as provided above, or as required by federal or state law or regulation,
no changes which would adversely affect rights acquired by Planholders will be
made without consent.
Differences Under Old Form Contracts. As stated in the introductory summary on
page 2, the Systematic Investment Plan and Variable Annuity Contracts described
in the preceding sections of this prospectus are the revised Contracts first
offered to the public on September 17, 1973.
Old Form Contracts may continue to be held by some persons who became
Planholders before introduction of the revised Contracts in their state, and by
persons who are added as Planholders pursuant to provisions of outstanding Old
Form Contracts. All such persons will, of course, be governed by the provisions
of their Old Form Contracts. Old Form Contracts can be identified by the letter
A appearing as the 7th digit (and only letter) in the plan number. Revised
Contracts contain the letter B in that spot.
27
<PAGE>
Change to Revised Contracts. Planholders with Old Form Contracts may, in most
cases, exchange their interests in such Contracts without charge for interests
in the revised Contracts. However, for purchasers of annuities under the Program
prior to introduction of the revised Contracts in their state, the Old Form
Contracts provisions under which such annuities were effected will continue to
govern for those annuities, even if the Contracts are otherwise exchanged for
revised Contracts.
The Old Form Contracts are similar in many respects to the revised Contracts.
Therefore, unless otherwise indicated in the preceding sections of this
prospectus, the information given is equally applicable to the Old Form
Contracts and to interests held under them. There are, however, several
important differences, as well as some lesser ones, as described below.
Contracts Comprising the Program. In addition to the Systematic Investment Plan
and Variable Annuity Contracts, the Old Form Contracts for the Planholder
include a Fixed-Dollar Annuity and Annuity Rate Protection Contract.
Transfer Account. Participation in the Program under Old Form Contracts requires
that a Transfer Account must have been established. The person who has
established and who maintains a Transfer Account is called an Accountholder.
Purchase payments under Old Form Contracts may be made only by transferring
funds from a Transfer Account. For an Accountholder the Transfer Account
Agreement is one of the contracts that make up his/her Program, and
Accountholders are referred to the Agreement for a full statement of its
provisions. Summarized below are those provisions which relate directly to
purchases made from the Transfer Account.
An Accountholder may authorize or make purchases from his/her Transfer Account
for any family member (the Accountholder, his/her spouse, their parents,
children, brothers, sisters and grandchildren) who is a Planholder. An initial
charge of $5 is made for the second and each additional Planholder enrolled
under the Account.
Deposits of $25 or more may be made into the Transfer Account either on a
scheduled or nonscheduled basis. Funds may be transferred out of an Account to
make purchase payments under the Systematic Investment Plan, either in
accordance with a Transfer Schedule established by the Accountholder or on a
nonscheduled basis, and to purchase a variable annuity or fixed-dollar annuity
under the Program, and in certain circumstances to pay premiums under The
Prudential insurance policies outside the Program. Withdrawals from the Account
may be made by written request. The Prudential will credit interest as of the
end of each calendar quarter in which the average balance in the Transfer
Account during the quarter is $50 or more. The interest rate is determined each
year by The Prudential's Board of Directors. The rate of interest for 1995 is
4%.
Systematic Investment Plan Differences
Minimum Purchase Amount. Although the minimum initial purchase amount is $300,
as in the case of the revised Plan, the minimum amount of any subsequent
purchase is $100. As indicated in the discussion of the Transfer Account above,
purchases may be made on a scheduled basis from the Transfer Account, but only
if the schedule provides for purchases of at least $400 a year.
Determining Sales Charge. In determining sales charge under Old Form Contracts
there is no provision for adding, to the dollar amount of the current purchase,
the value of shares already credited under the Plan, as described on page 10 for
the revised Plan. While the sales charge is thus determined separately for each
purchase payment, all nonscheduled transfers from the Transfer Account on the
same day as purchase payments for the Plans of spouses and their children under
the age of 21 will be considered a single purchase payment for the purpose of
determining the sales charge.
There is no provision for Letter of Intent under Old Form Contracts.
Annuity Rate Protection. Rights acquired under Old Form Contracts may be used
only on the life of the Planholder for whom they were purchased, in connection
with the purchase of either a fixed-dollar annuity or variable annuity under the
Program. These rights terminate upon the death of the Planholder or upon
termination of the Planholder's participation in the Program. The charge for the
rights acquired in respect to Plan purchases under Old Form Contracts is not
deducted from the Planholder's annual distribution, but instead is deducted from
the amount specified for transfer from the Transfer Account in connection with a
purchase under the Plan, before transferring the remainder as the purchase
payment.
Distributions. Under Old Form Contracts, as with the revised Plan described
throughout this prospectus, the amount of the Planholder's annual distribution,
after any deductions have been made from it, is ordinarily applied at net asset
value to increase the number of shares credited under the Plan. As an
alternative under Old Form Contracts,
28
<PAGE>
however, any such amount may instead be distributed to the Planholder in cash if
he/she or The Prudential so elects. As noted on page 12, the date of
distribution will ordinarily occur once a year in December.
Deductions from the amount of distribution under Old Form Contracts consist of
the annual custodial charge and, for Plans issued in Maryland and New York, any
charge for the purchase of annuity rate protection rights as described in the
next to last paragraph under Annuity Rate Protection on page 12. There is no
deduction for the cost of annuity rate protection rights acquired in connection
with purchases under the Plan since, as described in the previous subsection,
the charge for such rights is paid at the time the shares are credited under Old
Form Contracts.
Beneficiary. Subject to the conditions specified in the first paragraph under
Naming a Beneficiary on page 25, at the death of the Planholder under Old Form
Contracts, such number of the Planholder's securities shares as represent the
designated beneficiary's interest will be credited to that beneficiary. If the
designated beneficiary is not already a Planholder, The Prudential will without
charge establish a Plan for the beneficiary and transfer the shares so credited
to that Plan. The Plan established will be the revised Systematic Investment
Plan.
The preceding paragraph applies whether or not the beneficiary is a natural
person taking in his/her own right. There is no requirement under Old Form
Contracts for liquidation of the beneficiary's interest, with payment in cash,
when the beneficiary is not a natural person taking in his/her own right.
Variable Annuity Contract Differences. Under the Fixed-Dollar Annuity and
Annuity Rate Protection Contract included among the Old Form Contracts, a
fixed-dollar annuity (not described in this prospectus) is available. A
fixed-dollar annuity purchase may be used in combination with a variable annuity
purchase to satisfy the initial minimum purchase requirement described under
Purchasing a Variable Annuity on page 14, and either a fixed-dollar or a
variable annuity or a combination of both may be used to satisfy the subsequent
purchase minimum described in the same section.
Determination of Sales Charge. There are three differences between the manner in
which the sales charge for an annuity purchase under the Old Form Contracts is
determined and that described under Sales and Other Charges on page 14.
First, current and previous fixed-dollar annuity purchases under the Program are
combined with variable annuity purchases in determining the applicable sales
charge rate. Second, purchases made by a husband and wife are combined in
determining the sales charge rate, but not purchases by or for their children.
Finally, the lower sales charges for purchases made with the proceeds of
Systematic Investment Plan liquidations apply to any such proceeds credited to
the Transfer Account within three months after liquidation, no matter when they
may subsequently be transferred to purchase an annuity.
Gradual Investment Purchase of Variable Annuity. For Planholders with Old Form
Contracts, The Prudential provides an alternative arrangement under which a
person who purchases a variable annuity with no accumulation period may do so by
starting out with a fixed-dollar annuity and converting it gradually over a
36-month period, a 1/36th portion in each month, to a variable annuity. This
gradual conversion arrangement permits the purchaser to reduce the chance of
making the purchase at a time when the value of common stock may be relatively
high, by making in effect 36 separate investments in the Account. Of course,
this also reduces the chance of investing in annuity shares at a time when the
value of common stocks may be relatively low. The 5% rate schedule is not
available with gradual conversion.
Rate Schedules. In the revised form of contract, as described under How Variable
Annuity Payments are Determined on page 16, the 3.5% schedule applies in only a
few states where the 5% schedule is not available under state law. Under Old
Form Contracts the 3.5% schedule is also available as an alternative to the 5%
schedule in the states where the 5% schedule is available.
In those states, the 5% schedule will be used for a variable annuity purchase
unless the 3.5% schedule is specifically requested. However, the 5% schedule is
not available where the gradual investment arrangement is chosen, or for a
fixed-dollar annuity purchase under the Program.
The Continuing Right to Purchase an Annuity. In addition to the assurances
described under this heading beginning on page 18, Old Form Contract Planholders
who own other contracts issued by The Prudential on the date of notice of an
intention to discontinue providing variable annuities may exchange those
contracts for variable annuities even if the 90-day period has expired, but only
to the extent of the Planholder's interest in such other contracts on the date
of the notice.
29
<PAGE>
State Regulation. The 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. The 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 The
Prudential's reserve liabilities under all outstanding life insurance and
annuity contracts.
New Jersey law requires a quinquennial examination of The 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 The Prudential
of its contracts, and an examination of the manner in which divisible surplus
has been apportioned and distributed to policyholders and contractholders.
The laws of New Jersey also contain special provisions, which are codified as
Sections 17B:28-1 through 17B:28-14 of the New Jersey Statutes, which relate to
the issuance and regulation of contracts on a variable basis. These statutes 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.
In addition to the annual statement referred to above, The Prudential is
required to file with New Jersey and other states a separate annual statement
with respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
Regulation by the New Jersey Department does not involve any supervision or
control over the investment policy of the Fund or over the selection of
investments therefor, except for verification that certain investment
requirements of New Jersey law are met.
Federal Income Taxes
Prudential's Gibraltar Fund. Under the provisions of the Internal Revenue Code
applicable to regulated investment companies, the Fund, by distributing
substantially all of its net investment income and realized capital gains, will
be relieved of federal income tax on the income and gains so distributed. The
Fund has qualified for such tax treatment and intends to continue to so qualify.
Qualification of the Fund as a regulated investment company does not involve
government supervision of management or of investment practices or policies. See
Description of Fund Shares and Voting Rights on page 24. There is a 4% excise
tax on a portion of the undistributed income of a regulated investment company
if that company fails to distribute required percentages of its ordinary income
and capital gain net income. The Fund intends to employ practices that will
eliminate or minimize the imposition of this excise tax.
Prudential's Investment Plan Account. For federal income tax purposes,
Prudential's Investment Plan Account is a separate entity taxable as a
corporation. The Account has qualified under the provisions of Subchapter M of
the Internal Revenue Code, and it is expected that it will continue to so
qualify. As with the Fund, the Account, by distributing substantially all of the
net investment income and realized capital gains, will not be subject to federal
income tax on the income and gains so distributed. As with the Fund, the Account
intends to employ practices that will eliminate or minimize the 4% excise tax.
See Distributions on page 12. Neither the custodian nor the Account bears any
portion of any federal income taxes levied or assessed against either with
respect to shares of the Account credited to Planholders, or with respect to the
operations of the Program, the income from such shares or the transfer or
liquidation of such shares. Any liquidation or transfer of a Planholder's shares
in accordance with the provisions of the Systematic Investment Plan Contract
shall be deemed made on behalf of the Planholder and any federal income taxes
payable as a result shall be borne by the Planholder.
Distributions of net investment income from the Account to Planholders are
taxable to each Planholder at ordinary income rates. Any capital gains dividend
distributions from the Account to Planholders are taxable to each Planholder as
long-term capital gains.
Prudential's Annuity Plan Account. The operations of Prudential's Annuity Plan
Account form a part of, and are taxed with, the operations of The Prudential. No
federal income tax is currently payable on distributions of income received on
the Fund shares held in the Account for the benefit of Planholders, on capital
gains realized by the Prudential on redemptions of Fund shares, or on capital
gains dividends received by the Account from the Fund. Accordingly, the annuity
share value is not affected by income and capital gains distributions. These
distributions are reinvested in the Fund and are not distributed to Planholders.
Consequently, the Planholder is subject to federal income tax on his/her
variable annuity only when he/she receives monthly annuity payments or if he/she
cancels his/her annuity (see Canceling the Annuity, page 18). A portion of each
monthly annuity payment is excluded from
30
<PAGE>
gross income until the total investment in the contract is recovered. The
portion of each payment to be excluded is determined by dividing the investment
in the contract by the annuitant's life expectancy, with an adjustment for a
Type B Annuity being made to reflect the 10-year certain feature. The payments
in excess of this excluded portion are taxable as ordinary income. If the
Planholder cancels his/her annuity, any gain on the cancellation is taxable as
ordinary income.
Taxable payments under the Contract will generally be subject to withholding by
The Prudential. Recipients of pensions and annuities may elect for withholding
not to apply.
The above discussion of the federal income tax status under these Contracts is
not complete and is not intended as tax advice nor does it consider any
applicable state or other tax laws. A qualified tax advisor should be consulted
for complete information and advice.
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 information so omitted may be obtained from the Commission's principal
office in Washington, DC, upon payment of the fees prescribed by the Commission.
Experts. The financial statements included in this prospectus and the financial
statements from which the FINANCIAL HIGHLIGHTS included in this prospectus have
been derived, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports appearing herein. Such financial statements and
FINANCIAL HIGHLIGHTS have been included herein in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
Deloitte & Touche LLP's principal business address is Two Hilton Court,
Parsippany, New Jersey 07054-0319.
Litigation. No litigation is pending that would have a material effect on
Prudential's Investment Plan Account or Prudential's Annuity Plan Account.
DIRECTORS AND OFFICERS OF THE FUND
The directors and executive officers of the Fund are listed below, together with
their addresses and information as to their principal occupations during the
past five years. Collectively, they own, on record or beneficially, less than a
1% interest in separate accounts of The Prudential which hold Fund shares.
Directors' meeting fees and expenses are paid by the Fund only in respect to
those directors or former directors who are not officers or employees of The
Prudential. Such payments totaled $8,400 in 1994 and $8,400 in 1993,
representing equal amounts paid to Messrs. Fenster, McDonald and Weber.
DIRECTORS
ROBERT P. HILL*, Chairman of the Board--Executive Vice President of The
Prudential since 1990.
E. MICHAEL CAULFIELD, Director. -- Chief Executive Officer, Prudential Preferred
Financial Services since 1995; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company*; Prior to 1992: President of Investment Services of The
Prudential.
SAUL K. FENSTER, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.
W. SCOTT McDONALD, JR., Director--Executive Vice President of Fairleigh
Dickinson University since 1991: Prior to 1991: Executive Vice President of Drew
University. Address: 23 Forest Road, Madison, New Jersey 07940.
JOSEPH WEBER, Director--Vice President, Interclass (international corporate
learning) since 1990. Address: 37 Beachmont Terrace, North Caldwell, New Jersey
07006.
* These members of the Board are interested persons of The Prudential, its
affiliates or the Fund as defined in the 1940 Act. Certain actions of the
Board, including the annual continuance of the Investment Advisory Contract
between the Fund and The Prudential, must be approved by a majority of the
members of the Board who are not interested persons of The Prudential, its
affiliates or the Fund. Mr. Hill and Mr. Caulfield, two of the five members of
the Board, are interested persons of The Prudential and the Fund, as that term
is defined in the 1940 Act, because they are officers and/or affiliated
persons of The Prudential, the investment advisor to the Fund. Messrs.
Fenster, McDonald and Weber are not interested persons of The Prudential, its
affiliates or the Fund. However, Mr. Fenster is President of the New Jersey
Institute of Technology. The Prudential has issued a group annuity contract to
the Institute and provides group life and group health insurance to its
employees.
31
<PAGE>
OFFICERS
MENDEL A. MELZER, Vice President--Senior Vice President and Chief Financial
Officer of Prudential Preferred Financial Services since 1993; 1991 to 1993:
Managing Director, The Prudential Investment Corporation; Prior to 1991: Senior
Vice President, Prudential Capital Corporation.
STEPHEN P. TOOLEY, Comptroller--Vice President and Comptroller of Prudential
Insurance and Financial Services since 1993; Prior to 1993: Director, Financial
Analysis of The Prudential.
THOMAS C. CASTANO, Secretary and Treasurer--Assistant General Counsel of The
Prudential since 1993; Prior to 1993: Assistant General Counsel of Pruco Life
Insurance Company.
DIRECTORS AND OFFICERS OF THE PRUDENTIAL
The directors and certain officers of The Prudential, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF THE PRUDENTIAL
FRANKLIN E. AGNEW. Director. -- Business Consultant and former Senior Vice
President of H.J. Heinz. Address: One Mellon Bank Center, Suite 2120,
Pittsburgh, PA 15219.
FREDERIC K. BECKER, Director. -- President of Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
WILLIAM W. BOESCHENSTEIN, Director.--Director, Owens-Corning Fiberglas
Corporation. Address: Fiberglas Tower, Toledo, OH 43659.
LISLE C. CARTER, JR., Director.--Former Senior Vice President and General
Counsel, United Way of America. Address: 1307 Fourth Street, S.W., Washington,
DC 20024.
JAMES G. CULLEN, Director.--President, Bell Atlantic Corporation since 1993;
Prior to 1993: President, New Jersey Bell. Address: 1301 North Court House Road,
11th floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS, Director.--Health Care Advisor, Ernst & Young. Address: 1200
Nineteenth Street, N.W., 4th floor, Washington, DC 20024.
ROGER A. ENRICO, Director.--Vice Chairman, Pepsi Co. Inc. since 1993; 1991 to
1993: Chairman and Chief Executive Officer, Pepsi Co. Worldwide Foods; Prior to
1991: President and Chief Executive Officer, Pepsi Co. Worldwide Beverages.
Address: 7701 Legacy Drive, Plano, TX 75024.
ALLAN D. GILMOUR, Director.--Former Vice Chairman, Ford Motor Company. Address:
Prudential Plaza, Newark, NJ 07102-3777.
WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, United
Negro College Fund, Inc. since 1991; Prior to 1991: United States Representative
for Pennsylvania's 2nd District. Address: 500 East 62nd Street, New York, NY
10021.
JON F. HANSON, Director.--Chairman, Hampshire Management Co. Address: 235 Moore
Street, Suite 200, Hackensack, NJ 07601.
CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since
1993; 1991 to 1992 Assistant to the President and Director of Presidential
Personnel, U.S. Government; Prior to 1991: Deputy Secretary, Department of
Health and Human Services. Address: 1775 Massachusetts Avenue, N.W., Washington,
DC 20036-2188.
ALLEN F. JACOBSON, Director.--Former Chairman and Chief Executive Officer,
Minnesota Mining & Manufacturing Co. Address: 30 Seventh Street East, St. Paul,
MN 55101-4901.
GARNETT L. KEITH, JR., Director and Vice Chairman.--Vice Chairman of The
Prudential. Address: Prudential Plaza, Newark, NJ 07102-3777.
BURTON G. MALKIEL, Director.--Chemical Bank Chairman's Professor of Economics,
Princeton University. Address: Princeton University, Department of Economics,
110 Fisher Hall, Prospect Avenue, Princeton, NJ 08544-1021.
JOHN R. OPEL, Director.--Prior to 1994, Chairman of the Executive Committee,
International Business Machines Corporation. Address: 590 Madison Avenue, New
York, NY 10022.
32
<PAGE>
ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.
- --Chairman of the Board, President, and Chief Executive Officer, The Prudential
since 1994; Prior to 1994: President and Chief Operating Officer, Chase
Manhattan Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.
CHARLES R. SITTER, Director.--President and Director, Exxon Corporation since
1993; Prior to 1993: Director, Exxon Corporation. Address: 225 John W. Carpenter
Freeway, Irving, TX 75062.
DONALD L. STAHELI, Director.--Chairman and Chief Executive Officer, Continental
Grain Company since 1994; Prior to 1994: Chairman, Continental Grain Company.
Address: 277 Park Avenue, New York, NY 10172.
RICHARD M. THOMSON, Director.--Chairman of the Board and Chief Executive
Officer, The Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion
Centre, Toronto, Ontario, M5K 1A2, Canada.
P. ROY VAGELOS, M.D., Director.--Chairman, Regeneron Pharmaceuticals since 1995;
Prior to 1995: Chairman, President and Chief Executive Officer, Merck & Co.,
Inc. Address: 126 East Lincoln Avenue, Rahway, NJ 07065.
STANLEY C. VAN NESS, Director.--Attorney, Picco Mack Herbert Kennedy Jaffe
Perrella and Yoskin (law firm). Address: One State Street Square, Suite 1000,
Trenton, NJ 08607-1388.
PAUL A. VOLCKER, Director.--Chairman, James D. Wolfensohn, Inc. Address: 599
Lexington Avenue, New York, NY 10022.
JOSEPH H. WILLIAMS, Director.--Chairman of the Board, The Williams Companies
since 1994; Prior to 1994: Chairman and Chief Executive Officer, The Williams
Companies. Address: P.O. Box 2400, Tulsa, OK 74102.
OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
DOROTHY K. LIGHT, Vice President and Secretary.--Vice President and Secretary of
The Prudential.
EUGENE M. O'HARA, Senior Vice President and Comptroller.--Senior Vice President
and Comptroller of The Prudential.
MARTIN PFINSGRAFF, Vice President and Treasurer.--Vice President and Treasurer
of The Prudential since 1991; Prior to 1991: Senior Vice President, Mellon Bank.
33
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1994
<S> <C>
Investment in 20,347,560 shares of
Prudential's Gibraltar Fund at net
asset value of $9.3983 per share
(Cost: $203,718,841)........................ $ 191,232,069
Accrued expenses................................ (27,152)
----------------
NET ASSETS...................................... $ 191,204,917
----------------
----------------
Net assets were comprised of:
Paid-in capital................................. $ 203,716,800
Distributions in excess of net
investment income............................. (3,714,398)
Accumulated net realized gains.................. 3,689,287
Net unrealized depreciation..................... (12,486,772)
----------------
Net assets, December 31, 1994................... $ 191,204,917
----------------
----------------
Net asset value per share of
20,641,598 outstanding
Securities Shares............................. $ 9.2631
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividend distributions received............... $ 3,999,602
EXPENSES
Administration charge [Note 1]................ 1,494,725
----------------
NET INVESTMENT INCOME........................... 2,504,877
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Capital gains distributions received.......... 26,877,899
Realized loss on shares redeemed
[identified cost basis]..................... (111,234)
Net unrealized loss on investments............ (33,217,396)
----------------
NET LOSS ON INVESTMENTS......................... (6,450,731)
----------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ (3,945,854)
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 2,504,877 $ 1,400,882
Capital gains distributions received.............................. 26,877,899 34,784,197
Realized gain (loss) on shares redeemed........................... (111,234) 2,182,967
Net unrealized gain (loss) on investments......................... (33,217,396) 2,403,134
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... (3,945,854) 40,771,180
---------------- ----------------
DIVIDENDS TO PLANHOLDERS FROM [NOTE 5]:
Net investment income............................................. (6,180,311) (1,376,522)
Net realized gain from investment transactions.................... (23,192,440) (34,784,397)
---------------- ----------------
TOTAL DIVIDENDS TO PLANHOLDERS........................................ (29,372,751) (36,160,919)
---------------- ----------------
SECURITIES SHARES TRANSACTIONS:
Purchase payments................................................. 30,028,358 36,256,328
Security Shares liquidated........................................ (13,361,790) (14,252,931)
---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM SECURITIES SHARES TRANSACTIONS:................................ 16,666,568 22,003,397
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... (16,652,037) 26,613,658
NET ASSETS:
Beginning of year................................................. 207,856,954 181,243,296
---------------- ----------------
End of year....................................................... $ 191,204,917 $ 207,856,954
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE A2.
A1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
NOTE 1: ADMINISTRATION CHARGE
The administration charge is applied daily at an effective annual rate of 0.750%
against the net assets of the Account. This charge is paid to The Prudential
Insurance Company of America (The Prudential).
NOTE 2: TAXES
For federal income tax purposes, Prudential's Investment Plan Account is a
separate entity taxable as a corporation, and as such has elected to be taxed as
a regulated investment company under Subchapter M of the Internal Revenue Code.
As a result, by distributing substantially all of its net investment income and
net realized capital gains, the Account will not be subject to federal income
tax on the investment income and capital gains so distributed.
NOTE 3: SECURITIES SHARE TRANSACTIONS
The number of Securities Shares purchased and liquidated for the years ended
December 31, 1994 and December 31, 1993, respectively, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Securities Shares purchased: 120,448 118,334
Securities Shares liquidated: 1,161,767 1,145,308
Reinvestment of dividend distributions: 3,228,222 3,159,644
</TABLE>
NOTE 4: SECURITIES SHARE INFORMATION
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDENDS FROM NET CAPITAL GAINS
YEAR AT DECEMBER 31 INVESTMENT INCOME DISTRIBUTION
- --------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
1990 9.3873 .2954 .5359
1991 11.3754 .1785 .8650
1992 11.1042 .1045 2.0436
1993 11.2631 .0898 2.2692
1994 9.2631 .1427 1.5380
</TABLE>
NOTE 5: DISTRIBUTIONS
The date of distribution ordinarily occurs at the end of the calendar year.
$61,085 and $64,096 of the gross distributions of $29,372,751 and $36,160,919
were applied to pay custodial charges for the years ended December 31, 1994 and
December 31, 1993. The annual charges were not in excess of $3.80 per
planholder.
A2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Planholders of Prudential's Investment Plan Account and the Board of
Directors
of The Prudential Insurance Company of America:
We have audited the accompanying statement of net assets of Prudential's
Investment Plan Account of The Prudential Insurance Company of America as of
December 31, 1994, and 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 share information for each of the five years in the
period then ended. These financial statements and share information are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and share 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 share
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. 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 share information present fairly,
in all material respects, the financial position of Prudential's Investment Plan
Account as of December 31, 1994, the results of its operations, the changes in
its net assets, and the share information for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995
A3
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1994
<S> <C>
Investment in 260,097 shares of
Prudential's Gibraltar Fund at net
asset value of $9.3983 per share
(Cost: $2,485,935).......................... $ 2,444,467
Accrued expenses................................ (75)
----------------
NET ASSETS...................................... $ 2,444,392
----------------
----------------
NET ASSETS, representing:
Equity of annuitants [Note 4]................. $ 2,289,415
Equity of The Prudential
Insurance Company
of America.................................. 154,977
----------------
$ 2,444,392
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividend distributions received............... $ 52,771
EXPENSES
Charges to annuitants for assuming mortality
and expense risks and for administration
[Note 1].................................... 9,761
----------------
NET INVESTMENT INCOME........................... 43,010
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Capital gains distributions received.......... 362,212
Realized gain on shares redeemed
[identified cost basis]..................... 5,575
Net unrealized loss on investments............ (446,695)
----------------
NET LOSS ON INVESTMENTS......................... (78,908)
----------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ (35,898)
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 43,010 $ 34,551
Capital gains distributions received.............................. 362,212 550,527
Realized gain on shares redeemed.................................. 5,575 80,295
Net unrealized gain (loss) on investments......................... (446,695) 10,267
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... (35,898) 675,640
---------------- ----------------
ANNUITY BENEFIT PAYMENTS.............................................. (521,684) (342,596)
---------------- ----------------
NET DECREASE IN NET ASSETS RESULTING
FROM SURPLUS TRANSFERS.............................................. (178,479) (177,750)
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... (736,061) 155,294
NET ASSETS:
Beginning of year................................................. 3,180,453 3,025,159
---------------- ----------------
End of year....................................................... $ 2,444,392 $ 3,180,453
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE A5.
A4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
NOTE 1: MORTALITY RISK, EXPENSE RISK, AND ADMINISTRATION CHARGES
The mortality risk charge, the expense risk charge, and the administration
charge, at effective annual rates of 0.075%, 0.150%, and 0.150%, respectively
(for a total of 0.375% per year), are applied daily against the net assets of
the Account. These charges are paid to The Prudential.
NOTE 2: TAXES
The operations of Prudential's Annuity Plan Account form a part of, and are
taxed with, the operations of The Prudential. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the annuitants are not taxed
to The Prudential. As a result, the Annuity Share Value is not affected by
federal income taxes on such distributions received by the Account.
NOTE 3: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents the net
contributions of The Prudential to the Account.
NOTE 4: ANNUITY SHARE INFORMATION
Payments to annuitants are based on the value of an Annuity Share. The
investment results of the Account are reflected in changes in the value of an
Annuity Share to the extent that they are greater or less than the assumed
investment result in the annuitant's contract. The December 31 values are
reflected in the annuity payments made for February of the next year.
<TABLE>
<CAPTION>
ANNUITY SHARE VALUE AT DECEMBER 31 ANNUITY SHARE VALUE AT DECEMBER 31
YEAR USING A 3 1/2% ASSUMED INVESTMENT RESULT USING A 5% ASSUMED INVESTMENT RESULT
- --------- ----------------------------------------- ---------------------------------------
<S> <C> <C>
1990 2.6087 1.9713
1991 3.3758 2.5146
1992 3.8225 2.8064
1993 4.5546 3.2961
1994 4.3166 3.0794
</TABLE>
A5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Planholders of Prudential's Annuity Plan Account and the Board of Directors
of The Prudential Insurance Company of America:
We have audited the accompanying statement of net assets of Prudential's Annuity
Plan Account of The Prudential Insurance Company of America as of December 31,
1994, and the related statement of operations for the year then ended and the
statements of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential's Annuity Plan Account as of
December 31, 1994, the results of its operations and the changes in its net
assets for the respective stated period, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995
A6
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$238,622,448)............................ $ 246,093,497
Cash....................................... 68
Interest and dividends receivable.......... 310,191
Receivable for securities sold............. 3,286,900
--------------
Total Assets............................. 249,690,656
--------------
LIABILITIES
Accrued expenses........................... 31,286
Payable for securities purchased........... 7,078,271
Payable to investment adviser.............. 76,789
--------------
Total Liabilities........................ 7,186,346
--------------
NET ASSETS................................... $ 242,504,310
--------------
--------------
Net assets were comprised of:
Common stock, at $1 par value............ $ 25,803,061
Paid-in capital, in excess of par........ 211,423,062
--------------
237,226,123
Accumulated distributions in excess of net
investment income........................ (294,643)
Distributions in excess of net realized
gains.................................... (1,898,219)
Net unrealized appreciation................ 7,471,049
--------------
Net assets, December 31, 1994.............. $ 242,504,310
--------------
--------------
Net asset value per share of 25,803,061
outstanding shares of common stock
(authorized 75,000,000 shares)........... $ 9.3983
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 4,588,901
Interest................................... 856,854
---------------
5,445,755
---------------
EXPENSES
Investment management fee.................. 318,934
State franchise tax expense................ 34,675
Foreign withholding tax.................... 18,716
Directors' expense......................... 7,779
Custodian expense -- net................... 5,001
---------------
385,105
---------------
NET INVESTMENT INCOME........................ 5,060,650
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments
[identified cost basis].................. 16,126,282
Net unrealized loss on investments......... (24,285,324)
---------------
NET LOSS ON INVESTMENTS...................... (8,159,042)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 3,098,392)
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 5,060,650 $ 3,667,891
Net realized gain on investments....................................................... 16,126,282 58,092,048
Net unrealized loss on investments..................................................... (24,285,324) (8,040,521)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (3,098,392) 53,719,418
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (5,085,500) (3,690,635)
Net realized gain from investment transactions......................................... (34,178,638) (44,376,736)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (39,264,138) (48,067,371)
------------------ -------------------
CAPITAL TRANSACTIONS:
Reinvestment of dividend distributions [4,008,764 and 4,215,813 shares,
respectively]......................................................................... 38,225,359 46,841,213
Capital stock repurchased [(1,619,845) and (1,467,833) shares, respectively]........... (17,638,028) (18,289,066)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 20,587,331 28,552,147
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (21,775,199) 34,204,194
NET ASSETS:
Beginning of year...................................................................... 264,279,509 230,075,315
------------------ -------------------
End of year............................................................................ $ 242,504,310 $ 264,279,509
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B4 AND B5.
B1
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 97.5% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 5.8%
+Banner Aerospace, Inc.......................... 52,600 $ 236,700
Boeing Co....................................... 55,000 2,571,250
+Coltec Industries, Inc......................... 125,000 2,140,625
Precision Castparts Corp........................ 258,500 5,234,625
United Technologies Corp........................ 60,000 3,772,500
--------------
13,955,700
--------------
ALUMINUM -- 3.3%
Aluminum Co. of America......................... 92,500 8,012,813
--------------
AUTOS - CARS & TRUCKS -- 1.3%
General Motors Corp. (Class 'H' Stock).......... 60,000 2,092,500
Standard Products Co............................ 40,800 979,200
--------------
3,071,700
--------------
BANKS AND SAVINGS & LOANS -- 2.8%
KeyCorp......................................... 150,125 3,753,125
Norwest Corp.................................... 75,000 1,753,125
+Riggs National Corp............................ 150,000 1,218,750
--------------
6,725,000
--------------
CHEMICALS -- 3.0%
A. Schulman, Inc................................ 94,875 2,561,625
Dow Chemical Co................................. 70,000 4,707,500
--------------
7,269,125
--------------
CHEMICALS - SPECIALTY -- 3.7%
Raychem Corp.................................... 250,000 8,906,250
--------------
COMMERCIAL SERVICES -- 1.7%
Deluxe Corp..................................... 40,000 1,060,000
FlightSafety International, Inc................. 9,300 377,812
Measurex Corp................................... 110,000 2,598,750
--------------
4,036,562
--------------
COMPUTER SERVICES -- 2.3%
+Cisco Systems, Inc............................. 100,000 3,500,000
+Zilog, Inc..................................... 72,800 2,129,400
--------------
5,629,400
--------------
DIVERSIFIED GAS -- 0.6%
Mitchell Energy & Development Corp. (Class 'A'
Stock)........................................ 44,000 715,000
Mitchell Energy & Development Corp. (Class 'B'
Stock)........................................ 38,850 728,438
--------------
1,443,438
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.5%
International Business Machines Corp............ 50,000 3,675,000
--------------
DRUGS AND HOSPITAL SUPPLIES -- 1.5%
+ALZA Corp...................................... 200,000 3,600,000
--------------
ELECTRICAL EQUIPMENT -- 2.2%
Belden, Inc..................................... 60,000 1,327,500
W.W. Grainger, Inc.............................. 70,000 4,042,500
--------------
5,370,000
--------------
ELECTRONICS -- 6.6%
+ADT Ltd........................................ 200,000 2,150,000
+Altera Corp.................................... 28,400 1,185,700
+Cirrus Logic, Inc.............................. 119,200 2,682,000
+Marshall Industries............................ 98,800 2,642,900
Methode Electronics, Inc. (Class 'A' Stock)..... 192,500 3,176,250
+National Semiconductor Corp.................... 25,000 487,500
</TABLE>
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Texas Instruments, Inc.......................... 30,000 $ 2,246,250
+VeriFone, Inc.................................. 64,000 1,408,000
--------------
15,978,600
--------------
FINANCIAL SERVICES -- 1.0%
Dean Witter, Discover & Co...................... 8,200 277,775
Manufactured Home Communities, Inc.............. 50,800 1,009,650
+Mercer International, Inc...................... 33,000 449,625
West One Bancorp................................ 30,000 795,000
--------------
2,532,050
--------------
FOODS -- 6.1%
Archer-Daniels-Midland Co....................... 630,000 12,993,750
Dole Food Co., Inc.............................. 80,000 1,840,000
--------------
14,833,750
--------------
FOREST PRODUCTS -- 4.9%
Georgia-Pacific Corp............................ 20,000 1,430,000
Mosinee Paper Co................................ 45,000 1,125,000
Willamette Industries, Inc...................... 200,000 9,400,000
--------------
11,955,000
--------------
HOSPITAL MANAGEMENT -- 1.8%
Caremark International, Inc..................... 125,000 2,140,625
National Health Labs Holdings, Inc.............. 69,800 924,850
National Medical Enterprises, Inc............... 90,000 1,271,250
--------------
4,336,725
--------------
INSURANCE -- 1.8%
Aon Corp........................................ 25,000 800,000
Progressive Corp................................ 105,000 3,675,000
--------------
4,475,000
--------------
LEISURE -- 0.7%
+Caesars World, Inc............................. 25,000 1,668,750
--------------
MACHINERY -- 5.1%
Eaton Corp...................................... 155,000 7,672,500
Timken Co....................................... 130,000 4,582,500
--------------
12,255,000
--------------
MEDIA -- 2.1%
Comcast Corp. (Class 'A' Stock)................. 50,800 781,050
Comcast Corp. (Special Class 'A' Stock)......... 25,900 404,688
+Viacom, Inc. (Class 'B' Stock)................. 95,000 3,859,375
--------------
5,045,113
--------------
MINERAL RESOURCES -- 5.0%
Cyprus Amax Minerals Co......................... 100,000 2,612,500
Newmont Mining Corp............................. 100,007 3,600,251
Placer Dome, Inc................................ 125,000 2,718,750
Potash Corp. of Saskatchewan, Inc............... 50,000 1,700,000
+Sante Fe Pacific Gold Corp..................... 125,000 1,609,375
--------------
12,240,876
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 9.6%
Air Express International Corp.................. 103,200 2,012,400
American President Companies, Ltd............... 141,700 3,577,925
Canadian Pacific, Ltd........................... 125,000 1,875,000
Carlisle Companies, Inc......................... 49,500 1,788,187
Diebold, Inc.................................... 20,000 822,500
GATX Corp....................................... 22,400 985,600
Mark IV Industries, Inc......................... 42,000 829,500
Topps Company, Inc.............................. 121,000 620,125
</TABLE>
B2
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Trinity Industries, Inc......................... 255,000 $ 8,032,500
Tyco International Ltd.......................... 60,000 2,850,000
--------------
23,393,737
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.4%
Eastman Kodak Co................................ 70,000 3,342,500
--------------
PETROLEUM -- 4.1%
Cabot Corp...................................... 140,000 3,972,500
Diamond Shamrock, Inc........................... 51,000 1,319,625
KN Energy, Inc.................................. 106,974 2,540,633
Questar Corp.................................... 80,000 2,200,000
--------------
10,032,758
--------------
PETROLEUM SERVICES -- 2.1%
+Mesa, Inc...................................... 120,000 585,000
Murphy Oil Corp................................. 25,000 1,062,500
Sonat, Inc...................................... 120,000 3,360,000
--------------
5,007,500
--------------
RAILROADS -- 2.2%
+Chicago & North Western Transportation Co...... 44,800 862,400
Kansas City Southern Industries, Inc............ 144,200 4,452,175
--------------
5,314,575
--------------
REAL ESTATE DEVELOPMENT -- 2.3%
Duke Realty Investments, Inc.................... 50,000 1,412,500
Equity Residential Properties Trust............. 98,900 2,967,000
Weingarten Realty Investors..................... 35,000 1,325,625
--------------
5,705,125
--------------
RESTAURANTS -- 0.5%
Sbarro, Inc..................................... 51,000 1,326,000
--------------
RETAIL -- 2.5%
Nike, Inc. (Class 'B' Stock).................... 35,000 2,611,875
Stride Rite Corp................................ 140,200 1,559,725
Tiffany & Co.................................... 46,500 1,813,500
--------------
5,985,100
--------------
TELECOMMUNICATIONS -- 8.0%
Century Telephone Enterprises, Inc.............. 170,000 5,015,000
L.M. Ericsson Telephone Co. (Class 'B' Stock),
ADR........................................... 40,000 2,205,000
Rochester Telephone Corp........................ 500,000 10,562,500
TCA Cable TV, Inc............................... 73,900 1,588,850
--------------
19,371,350
--------------
TOTAL COMMON STOCKS
(Cost $229,023,448)............................................ 236,494,497
--------------
</TABLE>
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 4.0% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK-RELATED INSTRUMENTS
First Union National Bank, T.D.,
6.250%, 01/03/95.............................. $ 9,599,000 $ 9,599,000
--------------
LIABILITIES -- (1.5%)
(net of other assets).......................................... (3,589,187)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 242,504,310
--------------
--------------
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
T.D. Time Deposit
+No dividend was paid on this security during the 12 months ending December
31, 1994.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A4 AND A5.
B3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
NOTE 1: GENERAL
The Fund is registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES VALUATION: Securities traded on a national securities exchange are
valued at the last sales price (or the last bid price if there were no sales of
the security that day) on the New York Stock Exchange, or if not traded on such
exchange, such last sales or bid price at the time of close of the New York
Stock Exchange on the principal exchange on which such securities are traded on
the last business day of the year. For any securities not traded on a national
securities exchange but traded in the over-the-counter market, the value is the
last bid price available, except that securities for which quotations are
furnished through a nationwide automated quotation system approved by the
National Association of Securities Dealers, Inc. (NASDAQ) are valued at the
closing best bid price on the date of valuation provided by a pricing service
which utilizes NASDAQ quotations. Short-term investments 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
amortization of discount or premium to maturity.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Dividend income is recorded on
the ex-dividend date. Interest income is accrued daily on short-term
investments. Interest income also includes net amortization from the purchase of
fixed-income securities. Security transactions are recorded on the first
business day following the trade date, except that transactions on the last
business day of the reporting cycle are recorded on that day. Transactions in
short-term debt securities are recorded on the trade date. Realized gains and
losses from securities transactions are determined and accounted for on the
basis of identified cost.
DISTRIBUTIONS AND TAXES: As in prior years, the Fund intends to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code. As
a result, by distributing substantially all of its net investment income and net
realized capital gains, the Fund will not be subject to federal income tax on
the investment income and capital gains so distributed. Dividend distributions
to stockholders are recorded on the ex-dividend date.
NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGEMENT FEE: The investment management fee, which is computed
daily at an effective annual rate of 0.125% of the net assets of the Fund, is
payable to The Prudential Insurance Company of America (The Prudential) as
required by the investment advisory agreement. Under the terms of the investment
advisory agreement and a separate contract which remains in force as long as The
Prudential, or its separate accounts, or organizations approved by it are the
only purchasers of Fund shares, The Prudential pays all expenses of the Fund
except for fees and expenses of those members of the Fund's Board of Directors
who are not officers or employees of The Prudential and its affiliates; transfer
and any other local, state or federal taxes; and brokers' commissions and other
fees and charges attributable to investment transactions.
BROKERAGE COMMISSIONS: For the year ended December 31, 1994, Prudential
Securities Incorporated, an indirect, wholly owned subsidiary of The Prudential,
earned $0 in brokerage commissions from transactions executed on behalf of the
Fund.
NOTE 4: DISTRIBUTIONS
Dividends from net investment income and net realized capital gains of the Fund
will normally be declared and reinvested in additional full and fractional
shares twice a year.
B4
<PAGE>
NOTE 5: PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and the proceeds from sales of securities
(excluding short-term investments) for the year ended December 31, 1994 was
$265,077,782 and $216,410,458, respectively.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments were as follows:
<TABLE>
<S> <C>
Gross Unrealized Appreciation: $ 19,473,180
Gross Unrealized Depreciation: 12,002,131
Net Unrealized Appreciation/Depreciation: 7,471,049
Tax Cost: 238,622,448
</TABLE>
B5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of Prudential's Gibraltar Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Prudential's Gibraltar Fund, 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 financial highlights contained in the prospectus for each of the ten
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
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 financial
highlights 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 custodian 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 financial highlights present
fairly, in all material respects, the financial position of Prudential's
Gibraltar Fund as of December 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and financial highlights for each of the ten years in the
period then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995
B6
<PAGE>
<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>
PART C
OTHER INFORMATION
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 64 pages.
The signatures for:
(1) Prudential's Investment Plan Account and The Prudential Insurance Company
of America and Subsidiaries; and
(2) Prudential's Gibraltar Fund.
Consent of Deloitte & Touche LLP, independent auditors, regarding reports on:
(1) Prudential's Investment Plan Account, Prudential's Annuity Plan Account
and The Prudential Insurance Company of America and Subisidiaries; and
(2) Prudential's Gibraltar Fund.
Responses of Prudential's Gibraltar Fund to Items of Part C of Form N-1A:
Item 24. Financial Statements and Exhibits;
Item 25. Persons Controlled by or under Common Control with Prudential's
Gibraltar Fund;
Item 26. Number of Holders of Securities;
Item 27. Indemnification;
Item 28. Business and other Connections of Investment Advisor;
Item 29. Principal Underwriter;
Item 30. Location of Accounts and Records; and
Item 31. Management Services.
The Exhibits listed on the following pages pertaining to:
(1) Systematic Investment Plan Contracts; and
(2) Prudential's Gibraltar Fund.
Item 24(a) List of Financial Statements of Prudential's Investment Plan
Account and The Prudential Insurance Company of America and
Subsidiaries Filed as Part of this Registration Statement.
Prudential's Investment Plan Account--Statements Filed as Part of Part A:
Statement of Net Assets as of December 31, 1994;
Statement of Operations--Year Ended December 31, 1994; and
Statements of Changes in Net Assets--Years Ended December 31, 1994 and 1993.
Consolidated Financial Statements of The Prudential Insurance Company of America
and Subsidiaries--Statements Filed as Part of Part A:
Consolidated Statements of Financial Position as of December 31, 1994 and
1993;
Consolidated Statements of Operations and Changes in Surplus and Asset
Valuation Reserve (AVR)/Mandatory Securities Valuation Reserve (MSVR)--
Years Ended December 31, 1994, 1993 and 1992; and
Consolidated Statements of Cash Flows--Years Ended December 31, 1994, 1993
and 1992.
List of Financial Statements of Prudential's Gibraltar Fund Filed as Part of
this Registration Statement--Statements Filed as Part of Part A:
Statement of Assets and Liabilities including Schedule of Investments as of
December 31, 1994;
Statement of Operations--Year Ended December 31, 1994;
Statements of Changes in Net Assets--Years Ended December 31, 1994 and 1993;
and
Financial Highlights--Ten Years Ended December 31, 1994.
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
SYSTEMATIC INVESTMENT PLAN CONTRACTS
<S> <C>
1. Copies of exhibits required by Paragraph A of instructions as to Incorporated by reference to the
exhibits in Form N-8B-2 (other Paragraph A exhibits are not following:
applicable):
(1) The resolutions of the Board of Directors of The Exhibit A(1) to Form N-8B-2, File
Prudential, adopted on June 11, 1968, establishing No. 811-1850.
Prudential's Investment Plan Account.
(1)(i) The resolutions of the Board of Directors of The Exhibit A(1)(i) to Form S-6,
Prudential, adopted on October 10, 1972, authorizing Registration No. 2-46063.
sale of Systematic Investment Plan Contracts with
optional Share Value Protection.
(2) The Custodian Agreement between Chemical Bank and The Exhibit A(2) to Post-Effective
Prudential. Amendment No. 17 to Form S-6,
Registration No. 2-52715.
(3)(a) Distribution Agreement between Prudential's Investment Exhibit A(3)(a) to Post-Effective
Plan Account, Prudential's Annuity Plan Account, Amendment No. 30 to Form S-6,
Prudential's Annuity Plan Account-2 and Pruco Registration No. 2-52715.
Securities Corporation.
(3)(c)-A* Schedule of Sales Commissions referred to in Item Exhibit A(3)(c) to Form S-6,
38(c). Registration No. 2-46063.
(3)(c)-B** Schedule of Sales Commissions referred to in Item Exhibit A(3)(c) to Post-Effective
38(c). Amendment No. 11, Registration
No. 2-32683.
(5)-A* Copy of Systematic Investment Plan Contract between Exhibit A(5) to Amendment No. 1
The Prudential and the Planholder. to Form S-6, Registration No.
2-46063.
(5)(i)-A* Copy of Share Value Protection Provisions. Exhibit A(5)(i) to Form S-6,
Registration No. 2-46063.
(5)(ii) Copy of Texas Variable Annuity Endorsement FSP 518 Exhibit A(5)(ii) to Form S-6,
to the Systematic Investment Plan Contract. Registration No. 2-46063.
(5)(iii)-A* Copy of New York and Maryland Endorsement FSP 537 Exhibit A(5)(iii) to Form S-6,
to the Systematic Investment Plan Contract. Registration No. 2-46063.
(5)(iv)-A* Copy of New York Endorsement FSP 532B to the Exhibit A(5)(iv) to Form S-6,
Systematic Investment Plan Contract. Registration No. 2-46063.
(5)(v)-A* Copy of New Hampshire Endorsement FSP 542 to the Exhibit A(5)(v) to Amendment No.
Systematic Investment Plan Contract. 1 to Form S-6, Registration
No. 2-46063.
(5)(vii)-A* Copy of New York Endorsement FSP 549 to the Share Exhibit A(5)(vii) to Post-Effective
Value Protection Contract. Amendment No. 1 to Form S-6,
Registration No. 2-46063.
</TABLE>
* This form is applicable to the Contract as revised--See Prospectus.
** This form is applicable to the Old Form Contract--See Prospectus.
C-2
<PAGE>
<TABLE>
<CAPTION>
Listing of Systematic Investment Plan Exhibits--Page 2
<S> <C>
(5)-B** Copy of Systematic Investment Plan Contract between Exhibit A(5) to Post-Effective
The Prudential and the Planholder. Amendment No. 11, Registration
No. 2-32683.
(5)(ii)-B** Copy of New York Endorsement FSP 522B to the Exhibit A(5)(ii) to Post-Effective
Systematic Investment Plan Contract. Amendment No. 11, Registration
No. 2-32683.
(5)(iii)-B** Copy of New York Endorsement FSP 532A to the Exhibit A(5)(iii) to Post-Effective
Systematic Investment Plan Contract. Amendment No. 11, Registration
No. 2-32683.
(5)(iv)-B** Copy of Maryland Endorsement FSP 525B to the Exhibit A(5)(iv) to Post-Effective
Systematic Investment Plan Contract. Amendment No. 11, Registration
No. 2-32683.
(5)(v)-B** Copy of New Hampshire Endorsement FSP 541 to the Exhibit A(5)(v) to Post-Effective
Systematic Investment Plan Contract. Amendment No. 15, Registration
No. 2-32683.
(6)(i) Copy of the Charter of The Prudential, as amended Exhibit 1.A.(6)(a) to Post-Effective
February 26, 1988. Amendment No. 2 to Form S-6,
Registration No. 33-20000
(6)(ii) Copy of the By-laws of The Prudential, as amended Exhibit (8)(ii) to Post-Effective
January 10, 1995. Amendment No. 26 to Form N-3,
Registration No. 2-76580, filed
April __, 1995 on behalf of the
Prudential Variable Contract
Account-10.
(9)-A* Copy of the Annuity Rate Protection Provisions. Exhibit A(9) to Form S-6,
Registration No. 2-46063.
(9)(i)-B** Copy of the Transfer Account Agreement between The Exhibit A(9)(i) to Post-Effective
Prudential and the Accountholder. Amendment No. 11, Registration
No. 2-32683.
(9)(ii)-B** Copy of the Annuity Rate Protection Provisions. Exhibit A(9)(ii) to Post-Effective
Amendment No. 11, Registration
No. 2-32683.
(10)(i)-A* Form of Request for Enrollment in Prudential's Financial Exhibit A(10)(i) to Form S-6,
Security Program as a Planholder. Registration No. 2-46063.
(10)(ii)-A* Form of Letter of Intent. Exhibit A(10)(ii) to Amendment
No. 1 to Form S-6, Registration
No. 2-46063.
(10)(i)-B** Form of Request for Enrollment in Prudential's Exhibit A(10)(i) to Amendment No.
Financial Security Program as an Accountholder and 1 to Form N-8B-2, File No. 811-1850.
Planholder, or as an Accountholder or Planholder only.
</TABLE>
* This form is applicable to the Contract as revised--See Prospectus.
** This form is applicable to the Old Form Contract--See Prospectus.
C-3
<PAGE>
<TABLE>
<CAPTION>
Listing of Systematic Investment Plan Exhibits--Page 3
<S> <C>
(10)(ii)-B** Form of Transfer and Deposit Schedule. Exhibit A(10)(ii) to Amendment
No. 1 to Form N-8B-2, File No.
811-1850.
(10)(iii)-B** Form of Request for Non-Scheduled Purchase. Exhibit A(10)(iii) to Amendment
No. 1 to Form N-8B-2, File No.
811-1850.
2. For specimen of securities:
Revised Contract--see Exhibits A(5)-A, A(5)(i)-A, A(5)(ii), A(5)(iii)-A, A(5)(iv)-A, A(5)(v)-A, A(5)(vi)-A, and
A(5)(vii)-A.
Old Form Contract--see Exhibits A(5)-B, A(5)(i)-B, A(5)(ii), A(5)(ii)-B, A(5)(iii)-B, A(5)(iv)-B, and A(5)(v)-B.
6. Powers of Attorney: Incorporated by reference to Post-
Effective Amendment No. 15 to
Form S-6, Registration No.
33-20000, filed April __, 1995 on
behalf of the Prudential Variable
Appreciable Account.
27.1 Financial Data Schedule Filed Herewith
* This form is applicable to the Contract as revised--See Prospectus.
** This form is applicable to the Old Form Contract--See Prospectus.
</TABLE>
C-4
<PAGE>
<TABLE>
Item 24(b)
EXHIBITS
PRUDENTIAL'S GIBRALTAR FUND
<CAPTION>
Incorporated by
Reference to Exhibits Incorporated by
Exhibits Required by to Form N-8B-1 Reference to the following:
Item of Form N-1A File No. 811-1660 (except as otherwise noted):
<S> <C> <C>
(i) Certificate of Incorporation. 1(a)
Amendment to Certificate of 1(b)
Incorporation dated April 11, 1968.
Amendment to Certificate of Exhibit 1(c) to Post-
Incorporation dated May 27, 1975. Effective Amendment No. 19
to Form S-6, Registration
No. 2-52715.
Amendment to Certificate of Exhibit 24(b)(i) to Post-
Incorporation dated April 23, 1991. Effective Amendment No. 32
to Form S-6, Registration
No. 2-52715.
(ii) By-laws. Exhibit 2(b) to Post-
Effective Amendment No. 19
to Form S-6, Registration
No. 2-52715.
(iii) None.
(iv) Stock Certificate. Exhibit 4(a) to Post-
Effective Amendment No. 17
to Form S-6, Registration
No. 2-52715.
(v) Investment Advisory Contract 5
between Registrant and The
Prudential.
Amendment No. 1 to Investment Exhibit 5(b) to Post-
Advisory Contract between Effective Amendment No. 9
Registrant and The Prudential. to Form S-5, Registration
No. 2-32685.
Amendment No. 2 to Investment Exhibit 24(b)(v) to Post-
Advisory Contract between Effective Amendment No. 32
Registrant and The Prudential. to Form S-6, Registration
No. 2-52715.
Service Agreement between The Exhibit 24(b)(v)(3) to
Prudential and The Prudential Post-Effective Amendment
Investment Corporation. No. 23 to Form S-6,
Registration No. 2-52715.
(vi) Distribution Agreement between Exhibit 24(b)(vi) to Post-
Prudential's Gibraltar Fund and Effective Amendment No. 30
Pruco Securities Corporation. to Form S-6, Registration
No. 2-52715.
(vii) None
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Prudential's Gibraltar Fund Exhibits--Page 2
<S> <C> <C>
(viii) Custody Agreement between Exhibit 8(a) to Post-
Registrant and Chemical Effective Amendment No. 17
Bank. to Form S-6, Registration
No. 2-52715.
(ix) Administrative Services 9(a)
Agreement between Registrant
and The Prudential.
Contract of Custodianship Exhibit A(2) to Post-
with respect to Prudential's Effective Amendment No. 17
Investment Plan Account to Form S-6, Registration
(endorsed by Registrant). No. 2-52715.
(x)-(xiv) None.
(xv) None.
(xvi) Powers of Attorney:
(a) S. Fenster, R. Hill, W. McDonald, J. Weber. Exhibit 24(b)(xvi) to Post-
Effective Amendment No. 32
to Form S-6, Registration
No. 2-52715.
(b) E. Michael Caulfield, Stephen P. Tooley. Exhibit (xvi)(b) to Post-
Effective Amendment No. 23 to
Form S-6, Registration No.
2-59232.
27.2 Financial Data Schedule Filed Herewith
</TABLE>
C-6
<PAGE>
SIGNATURES
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
Pursuant to the requirements of the Securities Act of 1933, Prudential's
Investment Plan Account, acting through its depositor, The Prudential Insurance
Company of America, certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 37 to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newark, State of New
Jersey, on the 27th day of April, 1995.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
--------------------- --------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 37 to the Registration Statement has been signed below by the
following directors and officers of The Prudential Insurance Company of America
in their capacities and on the date appearing below.
Signature and Title Date
/s/* ) April 27, 1995
- ---------------------------------- )
Arthur C. Ryan )
Chairman of the Board, President and Chief )
Executive Officer )
)
)
/s/* )
- ---------------------------------- )
Garnett L. Keith, Jr. )
Vice Chairman and Director )
)
)
/s/* )*By: /s/ THOMAS C. CASTANO
- ---------------------------------- ) ---------------------
Eugene M. O'Hara ) Thomas C. Castano
Senior Vice President, Comptroller and ) (Attorney-in-Fact)
Chief Financial Officer )
)
)
/s/* )
- ---------------------------------- )
Franklin E. Agnew )
Director )
)
)
)
/s/* )
- ---------------------------------- )
Frederic K. Becker )
Director )
C-7
<PAGE>
Signature and Title Date
) April 27, 1995
)
)
/s/* )
- ---------------------------------- )
William W. Boeschenstein )
Director )
)
)
/s/* )
- ---------------------------------- )
Lisle C. Carter, Jr. )
Director )
)
)
/s/* )
- ---------------------------------- )
James G. Cullen )
Director )
)
)
/s/* )
- ---------------------------------- )
Carolyne K. Davis )
Director )
)
)
/s/* )
- ---------------------------------- )
Roger A. Enrico )
Director )
)
)
/s/* )
- ---------------------------------- )
Allan D. Gilmour )
Director )
)
)
/s/* )*By: /s/ THOMAS C. CASTANO
- ---------------------------------- ) ---------------------
William H. Gray, III ) Thomas C. Castano
Director ) (Attorney-in-Fact)
)
)
/s/* )
- ---------------------------------- )
Jon F. Hanson )
Director )
)
)
/s/* )
- ---------------------------------- )
Constance J. Horner )
Director )
)
)
/s/* )
- ---------------------------------- )
Allen F. Jacobson )
Director )
)
)
)
/s/* )
- --------------------------------- )
Burton G. Malkiel )
Director )
C-8
<PAGE>
Signature and Title Date
------------------ ----
) April 27, 1995
)
)
/s/* )
- ---------------------------------- )
John R. Opel )
Director )
)
)
/s/* )
- ---------------------------------- )
Charles R. Sitter )
Director )
)
)
/s/* )
- ---------------------------------- )
Donald L. Staheli )
Director )
)
)
/s/* )
- ---------------------------------- )
Richard M. Thomson )
Director )
)
)
/s/* )
- ---------------------------------- )
P. Roy Vagelos, M.D. )
Director )
)
)
/s/* )*By: /s/ THOMAS C. CASTANO
- ---------------------------------- ) --------------------
Stanley C. Van Ness ) Thomas C. Castano
Director ) (Attorney-in-Fact)
)
)
/s/* )
- ---------------------------------- )
Paul A. Volcker )
Director )
)
)
/s/* )
- ---------------------------------- )
Joseph H. Williams )
Director )
C-9
<PAGE>
SIGNATURES
PRUDENTIAL'S GIBRALTAR FUND
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, Prudential's Gibraltar Fund certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 37 to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Newark, State of
New Jersey, on the 27th day of April, 1995.
PRUDENTIAL'S GIBRALTAR FUND
By: /s/ ROBERT P. HILL
------------------
Robert P. Hill
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 37 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature and Title Date
------------------- ----
/s/* ) April 27, 1995
- ------------------------------- )
Robert P. Hill )
Chairman of the Board of Directors, )
Principal Executive Officer and )
Principal Financial Officer )
)
)
/s/* )
- ------------------------------- )
E. Michael Caulfield )
President and Director )
)
)
/s/* )
- ------------------------------- )*By: /s/ THOMAS C. CASTANO
Stephen P. Tooley ) ---------------------
Comptroller ) Thomas C. Castano
) (Attorney-in-Fact)
)
/s/* )
- ------------------------------- )
Saul K. Fenster )
Director )
)
)
/s/* )
- ------------------------------- )
W. Scott McDonald, Jr. )
Director )
)
)
/s/* )
- ------------------------------- )
Joseph Weber )
Director )
C-10
<PAGE>
Exhibit 17
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 37 to Registration
Statement No. 2-52715 on Form S-6 of Prudential's Investment Plan Account of The
Prudential Insurance Company of America (1) of our report dated February 10,
1995, relating to the financial statements of Prudential's Investment Plan
Account, (2) of our report dated February 10, 1995, relating to the financial
statements of Prudential's Annuity Plan Account, (3) of our report dated
February 10, 1995, relating to the financial statements of Prudential's
Gibraltar Fund, and (4) 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 Prospectus, which is part of such Registration Statement, and
to the reference to us under the headings "Financial Highlights" and "Experts"
in such Prospectus.
/S/ Deloitte and Touche LLP
Parsippany, New Jersey
April 27, 1995
C-11
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
The Prudential is a mutual life insurance company incorporated under
the laws of the State of New Jersey. The subsidiaries of The Prudential
are set forth on the Organization Chart on the following pages.
All of the shares of Prudential's Gibraltar Fund are held by three
separate accounts of The Prudential Insurance Company of America:
Prudential's Investment Plan Account, Prudential's Annuity Plan Account
and Prudential's Annuity Plan Account-2. The Prudential also holds
directly and in four of its other separate accounts shares of The
Prudential Series Fund, Inc., a Maryland corporation. The balance of
the shares of The Prudential Series Fund, Inc. are held in separate
accounts of Pruco Life Insurance Company, a direct wholly-owned
subsidiary of The Prudential, and Pruco Life Insurance Company of New
Jersey, an indirect wholly-owned subsidiary of The 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 the investment companies
are voted in accordance with the instructions of persons having an
interest in the unit investment trusts, and The Prudential, Pruco Life
Insurance Company and Pruco Life Insurance Company of New Jersey will
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-2, The Prudential Variable
Contract Account-10 and The Prudential Variable Contract Account-11,
separate accounts of The 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
are prepared in accordance with statutory requirements. The financial
statements of The Prudential and its subsidiaries are presented on a
consolidated basis.
The subsidiaries of The Prudential and short descriptions of each are
listed under Item 25 in Post-Effective Amendment No. 28 to the
Registration Statement of The Prudential Series Fund, Inc.,
Registration No. 2-80896, the text of which is hereby incorporated by
reference.
Item 26. Number of Holders of Securities
The registrant was organized to serve as the investment medium for
separate accounts of The Prudential which issue certain variable
annuity contracts to the public. The public offering commenced on
January 2, 1970. As of December 31, 1994, there were 25,803,061 shares
of Common Stock outstanding, distributed as follows:
Title of Class Holder Shares
-------------- ------ ------
Common Stock Prudential's Investment Plan Account 20,347,560
Prudential's Annuity Plan Account 260,097
Prudential's Annuity Plan Account-2 5,195,404
----------
25,803,061
==========
C-12
<PAGE>
Item 27. Indemnification of Directors and Officers
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 A: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 (6)(ii) to this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor
The business and other connections of The Prudential's Officers are
listed in Schedules A and D of Form ADV as currently on file with the
Commission, the text of which is hereby incorporated by reference.
The business and other connections of The Prudential's Directors are
listed in the statement of additional information in Post-Effective
Amendment No. 26 to Form N-3 to the Registration Statement of The
Prudential Variable Contract Account-10, Registration No. 2-76580,
filed April __, 1995, the text of which is hereby incorporated by
reference.
C-13
<PAGE>
Item 29. Principal Underwriters
(a) Pruco Securities Corporation also acts as principal underwriter of
The Prudential Series Fund, Inc.
(b) Incorporated by Reference to Item 29(b) of Post-Effective Amendment
No. 10 to Form N-4, Registration No. 33-25434, filed April __, 1995
on behalf of The Prudential Individual Variable Contract Account.
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books or other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the Registrant, Prudential
Plaza, Newark, New Jersey 07102-3777; the Registrant's Investment
Advisor, The Prudential Insurance Company of America, Prudential Plaza,
Newark, New Jersey 07102-3777; or the Registrant's Custodian, Chemical
Bank Plaza, New York Plaza, New York 10004.
Item 31. Management Services
Not applicable.
C-14
<PAGE>
EXHIBIT INDEX
17 Consent of Deloitte & Touche LLP, independent auditors. Page C-11
27 Financial Data Schedule Page C-16
C-15
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 203,719
<INVESTMENTS-AT-VALUE> 191,232
<RECEIVABLES> 0
<ASSETS-OTHER> (27)
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 191,205
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 203,717
<SHARES-COMMON-STOCK> 20,348
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,714
<ACCUMULATED-NET-GAINS> 3,689
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12,487)
<NET-ASSETS> 191,205
<DIVIDEND-INCOME> 4,000
<INTEREST-INCOME> 0
<OTHER-INCOME> 26,878
<EXPENSES-NET> 1,495
<NET-INVESTMENT-INCOME> 2,505
<REALIZED-GAINS-CURRENT> (111)
<APPREC-INCREASE-CURRENT> (33,217)
<NET-CHANGE-FROM-OPS> (3,946)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (16,652)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
