-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, i4MiOSKpcpyf7yYJW1l6V1lhtRDOmOY4RcQwOFTvFjcRWJfp/qYazYD/oF3vgQQk YmpzTT59Vq06MXuM8BjIUQ== 0000950110-95-000309.txt : 19950502 0000950110-95-000309.hdr.sgml : 19950502 ACCESSION NUMBER: 0000950110-95-000309 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19950501 EFFECTIVENESS DATE: 19950501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT CENTRAL INDEX KEY: 0000828972 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 221121670 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-20000 FILM NUMBER: 95533084 BUSINESS ADDRESS: STREET 1: PRUDENTIAL INSURANCE CO OF AMERICA STREET 2: 213 WASHINGTON STREET CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2018026000 MAIL ADDRESS: STREET 1: PRUDENTIAL INSURANCE CO OF AMERICA STREET 2: 751 BROAD STREET CITY: NEWARK STATE: NJ ZIP: 07102 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL VARIABLE LIFE INSURANCE ACCOUNT DATE OF NAME CHANGE: 19880606 485BPOS 1 REGISTRATION STATEMENT As filed with the SEC on _______________. Registration No. 33-20000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM S-6 Post-Effective Amendment No. 15 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ------------ THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT (Exact Name of Trust) THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Name of Depositor) Prudential Plaza Newark, New Jersey 07102-3777 (800) 437-4016 Ext. 46 (Address and telephone number of principal executive offices) ------------ Thomas C. Castano Assistant Secretary The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 (Name and address of agent for service) Copy to: Jeffrey C. Martin Shea & Gardner 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 ------------ Variable Appreciable Life Insurance Contracts--The Registrant has registered an indefinite amount of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 notice for fiscal year 1994 was filed on February 27, 1995. 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) CROSS REFERENCE SHEET (as required by Form N-8B-2) N-8B-2 Item Number Location - ------------------ -------- 1. Cover Page 2. Cover Page 3. Not Applicable 4. Sale of the Contract and Sales Commissions (Part IB) 5. The Prudential Variable Appreciable Account 6. The Prudential Variable Appreciable Account 7. Not Applicable 8. Not Applicable 9. Litigation 10. Brief Description of the Contract; Short-Term Cancellation Right, or "Free Look"; Contract Forms; Premiums; Contract Date; Allocation of Premiums; Transfers; Contract Fees and Charges; How the Contract Fund Changes with Investment Experience; How a Contract's Death Benefit Will Vary; Surrender of a Contract; Lapse and Reinstatement; When Proceeds are Paid; Other General Contract Provisions; Voting Rights; Withdrawal of Excess Cash Surrender Value (Part IB); Increases in Face Amount (Part IB); Decreases in Face Amount (Part IB); Riders; Possible Replacement of the Series Fund (Part IB) 11. Brief Description of the Contract; The Prudential Variable Appreciable Account 12. Cover Page; Brief Description of the Contract; Fixed Income Portfolios; Equity Portfolios; Flexible Portfolios; Further Information About the Series Fund; Sale of the Contract and Sales Commissions (Part IB) 13. Brief Description of the Contract; Contract Fees and Charges; Reduction of Charges for Concurrent Sales to Several Individuals (Part IB); Sale of the Contract and Sales Commissions (Part IB) 14. Brief Description of the Contract; Requirements for Issuance of a Contract 15. Brief Description of the Contract; Allocation of Premiums; Transfers; Fixed-Rate Option; Information About the Account, the Real Property Account and the Fixed Rate Option 16. Brief Description of the Contract; Detailed Information About the Contract 17. Surrender of a Contract; When Proceeds are Paid 18. The Prudential Variable Appreciable Account 19. Reports to Contract Owners 20. Not Applicable N-8B-2 Item Number Location - ----------------- -------- 21. Contract Loans 22. Not Applicable 23. Not Applicable 24. Other Standard Contract Provisions (Part IB) 25. Brief Description of the Contract 26. Brief Description of the Contract; Contract Fees and Charges 27. Brief Description of the Contract; Further Information About the Series Fund 28. Brief Description of the Contract; Directors and Officers of The Prudential and Management of the Series Fund (Part IB) 29. Brief Description of the Contract 30. Not Applicable 31. Not Applicable 32. Not Applicable 33. Not Applicable 34. Not Applicable 35. Brief Description of the Contract 36. Not Applicable 37. Not Applicable 38. Sale of the Contract and Sales Commissions (Part IB) 39. Sale of the Contract and Sales Commissions (Part IB) 40. Not Applicable 41. Sale of the Contract and Sales Commissions (Part IB) 42. Not Applicable 43. Not Applicable 44. Brief Description of the Contract; Further Information About the Series Fund; How the Contract Fund Changes With Investment Experience; How a Contract's Death Benefit Will Vary 45. Not Applicable 46. Brief Description of the Contract; The Prudential Variable Appreciable Account; Further Information About the Series Fund 47. The Prudential Variable Appreciable Account; Further Information About the Series Fund 48. Not Applicable 49. Not Applicable 50. Not Applicable N-8B-2 Item Number Location - ----------------- -------- 51. Not Applicable 52. Possible Replacement of the Series Fund (Part IB) 53. Tax Treatment of Contract Benefits; Tax Treatment of Contract Benefits (Part IB) 54. Not Applicable 55. Not Applicable 56. Not Applicable 57. Not Applicable 58. Not Applicable 59. Financial Statements; Financial Statements of The Prudential Variable Appreciable Account; Consolidated Financial Statements of The Prudential Insurance Company of America and Subsidiaries PART IA INFORMATION IN PROSPECTUS Prudential's Variable Appreciable Life(R) Insurance May 1, 1995 PROSPECTUS The Prudential Series Fund, Inc. and The Prudential Variable Appreciable Account PVAL-1 Ed 5-95 The Prudential Insurance Company of America Catalog No. 646960S PROSPECTUS May 1, 1995 THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT Variable APPRECIABLE LIFE(R)___________________ INSURANCE CONTRACTS PROVIDING FOR THE INVESTMENT OF ASSETS IN THE INVESTMENT PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC. This prospectus describes two forms of a variable life insurance contract offered by The Prudential Insurance Company of America under the name Variable Appreciable Life(R) Insurance. The first form provides a death benefit that generally remains fixed in an amount chosen by the purchaser and cash surrender values that vary daily. The second form also provides cash surrender values that vary daily but the death benefit will also vary daily. Under both forms of contract, the death benefit will never be less than the "face amount" of insurance chosen by the purchaser. There is no guaranteed minimum cash surrender value. The assets held for the purpose of paying benefits under these and other similar contracts are segregated from the other assets of The Prudential and are invested in one or more of sixteen investment portfolios of The Prudential Series Fund, Inc. chosen by the contract owner. This prospectus also describes the securities issued by the Series Fund. The contract owner may also choose to have the assets invested in a fixed-rate option or in The Prudential Variable Contract Real Property Account, described in a prospectus attached to this one. Although it is advantageous to the purchaser to pay a Scheduled Premium amount on the dates due, which are at least once a year but may be more often, purchasers have considerable flexibility as to when and in what amounts they pay premiums. Before you sign an application to purchase this life insurance contract, you should read this prospectus with care and have any questions you may have answered by your Prudential representative. If you do purchase the contract, you should retain this prospectus for future reference, together with the contract itself that you will receive. Additional information about the contract and the Series Fund is set forth in a separate Statement of Additional Information which is incorporated by reference into this prospectus. It is available without charge upon request to The Prudential Insurance Company of America at the address shown below. REPLACING EXISTING INSURANCE WITH A CONTRACT DESCRIBED IN THIS PROSPECTUS MAY NOT BE TO YOUR ADVANTAGE. IF YOU CURRENTLY OWN A LIFE INSURANCE CONTRACT, THE BENEFITS AND COSTS OF PURCHASING ADDITIONAL INSURANCE UNDER THE EXISTING POLICY SHOULD BE COMPARED WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS. IN MAKING THIS COMPARISON, YOU SHOULD CONSULT WITH A QUALIFIED TAX ADVISOR. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Prudential Insurance Company of America The Prudential Series Fund, Inc. Prudential Plaza Newark, New Jersey 07102-3777 Telephone: (800) 437-4016 Ext. 46 *Appreciable Life is a registered mark of The Prudential. PVAL-1 Ed 5-95 TABLE OF CONTENTS Page INTRODUCTION AND SUMMARY .................................................. 1 Brief Description of the Contract ....................................... 1 Fixed Income Portfolios ................................................. 3 Money Market Portfolio ......................................... 3 Bond Portfolio ................................................. 3 Government Securities Portfolio ................................ 3 Zero Coupon Bond Portfolios 1995, 2000, and 2005 .............. 3 Balanced Portfolios ..................................................... 3 Conservatively Managed Flexible Portfolio ...................... 3 Aggressively Managed Flexible Portfolio ........................ 3 High Yield Bond Portfolios .............................................. 3 High Yield Bond Portfolio ...................................... 3 Diversified Stock Portfolios ............................................ 3 Stock Index Portfolio .......................................... 3 High Dividend Stock Portfolio .................................. 3 Common Stock Portfolio ......................................... 3 Growth Stock Portfolio ......................................... 3 Small Capitalization Stock Portfolio ........................... 4 Global Equity Portfolio ....................................... 4 Specialized Portfolios .................................................. 4 Natural Resources Portfolio .................................... 4 Real Property Account ................................................... 4 Fixed-Rate Option ....................................................... 4 Transfers Between Investment Options .................................... 4 Which Investment Option Should Be Selected? ............................. 4 The Scheduled Premium ................................................... 4 Payment of Substantially Higher Premiums ................................ 5 Contract Loans .......................................................... 5 Differences Between the Contract and Variable Universal Life Insurance Contracts ................................................... 5 FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND ................. 5 PORTFOLIO RATES OF RETURN ................................................. 13 HYPOTHETICAL ILLUSTRATION OF DEATH BENEFITS AND CASH SURRENDER VALUES ..... 14 INFORMATION ABOUT THE ACCOUNT, THE REAL PROPERTY ACCOUNT AND THE FIXED RATE OPTION .................................................................. 15 The Prudential Variable Appreciable Account ........................... 15 The Prudential Variable Contract Real Property Account ................ 15 The Fixed-Rate Option ................................................. 15 DETAILED INFORMATION ABOUT THE CONTRACT ................................... 16 Requirements for Issuance of a Contract .............................. 16 Contract Forms ........................................................ 16 Short-Term Cancellation Right or "Free Look" .......................... 16 Contract Fees and Charges ............................................. 17 Deductions from Premiums ....................................... 17 Deductions from Portfolios ..................................... 17 Monthly Deductions from Contract Fund .......................... 18 Daily Deduction from the Contract Fund ......................... 19 Surrender or Withdrawal Charges ................................ 19 Transaction Charges ............................................ 20 Contract Date ......................................................... 20 Premiums .............................................................. 20 Allocation of Premiums ................................................ 21 Transfers ............................................................. 21 How the Contract Fund Changes with Investment Experience .............. 22 How a Contract's Death Benefit Will Vary .............................. 22 Contract Loans ........................................................ 23 Surrender of a Contract ............................................... 24 Lapse and Reinstatement ............................................... 24 Fixed Extended Term Insurance ................................... 24 Page Fixed Reduced Paid-Up Insurance ................................ 25 Variable Reduced Paid-Up Insurance ............................. 25 What Happens If No Request Is Made? ............................ 25 When Proceeds Are Paid .................................................. 25 Living Needs Benefit .................................................... 25 Terminal Illness Option ........................................ 25 Nursing Home Option ............................................ 25 Voting Rights ........................................................... 26 Reports to Contract Owners .............................................. 26 Tax Treatment of Contract Benefits ...................................... 27 Riders .................................................................. 27 Participation in Divisible Surplus ...................................... 28 Other Contract Provisions ............................................... 28 FURTHER INFORMATION ABOUT THE SERIES FUND ................................. 28 INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ...................... 28 Fixed Income Portfolios ................................................. 29 Money Market Portfolio ......................................... 29 Bond Portfolio ................................................. 29 Government Securities Portfolio ................................ 30 Zero Coupon Bond Portfolios 1995, 2000, and 2005 ............... 31 Balanced Portfolios ..................................................... 32 Conservatively Managed Flexible Portfolio ...................... 32 Aggressively Managed Flexible Portfolio ........................ 32 High Yield Bond Portfolios .............................................. 33 High Yield Bond Portfolio ...................................... 33 Diversified Stock Portfolios ............................................ 34 Stock Index Portfolio .......................................... 34 High Dividend Stock Portfolio .................................. 35 Common Stock Portfolio ......................................... 36 Growth Stock Portfolio ......................................... 36 Small Capitalization Stock Portfolio ........................... 37 Global Equity Portfolio ........................................ 38 Specialized Portfolios .................................................. 38 Natural Resources Portfolio .................................... 38 Foreign Securities ...................................................... 39 Options, Futures Contracts and Swaps .................................... 40 Short Sales ............................................................. 40 Reverse Repurchase Agreements and Dollar Rolls .......................... 40 Loans of Portfolio Securities ........................................... 41 INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS ...................... 41 INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES ........................... 41 Portfolio Brokerage and Related Practices ............................... 42 STATE REGULATION .......................................................... 42 EXPERTS ................................................................... 42 LITIGATION ................................................................ 42 EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION ......... 42 ADDITIONAL INFORMATION .................................................... 44 FINANCIAL STATEMENTS ...................................................... 44 FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT ....... A1 CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES ....................................... B1 THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ITS STATEMENT OF ADDITIONAL INFORMATION, AND THE PROSPECTUS FOR THE REAL PROPERTY ACCOUNT. INTRODUCTION AND SUMMARY This section provides only an overview of the more significant provisions of the Contract. It omits details which are provided in the rest of this prospectus, as well as in a Statement of Additional Information which is available to you upon request without charge. A description of the contents of that Statement of Additional Information is on page 42. As you read this prospectus you should keep in mind that you are considering the purchase of a life insurance contract. Because it is variable life insurance -- and variable life insurance has significant investment aspects and requires you to make investment decisions -- it is also a "security." That is why you have been given this prospectus. Securities which are offered to the public must be registered with the Securities and Exchange Commission, and the prospectus that is a part of the registration statement must be given to all prospective buyers. But because a substantial part of your premium pays for life insurance that will pay to your beneficiary, in the event of your death, an amount far exceeding your total premium payments, you should not buy this contract unless a major reason for the purchase is to provide life insurance protection. Because the contract provides whole-life or permanent insurance, it also serves a second important objective. It can be expected to provide an increasing cash surrender value that can be used during your lifetime. Brief Description of the Contract The Variable Appreciable Life Insurance Contract (referred to from now on as the "Contract") is issued and sold by The Prudential Insurance Company of America ("The Prudential"), a mutual insurance company founded in 1875 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in all 50 states, the District of Columbia and Guam. It is also registered as a broker and dealer under The Securities and Exchange Act of 1934 and as an investment adviser under The Investment Advisers Act of 1940. The Prudential's consolidated financial statements begin on page B1. The Contract is a form of flexible premium variable life insurance. It is built around a Contract Fund, the amount of which changes every business day. That amount represents the value of your Contract on that day although you will have to pay a surrender charge if you decide to surrender the Contract during the first ten Contract years. A broad objective of the Contract is to provide benefits that will increase in value if favorable investment results are achieved. The Prudential has established a separate account, like a separate division within the Company, called The Prudential Variable Appreciable Account (from now on, the "Account"). Whenever you pay a premium, The Prudential first deducts certain charges (described below) and, unless you decide otherwise (as explained below) puts the remainder -- often called the "net premium" -- into the Account, where it is combined with the net premiums from all other contracts like this one. The money in the Account, including your Contract Fund, is then invested in the following way. The Account is divided into sixteen subaccounts and you must decide which subaccount or subaccounts will hold the assets of your Contract Fund. The money allocated to each subaccount is immediately invested in a corresponding portfolio of The Prudential Series Fund, Inc. (from now on the "Series Fund"). Those sixteen portfolios are described in more detail below. Each has a different investment objective (for example, common stocks, bonds, money market securities, government securities) so that you have a wide range of investment options to choose from. You also have two additional options which are regulated differently from the other sixteen because neither one is an investment company registered under the Investment Company Act of 1940. The first of these is a fixed-rate option that increases the portion of your Contract Fund allocated to this option at a guaranteed rate of interest. The remaining option is a real property option which invests in income-producing real property. It is described in a separate prospectus that is attached to this one. Thus your Contract Fund value changes every day depending upon the change in the value of the particular portfolios (or the other two investment options) that you have selected for the investment of your Contract Fund. Although the selection of any of the investment portfolios or of the real property option offers the possibility that your Contract Fund value will increase if there is favorable investment performance, you are subject to the risk that investment performance will be unfavorable and that the value of your Contract Fund will decrease. The risk will be different, depending upon which investment options you choose. See Which Investment Option Should Be Selected, page 4. If you select the fixed-rate option, you are credited with a stated rate of interest but you assume the risk that this rate may change in later years. The Prudential deducts certain charges from each premium payment and from the amounts held in the designated investment options. In addition, The Prudential makes certain additional charges if a Contract lapses or is surrendered during the first 10 Contract years. All these charges, which are largely designed to cover insurance costs and risks as well as sales and administrative expenses, are fully described under Contract Fees and Charges, on page 17. In brief, and subject to that fuller description, the following diagram outlines the charges which may be made: 1 - -------------------------------------------------------------------------------- Premium Payment - -------------------------------------------------------------------------------- | - -------------------------------------------------------------------------------- o less charge for taxes attributable to premiums o less $2 processing fee - -------------------------------------------------------------------------------- | - -------------------------------------------------------------------------------- Invested Premium Amount o To be invested in one or a combination of: o The Investment Portfolios of the Series Fund described below o The Fixed-Rate Option o The Real Property Account - -------------------------------------------------------------------------------- | - -------------------------------------------------------------------------------- Daily Charges o Management fees and expenses are deducted from the assets of the Series Fund. o A daily charge equivalent to an annual rate of up to 0.9% is deducted from the assets of the variable investment options for mortality and expense risks. - -------------------------------------------------------------------------------- | - -------------------------------------------------------------------------------- Monthly Charges o A sales charge is currently deducted from the Contract Fund in the amount of 1/2 of 1% of the primary annual premium. o The Contract Fund is reduced by a guaranteed minimum death benefit risk charge of not more than $0.01 per $1,000 of the face amount of insurance. o The Contract Fund is reduced by an administrative charge of up to $3 per Contract and $0.03 per $1,000 of face amount of insurance; if the face amount of the Contract is greater than $100,000, the charge is reduced. o A charge for anticipated mortality is deducted, with the maximum charge based on the Non-Smoker/Smoker 1980 CSO Tables. o If the Contract includes riders, a deduction from the Contract Fund will be made for charges applicable to those riders; a deduction will also be made if the rating class of the insured results in an extra charge. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Possible Additional Charges o If the Contract lapses or is surrendered during the first 10 years, a contingent deferred sales charge is assessed; the maximum contingent deferred sales charge during the first 5 years is 50% of the first year's primary annual premium but this charge is both subject to other important limitations and reduced for Contracts that have been in force for more than 5 years. o If the Contract lapses or is surrendered during the first 10 years, a contingent deferred administrative charge is assessed; during the first 5 years, this charge equals $5 per $1,000 of face amount and it begins to decline uniformly after the fifth Contract year so that it disappears on the tenth Contract anniversary. o An administrative processing charge of up to $15 will be made in connection with each withdrawal of excess cash surrender value or a decrease in face amount. - -------------------------------------------------------------------------------- An important feature of the Contract is its death benefit. You have a choice of two different forms of the Contract which differ in the amount of the death benefit. Under Contract Form A the death benefit will generally be equal to the face amount of insurance. It can never be less than this amount, but it is possible, after the Contract has been held for many years, that the Contract Fund will become so large that The Prudential -- to meet certain requirements of the Internal Revenue Code -- will increase the death benefit. Under Contract Form B, the death benefit will increase and decrease as the amount of the Contract Fund varies with the investment performance of the selected options. However, the death benefit under Form B, as is true under Form A, will never be less than the initial face amount and it may also increase to satisfy Internal Revenue Code requirements. Throughout this prospectus the word "Contract" refers to both Form A and B unless specifically stated otherwise. Under both Form A and B Contracts there is no guaranteed minimum cash surrender value. When you first buy the Contract you give instructions to The Prudential as to which subaccounts (and, therefore, which corresponding portfolios of the Series Fund) you wish your Contract Fund invested. Thereafter you may make changes in these allocations either in writing or by telephone. The investment objectives of each portfolio, described more fully at pages 28 to 38 of this prospectus, and of the other two investment options are as follows: 2 Fixed Income Portfolios Money Market Portfolio. The maximum current income that is consistent with stability of capital and maintenance of liquidity through investment in high-quality short-term debt obligations. The rate of return will generally follow the fluctuations in short term interest rates. Bond Portfolio. A high level of income over the longer term while providing reasonable safety of capital through investment primarily in readily marketable intermediate and long-term fixed income securities that provide attractive yields but do not involve substantial risk of loss of capital through default. The securities will be of investment grade and should result in higher returns, but market value will fluctuate inversely with changes in interest rates of longer maturities. Government Securities Portfolio. Achievement of a high level of income over the longer term consistent with the preservation of capital through investment primarily in U.S. Government securities, including intermediate and long-term U.S. Treasury securities and debt obligations issued by agencies of or instrumentalities established, sponsored or guaranteed by the U.S. Government. At least 65% of the total assets of the portfolio will be invested in U.S. Government securities. The rate of return is likely to be somewhat lower than that of the Bond Portfolio, but the risk of loss through default is significantly lower. Market value will also vary inversely with changes in interest rates. Zero Coupon Bond Portfolios 1995, 2000, and 2005. Achievement of the highest predictable compounded investment return for a specific period of time, consistent with the safety of invested capital, by investing primarily in debt obligations of the United States Treasury and investment-grade corporations that have been issued without interest coupons or stripped of their unmatured interest coupons, in interest coupons that have been stripped from such debt obligations, and receipts and in certificates for such stripped debt obligations and stripped coupons (collectively "stripped securities"). The three portfolios differ only in their liquidation dates, which for each portfolio is November 15 of the specified year. Market values are subject to greater fluctuations in interest rates than they are for the other fixed-income portfolios so that redemption, by transfer or otherwise prior to the maturity date could result in a loss. Balanced Portfolios Conservatively Managed Flexible Portfolio. Achievement of a favorable total investment return consistent with a portfolio having a conservatively managed mix of money market instruments, fixed income securities, and common stocks, in proportions believed by the investment manager to be appropriate for an investor desiring diversification of investment who prefers a relatively lower risk of loss than that associated with the Aggressively Managed Flexible Portfolio while recognizing that this reduces the chances of greater appreciation. Aggressively Managed Flexible Portfolio. Achievement of a high total return consistent with a portfolio having an aggressively managed mix of money market instruments, fixed income securities, and common stocks, in proportions believed by the investment manager to be appropriate for an investor desiring diversification of investment who is willing to accept a relatively high level of loss in an effort to achieve greater appreciation. High Yield Bond Portfolios High Yield Bond Portfolio. Achievement of a high total return through investment in high yield/high risk fixed income securities in the medium to low quality ranges. These securities are sometimes known as "junk bonds." Even higher returns are likely to be achieved but with greater risk of loss because of investment in lower grade speculative debt securities. Diversified Stock Portfolios Stock Index Portfolio. Achievement of investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate by following a policy of attempting to duplicate the price and yield performance of the Standard & Poor's 500 Composite Stock Price Index. High Dividend Stock Portfolio. Both current income and capital appreciation through investment primarily in common stocks and convertible securities that provide favorable prospects for investment income returns above those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index. Common Stock Portfolio. Capital appreciation through investment primarily in common stocks of companies, including major established corporations as well as smaller capitalization companies, that appear to offer attractive prospects of price appreciation that is superior to broadly-based stock indices. Current income, if any, is incidental. Higher total return, through assumption of greater risk, can be expected from this portfolio. As with all the equity portfolios, significant fluctuations in market value can be expected, with losses in some years. Growth Stock Portfolio. Long-term growth of capital through investment primarily in equity securities of established companies with above-average growth prospects. Current income, if any, is incidental. 3 Small Capitalization Stock Portfolio. Long-term growth of capital through investment primarily in equity securities of publicly-traded companies with small market capitalization. Current income, if any, is incidental. Global Equity Portfolio. Long-term growth of capital through investment primarily in common stock and common stock equivalents of foreign and domestic issuers. Current income, if any, is incidental. While the characteristics of this portfolio are similar to other equity portfolios, there will be an additional risk because the portfolio invests a significant portion of its assets in foreign securities. Specialized Portfolios Natural Resources Portfolio. Long-term growth of capital through investment primarily in common stocks and convertible securities of "natural resource companies" and in securities (typically debt securities and preferred stock) the terms of which are related to the market value of a natural resource. While the characteristics of this portfolio are similar to the other equity portfolios, there will be additional risk because the portfolio is concentrated in a limited number of sectors. Real Property Account. High current income plus capital appreciation through investment in a partnership whose assets are primarily 100%-owned unmortgaged commercial real property and mortgages on real properties. Investment in real property is also subject to fluctuations in market values. Fixed-Rate Option. Guarantee against loss of principal plus income at a rate which may change at yearly intervals, but will never be lower than an effective annual rate of 4%. Transfers Between Investment Options You may at any time change the instructions for the allocation of your premiums to the various investment options. You may also transfer amounts held in one option to another. There are restrictions upon transfers out of the Real Property Account and the fixed-rate option which The Prudential may waive. Which Investment Option Should Be Selected? Historically, for investments held over relatively long periods, the investment performance of common stocks has generally been superior to that of short or long-term debt securities, even though common stocks have been subject to much more dramatic changes in value over short periods of time. Accordingly, the Stock Index, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, or Natural Resources Portfolios may be desirable options if you are willing to accept such volatility in your Contract values. Each of these equity portfolios involves somewhat different policies and investment risks. You may prefer the somewhat greater protection against loss of principal (and reduced chance of high total return) provided by the Government Securities or Bond Portfolios. There may be times when you desire even greater safety of principal and may then prefer the Money Market Portfolio or the fixed-rate option, recognizing that the level of short-term rates may change rather rapidly. Money invested in a Zero Coupon Bond Portfolio and held to its liquidation date will realize a predictable return, although the portfolio's value may fluctuate significantly with changes in interest rates prior to its liquidation date. If you are willing to take risks and possibly achieve a higher total return, you may prefer the High Yield Bond Portfolio, recognizing that with higher yielding, lower quality bonds the risks are greater. You may wish to divide your invested premium among two or more of the portfolios. You may wish to obtain diversification by relying on The Prudential's judgment for an appropriate asset mix by choosing one of the Balanced Portfolios. The Real Property Account permits you to diversify your investment under the Contract to include an interest in a pool of income-producing real property, and real estate is often considered to be a hedge against inflation. You should make a choice that takes into account how willing you are to accept investment risks, the manner in which your other assets are invested, and your own predictions about what investment results are likely to be in the future. The Prudential does recommend against frequent transfers among the several options as experience generally indicates that "market timing" investing, particularly by non-professional investors, is likely to prove unsuccessful. The Scheduled Premium Your Contract sets forth an annual Scheduled Premium, or one that is payable more frequently, such as monthly. The Prudential guarantees that, if the Scheduled Premiums are paid when due (or if missed premiums are paid later, with interest), the death benefit will be paid upon the death of the insured. The Contract will not lapse even if investment experience is unexpectedly so unfavorable that the Contract Fund value drops to below zero. Your Scheduled Premium consists of two amounts. The first or initial amount is payable from the time you purchase your Contract until the Contract anniversary immediately following your 65th birthday or the Contract's seventh anniversary, whichever is later (the "Premium Change Date"). The second amount is the guaranteed maximum amount payable after the Premium Change Date. See Premiums, page 20. 4 Payment of Substantially Higher Premiums The payment of premiums in excess of scheduled premiums may cause the Contract to become a Modified Endowment Contract for federal income tax purposes. If you make premium payments in amounts high enough to turn the Contract into a Modified Endowment Contract, The Prudential will notify you, ask whether it is your intention to do so, and return the premium, if you wish, with interest. See Premiums, page 20 and Tax Treatment of Contract Benefits, page 27. Contract Loans The Contract permits the owner to borrow up to 90% of the amount of the cash surrender value (100% of the portion allocated to the fixed-rate option) on favorable terms. See Contract Loans, page 23. When a loan is made, the amount held under the investment options described above is reduced, proportionately, by the amount of the loan. Differences Between the Contract and Variable Universal Life Insurance Contracts The Prudential believes that the most common form of universal life insurance, offered by many other life insurance companies, is suitable for many people and, although it does not now offer such a contract to the general public, it may do so in the future. It believes, however, that there are features in that form of universal life insurance, particularly in universal variable life insurance, that enable it too easily to be used in an unsuitable way. Most universal life insurance contracts also provide for premiums to be paid at irregular intervals but with a recommended "target premium" to be paid at specified intervals. Regular payment of the recommended target premiums, however, does not guarantee - -- as is the case with this Contract -- that a death benefit will always be paid. If the target premium is set too low and investment experience for some period is unfavorable, the Contract Fund can drop to zero and then those contracts will lapse. Similarly, if a contract owner skips several premium payments during a period of financial strain, the same thing could happen, even after a contract has been in force for many years. If that should happen, there will be little incentive to reinstate the contract and the contract owner will have bought, unintentionally and unnecessarily, very expensive term insurance. Two purposes for which permanent insurance is bought -- protection against death and savings for later use -- will not have been met. The Prudential's Variable Appreciable Life Insurance Contract is a form of life insurance that seeks to eliminate these defects. Although it provides much of the flexibility of variable universal life, it differs in two important ways. First, The Prudential guarantees that if the Scheduled Premiums are paid when due (or missed premiums are paid later with interest), the Contract will not lapse and the face amount of insurance will be paid upon the death of the insured even if, because of unfavorable investment experience, the Contract Fund value should drop to below zero. Second, if all premiums are not paid when due (or made up), the Contract will not lapse as long as the Contract Fund is higher than a stated amount set forth in a table in the Contract -- an amount that increases each year and in later years becomes quite high; it is called the "Tabular Contract Fund." The Contract lapses when the Contract Fund falls to below this stated amount, rather than when it drops to zero. Thus, when a Variable Appreciable Life Contract lapses, it may still have considerable value and you will, therefore, have a substantial incentive to reinstate it, as well as an opportunity to make a considered decision whether to do so or to take, in one form or another, the cash surrender value. In effect, The Prudential provides an early and timely warning against the imprudent use of the flexibility provided by the Contract. In the following pages of this prospectus we describe in much greater detail all of the provisions of the Contract. That description is preceded by two sets of tables. The first set provides, in condensed form, financial information about the portfolios of the Series Fund, beginning on the date each of them was first established. The second set shows what the cash surrender values and death benefits would be under a Contract issued on a hypothetical person, making certain assumptions. These tables show generally how the values under the Contract would vary, with different investment performances. FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND The tables that follow provide information about the annual investment income, capital appreciation and expenses of the 14 portfolios of the Series Fund that were available as of December 31, 1994 for each year, beginning with the year after the Series Fund was established. They are prepared on a per share basis and therefore provide useful information about the investment performance of each portfolio. Note, however, that these tables do not tell you how your Contract Fund would have changed during this period because they do not reflect the deductions from the Contract Fund other than the deductions for the investment management fees and expenses. 5 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
MONEY MARKET ------------------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85 TO TO TO 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 12/31/87 12/31/86* 12/31/85* -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at beginning of period.... $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $ 1.000 $ 1.000 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Income From Investment Operations: Net investment income.... 0.402 0.290 0.372 0.596 0.778 0.877 0.717 0.630 0.062 0.079 Net realized and unrealized gains (losses) on investments............ 0 0 0 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total from investment operations........... 0.402 0.290 0.372 0.596 0.778 0.877 0.717 0.630 0.062 0.079 Distributions to Shareholders: Distributions from net investment income...... (0.402) (0.290) (0.372) (0.596) (0.778) (0.877) (0.717) (0.630) (0.062) (0.079) Distributions from net realized gains......... 0 0 0 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total distributions........ (0.402) (0.290) (0.372) (0.596) (0.778) (0.877) (0.717) (0.630) (0.062) (0.079) Reverse stock split (10 to 1).................. -- -- -- -- -- -- -- -- 9.000 -- Net increase (decrease) in Net Asset Value..... 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 9.000 0.000 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at end of period................. $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $ 10.000 $ 1.000 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total Investment Rate of Return:**.............. 4.05 % 2.95 % 3.79 % 6.16 % 8.16 % 9.25 % 7.35 % 6.52 % 6.54 % 7.91 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $583.3 $474.7 $528.7 $529.6 $434.2 $236.1 $155.9 $107.2 $52.5 $50.5 Ratio of expenses net of reimbursement to average net assets..... 0.47 % 0.45 % 0.47 % 0.46 % 0.50 % 0.55 % 0.57 % 0.53 % 0.55 % 0.68 % Ratio of net investment income to average net assets................. 4.02 % 2.90 % 3.72 % 5.96 % 7.80 % 8.77 % 7.17 % 6.30 % 6.16 % 7.60 % Portfolio turnover rate................... -- -- -- -- -- -- -- -- -- -- Number of shares outstanding at end of period (in millions)... 58.3 47.5 52.9 53.0 43.4 23.6 15.6 10.7 5.2 20.3
BOND ------------------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85 TO TO TO 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 12/31/87 12/31/86* 12/31/85* -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at beginning of period.... $11.103 $10.829 $11.002 $10.332 $10.321 $ 9.942 $10.038 $11.048 $ 10.967 $ 9.998 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Income From Investment Operations: Net investment income.... 0.682 0.686 0.761 0.797 0.825 0.886 0.875 0.859 0.904 1.073 Net realized and unrealized gains (losses) on investments............ (1.040) 0.398 0.013 0.842 (0.004) 0.424 (0.069) (0.821) 0.607 0.739 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total from investment operations........... (0.358) 1.084 0.774 1.639 0.821 1.310 0.806 0.038 1.511 1.812 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Distributions to Shareholders: Distributions from net investment income...... (0.683) (0.657) (0.728) (0.779) (0.810) (0.854) (0.902) (0.990) (0.909) (0.843) Distributions from net realized gains......... (0.024) (0.153) (0.219) (0.190) 0 (0.077) 0 (0.058) (0.521) 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total distributions........ (0.707) (0.810) (0.947) (0.969) (0.810) (0.931) (0.902) (1.048) (1.430) (0.843) -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net increase (decrease) in Net Asset Value..... (1.065) 0.274 (0.173) 0.670 0.011 0.379 (0.096) (1.010) 0.081 0.969 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at end of period................. $10.038 $11.103 $10.829 $11.002 $10.332 $10.321 $ 9.942 $10.038 $ 11.048 $ 10.967 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total Investment Rate of Return:**.............. (3.23 %) 10.13 % 7.19 % 16.44 % 8.32 % 13.49 % 8.19 % 0.29 % 14.45 % 18.65 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $541.6 $576.2 $428.8 $318.7 $227.7 $191.1 $148.8 $139.5 $110.1 $40.9 Ratio of expenses net of reimbursement to average net assets..... 0.45 % 0.46 % 0.47 % 0.49 % 0.47 % 0.53 % 0.53 % 0.53 % 0.51 % 0.68 % Ratio of net investment income to average net assets................. 6.41 % 6.05 % 6.89 % 7.43 % 8.06 % 8.56 % 8.52 % 8.15 % 8.11 % 9.85 % Portfolio turnover rate................... 31.57 % 41.12 % 60.53 % 131.01 % 42.10 % 272.85 % 222.20 % 238.41 % 246.82 % 92.56 % Number of shares outstanding at end of period (in millions)... 54.0 51.9 39.6 29.0 22.0 18.5 15.0 13.9 10.0 2.5
All calculations are based on average month-end shares outstanding, where applicable. *The per share information of the Portfolios of The Prudential Series Fund, Inc. has not been restated to reflect the operations of the Pruco Life Series Fund, Inc. prior to the November 1, 1986 merger. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 6 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
GOVERNMENT SECURITIES ------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89 TO TO TO TO TO TO 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 -------- -------- -------- -------- -------- -------- Net Asset Value at beginning of period.... $11.784 $11.094 $11.133 $10.146 $10.324 $10.017 -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.703 0.700 0.731 0.736 0.791 0.545 Net realized and unrealized gains (losses) on investments............ (1.311) 0.678 (0.092) 0.847 (0.177) 0.613 -------- -------- -------- -------- -------- -------- Total from investment operations........... (0.608) 1.378 0.639 1.583 0.614 1.158 -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.723) (0.642) (0.593) (0.596) (0.769) (0.489) Distributions from net realized gains......... 0.008 (0.046) (0.085) 0 (0.023) (0.362) -------- -------- -------- -------- -------- -------- Total distributions........ (0.715) (0.688) (0.678) (0.596) (0.792) (0.851) -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (1.323) 0.690 (0.039) 0.987 (0.178) 0.307 -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $10.461 $11.784 $11.094 $11.133 $10.146 $10.324 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. (5.16 %) 12.56 % 5.85 % 16.11 % 6.34 % 11.60 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $487.6 $540.1 $315.5 $95.0 $23.7 $17.0 Ratio of expenses net of reimbursement to average net assets..... 0.45 % 0.46 % 0.53 % 0.58 % 0.74 % 0.50 % Ratio of net investment income to average net assets................. 6.30 % 5.91 % 6.58 % 6.97 % 7.86 % 5.06 % Portfolio turnover rate................... 34.19 % 18.59 % 80.71 % 127.18 % 379.45 % 208.86 % Number of shares outstanding at end of period (in millions)... 46.6 45.8 28.3 8.5 2.3 1.6
ZERO COUPON BOND 1995 ------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 02/12/86 TO TO 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 12/31/87 12/31/86 -------- -------- -------- -------- -------- -------- -------- -------- --------- Net Asset Value at beginning of period.... $11.282 $11.174 $11.250 $10.380 $11.094 $10.331 $10.270 $11.724 $ 10.156 -------- -------- -------- -------- -------- -------- -------- -------- --------- Income From Investment Operations: Net investment income.... 0.800 0.761 0.802 0.844 1.447 0.889 0.888 0.893 0.791 Net realized and unrealized gains (losses) on investments............ (0.808) 0.107 (0.010) 0.874 (0.670) 0.766 0.027 (1.263) 1.437 -------- -------- -------- -------- -------- -------- -------- -------- --------- Total from investment operations........... (0.008) 0.868 0.792 1.718 0.777 1.655 0.915 (0.370) 2.228 -------- -------- -------- -------- -------- -------- -------- -------- --------- Distributions to Shareholders: Distributions from net investment income...... (0.679) (0.760) (0.798) (0.845) (1.491) (0.892) (0.854) (1.084) (0.660) Distributions from net realized gains......... (0.002) 0 (0.070) (0.003) 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- Total distributions........ (0.681) (0.760) (0.868) (0.848) (1.491) (0.892) (0.854) (1.084) (0.660) -------- -------- -------- -------- -------- -------- -------- -------- --------- Net increase (decrease) in Net Asset Value..... (0.689) 0.108 (0.076) 0.870 (0.714) 0.763 0.061 (1.454) 1.568 -------- -------- -------- -------- -------- -------- -------- -------- --------- Net Asset Value at end of period................. $10.593 $11.282 $11.174 $11.250 $10.380 $11.094 $10.331 $10.270 $ 11.724 -------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- Total Investment Rate of Return:**.............. (0.03 %) 7.87 % 7.19 % 17.20 % 7.95 % 16.41 % 9.01 % (3.25 %) 21.96 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $17.7 $15.2 $13.6 $13.0 $11.0 $10.0 $9.0 $7.5 $7.2 Ratio of expenses net of reimbursement to average net assets..... 0.60 % 0.63 % 0.69 % 0.71 % 0.75 % 0.75 % 0.75 % 0.69 % 0.42 % Ratio of net investment income to average net assets................. 6.72 % 6.61 % 7.12 % 7.86 % 13.80 % 8.13 % 8.34 % 8.17 % 6.89 % Portfolio turnover rate................... 4.38 % 5.84 % 34.80 % 0.77 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Number of shares outstanding at end of period (in millions)... 1.7 1.3 1.2 1.2 1.1 0.9 0.9 0.7 0.6
All calculations are based on average month-end shares outstanding, where applicable. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 7 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
ZERO COUPON BOND 2000 ------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 02/12/86 TO TO 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 12/31/87 12/31/86 -------- -------- -------- -------- -------- -------- -------- -------- --------- Net Asset Value at beginning of period.... $13.715 $12.550 $12.402 $11.279 $11.883 $11.004 $10.685 $12.476 $ 10.267 -------- -------- -------- -------- -------- -------- -------- -------- --------- Income From Investment Operations: Net investment income.... 0.927 0.850 0.892 0.908 1.114 0.919 0.919 0.934 0.807 Net realized and unrealized gains (losses) on investments............ (1.907) 1.157 0.140 1.308 (0.593) 1.277 0.292 (1.623) 2.087 -------- -------- -------- -------- -------- -------- -------- -------- --------- Total from investment operations........... (0.980) 2.007 1.032 2.216 0.521 2.196 1.211 (0.689) 2.894 -------- -------- -------- -------- -------- -------- -------- -------- --------- Distributions to Shareholders: Distributions from net investment income...... (0.850) (0.837) (0.884) (0.944) (1.125) (0.915) (0.892) (1.102) (0.685) Distributions from net realized gains......... (0.023) (0.005) 0 (0.149) 0 (0.402) 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- Total distributions........ (0.873) (0.842) (0.884) (1.093) (1.125) (1.317) (0.892) (1.102) (0.685) -------- -------- -------- -------- -------- -------- -------- -------- --------- Net increase (decrease) in Net Asset Value..... (1.853) 1.165 0.148 1.123 (0.604) 0.879 0.319 (1.791) 2.209 -------- -------- -------- -------- -------- -------- -------- -------- --------- Net Asset Value at end of period................. $11.862 $13.715 $12.550 $12.402 $11.279 $11.883 $11.004 $10.685 $ 12.476 -------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- Total Investment Rate of Return:**.............. (7.18 %) 16.15 % 8.59 % 20.71 % 5.11 % 20.38 % 11.56 % (5.51 %) 28.62 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $20.6 $22.2 $16.7 $14.6 $13.9 $13.1 $10.9 $9.0 $8.1 Ratio of expenses net of reimbursement to average net assets..... 0.51 % 0.62 % 0.66 % 0.68 % 0.75 % 0.75 % 0.75 % 0.64 % 0.40 % Ratio of net investment income to average net assets................. 6.69 % 6.21 % 7.24 % 7.77 % 9.99 % 7.73 % 8.24 % 8.19 % 6.61 % Portfolio turnover rate................... 9.41 % 0.53 % 0.00 % 0.00 % 0.00 % 38.62 % 0.00 % 0.00 % 0.00 % Number of shares outstanding at end of period (in millions)... 1.7 1.6 1.3 1.2 1.2 1.1 1.0 0.8 0.7
ZERO COUPON BOND 2005 ------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89 TO TO TO TO TO TO 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 -------- -------- -------- -------- -------- -------- Net Asset Value at beginning of period.... $12.677 $11.029 $10.874 $ 9.798 $10.457 $10.017 -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.752 0.768 0.804 0.820 0.850 0.561 Net realized and unrealized gains (losses) on investments............ (1.967) 1.623 0.207 1.143 (0.649) 0.598 -------- -------- -------- -------- -------- -------- Total from investment operations........... (1.215) 2.391 1.011 1.963 0.201 1.159 -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.715) (0.741) (0.792) (0.827) (0.860) (0.531) Distributions from net realized gains......... (0.003) (0.002) (0.064) (0.060) 0 (0.188) -------- -------- -------- -------- -------- -------- Total distributions........ (0.718) (0.743) (0.856) (0.887) (0.860) (0.719) -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (1.933) 1.648 0.155 1.076 (0.659) 0.440 -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $10.744 $12.677 $11.029 $10.874 $ 9.798 $10.457 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. (9.61 %) 21.94 % 9.66 % 21.16 % 2.56 % 11.67 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $16.5 $14.5 $9.8 $8.7 $7.3 $7.2 Ratio of expenses net of reimbursement to average net assets..... 0.60 % 0.66 % 0.75 % 0.75 % 0.75 % 0.49 % Ratio of net investment income to average net assets................. 6.53 % 6.17 % 7.46 % 8.08 % 8.83 % 5.25 % Portfolio turnover rate................... 5.94 % 3.62 % 11.48 % 5.76 % 4.36 % 59.90 % Number of shares outstanding at end of period (in millions)... 1.5 1.1 0.9 0.8 0.7 0.7
All calculations are based on average month-end shares outstanding, where applicable. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 8 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
CONSERVATIVELY MANAGED FLEXIBLE ----------------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85 TO TO TO 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 12/31/87 12/31/86* 12/31/85* -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at beginning of period.... $14.905 $14.243 $14.318 $13.060 $13.361 $12.295 $11.889 $12.571 $ 12.173 $ 10.469 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Income From Investment Operations: Net investment income.... 0.528 0.486 0.558 0.687 0.821 0.891 0.773 0.656 0.652 0.725 Net realized and unrealized gains (losses) on investments............ (0.679) 1.229 0.410 1.738 (0.143) 1.155 0.424 (0.399) 1.046 1.443 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total from investment operations........... (0.151) 1.715 0.968 2.425 0.678 2.046 1.197 0.257 1.698 2.168 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Distributions to Shareholders: Distributions from net investment income...... (0.505) (0.468) (0.533) (0.668) (0.812) (0.887) (0.791) (0.709) (0.517) (0.464) Distributions from net realized gains......... (0.154) (0.585) (0.510) (0.499) (0.167) (0.093) 0 (0.230) (0.783) 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total distributions........ (0.659) (1.053) (1.043) (1.167) (0.979) (0.980) (0.791) (0.939) (1.300) (0.464) -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net increase (decrease) in Net Asset Value..... (0.810) 0.662 (0.075) 1.258 (0.301) 1.066 0.406 (0.682) 0.398 1.704 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at end of period................. $14.095 $14.905 $14.243 $14.318 $13.060 $13.361 $12.295 $11.889 $ 12.571 $ 12.173 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total Investment Rate of Return:**.............. (0.97 %) 12.20 % 6.95 % 19.07 % 5.27 % 16.99 % 10.19 % 1.54 % 14.17 % 21.11 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $3,501.1 $3,103.2 $2,114.0 $1,500.0 $1,100.2 $976.0 $815.6 $803.9 $375.4 $75.9 Ratio of expenses net of reimbursement to average net assets..... 0.61 % 0.60 % 0.62 % 0.63 % 0.65 % 0.64 % 0.65 % 0.66 % 0.64 % 0.86 % Ratio of net investment income to average net assets................. 3.61 % 3.22 % 3.88 % 4.89 % 6.21 % 6.81 % 6.22 % 5.05 % 5.10 % 5.99 % Portfolio turnover rate................... 125.18 % 79.46 % 62.07 % 115.35 % 44.04 % 153.92 % 110.67 % 140.69 % 207.78 % 54.89 % Number of shares outstanding at end of period (in millions)... 248.4 208.2 148.4 104.8 84.2 73.0 66.3 67.6 29.9 4.2
AGGRESSIVELY MANAGED FLEXIBLE ------------------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85 TO TO TO 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 12/31/87 12/31/86* 12/31/85* -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at beginning of period.... $16.957 $16.005 $16.288 $13.996 $14.446 $13.123 $12.326 $13.555 $ 12.810 $ 10.469 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Income From Investment Operations: Net investment income.... 0.473 0.566 0.583 0.650 0.715 0.813 0.724 0.577 0.611 0.584 Net realized and unrealized gains (losses) on investments............ (1.021) 1.882 0.607 2.809 (0.466) 1.989 0.840 (0.753) 1.342 2.095 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total from investment operations........... (0.548) 2.448 1.190 3.459 0.249 2.802 1.564 (0.176) 1.953 2.679 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Distributions to Shareholders: Distributions from net investment income...... (0.451) (0.567) (0.559) (0.654) (0.699) (0.813) (0.767) (0.673) (0.456) (0.338) Distributions from net realized gains......... (0.462) (0.929) (0.914) (0.513) 0 (0.666) 0 (0.380) (0.752) 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total distributions........ (0.913) (1.496) (1.473) (1.167) (0.699) (1.479) (0.767) (1.053) (1.208) (0.338) -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net increase (decrease) in Net Asset Value..... (1.461) 0.952 (0.283) 2.292 (0.450) 1.323 0.797 (1.229) 0.745 2.341 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at end of period................. $15.496 $16.957 $16.005 $16.288 $13.996 $14.446 $13.123 $12.326 $ 13.555 $ 12.810 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total Investment Rate of Return:**.............. (3.16 %) 15.58 % 7.61 % 25.43 % 1.91 % 21.77 % 12.83 % (1.83 %) 15.48 % 25.87 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9 $1,062.4 $593.6 $138.7 Ratio of expenses net of reimbursement to average net assets..... 0.66 % 0.66 % 0.67 % 0.67 % 0.69 % 0.69 % 0.70 % 0.71 % 0.67 % 0.93 % Ratio of net investment income to average net assets................. 2.90 % 3.30 % 3.63 % 4.23 % 5.13 % 5.66 % 5.52 % 4.09 % 4.43 % 4.65 % Portfolio turnover rate................... 123.63 % 62.99 % 59.03 % 93.13 % 51.87 % 141.04 % 128.45 % 123.83 % 133.76 % 56.46 % Number of shares outstanding at end of period (in millions)... 224.7 194.1 152.2 122.2 107.7 96.0 84.1 86.2 43.8 6.1
All calculations are based on average month-end shares outstanding, where applicable. *The per share information of the Portfolios of The Prudential Series Fund, Inc. has not been restated to reflect the operations of the Pruco Life Series Fund, Inc. prior to the November 1, 1986 merger. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 9 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
HIGH YIELD BOND --------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 02/23/87 TO 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 12/31/87 -------- -------- -------- -------- -------- -------- -------- -------- (AS RESTATED) Net Asset Value at beginning of period.... $ 8.406 $ 7.719 $ 7.212 $ 5.838 $ 7.673 $ 8.904 $ 8.742 $10.000 -------- -------- -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.869 0.822 0.824 0.836 0.936 1.071 1.066 0.968 Net realized and unrealized gains (losses) on investments............ (1.102) 0.632 0.415 1.397 (1.792) (1.223) 0.065 (1.428) -------- -------- -------- -------- -------- -------- -------- -------- Total from investment operations........... (0.233) 1.454 1.239 2.233 (0.856) (0.152) 1.131 (0.460) -------- -------- -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.807) (0.767) (0.732) (0.859) (0.979) (1.079) (0.969) (0.798) Distributions from net realized gains......... 0 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total distributions........ (0.807) (0.767) (0.732) (0.859) (0.979) (1.079) (0.969) (0.798) -------- -------- -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (1.040) 0.687 0.507 1.374 (1.835) (1.231) 0.162 (1.258) -------- -------- -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $ 7.366 $ 8.406 $ 7.719 $ 7.212 $ 5.838 $ 7.673 $ 8.904 $ 8.742 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. (2.72 %) 19.27 % 17.54 % 39.71 % (11.84 %) (2.05 %) 13.17 % (4.91 %) Ratios/Supplemental Data: Net assets at end of period (in millions)... $306.2 $282.9 $153.7 $78.7 $49.8 $60.0 $65.8 $40.4 Ratio of expenses net of reimbursement to average net assets..... 0.65 % 0.65 % 0.70 % 0.75 % 0.75 % 0.71 % 0.75 % 0.73 % Ratio of net investment income to average net assets................. 9.82 % 9.91 % 10.67 % 12.05 % 13.42 % 12.29 % 11.60 % 10.13 % Portfolio turnover rate................... 68.67 % 95.52 % 75.04 % 57.21 % 34.66 % 60.59 % 70.73 % 16.58 % Number of shares outstanding at end of period (in millions)... 41.6 33.6 19.9 10.9 8.5 7.8 7.4 4.6 STOCK INDEX --------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 10/19/87 TO 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 12/31/87 -------- -------- -------- -------- -------- -------- -------- -------- Net Asset Value at beginning of period.... $15.202 $14.218 $13.605 $10.760 $11.732 $ 9.454 $ 8.531 $ 8.071 -------- -------- -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.377 0.361 0.350 0.351 0.357 0.326 0.357 0.047 Net realized and unrealized gains (losses) on investments............ (0.231) 1.002 0.600 2.814 (0.792) 2.570 0.951 0.548 -------- -------- -------- -------- -------- -------- -------- -------- Total from investment operations........... 0.146 1.363 0.950 3.165 (0.435) 2.896 1.308 0.595 -------- -------- -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.368) (0.346) (0.329) (0.307) (0.309) (0.354) (0.385) (0.135) Distributions from net realized gains......... (0.023) (0.033) (0.008) (0.013) (0.228) (0.264) 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total distributions........ (0.391) (0.379) (0.337) (0.320) (0.537) (0.618) (0.385) (0.135) -------- -------- -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (0.245) 0.984 0.613 2.845 (0.972) 2.278 0.923 0.460 -------- -------- -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $14.957 $15.202 $14.218 $13.605 $10.760 $11.732 $ 9.454 $ 8.531 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. 1.01 % 9.66 % 7.13 % 29.72 % (3.63 %) 30.93 % 15.44 % 7.35 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $664.5 $615.1 $433.5 $236.9 $104.5 $53.8 $36.0 $24.5 Ratio of expenses net of reimbursement to average net assets..... 0.42 % 0.42 % 0.46 % 0.47 % 0.60 % 0.69 % 0.78 % 0.45 % Ratio of net investment income to average net assets................. 2.50 % 2.43 % 2.56 % 2.82 % 3.23 % 2.95 % 3.87 % 0.53 % Portfolio turnover rate................... 1.74 % 0.60 % 0.43 % 1.10 % 17.80 % 14.54 % 15.62 % 0.47 % Number of shares outstanding at end of period (in millions)... 44.4 40.5 30.5 17.4 9.7 4.6 3.8 2.9
All calculations are based on average month-end shares outstanding, where applicable. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 10 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
HIGH DIVIDEND STOCK ----------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 02/19/88 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 -------- -------- -------- -------- -------- -------- -------- Net Asset Value at beginning of period $15.655 $13.673 $13.209 $11.241 $12.254 $10.621 $10.132 -------- -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.664 0.551 0.582 0.578 0.509 0.539 0.452 Net realized and unrealized gains (losses) on investments............ (0.453) 2.459 0.723 2.430 (0.980) 1.841 0.684 -------- -------- -------- -------- -------- -------- -------- Total from investment operations 0.211 3.010 1.305 3.008 (0.471) 2.380 1.136 -------- -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.562) (0.501) (0.515) (0.542) (0.461) (0.462) (0.420) Distributions from net realized gains......... (0.820) (0.527) (0.326) (0.498) (0.081) (0.285) (0.227) -------- -------- -------- -------- -------- -------- -------- Total distributions........ (1.382) (1.028) (0.841) (1.040) (0.542) (0.747) (0.647) -------- -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (1.171) 1.982 0.464 1.968 (1.013) 1.633 0.489 -------- -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $14.484 $15.655 $13.673 $13.209 $11.241 $12.254 $10.621 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. 1.44 % 22.28 % 10.14 % 27.50 % (3.73 %) 22.67 % 11.31 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $859.7 $602.8 $234.4 $106.9 $55.5 $34.9 $11.3 Ratio of expenses net of reimbursement to average net assets..... 0.52 % 0.54 % 0.57 % 0.57 % 0.60 % 0.74 % 0.64 % Ratio of net investment income to average net assets................. 3.92 % 3.56 % 4.32 % 4.53 % 4.53 % 4.48 % 4.08 % Portfolio turnover rate................... 62.66 % 41.43 % 39.98 % 60.12 % 54.79 % 56.65 % 61.31 % Number of shares outstanding at end of period (in millions)... 59.4 38.5 17.1 8.1 4.9 2.9 1.1
COMMON STOCK ------------------------------------------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85 TO TO TO 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 12/31/87 12/31/86* 12/31/85* -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at beginning of period.... $21.487 $18.903 $17.905 $15.449 $18.539 $15.463 $13.620 $14.815 $ 14.634 $ 11.160 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Income From Investment Operations: Net investment income.... 0.512 0.417 0.444 0.482 0.577 0.474 0.402 0.393 0.448 0.340 Net realized and unrealized gains (losses) on investments............ 0.054 3.666 2.050 3.414 (1.573) 4.064 1.909 (0.065) 1.765 3.306 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total from investment operations........... 0.566 4.083 2.494 3.896 (0.996) 4.538 2.311 0.328 2.213 3.646 Distributions to Shareholders: Distributions from net investment income...... (0.487) (0.404) (0.439) (0.478) (0.563) (0.503) (0.468) (0.496) (0.275) (0.172) Distributions from net realized gains......... (0.904) (1.095) (1.057) (0.962) (1.531) (0.959) 0 (1.027) (1.757) 0 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total distributions........ (1.391) (1.499) (1.496) (1.440) (2.094) (1.462) (0.468) (1.523) (2.032) (0.172) -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net increase (decrease) in Net Asset Value..... (0.825) 2.584 0.998 2.456 (3.090) 3.076 1.843 (1.195) 0.181 3.474 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Net Asset Value at end of period................. $20.662 $21.487 $18.903 $17.905 $15.449 $18.539 $15.463 $13.620 $ 14.815 $ 14.634 -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------- -------- -------- -------- --------- --------- Total Investment Rate of Return:**.............. 2.78 % 21.87 % 14.17 % 26.01 % (5.21 %) 29.73 % 17.05 % 1.67 % 15.10 % 32.84 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $2,617.8 $2,186.5 $1,416.6 $1,032.8 $700.5 $675.5 $500.1 $451.0 $247.9 $68.8 Ratio of expenses net of reimbursement to average net assets..... 0.55 % 0.53 % 0.53 % 0.51 % 0.56 % 0.56 % 0.57 % 0.51 % 0.52 % 0.88 % Ratio of net investment income to average net assets................. 2.39 % 1.99 % 2.33 % 2.66 % 3.37 % 2.66 % 2.67 % 2.34 % 2.90 % 2.44 % Portfolio turnover rate................... 6.90 % 12.95 % 15.70 % 20.85 % 84.84 % 73.54 % 62.35 % 79.91 % 117.15 % 91.70 % Number of shares outstanding at end of period (in millions)... 126.7 101.8 74.9 57.7 45.3 36.4 32.3 33.1 16.7 2.0
All calculations are based on average month-end shares outstanding, where applicable. *The per share information of the Portfolios of The Prudential Series Fund, Inc. has not been restated to reflect the operations of the Pruco Life Series Fund, Inc. prior to the November 1, 1986 merger. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 11 THE PRUDENTIAL SERIES FUND, INC. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED) The following financial highlights information has been audited by Deloitte & Touche LLP, Independent Auditors. Their report is included in the Statement of Additional Information.
GLOBAL EQUITY ----------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 09/19/88 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 -------- -------- -------- -------- -------- -------- -------- Net Asset Value at beginning of period $14.639 $10.368 $10.792 $ 9.866 $11.547 $10.508 $ 9.818 -------- -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.028 0.023 0.051 0.096 0.203 0.079 0.052 Net realized and unrealized gains (losses) on investments............ (0.744) 4.433 (0.419) 1.020 (1.802) 1.806 0.787 -------- -------- -------- -------- -------- -------- -------- Total from investment operations........... (0.716) 4.456 (0.368) 1.116 (1.599) 1.885 0.839 -------- -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.019) (0.079) (0.056) (0.100) (0.067) (0.073) (0.149) Distributions from net realized gains......... (0.025) (0.106) 0 (0.090) (0.015) (0.773) 0 -------- -------- -------- -------- -------- -------- -------- Total distributions........ (0.044) (0.185) (0.056) (0.190) (0.082) (0.846) (0.149) -------- -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (0.760) 4.271 (0.424) 0.926 (1.681) 1.039 0.690 -------- -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $13.879 $14.639 $10.368 $10.792 $ 9.866 $11.547 $10.508 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. (4.89 %) 43.14 % (3.42 %) 11.39 % (12.91 %) 18.82 % 8.57 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $345.7 $129.1 $34.0 $34.3 $26.2 $29.4 $26.9 Ratio of expenses net of reimbursement to average net assets..... 1.23 % 1.44 % 1.87 % 1.62 % 1.67 % 1.47 % 0.42 % Ratio of net investment income to average net assets................. 0.20 % 0.18 % 0.49 % 0.92 % 1.92 % 0.70 % 0.51 % Portfolio turnover rate................... 37.46 % 54.54 % 78.16 % 136.21 % 43.12 % 47.95 % 6.40 % Number of shares outstanding at end of period (in millions)... 24.9 8.8 3.3 3.2 2.7 2.5 2.6
NATURAL RESOURCES ----------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 05/01/88 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 -------- -------- -------- -------- -------- -------- -------- Net Asset Value at beginning of period.... $15.562 $12.949 $12.450 $11.622 $12.705 $10.141 $ 9.910 -------- -------- -------- -------- -------- -------- -------- Income From Investment Operations: Net investment income.... 0.183 0.227 0.319 0.368 0.417 0.364 0.254 Net realized and unrealized gains (losses) on investments............ (0.850) 3.004 0.588 0.821 (1.143) 3.216 0.274 -------- -------- -------- -------- -------- -------- -------- Total from investment operations........... (0.667) 3.231 0.907 1.189 (0.726) 3.580 0.528 -------- -------- -------- -------- -------- -------- -------- Distributions to Shareholders: Distributions from net investment income...... (0.150) (0.207) (0.309) (0.361) (0.336) (0.358) (0.252) Distributions from net realized gains......... (0.302) (0.411) (0.099) 0 (0.021) (0.658) (0.045) -------- -------- -------- -------- -------- -------- -------- Total distributions........ (0.452) (0.618) (0.408) (0.361) (0.357) (1.016) (0.297) -------- -------- -------- -------- -------- -------- -------- Net increase (decrease) in Net Asset Value..... (1.119) 2.613 0.499 0.828 (1.083) 2.564 0.231 -------- -------- -------- -------- -------- -------- -------- Net Asset Value at end of period................. $14.443 $15.562 $12.949 $12.450 $11.622 $12.705 $10.141 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investment Rate of Return:**.............. (4.30 %) 25.15 % 7.30 % 10.30 % (5.76 %) 35.64 % 5.42 % Ratios/Supplemental Data: Net assets at end of period (in millions)... $227.3 $158.8 $77.5 $62.6 $50.6 $17.9 $9.5 Ratio of expenses net of reimbursement to average net assets..... 0.61 % 0.60 % 0.72 % 0.68 % 0.75 % 0.86 % 0.58 % Ratio of net investment income to average net assets................. 1.09 % 1.50 % 2.44 % 2.97 % 3.45 % 3.04 % 2.46 % Portfolio turnover rate................... 18.10 % 19.64 % 29.20 % 21.33 % 42.18 % 49.17 % 59.33 % Number of shares outstanding at end of period (in millions)... 15.7 10.2 6.0 5.0 4.4 1.4 0.9
All calculations are based on average month-end shares outstanding, where applicable. **Total investment returns are at the portfolio level and exclude contract specific charges which would reduce returns. This information should be read in conjunction with the financial statements of The Prudential Series Fund, Inc. and notes thereto, which appear in the Statement of Additional Information. Further information about the performance of the portfolios is contained in the Annual Report to Contract Owners which may be obtained without charge. 12 PORTFOLIO RATES OF RETURN The following table, based upon the immediately preceding condensed financial information for the Series Fund, shows first the average annual compounded net rates of return for each Portfolio for the year ended 12/31/94 for the 5 year period ending on that date, and from the inception date of each Portfolio to December 31, 1994. Then, the annual net rates of return for each Portfolio for each year are shown. These rates of return should not be regarded as an estimate or prediction of future performance. They may be useful in assessing the competence and performance of the Series Fund's investment advisor and in helping you to decide which portfolios to choose. AS STATED ABOVE, THIS INFORMATION RELATES ONLY TO THE SERIES FUND AND DOES NOT REFLECT THE VARIOUS OTHER CHARGES MADE UNDER THE CONTRACTS SUCH AS SALES AND ADMINISTRATIVE CHARGES AND COST OF INSURANCE CHARGES. SEE CONTRACT FEES AND CHARGES, PAGE 17.
5 YEAR 10 YEAR PERIOD PERIOD INCEPTION INCEPTION YEAR ENDED ENDED ENDED DATE TO YEAR ENDED YEAR ENDED YEAR ENDED DATE 12/31/94 12/31/94 12/31/94 12/31/94 12/31/94 12/31/93 12/31/92 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- MONEY MARKET 5/83 4.1% 5.0% 6.3% 6.7% 4.1% 3.0% 3.8% BOND 5/83 -3.2% 7.6% 9.2% 9.0% -3.2% 10.1% 7.2% GOVERNMENT SECURITIES 5/89 -5.2% 6.9% N/A 8.1% -5.2% 12.6% 5.9% ZERO COUPON BOND 1995 2/86 0.0% 7.9% N/A 9.2% 0.0% 7.9% 7.2% ZERO COUPON BOND 2000 2/86 -7.2% 8.2% N/A 10.5% -7.2% 16.2% 8.6% ZERO COUPON BOND 2005 5/89 -9.6% 8.5% N/A 9.6% -9.6% 21.9% 9.7% CONSERVATIVELY MANAGED FLEXIBLE 5/83 -1.0% 8.3% 10.4% 9.9% -1.0% 12.2% 6.9% AGGRESSIVELY MANAGED FLEXIBLE 5/83 -3.2% 9.0% 11.7% 10.6% -3.2% 15.6% 7.6% HIGH YIELD BOND 2/87 -2.7% 10.8% N/A 7.5% -2.7% 20.0% 17.5% STOCK INDEX 10/87 1.0% 8.2% N/A 13.0% 1.0% 9.7% 7.1% HIGH DIVIDEND STOCK 2/88 1.4% 10.9% N/A 12.8% 1.4% 22.3% 10.1% COMMON STOCK 5/83 2.8% 11.3% 15.0% 13.3% 2.8% 21.9% 14.2% GLOBAL EQUITY 9/88 -4.9% 5.0% N/A 8.3% -4.9% 43.1% -3.4% NATURAL RESOURCES 5/88 -4.3% 6.0% N/A 10.2% -4.3% 25.2% 7.3% YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85 ----------- ----------- ----------- ----------- ----------- ----------- ----------- MONEY MARKET 6.2% 8.2% 9.3% 7.4% 6.5% 6.5% 7.9% BOND 16.4% 8.3% 13.5% 8.2% 0.3% 14.4% 18.7% GOVERNMENT SECURITIES 16.1% 6.3% N/A N/A N/A N/A N/A ZERO COUPON BOND 1995 17.2% 8.0% 16.4% 9.0% -3.3% N/A N/A ZERO COUPON BOND 2000 20.7% 5.1% 20.4% 11.6% -5.5% N/A N/A ZERO COUPON BOND 2005 21.2% 2.6% N/A N/A N/A N/A N/A CONSERVATIVELY MANAGED FLEXIBLE 19.1% 5.3% 17.0% 10.2% 1.5% 14.2% 21.1% AGGRESSIVELY MANAGED FLEXIBLE 25.4% 1.9% 21.8% 12.8% -1.8% 15.5% 25.9% HIGH YIELD BOND 39.2% -11.8% -2.1% 13.2% N/A N/A N/A STOCK INDEX 29.7% -3.6% 30.9% 15.4% N/A N/A N/A HIGH DIVIDEND STOCK 27.5% -3.7% 22.7% N/A N/A N/A N/A COMMON STOCK 26.0% -5.1% 29.7% 17.1% 1.7% 15.1% 32.8% GLOBAL EQUITY 11.4% -12.9% 18.8% N/A N/A N/A N/A NATURAL RESOURCES 10.3% -5.8% 35.6% N/A N/A N/A N/A
13 HYPOTHETICAL ILLUSTRATION OF DEATH BENEFITS AND CASH SURRENDER VALUES The four tables that follow show how the death benefit and cash surrender values change with the investment experience of the Account. They are "hypothetical" because they are based, in part, upon several assumptions, each of which is described below. All four tables assume, first, that a Contract with a face amount of $100,000 has been bought by a 35 year old man in a preferred rating class. It is assumed that the Scheduled Premium of $894.06 is paid on each anniversary date, and that the deduction for taxes attributable to premiums is 3.25%. The first table assumes that a Form A Contract has been purchased and the second table assumes that a Form B Contract has been purchased. Both assume that the current charges will continue for the indefinite future. They assume also that a termination dividend will be paid, since that is The Prudential's current intention, upon death or surrender after the 16th year. The third and fourth tables are based upon the same assumptions except that it is assumed that the maximum charges permitted by the Contract have been made from the beginning and that no termination dividends are paid. In effect, the third and fourth tables represent a kind of "worst case" scenario. Another assumption is that the Contract Fund has been invested in equal amounts in each of the 16 available portfolios of the Series Fund. Finally, there are four assumptions, shown separately, about the average investment performance of the portfolios. The first is that there will be a uniform 0% gross rate of return, that is, that the average value of the Contract Fund will uniformly be adversely affected by very unfavorable investment performance. The other three assumptions are that investment performance will be at a uniform gross annual rate of 4%, 8% and 12%. These, of course, are unrealistic assumptions since actual returns will fluctuate from year to year. Nevertheless, these assumptions help show how the Contract values will change with investment experience. The first column in the following tables shows the Contract year. The second column, to provide context, shows what the aggregate amount would be if the Scheduled Premiums had been invested in a savings account paying 4% compounded interest. Of course, if that were done, there would be no life insurance protection. The next four columns show the death benefit payable in each of the years shown for the four different assumed investment returns. Note that a gross return (as well as the net return) is shown at the top of each column. The gross return represents the combined effect of income and capital appreciation of the portfolios before any reduction is made for investment advisory fees or other Series Fund expenses. The net return reflects an average total annual expenses of the 16 portfolios of 0.58%, and the daily deduction from the Contract Fund of 0.6% per year for the first two tables, which are based on current charges, and 0.9% per year for the two tables that are based upon maximum charges. For Contracts with face amounts of less than $100,000, the current charge is 0.9% per year. Thus, assuming maximum charges, gross returns of 0%, 4%, 8% and 12% are the equivalent of net returns of -1.48%, 2.52%, 6.52% and 10.52% respectively. The death benefits and cash surrender values shown reflect the deduction of all expenses and charges both from the Series Fund and under the Contract. The amounts shown assume that there is no loan. The cash surrender values shown for the first 10 years reflect the surrender charges that would be deducted if the Contract were surrendered in those years. For years after the tenth, the cash surrender values are equal to the Contract Fund value, plus any termination dividend. Note that under the Form B Contract the death benefit changes to reflect investment returns, while under the Form A Contract the death benefit increases only when the cash surrender value becomes quite large (the small increase in death benefit in years 20 to 35 reflects a termination dividend, not investment results). Correspondingly, the cash surrender values under the Form A Contract are slightly larger than those under the Form B Contract. If you are considering the purchase of a variable life insurance contract from another insurance company, you should not rely upon these tables for comparison purposes. A comparison between two tables, each showing values for a 35 year old man, may be useful for a 35 year old man but would be inaccurate if made for a 35 year old woman or a 50 year old man. To take a second example, the death benefit and cash surrender values under a $50,000 Contract cannot be determined by dividing by two the amount shown in a table for a $100,000 Contract. Your Prudential representative can provide you with a comparable hypothetical illustration for a person of your own age, sex, and rating class. You can obtain an illustration using premium amounts and payment patterns that you wish to follow. You may use assumed gross returns different than those shown in the tables, although they may not be higher than 12%. 14
ILLUSTRATIONS ------------- VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT FORM A -- FIXED DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $100,000 GUARANTEED DEATH BENEFIT $894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3) USING CURRENT CONTRACTUAL CHARGES Death Benefit (2) (4) Cash Surrender Value (2) (4) ---------------------------------------------------- ---------------------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated ---------------------------------------------------- ---------------------------------------------------- Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross Year Per Year (3) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------ 1 $ 930 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0 2 $ 1,897 $100,000 $100,000 $100,000 $100,000 $ 272 $ 351 $ 432 $ 516 3 $ 2,903 $100,000 $100,000 $100,000 $100,000 $ 760 $ 912 $ 1,074 $ 1,244 4 $ 3,948 $100,000 $100,000 $100,000 $100,000 $ 1,231 $ 1,479 $ 1,749 $ 2,043 5 $ 5,036 $100,000 $100,000 $100,000 $100,000 $ 1,683 $ 2,050 $ 2,460 $ 2,919 6 $ 6,167 $100,000 $100,000 $100,000 $100,000 $ 2,369 $ 2,879 $ 3,465 $ 4,137 7 $ 7,344 $100,000 $100,000 $100,000 $100,000 $ 3,041 $ 3,719 $ 4,518 $ 5,460 8 $ 8,568 $100,000 $100,000 $100,000 $100,000 $ 3,690 $ 4,559 $ 5,614 $ 6,891 9 $ 9,840 $100,000 $100,000 $100,000 $100,000 $ 4,315 $ 5,401 $ 6,755 $ 8,441 10 $ 11,164 $100,000 $100,000 $100,000 $100,000 $ 4,915 $ 6,241 $ 7,942 $ 10,121 15 $ 18,618 $100,000 $100,000 $100,000 $100,000 $ 6,548 $ 9,435 $ 13,719 $ 20,082 20 $ 27,688 $101,115 $101,115 $101,115 $101,115 $ 8,448 $13,532 $ 22,372 $ 37,772 25 $ 38,723 $102,229 $102,229 $102,229 $126,155 $ 9,483 $17,345 $ 33,595 $ 66,881 30 (Age 65) $ 52,149 $102,225 $102,225 $102,225 $186,777 $ 7,432 $18,690 $ 46,879 $111,974 35 $ 88,449 $102,455 $102,455 $102,455 $273,324 $21,015 $37,083 $ 64,883 $183,298 40 $132,613 $102,672 $102,672 $120,713 $398,981 $30,906 $57,183 $ 89,657 $294,716 45 $186,345 $102,863 $102,863 $151,192 $584,216 $35,051 $80,902 $121,151 $466,475
(1) If premiums are paid more frequently than annually, the initial payments would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The ultimate payments would be $2,411.37 semi-annually, $1,218.60 quarterly or $410.34 monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium payments. (2) Assumes no Contract loan has been made. (3) For a hypothetical gross investment return of 0%, the second Scheduled Premium will be $4,726.61. For a gross return of 4%, the second Scheduled Premium will be $4,582.92; on a current basis, a lesser premium of $4,438.41 will guarantee that your contract will not lapse for one year. For a gross return of 8%, the second Scheduled Premium will be $1,818.18; on a current basis, a lesser premium of $894.06 will guarantee that your contract will not lapse for one year. For a gross return of 12%, the second Scheduled Premium will be $894.06. The premiums accumulated at 4% interest in column 2 are those payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums. (4) Assumes after age 65 payment of the lesser premium amount, if applicable. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T1
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT FORM B -- VARIABLE DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $100,000 GUARANTEED DEATH BENEFIT $894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3) USING CURRENT CONTRACTUAL CHARGES Death Benefit (2) (4) Cash Surrender Value (2) (4) ---------------------------------------------------- ---------------------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated ---------------------------------------------------- ---------------------------------------------------- Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross Year Per Year (3) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------ 1 $ 930 $100,000 $100,000 $100,021 $100,049 $ 0 $ 0 $ 0 $ 0 2 $ 1,897 $100,000 $100,000 $100,061 $100,144 $ 217 $ 296 $ 376 $ 460 3 $ 2,903 $100,000 $100,000 $100,119 $100,289 $ 704 $ 856 $ 1,016 $ 1,186 4 $ 3,948 $100,000 $100,000 $100,199 $100,491 $ 1,190 $ 1,437 $ 1,706 $ 1,998 5 $ 5,036 $100,000 $100,000 $100,302 $100,758 $ 1,672 $ 2,038 $ 2,446 $ 2,902 6 $ 6,167 $100,000 $100,000 $100,481 $101,148 $ 2,366 $ 2,874 $ 3,456 $ 4,123 7 $ 7,344 $100,000 $100,000 $100,689 $101,624 $ 3,038 $ 3,712 $ 4,505 $ 5,440 8 $ 8,568 $100,000 $100,000 $100,931 $102,196 $ 3,687 $ 4,551 $ 5,596 $ 6,861 9 $ 9,840 $100,000 $100,000 $101,209 $102,876 $ 4,312 $ 5,391 $ 6,732 $ 8,399 10 $ 11,164 $100,000 $100,000 $101,523 $103,674 $ 4,912 $ 6,230 $ 7,911 $ 10,062 15 $ 18,618 $100,000 $100,000 $103,764 $109,962 $ 6,545 $ 9,417 $13,603 $ 19,801 20 $ 27,688 $101,115 $101,115 $109,097 $123,892 $ 8,509 $13,614 $22,161 $ 36,956 25 $ 38,723 $102,229 $102,300 $117,723 $149,255 $ 9,610 $17,570 $32,993 $ 64,525 30 (Age 65) $ 52,149 $102,225 $104,036 $129,777 $192,532 $ 7,621 $19,036 $44,777 $107,532 35 $ 88,295 $102,455 $106,733 $128,447 $264,335 $21,343 $37,034 $58,748 $177,296 40 $132,272 $102,672 $111,007 $131,145 $389,313 $31,513 $55,834 $75,972 $287,592 45 $185,778 $102,863 $117,554 $139,749 $575,007 $36,124 $75,081 $97,276 $459,131
(1) If premiums are paid more frequently than annually, the initial payments would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The ultimate payments would be $2,411.37 semi-annually, $1,218.60 quarterly or $410.34 monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium payments. (2) Assumes no Contract loan has been made. (3) For a hypothetical gross investment return of 0%, the second Scheduled Premium will be $4,726.61. For a gross return of 4%, the second Scheduled Premium will be $4,630.16; on a current basis, a lesser premium of $4,411.15 will guarantee that your contract will not lapse for one year. For a gross return of 8%, the second Scheduled Premium will be $3,259.52; on a current basis, a lesser premium of $894.06 will guarantee that your contract will not lapse for one year. For a gross return of 12%, the second Scheduled Premium will be $894.06. The premiums accumulated at 4% interest in column 2 are those payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums. (4) Assumes after age 65 payment of the lesser premium amount, if applicable. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T2
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT FORM A -- FIXED DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $100,000 GUARANTEED DEATH BENEFIT $894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3) USING MAXIMUM CONTRACTUAL CHARGES Death Benefit (2) Cash Surrender Value (2) ---------------------------------------------------- ---------------------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated ---------------------------------------------------- ---------------------------------------------------- Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross Year Per Year (3) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------ 1 $ 930 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0 2 $ 1,897 $100,000 $100,000 $100,000 $100,000 $ 267 $ 345 $ 426 $ 509 3 $ 2,903 $100,000 $100,000 $100,000 $100,000 $ 749 $ 901 $ 1,061 $ 1,231 4 $ 3,948 $100,000 $100,000 $100,000 $100,000 $1,213 $ 1,460 $ 1,728 $ 2,020 5 $ 5,036 $100,000 $100,000 $100,000 $100,000 $1,657 $ 2,021 $ 2,428 $ 2,883 6 $ 6,167 $100,000 $100,000 $100,000 $100,000 $2,284 $ 2,788 $ 3,367 $ 4,031 7 $ 7,344 $100,000 $100,000 $100,000 $100,000 $2,897 $ 3,562 $ 4,347 $ 5,274 8 $ 8,568 $100,000 $100,000 $100,000 $100,000 $3,485 $ 4,333 $ 5,363 $ 6,612 9 $ 9,840 $100,000 $100,000 $100,000 $100,000 $4,050 $ 5,101 $ 6,415 $ 8,055 10 $ 11,164 $100,000 $100,000 $100,000 $100,000 $4,588 $ 5,864 $ 7,505 $ 9,613 15 $ 18,618 $100,000 $100,000 $100,000 $100,000 $5,905 $ 8,602 $ 12,628 $ 18,639 20 $ 27,688 $100,000 $100,000 $100,000 $100,000 $6,170 $10,731 $ 18,738 $ 32,796 25 $ 38,723 $100,000 $100,000 $100,000 $106,241 $4,657 $11,395 $ 25,623 $ 55,426 30 (Age 65) $ 52,149 $100,000 $100,000 $100,000 $152,071 $ 75 $ 9,056 $ 32,836 $ 90,434 35 $ 90,072 $100,000 $100,000 $100,000 $212,544 $8,135 $21,296 $ 51,591 $141,903 40 $136,211 $100,000 $100,000 $105,063 $295,301 $8,471 $29,886 $ 77,422 $217,610 45 $192,347 $100,000 $100,000 $137,661 $407,903 $ 0 $30,208 $109,780 $325,291
(1) If premiums are paid more frequently than annually, the payments would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium payments. (2) Assumes no Contract loan has been made. (3) For a hypothetical gross investment return of 0%, the premium after age 65 will be $4,726.61; for a gross return of 4% the premium after age 65 will be $4,726.61; for a gross return of 8% the premium after age 65 will be $2,977.27; for a gross return of 12% the premium after age 65 will be $894.06. The premiums accumulated at 4% interest in column 2 are those payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T3
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT FORM B -- VARIABLE DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $100,000 GUARANTEED DEATH BENEFIT $894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3) USING MAXIMUM CONTRACTUAL CHARGES Death Benefit (2) Cash Surrender Value (2) ---------------------------------------------------- ---------------------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated ---------------------------------------------------- ---------------------------------------------------- Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross Year Per Year (3) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------ 1 $ 930 $100,000 $100,000 $100,019 $100,047 $ 0 $ 0 $ 0 $ 0 2 $ 1,897 $100,000 $100,000 $100,055 $100,138 $ 211 $ 290 $ 370 $ 453 3 $ 2,903 $100,000 $100,000 $100,107 $100,276 $ 693 $ 844 $ 1,004 $ 1,173 4 $ 3,948 $100,000 $100,000 $100,178 $100,468 $1,172 $ 1,418 $ 1,685 $ 1,975 5 $ 5,036 $100,000 $100,000 $100,270 $100,722 $1,646 $ 2,009 $ 2,414 $ 2,866 6 $ 6,167 $100,000 $100,000 $100,383 $101,042 $2,281 $ 2,783 $ 3,358 $ 4,017 7 $ 7,344 $100,000 $100,000 $100,519 $101,438 $2,894 $ 3,556 $ 4,335 $ 5,254 8 $ 8,568 $100,000 $100,000 $100,682 $101,919 $3,482 $ 4,326 $ 5,347 $ 6,584 9 $ 9,840 $100,000 $100,000 $100,871 $102,493 $4,047 $ 5,093 $ 6,394 $ 8,016 10 $ 11,164 $100,000 $100,000 $101,090 $103,171 $4,585 $ 5,856 $ 7,478 $ 9,559 15 $ 18,618 $100,000 $100,000 $102,697 $108,553 $5,902 $ 8,592 $ 12,536 $ 18,392 20 $ 27,688 $100,000 $100,000 $105,381 $118,768 $6,167 $10,720 $ 18,445 $ 31,832 25 $ 38,723 $100,000 $100,000 $109,466 $136,734 $4,654 $11,381 $ 24,736 $ 52,004 30 (Age 65) $ 52,149 $100,000 $100,000 $115,248 $166,857 $ 73 $ 9,039 $ 30,248 $ 81,857 35 $ 90,072 $100,000 $100,000 $119,939 $197,109 $8,132 $21,274 $ 50,240 $127,410 40 $136,211 $100,000 $100,000 $128,713 $267,674 $8,468 $29,854 $ 73,540 $197,252 45 $192,347 $100,000 $100,000 $143,033 $372,271 $ 0 $30,156 $100,560 $296,875
(1) If premiums are paid more frequently than annually, the payments would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium payments. (2) Assumes no Contract loan has been made. (3) For a hypothetical gross investment return of 0%, the premium after age 65 will be $4,726.61; for a gross return of 4% the premium after age 65 will be $4,726.61; for a gross return of 8% the premium after age 65 will be $3,914.71; for a gross return of 12% the premium after age 65 will be $1,166.65. The premiums accumulated at 4% interest in column 2 are those payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T4 INFORMATION ABOUT THE ACCOUNT, THE REAL PROPERTY ACCOUNT AND THE FIXED RATE OPTION The Prudential Variable Appreciable Account. The Account was established on August 11, 1987 under New Jersey law as a separate investment account. The Account meets the definition of a "separate account" under the federal securities laws. The Account holds assets that are segregated from all of The Prudential's other assets. The obligations to Contract owners and beneficiaries arising under the Contract are general corporate obligations of The Prudential. The Prudential is also the legal owner of the assets in the Account. But The Prudential will at all times maintain assets in the Account with a total market value at least equal to the liabilities relating to the variable benefits attributable to the Account. These assets may not be charged with liabilities which arise from any other business The Prudential conducts. Accordingly, Contract owners, under New Jersey law, have a prior claim to these assets. In addition to these assets, the Account's assets may include funds contributed by The Prudential to commence operation of the Account and may include accumulations of the charges The Prudential makes against the Account. From time to time these additional assets will be withdrawn by The Prudential but before making any such withdrawal, The Prudential will consider any possible adverse impact the withdrawal might have on the Account. The Account is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the management or investment policies or practices of the Account. For state law purposes, the Account is treated as a part or division of The Prudential. There are currently sixteen subaccounts within the Account that are available investments under the Contract. Additional subaccounts may be added in the future. The Account's financial statements begin on page A1. The Prudential Variable Contract Real Property Account. The Prudential Variable Contract Real Property Account (the "Real Property Account") is a separate account of The Prudential that, through a general partnership formed by The Prudential and two of its subsidiaries, invests primarily in income-producing real property such as office buildings, shopping centers, agricultural land, hotels, apartments or industrial properties. It also invests in mortgage loans and other real estate-related investments, including sale-leaseback transactions. It is not registered as an investment company under the Investment Company Act of 1940 and is therefore not subject to the same regulation as the Series Fund. The objectives of the Real Property Account and the Partnership are to preserve and protect capital, provide for compounding of income as a result of reinvestment of cash flow from investments, and provide for increases over time in the amount of such income through appreciation in the value of assets. The Partnership has entered into an investment management agreement with The Prudential, under which The Prudential selects the properties and other investments held by the Partnership. The Prudential charges the Partnership a daily fee for investment management which amounts to 1.25% per year of the average daily gross assets of the Partnership. A full description of the Real Property Account, its management, policies, and restrictions, its charges and expenses, the risks associated with investment therein, the Partnership's investment objectives, and all other aspects of the Real Property Account's and the Partnership's operations is contained in the attached prospectus for the Real Property Account, which should be read together with this prospectus by any Contract owner considering the real estate investment option. There is no assurance that the investment objectives will be met. The Fixed-Rate Option. Because of exemptive and exclusionary provisions, interests in the fixed-rate option under the Contract have not been registered under the Securities Act of 1933 and The Prudential has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, interests in the fixed-rate option are not subject to the provisions of these Acts, and The Prudential has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosure in this Prospectus relating to the fixed-rate option. Any inaccurate or misleading disclosure regarding the fixed-rate option may, however, subject The Prudential and its directors to civil liability if that results in any damage. As explained earlier, you may elect to allocate, either initially or by transfer, all or part of the amount credited under the Contract to the fixed-rate option, and the amount so allocated or transferred becomes part of The Prudential's general assets. Sometimes this is referred to as The Prudential's general account, which consists of all assets owned by The Prudential other than those in the Account and in other separate accounts that have been or may be established by The Prudential. Subject to applicable law, The Prudential has sole discretion over the investment of the assets of the general account, and Contract owners do not share in the investment experience of those assets. Instead, The Prudential guarantees that the part of the Contract Fund allocated to the fixed-rate option will accrue interest daily at an effective annual rate that The Prudential declares periodically. This rate may not be less than an effective annual rate of 4%. Currently, declared interest rates remain in effect from the date money is allocated to the fixed-rate option until the Monthly date in the same month in the following year. See 15 Contract Date, page 20. Thereafter, a new crediting rate will be declared each year and will remain in effect for the calendar year. The Prudential reserves the right to change this practice. The Prudential is not obligated to credit interest at a higher rate than 4%, although in its sole discretion it may do so. Different crediting rates may be declared for different portions of the Contract Fund allocated to the fixed-rate option. At least annually and on request, a Contract owner will be advised of the interest rates that currently apply to his or her Contract. Transfers from the fixed-rate option are subject to strict limits. (See Transfers, page 21). The payment of any cash surrender value attributable to the fixed-rate option may be delayed up to 6 months (see When Proceeds Are Paid, page 25). DETAILED INFORMATION ABOUT THE CONTRACT Requirements for Issuance of a Contract. Generally, the minimum initial guaranteed death benefit that can be applied for is $60,000; however, higher minimums apply to insureds over the age of 75. Insureds 14 years of age or less may apply for a minimum initial guaranteed death benefit of $40,000, which will increase by 50% at age 21. The Contract may generally be issued on insureds below the age of 81. Before issuing any Contract, The Prudential requires evidence of insurability, which may include a medical examination. Non-Smokers who meet preferred underwriting requirements are offered the most favorable premium rate. A higher premium is charged if an extra mortality risk is involved. Certain classes of Contracts, for example a Contract issued in connection with a tax-qualified pension plan, may be issued on a "guaranteed issue" basis and may have a lower minimum initial death benefit than a Contract which is individually underwritten. These are the current underwriting requirements. The Prudential reserves the right to change them on a non-discriminatory basis. Contract Forms. A purchaser may select either of two forms of the Contract. The Scheduled Premiums shown in the Contract will be the same for a given insured, regardless of which Contract Form is chosen. Contract Form A has a death benefit equal to the initial face amount of insurance. The death benefit of a Form A Contract does not vary with the investment performance of the investment options selected by the owner, unless the death benefit is increased to ensure that the Contract meets the Internal Revenue Code's definition of life insurance. See How a Contract's Death Benefit Will Vary, page 22. Favorable investment results of the investment options to which the assets related to the Contract are allocated and payment of greater than Scheduled Premiums will generally result in increases in the cash surrender value. See How the Contract Fund Changes With Investment Experience, page 22. Contract Form B also has an initial face amount of insurance but favorable investment performance and payment of greater than Scheduled Premiums generally result in an increase in the death benefit and, over time, in a lesser increase in the cash surrender value than under the Form A Contract. See How the Contract Fund Changes With Investment Experience, page 22 and How a Contract's Death Benefit Will Vary, page 22. Unfavorable investment performance will result in decreases in the death benefit (but never below the face amount stated in the Contract) and in the cash surrender value. Purchasers should select the form that best meets their needs and objectives. All permanent insurance provides both protection for beneficiaries in the event of death and the opportunity to accumulate savings for possible use in later years. The Prudential's Variable Appreciable Life Contract provides more flexible investment opportunities than do more conventional life insurance policies because it permits the owner to decide how the assets held under the Contract will be invested, because it permits considerable flexibility in determining the amount and timing of premium payments, because it permits adjustment of the face amount of insurance (subject, in the case of an increase, to evidence of insurability), and because favorable investment returns result in an increase in Contract values. Purchasers who prefer to have favorable investment results and greater than Scheduled Premiums reflected in part in the form of an increased death benefit should choose Contract Form B. Purchasers who are satisfied with the amount of their insurance coverage and wish to have favorable investment results and additional premiums reflected to the maximum extent in increasing cash surrender values should choose Contract Form A. In choosing a Contract form, purchasers should also consider whether they intend to use the withdrawal feature. Purchasers of Form A Contracts should note that an early withdrawal may result in a portion of the surrender charge being deducted from the Contract Fund. Furthermore, a purchaser of a minimum face amount Form A Contract cannot make withdrawals unless the Contract's death benefit has been increased to comply with the Internal Revenue Code's definition of life insurance. Purchasers of Form B Contracts will not incur a surrender charge for a withdrawal and are not precluded from making withdrawals if they purchase a minimum size Contract. See Withdrawal of Excess Cash Surrender Value in the Statement of Additional Information. Withdrawal of part of the cash surrender value may have tax consequences, see Tax Treatment of Contract Benefits, page 27. Short-Term Cancellation Right or "Free Look". Generally, you may return the Contract for a refund within 10 days after you receive it, within 45 days after Part I of the application for insurance is signed, or within 10 days after 16 The Prudential mails or delivers a Notice of Withdrawal Right, whichever is latest. Some states allow a longer period of time during which a Contract may be returned for a refund. A refund can be requested by mailing or delivering the Contract to the representative who sold it or to The Prudential Home Office specified in the Contract. A Contract returned according to this provision shall be deemed void from the beginning. You will then receive a refund of all premium payments made, plus or minus any change due to investment experience in the value of the invested portion of the premiums, calculated as if no charges had been made against the Account or the Series Fund. However, if applicable law so requires, if you exercise your short-term cancellation right, you will receive a refund of all premium payments made, with no adjustment for investment experience. Contract Fees and Charges. This section provides a detailed description of each charge that is described briefly in the chart on page 2, and an explanation of the purpose of the charge. In several instances we will use the terms "maximum charge" and "current charge." The "maximum charge," in each instance, will be the highest charge that The Prudential is entitled to make under the Contract. The "current charge" is the lower amount that The Prudential is now charging and which it intends to charge for the indefinite future. However, if circumstances change, The Prudential reserves the right to increase each current charge, up to but to no more than the maximum charge, without giving any advance notice. A Contract owner may add several "riders" to the Contract which provide additional benefits, which are charged for separately. The statement and description of charges that follows assumes there are no riders to the Contract. Deductions from Premiums (a) A charge for taxes attributable to premiums is deducted from each premium payment. That charge is currently made up of two parts. The first part is in an amount equal to the state or local premium tax. It varies from state to state and generally ranges from 0.5% to 5% of the premium received by The Prudential. The second part is for federal income taxes measured by premiums and it is equal to 1.25% of the premium. The Prudential believes that this charge is a reasonable estimate of an increase in its federal income taxes resulting from a 1990 change in the Internal Revenue Code. It is intended to recover this increased tax. During 1994 and 1993, The Prudential deducted a total of approximately $22,131,000 and $23,248,000, respectively, in taxes attributable to premiums. (b) A charge of $2 is deducted from each premium payment to cover the cost of collecting and processing premiums. Thus, if you pay premiums annually, this charge will be $2 per year. If you pay premiums monthly, the charge will be $24 per year. During 1994 and 1993, The Prudential received a total of approximately $28,372,000 and $23,826,000, respectively, in processing charges. Deductions from Portfolios (a) An investment advisory fee is deducted daily from each portfolio at a rate, on an annualized basis, from 0.35% for the Stock Index Portfolio to 0.75% for the Global Equity Portfolio. (b) The expenses incurred in conducting the investment operations of the portfolios (such as investment advisory fees, custodian fees and preparation and distribution of annual reports) are paid out of the portfolio's income. These expenses also vary from portfolio to portfolio. The total expenses of each portfolio for the year 1994 expressed as a percentage of the average assets during the year are shown below: Investment Other Total Portfolio Advisory Fee Expenses * Expenses * - --------- ------------ ---------- ---------- Money Market ...................... 0.40% 0.07% 0.47% Bond .............................. 0.40% 0.05% 0.45% High Yield Bond ................... 0.55% 0.10% 0.65% Government Securities ............. 0.40% 0.05% 0.45% Common Stock ...................... 0.45% 0.10% 0.55% Stock Index ....................... 0.35% 0.07% 0.42% High Dividend Stock ............... 0.40% 0.10% 0.50% Natural Resources ................. 0.45% 0.10% 0.55% Global Equity ..................... 0.75% 0.48% 1.23% Conservatively Managed Flexible.... 0.55% 0.06% 0.61% Aggressively Managed Flexible ..... 0.60% 0.06% 0.66% Zero Coupon Bond 1995 ............. 0.40% 0.00% 0.40% Zero Coupon Bond 2000 ............. 0.40% 0.00% 0.40% Zero Coupon Bond 2005 ............. 0.40% 0.00% 0.40% * For some of the portfolios, the actual expenses were higher than those shown in the second and third columns. The Prudential currently makes payments to the following seven subaccounts so that the portfolio expenses indirectly borne by a Contract owner investing in: (1) the Zero Coupon Bond Portfolios will not exceed the investment management fee; and (2) the High Yield Bond, Stock Index, 17 High Dividend Stock, and Natural Resources Portfolios will not exceed the investment advisory fee plus 0.1% of the average daily net assets of the Portfolio. Without such adjustments the portfolio expenses indirectly borne by a Contract owner, expressed as a percentage of the average daily net assets by portfolio, would have been 0.60% for the Zero Coupon Bond Portfolio 2005, 0.60% for the Zero Coupon Bond Portfolio 1995, 0.51% for the Zero Coupon Bond Portfolio 2000, 0.61% for the Natural Resources Portfolio and 0.52% for the High Dividend Stock Portfolio. No such adjustments were necessary for the High Yield Bond or Stock Index Portfolios during 1994. The Prudential intends to continue making these adjustments in the future, although it retains the right to stop doing so. For the years 1994, 1993 and 1992, The Prudential received a total of $66,413,260, $51,197,499, and $35,661,075, respectively in investment advisory fees. The advisory fee for the Small Capitalization Stock Portfolio is 0.40% and for the Growth Stock Portfolio is 0.60%. These portfolios were not available for investment in 1994. Monthly Deductions from Contract Fund The following monthly charges are deducted proportionately from the dollar amounts held in each of the chosen investment option[s]. (a) An administrative charge of $3 plus $0.03 per $1,000 per month of face amount of insurance is deducted each month. Thus, for a Contract with $60,000 face amount, the charge is $3 plus $1.80 for a total of $4.80. The charge is intended to pay for processing claims, keeping records, and communicating with Contract owners. The current charge for Contracts with face amounts greater than $100,000 is lower. The $0.03 per $1,000 portion of the charge is reduced to $0.01 per $1,000 for that part of the face amount that exceeds $100,000 and will not exceed $12. If premiums are paid by automatic transfer under The Prudential's Pru-Matic Plan, as described on page 20, the $0.03 per $1,000 charge is reduced to $0.01 for all Contract face amounts and will not exceed $1. During 1994 and 1993, The Prudential received a total of approximately $56,055,000, and $49,562,000, respectively, in monthly administrative charges. (b) A mortality charge is deducted that is intended to be used to pay death benefits. When an insured dies, the amount payable to the beneficiary is larger than the Contract Fund and significantly larger if the insured dies in the early years of a Contract. The mortality charges collected from all Contract owners enables The Prudential to pay the death benefit for the few insureds who die. The maximum mortality charge is determined by multiplying the "net amount at risk" under a Contract (the amount by which the Contract's death benefit exceeds the Contract Fund) by a rate based upon the insured's current attained age and sex (except where unisex rates apply) and the anticipated mortality for that class of persons. The anticipated mortality is based upon mortality tables published by The National Association of Insurance Commissioners called the Non-Smoker/Smoker 1980 CSO Tables. The Prudential's current mortality charge is lower than the maximum for insureds of 50 years of age and older. In addition, for insureds of all ages, if a Contract has a face amount of at least $100,000 and the insured under the Contract has met strict underwriting requirements and qualifies for a "select rating" basis for the particular risk classification, the current mortality charges may be lower still. Certain Contracts, for example Contracts issued in connection with tax-qualified pension plans, may be issued on a "guaranteed issue" basis and may have current mortality charges which are different from those mortality charges for Contracts which are individually underwritten. These Contracts with different current mortality charges may be offered to categories of individuals meeting eligibility guidelines determined by The Prudential. (c) A sales charge, often called a sales load, is deducted to pay part of the costs The Prudential incurs in selling the Contracts, including commissions, advertising and the printing and distribution of prospectuses and sales literature. The charge is equal to 0.5% of the "primary annual premium" which is equal to the Scheduled Premium that would be payable if premiums were being paid annually, less the two deductions from premiums (taxes attributable to premiums and the $2 processing charge), and less the $3 part of the monthly deduction described in (a) above. The deduction is made whether the Contract owner is paying premiums annually or more frequently. It is lower on Contracts issued on insureds over 60 years of age. At present this sales charge is made only during the first five Contract years. For Contracts with face amounts of at least $7.5 million, this sales charge is made only during the first two Contract years. However, The Prudential reserves the right to make this charge in all Contract years. To summarize, for most Contracts, this charge is somewhat less than 6% of the annual Scheduled Premium for each of the first five Contract years and it may but probably will not continue to be charged after that. There is a second sales load, which will be charged only if a Contract lapses or is surrendered before the end of the 10th Contract year. It is often described as a contingent deferred sales load ("CDSL") and is described below under Surrender or Withdrawal Charges. During 1994 and 1993, The Prudential received a total of approximately $96,357,000 and $74,858,000, in sales charges. (d) A charge of $0.01 per $1000 of face amount of insurance is made to compensate The Prudential for the risk it assumes by guaranteeing that, no matter how unfavorable investment experience may be, the death benefit will never be less than the guaranteed minimum death benefit so long as Scheduled Premiums are paid on or before 18 the due date or during the grace period. During 1994 and 1993, The Prudential received a total of approximately $9,487,000 and $7,817,000, respectively, for this risk charge. (e) If a rider is added to the basic Contract, or if an insured is in a substandard risk classification (for example, a person in a hazardous occupation), the annual Scheduled Premium will be increased and the additional charges will be deducted monthly. (f) A charge may be deducted to cover federal, state or local taxes (other than "taxes attributable to premiums" described above) that are imposed upon the operations of the Account. At present no such taxes are imposed and no charge is made. Daily Deduction from the Contract Fund Each day a charge is deducted from the assets of each of the subaccounts and/or the Real Property Account (the "variable investment options") in an amount equivalent to an effective annual rate of 0.9%. For Contracts with face amounts of $100,000 or more, the current charge is 0.6%. This charge is intended to compensate The Prudential for assuming mortality and expense risks under the Contract. The mortality risk assumed is that insureds may live for shorter periods of time than The Prudential estimated when it determined what mortality charge to make. The expense risk assumed is that expenses incurred in issuing and administering the Contract will be greater than The Prudential estimated in fixing its administrative charges. The Prudential will realize a profit from this risk charge to the extent it is not needed to provide benefits and pay expenses under the Contracts. During 1994 and 1993, The Prudential received a total of approximately $16,959,000 and $12,154,000, respectively, in mortality and expense risk charges. This charge is not assessed against amounts allocated to the fixed-rate option. Surrender or Withdrawal Charges (a) An additional sales load (the CDSL) is charged if a Contract is surrendered for its cash surrender value or lapses during the first 10 Contract years. It is not deducted from the death benefit if the insured should die during this period. This contingent deferred charge is generally at its highest in dollar amount during the Contract's fourth and fifth years and then is reduced daily at a constant rate until it reaches zero at the end of the 10th year. The exact amount is determined by a complex formula that is described in the Statement of Additional Information. The amount of this charge can be more easily understood by reference to the following table which shows the sales loads that would be paid by a 35 year old man under a Form B Contract with $100,000 face amount of insurance, both through the monthly deductions from the Contract Fund described above and upon the surrender of the Contract.
Cumulative Cumulative Cumulative Sales Load Total Sales Load Surrender, Scheduled Deducted from Contingent as Percentage Last Day of Premiums Contract Deferred Total Sales of Scheduled Year No. Paid Fund Sales Load Load Premiums Paid - ----------- --------- ------------- ---------- ----------- ----------------- 1 $ 894.06 $ 49.56 $218.66 $268.22 30.00% 2 1,788.12 99.12 367.64 466.76 26.10% 3 2,682.18 148.68 398.55 547.23 20.40% 4 3,576.24 198.24 414.00 612.24 17.12% 5 4,470.30 247.80 414.00 661.80 14.80% 6 5,364.36 247.80 331.00 578.80 10.79% 7 6,258.42 247.80 248.00 495.80 7.92% 8 7,152.48 247.80 166.00 413.80 5.79% 9 8,046.54 247.80 83.00 330.80 4.11% 10 8,940.60 247.80 0.00 247.80 2.77%
The percentages shown in the last column will not be appreciably different for insureds of different ages. (b) An administrative charge of $5 per $1,000 of face amount of insurance is deducted upon lapse or surrender to cover the cost of processing applications, conducting medical examinations, determining insurability and the insured's rating class, and establishing records. However, this charge is reduced beginning on the Contract's fifth anniversary and declines daily at a constant rate until it disappears entirely on the tenth Contract anniversary. During 1994 and 1993, The Prudential received a total of approximately $7,971,000 and $5,612,000, respectively, from surrendered or lapsed Contracts. The Prudential does not expect to make a profit on this charge. 19 Transaction Charges There may be transaction charges if certain events take place. Examples are: the face amount of insurance is decreased or part of the cash surrender value is withdrawn. The Prudential is entitled under the Contract to charge a fee in these situations, which will generally be $15 or less. Currently, it waives the fee in some instances. These fees are described at the appropriate place in this prospectus or in the Statement of Additional Information. Contract Date. When the first premium payment is paid with the application for a Contract, the Contract Date will ordinarily be the later of the date of the application or the date of any medical examination. In most cases no medical examination will be necessary. If the first premium is not paid with the application, the Contract Date will ordinarily be the date the first premium is paid and the Contract is delivered. It may be advantageous for a Contract owner to have an earlier Contract Date when that will result in the use by The Prudential of a lower issue age in determining the amount of the Scheduled Premium. The Prudential will permit a Contract to be back-dated but only to a date not earlier than 6 months prior to the date of the application. The Prudential will require the payment of all premiums that would have been due had the application date coincided with the back-dated Contract Date. No Contract may be back-dated to a date prior to that which is in accordance with The Prudential's regulations. The death benefit and cash surrender value under the Contract will be equal to what they would have been had the Contract been issued on the Contract Date, all Scheduled Premiums been received on their due dates, and all Contract charges been made. The term Monthly Date means the day of each month that is the same as the Contract Date. Premiums. As already explained, the Contract provides for a Scheduled Premium which, if paid when due or within a 61 day grace period, ensures that the Contract will not lapse. If you pay premiums other than on a monthly basis, you will receive a notice that a premium is due about 3 weeks before each due date. If you pay premiums monthly, you will receive each year a book with 12 coupons that will serve as a reminder. With The Prudential's consent, you may change the frequency of premium payments. You may elect to have monthly premiums paid automatically under the "Pru-Matic Premium Plan" by pre-authorized transfers from a bank checking account. If you select the Pru-Matic Premium Plan, one of the current monthly charges will be reduced. See Monthly Deductions From Contract Fund, page 18. Some Contract owners may also be eligible to have monthly premiums paid by pre-authorized deductions from an employer's payroll. As stated above, your Contract sets forth two Scheduled Premium amounts. Your first or initial amount is payable from the time you purchase your Contract until the Contract anniversary immediately following your 65th birthday or the Contract's 7th anniversary, whichever is later (the "Premium Change Date"). If your Contract Fund on the Premium Change Date is higher than it would have been had all Scheduled Premiums been paid when due, maximum contractual charges been deducted, and only an average net rate of return of 4% been earned, then the second Scheduled Premium Amount will be lower than the maximum amount stated in your Contract. You will be told what the amount of your second Scheduled Premium will be. You will also be told what lesser amount, if any, The Prudential will accept that will guarantee against lapse for one year. For examples of what the second Scheduled Premium might be, see Footnote 3 to the tables on pages T1 through T4. A significant feature of this Contract is that it permits you to pay greater than Scheduled Premiums. This may be done by making occasional unscheduled premium payments or on a periodic basis. If you wish, you may select a higher contemplated premium than the Scheduled Premium. The Prudential will then bill you for the chosen premium. In general, the regular payment of higher premiums will result in higher cash surrender values and, at least under Form B, in higher death benefits. Conversely, payment of a Scheduled Premium need not be made if the Contract Fund is sufficiently large to enable the charges due under the Contract to be made without causing the Contract to lapse. See Lapse and Reinstatement, page 24. The payment of premiums substantially in excess of Scheduled Premiums may cause the Contract to become a Modified Endowment Contract. If this happens, loans and other distributions which would otherwise not be taxable events will be subject to federal income taxation. See Tax Treatment of Contract Benefits, page 27. If you elect to add a "rider" to your Contract that provides additional benefits, see Riders, page 27, the Scheduled Premium may be increased. Some riders provide additional term insurance in a stated amount that does not vary with investment experience. One of these "term riders" also allows you to choose different insurance amounts in different years. For these riders, you may choose to pay a billed premium higher than your initial Scheduled Premium. Under some circumstances this could result in a higher cash surrender value and death benefit than if the same premium had been paid under a Contract with the same death benefit but without the rider. After several years, however, even if the billed premiums are paid on time, the Contract could lose its guarantee against lapse and, after many more years, could have lower cash surrender values. In states where the necessary approvals have been obtained, you may choose a level premium option. In that case, the Scheduled Premium, the amount (which can be obtained from your Prudential representative), will be higher and the Scheduled Premium will not increase at age 65 (or 7 years after issue, if later), even if investment 20 experience has been unfavorable. If that level Scheduled Premium is paid when due, or within the grace period, the Contract will not lapse. The Prudential will generally accept any premium payment if the payment is at least $25. The Prudential does reserve the right, however, to limit unscheduled premiums to a total of $10,000 in any Contract year, and to refuse to accept premiums that would immediately result in more than a dollar-for-dollar increase in the death benefit. See How a Contract's Death Benefit Will Vary, page 22. The flexibility of premium payments provides Contract owners with different opportunities under the two Forms of the Contract. Greater than scheduled payments under a Form A Contract increase the Contract Fund. Greater than scheduled payments under a Form B Contract increase both the Contract Fund and the death benefit, but any future increases in the Contract Fund will be less than under a Form A Contract. This is because the monthly mortality charges under the Form B Contract will be higher to compensate for the higher amount of insurance. For all Contracts, the privilege of making large or additional premium payments offers a way of investing amounts which accumulate without current income taxation. Unless you elect otherwise, your Contract will include a "waiver of premium" provision under which The Prudential will pay your Scheduled Premiums if you incur a disability before age 60 that lasts over six months. If the disability begins after you become 60 and before you are 65, premiums will be paid only until the first Contract anniversary following your 65th birthday. The waiver of premium provision does not apply if you become disabled after your 65th birthday. Allocation of Premiums. On the Contract Date, the $2 processing charge and the charge for taxes attributable to premiums are deducted from the initial premium, and the first monthly deductions are made. See Contract Fees and Charges, page 17. The remainder of the initial premium will be allocated on the Contract Date among the subaccounts, the fixed-rate option or the Real Property Account according to the desired allocation specified in the application form. The invested portion of any part of the initial premium in excess of the Scheduled Premium is placed in the selected investment options on the date of receipt, but not earlier than the Contract Date. Thus, to the extent that The Prudential receives the initial premium prior to the Contract Date, there will be a period during which it will not be invested. All subsequent premium payments, after the deductions from premiums, when received by The Prudential will be placed in the subaccounts, the fixed-rate option or the Real Property Account in accordance with the allocation previously designated. Provided the Contract is not in default, you may change the way in which subsequent premiums are allocated by giving written notice to the Prudential Home Office stated in the Contract. You may also change the way in which subsequent premiums are allocated by telephoning your Prudential Home Office, provided you are enrolled to use the Telephone Transfer System. There is no charge for reallocating future premiums. If any part of the invested portion of a premium is allocated to a particular investment option, that portion must be at least 10% on the date the allocation takes effect. All percentage allocations must be in whole numbers. For example, 33% can be selected but 33 1/3% cannot. Of course, the total allocation of all selected investment options must equal 100%. Additionally, a feature called Dollar Cost Averaging is available to Contract owners. If you wish, designated dollar amounts will be transferred monthly from the Money Market Subaccount into other investment options available under the Contract, excluding the fixed-rate option, but including the Real Property Account. At issue, the minimum amount initially designated for transfer under this feature must be the greater of $2,000 and 10% of the initial premium payment. After issue, The Prudential will accept an amount less than $2,000 provided it brings the balance in any current Dollar Cost Averaging account up to $2,000. Monthly transfers must be at least 3% of the amount allocated to the Dollar Cost Averaging account (that is, if you designate $5,000, the minimum monthly transfer is $150), with a minimum of $20 transferred into any one investment option. These amounts are subject to change at The Prudential's discretion. The minimum transfer amount will only be recalculated if the amount designated for transfer is increased. Each automatic monthly transfer will take effect as of the end of the valuation period on the Monthly Date, provided the New York Stock Exchange is open on that date. A valuation period is the period of time from one determination of the value of the amount invested in a subaccount to the next. Such determinations are made when the net asset values of the portfolios of the Series Fund are calculated, which is generally 4:15 p.m. New York City time on each day during which the New York Stock Exchange is open. If the New York Stock Exchange is not open on that date, or if the Monthly Date does not occur in that particular month, the transfer will take effect as of the end of the last valuation period which immediately follows that Monthly Date. Automatic monthly transfers will continue until the amount designated for Dollar Cost Averaging has been transferred, or until the Contract owner gives notification of a change in allocation or cancellation of the feature. Currently there is no charge for using the Dollar Cost Averaging feature. Transfers. If the Contract is not in default, or if the Contract is in force as variable reduced paid-up insurance (see Lapse and Reinstatement, page 24), you may, up to four times in each Contract year, transfer amounts from one subaccount to another subaccount, to the fixed-rate option or to the Real Property Account. There is no charge. All or a portion of the amount credited to a subaccount may be transferred. 21 In addition, the total amount credited to a Contract held in the subaccounts or the Real Property Account may be transferred to the fixed-rate option at any time during the first two Contract years. If you wish to convert your variable Contract to a fixed-benefit Contract in this manner, you must request a complete transfer of funds to the fixed-rate option and also change your allocation instructions regarding future premiums. Transfers among subaccounts will take effect as of the end of the valuation period (usually the business day) in which a proper transfer request is received at your Prudential Home Office. The request may be in terms of dollars, such as a request to transfer $10,000 from one subaccount to another, or may be in terms of a percentage reallocation among subaccounts. In the latter case, as with premium reallocations, the percentages must be in whole numbers. You may transfer amounts by proper written notice to your Prudential Home Office, or by telephone, unless you ask that transfers by telephone not be made. The Prudential has adopted procedures designed to ensure that requests by telephone are genuine and will require appropriate identification for that purpose. The Prudential cannot guarantee that you will be able to get through to complete a telephone transfer during peak periods such as periods of drastic economic or market change. On the liquidation date of a Zero Coupon Bond Subaccount, all the shares held by it in the corresponding portfolio of the Series Fund will be redeemed and the proceeds of the redemption applicable to each Contract will be transferred to the Money Market Subaccount unless the owner directs that it be transferred to another subaccount. Affected owners will be notified in writing prior to the liquidation date and given the opportunity to transfer their proceeds to another subaccount. A transfer that occurs upon the liquidation date of a Zero Coupon Bond Subaccount will not be counted as one of the four permissible transfers in a Contract year. Transfers from the fixed-rate option to the subaccounts or the Real Property Account are currently permitted once each Contract year and only during the 30-day period beginning on the Contract anniversary. The maximum amount which may be transferred out of the fixed-rate option each year is currently the greater of: (a) 25% of the amount in the fixed-rate option, or (b) $2,000. Such transfer requests received prior to the Contract anniversary will be effected on the Contract anniversary. Transfer requests received within the 30-day period beginning on the Contract anniversary will be effected as of the end of the valuation period in which a proper transfer request is received at your Prudential Home Office. These limits are subject to change in the future. Transfers from the Real Property Account are also subject to restrictions, and these restrictions are described in the attached prospectus for that investment option. How the Contract Fund Changes with Investment Experience. As explained above, after the tenth Contract year, there will no longer be a surrender charge and, if there is no Contract loan, the cash surrender value will be equal to the Contract Fund, plus any termination dividend. This section, therefore, also describes how the cash surrender value of the Contract will change with investment experience. On the Contract Date, the Contract Fund value is the initial premium less the deductions from premiums and the first monthly deductions. See Contract Fees and Charges, page 17. This amount is placed in the investment options designated by the owner. Thereafter the Contract Fund value changes daily, reflecting increases or decreases in the value of the securities in which the assets of the subaccount have been invested, the performance of the Real Property Account if that option has been selected, and interest credited on any amounts allocated to the fixed-rate option. It is also reduced by the daily asset charge for mortality and expense risks assessed against the variable investment options. The Contract Fund value also increases to reflect the receipt of additional premium payments and is decreased by the monthly deductions. A Contract's cash surrender value on any date will be the Contract Fund value plus any termination dividend, reduced by the withdrawal charges, if any, and by any Contract debt. Upon request, The Prudential will tell a Contract owner the cash surrender value of his or her Contract. It is possible, although highly unlikely, that the cash surrender value of a Contract could decline to zero because of unfavorable investment performance, even if a Contract owner continues to pay Scheduled Premiums when due. The tables on pages T1 through T4 of this prospectus illustrate what the death benefit and cash surrender values would be for a representative Contract, assuming uniform hypothetical investment results in the selected portfolio[s], and also provide information about the aggregate premiums payable under the Contract. The tables also show, if the level premium option has not been chosen, the maximum Scheduled Premium that may be payable for the period after the insured reaches the age of 65 for the illustrated Contract under each of the assumed investment returns. How a Contract's Death Benefit Will Vary. The death benefit under a Form A Contract will generally be equal to the face amount of insurance chosen by the purchaser when the Contract was bought. Generally the investment experience affects only the value of the Contract Fund. This means that as the Contract Fund value grows, the deduction for the cost of mortality may decrease because the "amount at risk" becomes smaller. The death benefit cannot ever fall below the face amount of insurance. It could happen, however, that it will become higher. If the Contract is kept in force for several years and if investment performance is relatively favorable, the Contract Fund value may grow to the point where, to meet certain provisions of the Internal Revenue Code which require that 22 the death benefit always be greater than the Contract Fund value, the death benefit must be increased. The required difference between the death benefit and Contract Fund value is higher at younger ages than at older ages. A precise description is in the Statement of Additional Information. If the Contract Fund value reaches this level, each premium payment increases the death benefit by an amount greater than the premium. Accordingly, The Prudential, when that occurs, reserves the right to refuse further premium payments, although in practice it will accept a payment equal to two years' Scheduled Premiums. Under a Form B Contract, the death benefit will change from the outset with investment experience. Here again the precise way in which that will occur is complicated and is described in the Statement of Additional Information. In general, if the net investment performance is 4% per year or higher, the death benefit will increase; if it is below 4%, it will decrease. The Prudential guarantees, however, that it will not decrease below the face amount of insurance. If unfavorable experience of that kind should occur, it must be offset by favorable experience before the death benefit begins to increase again. The death benefit could also increase to satisfy Internal Revenue Code requirements, for the same reasons described above respecting Form A Contracts. Contract Loans. The owner may borrow from The Prudential up to the "loan value" of the Contract, using the Contract as the only security for the loan. The loan value is equal to (1) 90% of an amount equal to the portion of the Contract Fund value attributable to the variable investment options and to any prior loan[s] supported by the variable investment options, minus the portion of any charges attributable to variable investment options that would be payable upon an immediate surrender; plus (2) 100% of an amount equal to the portion of the Contract Fund value attributable to the fixed-rate option and to any prior loan[s] supported by the fixed-rate option, minus the portion of any charges attributable to the fixed-rate option that would be payable upon an immediate surrender. The minimum amount that may be borrowed at any one time is $200 unless the proceeds are used to pay premiums on the Contract. If you request a loan you may choose one of two interest rates. You may elect to have interest charges accrued daily at a fixed effective annual rate of 5.5%. Alternatively, you may elect a variable interest rate that changes from time to time. You may switch from the fixed to variable interest loan provision, or vice-versa, with The Prudential's consent. If you elect the variable loan interest rate provision, interest charged on any loan will accrue daily at an annual rate The Prudential determines at the start of each Contract year (instead of at the fixed 5.5% rate). This interest rate will not exceed the greatest of (1) the "Published Monthly Average" for the calendar month ending two months before the calendar month of the Contract anniversary; (2) 5%; or (3) the rate permitted by law in the state of issue of the Contract. The "Published Monthly Average" means Moody's Corporate Bond Yield Average -- Monthly Average Corporates, as published by Moody's Investors Service, Inc. or any successor to that service, or if that average is no longer published, a substantially similar average established by the insurance regulator where the Contract is issued. For example, the Published Monthly Average in 1994 ranged from 7.25% to 8.94%. Interest payments on any loan are due at the end of each Contract year. If interest is not paid when due, it is added to the principal amount of the loan. The term "Contract debt" means the amount of all outstanding loans plus any interest accrued but not yet due. If at any time the Contract debt exceeds what the cash surrender value would be if there were no Contract debt, The Prudential will notify the Contract owner of its intent to terminate the Contract in 61 days, within which time the owner may repay all or enough of the loan to reduce it to below the cash surrender value and thus keep the Contract in force. When a loan is made, an amount equal to the loan proceeds will be transferred out of the Account, the fixed-rate option and/or the Real Property Account, as applicable. The reduction will normally be made in the same proportions as the value in each subaccount, the fixed-rate option, and the Real Property Account bears to the total value of the Contract Fund. While a fixed-rate (5.5%) loan is outstanding, the amount that was so transferred will continue to be treated as part of the Contract Fund and it will be credited with the daily equivalent of an annual return of 4% rather than with the actual rate of return of the subaccount[s], fixed-rate option or Real Property Account. While a loan made pursuant to the variable loan interest rate provision is outstanding, the amount that was so transferred will be credited with the daily equivalent of a rate that is 1% less than the loan interest rate for the Contract year. If a loan remains outstanding at a time when The Prudential fixes a new rate, the new interest rate will apply. Choosing the variable rate option will usually mean a higher outlay of cash when the loan is repaid but it will also result in a greater increase in the Contract Fund value. A loan will not affect the amount of the premiums due. Should the death benefit become payable while a loan is outstanding, or should the Contract be surrendered, any Contract debt will be deducted from the death benefit or the cash surrender value. 23 A loan will have an effect on a Contract's cash surrender value and may have an effect on the death benefit, even if the loan is fully repaid, because the investment results of the selected investment options will apply only to the amount remaining invested under those options. The longer the loan is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If investment results are greater than the rate being credited on the loan balance while the loan is outstanding, values under the Contract will not increase as rapidly as they would have if no loan had been made. If investment results are below that rate, Contract values will be higher than they would have been had no loan been made. A loan that is repaid will not have any effect upon the guaranteed minimum death benefit. Consider, for example, a Contract issued on a 35 year old male, as illustrated in the table on page T1, with an 8% gross investment return. Assume a $2,500 fixed-rate (5.5%) loan was made under this Contract at the end of Contract year 8 and repaid at the end of Contract year 10 and loan interest was paid when due. Upon repayment, the cash surrender value would be $7,798.65. This amount is lower than the cash surrender value shown on that page for the end of Contract year 10 because the loan amount was credited with the 4% assumed rate of return rather than the 6.82% net return for the designated subaccount[s] resulting from the 8% gross return in the underlying Series Fund. Loans from Modified Endowment Contracts may be treated for tax purposes as distributions of income. See Tax Treatment of Contract Benefits, page 27. Surrender of a Contract. You may surrender a Contract in whole or in part for its cash surrender value while the insured is living. Partial surrender involves splitting the Contract into two Contracts. One Contract is surrendered for its cash surrender value; the other is continued in force on the same terms as the original Contract except that premiums will be based on the new face amount. You will be given a new Contract document. The cash surrender value and the guaranteed minimum death benefit of the new Contract will be proportionately reduced based upon the reduction in the face amount of insurance. The new Contract must have a face amount of insurance at least equal to the minimum face amount applicable to the insured. Otherwise a partial surrender is not permitted. See Requirements for Issuance of a Contract, page 16. To surrender a Contract in whole or in part, you must deliver or mail it, together with a written request, to your Prudential Home Office. The cash surrender value of a surrendered or partially surrendered Contract (taking into account the deferred sales and administrative charges, if any) will be determined as of the end of the valuation period in which such a request is received in the Home Office. Surrender of all or part of a Contract may have tax consequences. See Tax Treatment of Contract Benefits, page 27. Lapse and Reinstatement. As has already been explained, if Scheduled Premiums are paid on or before each due date, or within the grace period after each due date, and there are no withdrawals, a Contract will remain in force even if the investment results of that Contract's variable investment option[s] have been so unfavorable that the Contract Fund has decreased to zero or less. In addition, even if a Scheduled Premium is not paid, the Contract will remain in force as long as the Contract Fund on any Monthly Date is equal to or greater than the Tabular Contract Fund value on the following Monthly Date. (A Table of Tabular Contract Fund Values is included in the Contract; the values increase with each year the Contract remains in force.) This could occur because of such factors as favorable investment experience, deduction of current rather than maximum charges, or the previous payment of greater than Scheduled Premiums. However, if a Scheduled Premium is not paid, and the Contract Fund is insufficient to keep the Contract in force, the Contract will go into default. Should this happen, The Prudential will send the Contract owner a notice of default setting forth the payment necessary to keep the Contract in force on a premium paying basis. This payment must be received at the Prudential Home Office within the 61 day grace period after the notice of default is mailed or the Contract will lapse. A Contract that lapses with an outstanding Contract loan may have tax consequences. See Tax Treatment of Contract Benefits, page 27. Neither transfers nor reallocations of premium payments may be made if a Contract is in default. A Contract that has lapsed may be reinstated within 5 years after the date of default unless the Contract has been surrendered for its cash surrender value. To reinstate a lapsed Contract, The Prudential requires renewed evidence of insurability, and submission of certain payments due under the Contract. If your Contract does lapse, it will still provide some benefits. You can receive the cash surrender value by making a request of The Prudential prior to the end of the 61 day grace period. You may also choose one of the three forms of insurance described below for which no further premiums are payable. Fixed Extended Term Insurance. The amount of insurance that would have been paid on the date of default will continue for a stated period of time. You will be told in writing how long that will be. The insurance amount will not change. There will be a diminishing cash surrender value but no loan value. Extended term insurance is not available to insureds in high risk classifications or under Contracts issued in connection with tax-qualified pension plans. 24 Fixed Reduced Paid-Up Insurance. This insurance continues for the lifetime of the insured but at an insurance amount that is lower than that provided by fixed extended term insurance. It will increase in amount only if dividends are paid and it will decrease only if a Contract loan is taken. You will be told, if you ask, what the amount of the insurance will be. Fixed paid-up insurance has a cash surrender value and a loan value both of which will gradually increase in value. It is possible for this Contract to be classified as a Modified Endowment Contract if this option is exercised during the first 7 Contract years. See Tax Treatment of Contract Benefits, page 27. Variable Reduced Paid-Up Insurance. This is similar to fixed paid-up insurance and will initially be in the same amount. The Contract Fund will continue to vary to reflect the experience of the selected investment options. There will be a new guaranteed minimum death benefit. Loans will be available subject to the same rules that apply to premium-paying Contracts. Variable paid-up insurance is not available to insureds in high risk rating classes or if the new guaranteed amount is less than $5,000. It is possible for this Contract to be classified as a Modified Endowment Contract if this option is exercised during the first 7 Contract years. See Tax Treatment of Contract Benefits, page 27. What Happens If No Request Is Made? Except in the two situations described below, if no request is made the "automatic option" will be fixed extended term insurance. If that is not available to the insured, then fixed reduced paid-up insurance will be provided. However, if variable reduced paid-up insurance is available and the amount is at least as great as the amount of fixed extended term insurance, then the automatic option will be variable reduced paid-up insurance. This could occur when there is a Contract debt outstanding when the Contract lapses. When Proceeds Are Paid. The Prudential will generally pay any death benefit, cash surrender value, loan proceeds or withdrawal within 7 days after receipt at a Prudential Home Office of all the documents required for such a payment. Other than the death benefit, which is determined as of the date of death, the amount will be determined as of the end of the valuation period in which the necessary documents are received. However, The Prudential may delay payment of proceeds from the subaccount[s] and the variable portion of the death benefit due under the Contract if the sale or valuation of the Account's assets is not reasonably practicable because the New York Stock Exchange is closed for other than a regular holiday or weekend, trading is restricted by the SEC or the SEC declares that an emergency exists. With respect to the amount of any cash surrender value allocated to the fixed-rate option, and with respect to a Contract in force as fixed reduced paid-up insurance, The Prudential expects to pay the cash surrender value promptly upon request. However, The Prudential has the right to delay payment of such cash surrender value for up to 6 months (or a shorter period if required by applicable law). The Prudential will pay interest of at least 3% a year if it delays such a payment for 30 days or more (or a shorter period if required by applicable law). Living Needs Benefit. Contract applicants may elect to add the Living Needs Benefit(SM) to their Contracts at issue, subject to The Prudential's receipt of satisfactory evidence of insurability. The benefit may vary state-by-state. It can generally be added only to Contracts of $50,000 or more. There is no charge for adding the benefit to the Contract. However, an administrative charge (not to exceed $150) will be made at the time the Living Needs Benefit is paid. The Living Needs Benefit allows the Contract owner to elect to receive an accelerated payment of all or part of the Contract's death benefit, adjusted to reflect current value, at a time when certain special needs exist. The adjusted death benefit will always be less than the death benefit, but will generally be greater than the Contract's cash surrender value. Depending upon state regulatory approval, one or both of the following options may be available. A Prudential representative should be consulted as to whether additional options may be available. Terminal Illness Option. This option is available if the insured is diagnosed as terminally ill with a life expectancy of 6 months or less. When satisfactory evidence is provided, The Prudential will provide an accelerated payment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. You may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for 6 months. If the insured dies before all the payments have been made, the present value of the remaining payments will be paid to the beneficiary designated in the Living Needs Benefit claim form in a single sum. Nursing Home Option. This option is available after the insured has been confined to an eligible nursing home for 6 months or more. When satisfactory evidence is provided, including certification by a licensed physician, that the insured is expected to remain in the nursing home until death, The Prudential will provide an accelerated payment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. You may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for a specified number of years (not more than 10 nor less than 2), depending upon the age of the insured. If the insured dies before all of the payments have been made, the present value of the remaining payments will be paid to the beneficiary designated in the Living Needs Benefit claim form in a single sum. 25 All or part of the Contract's death benefit may be accelerated under the Living Needs Benefit. If the benefit is only partially accelerated, a death benefit of at least $25,000 must remain under the Contract. The Prudential reserves the right to determine the minimum amount that may be accelerated. No benefit will be payable if the Contract owner is required to elect it in order to meet the claims of creditors or to obtain a government benefit. The Prudential can furnish details about the amount of Living Needs Benefit that is available to an eligible Contract owner under a particular Contract, and the adjusted premium payments that would be in effect if less than the entire death benefit is accelerated. The Contract owner should consider whether adding this settlement option is appropriate in his or her given situation. Adding the Living Needs Benefit to the Contract has no adverse consequences; however, electing to use it could. Contract owners should consult a qualified tax advisor before electing to receive this benefit. Unlike a death benefit received by a beneficiary after the death of an insured, receipt of a Living Needs Benefit payment may give rise to a federal or state income tax. Receipt of a Living Needs Benefit payment may also affect a Contract owner's eligibility for certain government benefits or entitlements. Voting Rights. As stated above, all of the assets held in the subaccounts of the Account will be invested in shares of the corresponding portfolios of the Series Fund. The Prudential is the legal owner of those shares and as such has the right to vote on any matter voted on at Series Fund shareholders meetings. However, The Prudential will vote the shares of the Series Fund at any regular and special shareholders meetings it is required to hold in accordance with voting instructions received from Contract owners. The Series Fund will not hold annual shareholders meetings when not required to do so under Maryland law or the Investment Company Act of 1940. Series Fund shares for which no timely instructions from Contract owners are received, and any shares indirectly owned by The Prudential, will be voted in the same proportion as shares in the respective portfolios for which instructions are received. Matters on which Contract owners may give voting instructions include the following: (1) election of the Board of Directors of the Series Fund; (2) ratification of the independent accountant of the Series Fund; (3) approval of the investment advisory agreement for a portfolio of the Series Fund corresponding to the Contract owner's selected subaccount[s]; (4) any change in the fundamental investment policy of a portfolio corresponding to the Contract owner's selected subaccount[s]; and (5) any other matter requiring a vote of the shareholders of the Series Fund. With respect to approval of the investment advisory agreement or any change in a portfolio's fundamental investment policy, Contract owners participating in such portfolios will vote separately on the matter. The number of shares in a portfolio for which you may give instructions is determined by dividing the portion of your Contract Fund attributable to the portfolio, by the value of one share of the portfolio. The number of votes for which each Contract owner may give The Prudential instructions will be determined as of the record date chosen by the Board of Directors of the Series Fund. The Prudential will furnish Contract owners with proper forms and proxies to enable them to give these instructions. The Prudential reserves the right to modify the manner in which the weight to be given voting instructions is calculated where such a change is necessary to comply with current federal regulations. The Prudential may, if required by state insurance regulations, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment objectives of one or more of the Series Fund's portfolios, or to approve or disapprove an investment advisory contract for the Series Fund. In addition, The Prudential itself may disregard voting instructions that would require changes in the investment policy or investment advisor of one or more of the Series Fund's portfolios, provided that The Prudential reasonably disapproves such changes in accordance with applicable federal regulations. If The Prudential does disregard voting instructions, it will advise Contract owners of that action and its reasons for such action in the next annual or semi-annual report to Contract owners. Contract owners also share with the owners of all Prudential Contracts and policies the right to vote in elections for members of the Board of Directors of The Prudential. Reports to Contract Owners. Once each Contract year (except where the Contract is in force as fixed extended term insurance or fixed reduced paid-up insurance), you will be sent a statement that provides certain information pertinent to your own Contract. These statements show all transactions during the year that affected the value of your Contract Fund, including monthly changes attributable to investment experience. That statement will also show the current death benefit, cash surrender value, and loan values of your Contract. On request, you will be sent a current statement in a form similar to that of the annual statement described above, but The Prudential may limit the number of such requests or impose a reasonable charge if such requests are made too frequently. You will also receive, usually at the end of February, an annual report of the operations of the Account and of the Series Fund. That report will list the investments held in each portfolio and include audited financial statements for the Account and the Series Fund. A semi-annual report, with similar unaudited information for the Series Fund, will be sent to you, usually at the end of August. 26 Tax Treatment of Contract Benefits. The tax treatment of life insurance is complex and may change, therefore you should consult with a qualified tax advisor. A more technical discussion of what follows is contained in the Statement of Additional Information. Here The Prudential provides, not tax advice but, a general statement of how it believes the tax laws currently apply in the most commonly occurring circumstances. Treatment as Life Insurance. The Prudential believes that the Contract should qualify as "life insurance" under the Internal Revenue Code. This means that, except as noted below, any annual increases in your Contract Fund, whether attributable to income or capital appreciation, should not be included in your income. In addition, the receipt of a death benefit by a beneficiary should not result in taxable income. Although The Prudential believes the Contract should qualify as "life insurance" for federal tax purposes, there are uncertainties, particularly because the Secretary of the Treasury has not yet issued final regulations that bear on this question. Accordingly, we have reserved the right to make changes -- which will be applied uniformly to all Contract owners after advance written notice -- that we deem necessary to insure that the Contract will continue to qualify as life insurance. Pre-Death Distributions. The tax treatment of any distribution received by an owner prior to an insured's death will depend upon whether the Contract is classified as a Modified Endowment Contract. If the Contract is not classified as a Modified Endowment Contract, proceeds received in the event of a lapse, total or partial surrender of the Contract, or withdrawal of part of the cash surrender value will generally not be taxable unless the total amount received exceeds the gross premiums paid less the untaxed portion of any prior withdrawals. In certain limited circumstances, all or a portion of a withdrawal or partial surrender during the first 15 contract years may be taxable even if total withdrawals do not exceed total premiums paid to date. The proceeds of any loan will be treated as indebtedness of the owner and will not be treated as taxable income. If the Contract is classified as a Modified Endowment Contract, pre-death distributions, including loans, withdrawals and partial surrenders (even those made during the 2 year period before the Contract became a Modified Endowment Contract), will be taxed first as investment income to the extent of gain in the Contract, and then as a return of the Contract owner's investment in the Contract. In addition, pre-death distributions (including full surrenders) will be subject to a penalty of 10% of the amount includible in income unless the amount is distributed on or after the owner reaches age 59 1/2, on account of the owner's disability, or as a life annuity. A policy may be classified as a Modified Endowment Contract if premiums substantially (or sometimes slightly) in excess of Scheduled Premiums are paid or the face amount of insurance is decreased during the first seven Contract years, or if the face amount of insurance is increased or if a rider is added to (or a rider is removed from) the Contract. You should consult with your tax advisor or a Prudential representative before making any of these policy changes. Other Tax Consequences. There may be federal estate taxes and state and local estate and inheritance taxes payable if either the owner or the insured dies. The transfer or assignment of the Contract to a new owner may also have tax consequences. The individual situation of each Contract owner or beneficiary will be significant. Riders. When the Contract is first issued, the owner may be able to obtain additional fixed benefits which may increase the Scheduled Premium. If they do cause an increase in the Scheduled Premium, they will be charged for by making monthly deductions from the Contract Fund. These optional insurance benefits will be described in what is known as a "rider" to the Contract. One rider pays an additional amount if the insured dies in an accident. Another waives certain premiums if the insured is disabled within the meaning of the provision (or, in the case of a Contract issued on an insured under the age of 15, if the applicant dies or becomes disabled within the meaning of the provision). Others pay an additional amount if the insured dies within a stated number of years after issue; similar benefits may be available if the insured's spouse or child should die. The amounts of these benefits are fully guaranteed at issue; they do not depend on the performance of the Account, although they will no longer be available if the Contract should lapse. Certain restrictions may apply; they are clearly described in the applicable rider. Under other riders, which provide a fixed amount of term insurance in exchange for increasing total scheduled annual premiums, the amount payable upon death of the insured may be substantially increased for a given total initial annual premium. The rider may be appropriate for Contract owners who reasonably expect their incomes to increase regularly so that they will be able to afford the increasing scheduled annual premiums or who may be willing to rely upon their future Contract Fund values to prevent the Contract from lapsing in later years. Certain term riders issued by The Prudential may provide for a conversion premium credit if the rider or policy is converted to a Prudential whole life policy, including the Contracts described in this prospectus. If a Contract is purchased through exercise of such a conversion privilege, the first year's scheduled premium will be reduced by the amount of the premium credit. The Prudential will add to first year scheduled premiums paid by the Contract owner the pro rata portion of the premium credit. 27 Any Prudential representative authorized to sell the Contract can explain these extra benefits further. Samples of the provisions are available from The Prudential upon written request. Participation in Divisible Surplus. Because the Contract is issued by The Prudential, a mutual life insurance company, it is a participating policy. This means that the Contract is eligible to be credited part of The Prudential's divisible surplus attributable to the Contracts, as determined by The Prudential's Board of Directors. That determination is made, with respect to the insurance contracts issued by The Prudential, every year. However, The Prudential does not expect to credit any dividends upon these Contracts while they remain in force because favorable investment performance will be reflected in Contract values and because The Prudential intends, if experience indicates that current charges are greater than needed to cover expenses, to reduce those charges further so that there will be no source of distributable surplus attributable to these Contracts. If a Contract is kept in force for a number of years, The Prudential currently intends to add a termination dividend to the proceeds payable upon death or surrender. Other Contract Provisions. There are several other Contract provisions that are of less significance to you than those already described in detail either because they relate to options that you may choose under the Contract but are not likely to exercise for several years after you first purchase it or because they are of a routine nature not likely to influence your decision to buy the Contract. These provisions are summarized in the Expanded Table of Contents of the Statement of Additional Information, page 42 and described in greater detail in the Statement of Additional Information. FURTHER INFORMATION ABOUT THE SERIES FUND The Prudential Series Fund, Inc. (the "Series Fund") is a Maryland corporation organized on November 15, 1982. It is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end, diversified, management investment company. This registration does not imply any supervision by the Securities and Exchange Commission over the Series Fund's management or its investment policies or practices. The Series Fund is currently made up of sixteen separate portfolios. Each portfolio is, for many purposes, in effect a separate investment fund, and a separate class of capital stock is issued for each portfolio. Each share of capital stock issued with respect to a portfolio has a pro-rata interest in the assets of that portfolio and has no interest in the assets of any other portfolio. Each portfolio bears its own liabilities and also its proportionate share of the general liabilities of the Series Fund. In other respects the Series Fund is treated as one entity. For example, the Series Fund has only one Board of Directors and owners of the shares of each portfolio are entitled to vote for members of the Board. Shares in the Series Fund are currently sold and redeemed at the close of each business day, at their net asset value, determined in the manner described in the Statement of Additional Information, only to separate accounts of The Prudential and its subsidiaries. They may, in the future, be sold to other insurers to fund benefits under variable life insurance and variable annuity contracts issued by those companies. The Prudential is the investment advisor of the Series 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 performance of its obligations under an Investment Advisory Agreement with the Series Fund. In addition, The Prudential has entered into a Subadvisory Agreement with its wholly-owned subsidiary Jennison Associates Capital Corp. ("Jennison"), under which Jennison furnishes investment advisory services in connection with the management of the Growth Stock Portfolio. See Investment Management Arrangements and Expenses, page 41. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS Each portfolio of the Series Fund has a different objective which it pursues through separate investment policies as described below. Since each portfolio has a different investment objective, each can be expected to have different investment results and incur different market and financial risks. Those risks, as explained above, are borne by the Contract owner. The Series Fund may in the future establish other portfolios with different investment objectives. The investment objectives of each portfolio are fundamental and may not be changed without the approval of the holders of a majority of the outstanding shares of the portfolio affected (which for this purpose and under the 1940 Act means the lesser of: (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented; or (ii) more than 50% of the outstanding shares). The policies by which a portfolio seeks to achieve its investment objectives, however, are not fundamental. They may be changed by the Board of Directors of the Series Fund without the approval of the shareholders. 28 The investment objectives of each portfolio are set forth on pages 3 through 4. For the sake of convenience, they are repeated here, followed in each case by a brief description of the policies of each portfolio. In some cases a fuller description of those policies is in the Statement of Additional Information. There is no guarantee that any of these objectives will be met. Fixed Income Portfolios Money Market Portfolio. The objective of this portfolio is to achieve, through investment in high-quality short-term debt obligations, the maximum current income that is consistent with stability of capital and maintenance of liquidity. The portfolio seeks to achieve this objective by following the policy of investing primarily in money market instruments denominated in U.S. dollars that mature in 13 months or less from the date the portfolio acquires them. Money-market instruments include short-term obligations of the United States and foreign governments, their agencies, instrumentalities, and political subdivisions, and of domestic and foreign banks and corporations. They also include commercial paper, other corporate obligations, obligations of savings and loan associations and savings banks, and variable amount demand master notes. The portfolio may also enter into repurchase and reverse repurchase agreements and may purchase and sell securities on a when-issued and delayed delivery basis. These investment techniques may involve additional risks. A detailed description of the money market instruments in which the portfolio may invest, of the repurchase and reverse repurchase agreements it may enter into, and of the risks associated with those instruments and agreements is in the Statement of Additional Information. Because of the high quality, short-term nature of the portfolio's holdings, increases in the value of an investment in the portfolio will be derived almost entirely from interest on the securities held by it. Accordingly, the results for the portfolio will follow generally the fluctuation in short-term interest rates. Bond Portfolio. The objective of this portfolio is to achieve a high level of income over the longer term while providing reasonable safety of capital through investment primarily in readily marketable intermediate and long-term fixed income securities that provide attractive yields but do not involve substantial risk of loss of capital through default. The portfolio seeks to achieve this objective by following the policies of purchasing only debt securities of investment grade or, if not rated, of comparable quality in the opinion of the portfolio manager and of investing from time to time a portion of its assets in short-term debt obligations of the kind held in the Money Market Portfolio as described in the Statement of Additional Information. Since the value of fixed income securities generally fluctuates inversely with changes in interest rates, the proportions of intermediate or longer-term securities and short-term debt obligations held in the portfolio will vary to reflect The Prudential's assessment of prospective changes in interest rates, so that the portfolio may benefit from relative price appreciation when interest rates decline and suffer lesser declines in value when interest rates rise. The success of this strategy will depend on The Prudential's ability to forecast changes in interest rates, and there is a corresponding risk that the value of the securities held in the portfolio will decline. At least 80% of the portfolio's holdings (including short-term debt obligations) will generally consist of debt securities that at the time of purchase have a rating within the four highest grades determined by Moody's Investor Services, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), or a similar nationally-recognized rating service. The portfolio may retain a security whose rating has dropped below the four highest grades as determined by a commercial rating service. Without limitation, the portfolio may invest in obligations of the U.S. Government and its agencies and instrumentalities. The Statement of Additional Information defines the ratings that are given to debt securities by Moody's and S&P and describes the standards applied by them in assigning these ratings. The remaining assets of the portfolio may be invested in, among other things, debt securities that are not rated within the four highest grades or in convertible debt securities and preferred or convertible preferred stocks that are rated within the four highest grades applicable to such securities. On occasion, however, the portfolio may acquire common stock, not through direct investment but by the conversion of convertible debt securities or the exercise of warrants. No more than 10% of the value of the total assets of the portfolio will be held in common stocks, and those will usually be sold as soon as a favorable opportunity is available. The portfolio may invest up to 20% of its total assets in United States currency denominated debt securities issued outside the United States by foreign or domestic issuers. The particular risks of investments in foreign securities are described under Foreign Securities on page 39. In addition, the portfolio may (i) purchase and sell options on debt securities; (ii) purchase and sell interest rate futures contracts and options thereon; (iii) purchase securities on a when-issued or delayed delivery basis; (iv) use interest rate swaps; and (v) make short sales. These techniques are described briefly under Options, Futures Contracts and Swaps and Short Sales on page 40, and in detail in the Statement of Additional Information. Barbara Kenworthy, Managing Director, PIC, has been portfolio manager of the Bond Portfolio since 1995. Ms. Kenworthy is also portfolio manager of the Prudential Diversified Bond Fund, Inc. and the Prudential Government 29 Income Fund. Prior to 1994, Ms. Kenworthy was a portfolio manager and president of several taxable fixed-income funds for The Dreyfus Corp. Government Securities Portfolio. The objective of this portfolio is to achieve a high level of income over the longer term consistent with the preservation of capital through investment primarily in U.S. Government securities, including intermediate and long-term U.S. Treasury securities and debt obligations issued by agencies of or instrumentalities established, sponsored or guaranteed by the U.S. Government. At least 65% of the total assets of the portfolio will be invested in U.S. Government securities. The portfolio seeks to achieve this objective by investing at least 65% of its assets in U.S. Treasury securities, obligations issued or guaranteed by U.S. Government agencies and instrumentalities, mortgage-related securities issued by U.S. Government instrumentalities or non-governmental corporations, or related collateralized mortgage obligations. These instruments are described below. The portfolio may invest up to a total of 35% of its assets in the following three categories: (1) short-term debt obligations of the kind held in the Money Market Portfolio; (2) securities of issuers other than the U.S. government and related entities, usually foreign governments, where the principal and interest are substantially guaranteed (generally to the extent of 90% thereof) by U.S. Government agencies whose guarantee is backed by the full faith and credit of the United States and where an assurance of payment on the unguaranteed portion is provided for in a comparable way; and (3) asset-backed securities rated in either of the top two ratings by Moody's or Standard & Poor's, or if not rated, determined by the investment manager to be of comparable quality. A description of debt ratings is in the Statement of Additional Information. U.S. Government Securities are considered among the most creditworthy of fixed income investments. Their values (like those of fixed-income securities, generally) will vary inversely with changes in interest rates. The magnitude of these fluctuations will generally be greater for securities with longer maturities. U.S. Treasury securities are direct obligations of the U.S. Government and, as such, are backed by the full faith and credit of the United States. Obligations issued by agencies of the U.S. Government or instrumentalities established or sponsored by the U.S. Government include securities that are guaranteed by federal agencies or instrumentalities, and may or may not be backed by the full faith and credit of the United States. Obligations of the Government National Mortgage Association ("GNMA"), the Farmers Home Administration, and the Export- Import Bank, for example, are backed by the full faith and credit of the United States. Obligations issued by the Tennessee Valley Authority, The Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the United States Postal Service, the Federal Farm Credit Bank and the Federal Home Loan Bank are not, and the portfolio must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment. The portfolio may invest in mortgage-backed securities issued by GNMA, FNMA or FHLMC and representing undivided ownership interests in pools of mortgages. The mortgages backing these securities include conventional 30 year fixed rate mortgages, 15 year fixed rate mortgages, graduated payment mortgages, and adjustable rate mortgages. The U.S. Government or the issuing agency guarantees the payment of interest and principal of these securities. However, the guarantees do not extend to the securities' yield or value of the portfolio's shares. The portfolio may also purchase collateralized mortgage obligations ("CMOs"). A CMO is a debt security issued by a corporation or a U.S. Government instrumentality. The payment of principal and interest is secured by an underlying portfolio of mortgages or mortgage-backed securities. The portfolio will invest in only those privately issued CMOs that are collateralized by mortgage-backed securities issued by GNMA, FHLMC or FNMA, and in CMOs issued by FHLMC, GNMA or FNMA. Neither the United States Government nor any U.S. Government agency guarantees the payment of principal or interest on these securities. The portfolio may also invest in asset-backed securities. Asset-backed securities represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets, such as automobile or credit card receivables. Asset-backed securities present certain risks, including the risk that the underlying obligor on the asset, such as the automobile purchaser or the credit card holder, may default on his or her obligation. In addition, asset-backed securities often do not provide a security interest in the related collateral. For example, credit card receivables are generally unsecured, and for automobile receivables the security interests in the underlying automobiles are often not transferred when the pool is created, with the resulting possibility that the collateral could be resold. In general, however, these types of loans are of shorter average life than mortgage loans and are less likely to have substantial prepayments. In addition, the portfolio may (i) purchase and sell options on debt securities; (ii) purchase and sell interest rate futures contracts and options thereon; (iii) purchase securities on a when-issued or delayed delivery basis; (iv) use interest rate swaps; and (v) make short sales. These techniques are described briefly under Options, Futures Contracts and Swaps and Short Sales on page 40, and in detail in the Statement of Additional Information. Under normal circumstances, this portfolio's turnover rate is not expected to exceed 200%. Purchases of U.S. Government Securities are generally made from dealers at prices which usually include a profit to the dealer. 30 David Graham, Vice President, PIC, has been portfolio manager of the Government Securities Portfolio since 1995. Mr. Graham also manages the Prudential GNMA Fund, the Prudential Adjustable Rate Securities Fund, and the Prudential U.S. Government Fund. He has been employed by PIC as a portfolio manager since 1993. Prior to 1993, Mr. Graham was a portfolio manager for Alliance Capital Management, L.P. Zero Coupon Bond Portfolios 1995, 2000, and 2005. The objective of each of these portfolios is to achieve the highest predictable compounded investment return for a specific period of time, consistent with the safety of invested capital, by investing primarily in debt obligations of the United States Treasury and investment-grade corporations that have been issued without interest coupons or stripped of their unmatured interest coupons, interest coupons that have been stripped from such debt obligations, and receipts and certificates for such stripped debt obligations and stripped coupons (collectively "stripped securities"). The three portfolios differ only in their liquidation dates, which for each portfolio is November 15 of the specified year. In pursuing this objective, each Zero Coupon Bond portfolio invests only in readily marketable debt securities that do not involve substantial risk of loss of capital through default, although their value may vary because of changes in the general level of interest rates. It is the policy of each Zero Coupon Bond portfolio to invest at least 70% of its assets in stripped securities that are obligations of the United States Government maturing within 2 years of the portfolio liquidation date. Up to 30% of the assets may be invested and held either in stripped securities issued by investment-grade corporations or in high-grade interest bearing corporate debt securities, in each case with a quality rating of Baa or better, provided that no more than 20% of the assets of the portfolio may be invested in interest bearing securities. The Prudential will evaluate the creditworthiness of the potential investments in corporate securities in order to determine whether such securities are suitable for purchase by the portfolios. A small portion of the portfolios may be invested in short-term debt obligations of the kind held in the Money Market Portfolio in order to make effective use of cash reserves pending investments in the securities described above. At the beginning of each week, The Prudential will calculate the anticipated compounded growth rate that investors purchasing shares of each portfolio that day are predicted to achieve if their investment is maintained until the portfolio liquidation date. That rate will change from day to day depending on various factors, including particularly the general level of interest rates, but daily changes will generally not be significant. If there is a significant change in interest rates (greater than a 0.30% change in the yield of a zero coupon Treasury bond maturing in the specified year), The Prudential will recalculate the predicted yield. The Prudential will furnish the anticipated compounded growth rate on request. In order to achieve a predictable compounded investment return to each portfolio's liquidation date that will be as little affected as possible by variations in the general level of interest rates during the intervening period, the composition of the securities held in each portfolio is such that the weighted average period of time until receipt of scheduled cash payments (whether of principal or interest) -- sometimes referred to as the portfolio's "duration" -- will be kept within 1 year of the period remaining until the portfolio liquidation date. When the portfolio's duration is thus maintained, differences between the market value and the face amount of unmatured bonds on the portfolio's liquidation date resulting from changes in the general level of interest rates will be approximately equal in magnitude to, but opposite in direction from, the difference between the amount of interest accumulated through the reinvestment of earlier coupon or principal payments and the amount that would have been accumulated at the originally predicted rate. Each portfolio is thus able to hold interest bearing securities and stripped securities with maturity dates before, during, and after the portfolio's liquidation date. The concept of "duration" is explained more fully in the Statement of Additional Information. Each portfolio seeks to realize a higher yield than would be obtained simply by maintaining the portfolio's initial investments. The portfolios are actively managed by The Prudential to take advantage of trading opportunities that may exist from time to time when, for various reasons, some of the securities available for purchase by the portfolio appear underpriced. There is a corresponding risk that, to the extent that this strategy is unsuccessful, the initial yield objective will not be met. Stripped securities are purchased at a substantial (or "deep") discount from their principal amounts payable at maturity. If held to maturity, these obligations provide a predictable yield. But because interest on stripped securities is not paid in cash on a current basis but rather is in effect compounded until maturity (or the payment date in the case of a coupon), the market values of securities of this type are subject to greater fluctuations, as a result of changes in interest rates, than are the values of debt securities that provide for the periodic payment of interest; and the longer the term to maturity of a portfolio, the greater the risk of such fluctuations. Accordingly, if you redeem an interest in the portfolio (for example, by a transfer to another portfolio) prior to the portfolio liquidation date, you are likely to achieve quite a different investment return than the return that was predicted on the date your investment was made. You may suffer a loss. On the liquidation date of a Zero Coupon Bond Portfolio, all of the securities held by the portfolio will be sold, all outstanding shares of the portfolio will be redeemed, and the proceeds will, unless otherwise directed by Contract owners, be allocated to the Money Market Subaccount and invested in the Money Market Portfolio. 31 May Ngai, Senior Associate, PIC, has been portfolio manager of the Zero Coupon Bond Portfolios 1995, 2000, and 2005 since 1995. From 1991 to the present, Ms. Ngai has held the position of mortgage strategist, Taxable Mutual Funds, Prudential Investment Advisors. Prior to 1991, Ms. Ngai was an Applications Specialist for Gifford Fong Associates. Balanced Portfolios Conservatively Managed Flexible Portfolio. The objective of this portfolio is to achieve a favorable total investment return consistent with a portfolio having a conservatively managed mix of money market instruments, fixed income securities, and common stocks in proportions believed by the investment manager to be appropriate for an investor desiring diversification of investment who prefers a relatively lower risk of loss than that associated with the Aggressively Managed Flexible Portfolio while recognizing that this reduces the chances of greater appreciation. To achieve this objective, the Conservatively Managed Flexible Portfolio will follow a policy of maintaining a more conservative asset mix among stocks, bonds and money market instruments than the Aggressively Managed Flexible Portfolio. In general, the portfolio manager will observe the following range of target asset allocation mixes: Asset Type Minimum Normal Maximum ---------- ------- ------ ------- Stocks 15% 35% 50% Bonds 15% 35% 50% Money Marke 0% 30% 70% The bond portion of the portfolio will be invested primarily in securities with maturities of 2 to 10 years and ratings at the time of purchase within the four highest grades determined by Moody's, S&P, or a similar nationally- recognized rating service. A description of debt ratings is in the Statement of Additional Information. Because of their shorter maturities, the value of the notes and bonds in this portfolio will be less sensitive to changes in interest rates than the longer-term bonds likely to be held in the Aggressively Managed Flexible Portfolio. Thus, there will be less of a risk of loss of principal, but not as much of a likelihood for greater appreciation in value. Up to 20% of the bond portion of this portfolio may be invested in United States currency denominated debt securities issued outside the United States by foreign or domestic issuers. The common stock portion of this portfolio will be invested primarily in the equity securities of major, established corporations in sound financial condition that appear to offer attractive prospects of a total return from dividends and capital appreciation that is superior to broadly based stock indices. The money market portion of the portfolio will hold high-quality short-term debt obligations with a maturity of 12 months or less (as described in the Statement of Additional Information) and will maintain a dollar-weighted average maturity of 120 days or less. To the extent permitted by applicable insurance law, this portfolio may invest up to 30% of its total assets in non-United States currency denominated debt and equity securities of foreign and U.S. issuers. The particular risks of investments in foreign securities are described under Foreign Securities on page 39. In addition, the portfolio may (i) purchase and sell options on equity securities, debt securities, stock indices and foreign currencies (ii) purchase and sell stock index, interest rate and foreign currency futures contracts and options thereon; (iii) enter into forward foreign currency exchange contracts; (iv) purchase securities on a when-issued or delayed delivery basis; (v) use interest rate swaps; and (vi) make short sales. These techniques are described briefly under Options, Futures Contracts and Swaps and Short Sales on page 40, and in detail in the Statement of Additional Information. The Conservatively Managed Flexible Portfolio is managed by Prudential Investment Advisors ("PIA") and Prudential Diversified Investment Strategies ("PDI"), units of PIC, using a team of portfolio managers under the supervision of Mark Stumpp, Managing Director, PIC. Mr. Stumpp has been providing overall asset allocation for the portfolio since 1994. Mr. Stumpp also supervises the team of portfolio managers for the Aggressively Managed Flexible Portfolio of the Series Fund and is portfolio manager for several employee benefit trusts including The Prudential Retirement System for U.S. Employees and Special Agents. Prior to 1994, he was responsible for corporate pension asset management for Prudential Diversified Investment Strategies' corporate clients. Aggressively Managed Flexible Portfolio. The objective of this portfolio is achievement of a high total return consistent with a portfolio having an aggressively managed mix of money market instruments, fixed income securities, and common stocks, in proportions believed by The Prudential to be appropriate for an investor desiring diversification of investment who is willing to accept a relatively high level of loss in an effort to achieve greater appreciation. To achieve this objective, the Aggressively Managed Flexible Portfolio will follow a policy of maintaining a more aggressive asset mix among stocks, bonds and money market investments than the Conservatively Managed Flexible Portfolio. In general, the portfolio manager will observe the following range of target asset allocation mixes: 32 Asset Type Minimum Normal Maximum ---------- ------- ------ ------- Stocks 25% 60% 100% Bonds 0% 40% 75% Money Market 0% 0% 75% The bond component of this portfolio is expected under normal circumstances to have a weighted average maturity of greater than 10 years. The values of bonds with longer maturities are generally more sensitive to changes in interest rates than those of shorter maturities. The bond portion of this portfolio will primarily be invested in securities that have a rating at the time of purchase within the four highest grades determined by Moody's, S&P, or a similar nationally-recognized rating service. A description of debt ratings is in the Statement of Additional Information. However, up to 25% of the bond component of this portfolio may be invested in securities having ratings at the time of purchase of "BB," "Ba" or lower, or if not rated, of comparable quality in the opinion of the portfolio manager, these securities are also known as high risk securities. Up to 20% of the bond portion of this portfolio may be invested in United States currency denominated debt securities issued outside the United States by foreign or domestic issuers. The established company common stock component of this portfolio will consist of the equity securities of major corporations that are believed to be in sound financial condition. In selecting stocks of smaller capitalization companies, the portfolio manager will concentrate on companies with a capitalization range of $75 million to $600 million that show above-average profitability (measured by return-on-equity, earnings, and dividend growth rates) with modest price/earnings ratios. The individual equity selections for this portfolio may tend to have more volatile market values than the equity securities selected for the Common Stock Portfolio or the Conservatively Managed Flexible Portfolio. The money market portion of the portfolio will hold high-quality short-term debt obligations with a maturity of 12 months or less (as described in the Statement of Additional Information) and will maintain a dollar-weighted average maturity of 120 days or less. To the extent permitted by applicable insurance law, this portfolio may invest up to 30% of its total assets in non-United States currency denominated debt and equity securities of foreign and U.S. issuers. The particular risks of investment in foreign securities are described under Foreign Securities, page 39. In addition, the portfolio may (i) purchase and sell options on equity securities, debt securities, stock indices and foreign currencies (ii) purchase and sell stock index, interest rate and foreign currency futures contracts and options thereon; (iii) enter into forward foreign currency exchange contracts; (iv) purchase securities on a when-issued or delayed delivery basis; (v) use interest rate swaps; and (vi) make short sales. These techniques are described briefly under Options, Futures Contracts and Swaps and Short Sales on page 40, and in detail in the Statement of Additional Information. The Aggressively Managed Flexible Portfolio is managed by Prudential Investment Advisors ("PIA") and Prudential Diversified Investment Strategies ("PDI"), units of PIC, using a team of portfolio managers under the supervision of Mark Stumpp, Managing Director, PIC. Mr. Stumpp has been providing overall asset allocation for the portfolio since 1994. Mr. Stumpp also supervises the team of portfolio managers for the Conservatively Managed Flexible Portfolio of the Series Fund and is portfolio manager for several employee benefit trusts including The Prudential Retirement System for U.S. Employees and Special Agents. Prior to 1994, he was responsible for corporate pension asset management for Prudential Diversified Investment Strategies' corporate clients. High Yield Bond Portfolios High Yield Bond Portfolio. The objective of this portfolio is to achieve a high total return through investment in a diversified portfolio of high yield/high risk fixed income securities. The portfolio seeks to achieve its objective by following a policy of generally investing in fixed income securities rated in the medium to lower categories by recognized rating services or in unrated fixed income securities of comparable quality. The portfolio expects to invest principally in fixed income securities rated Baa or lower by Moody's, or BBB or lower by S&P. Corporate bonds which are rated Baa by Moody's are described by Moody's as being investment grade, but are also characterized as having speculative characteristics. Corporate bonds rated below Baa by Moody's and BBB by S&P are considered speculative. A description of corporate bond ratings is in the Statement of Additional Information. Medium to lower rated fixed income securities tend to offer higher yields than higher rated securities because they are subject to the higher risk of an issuer's inability to meet principal and interest payments on the obligations (credit risk) and also to higher price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (market risk). In the lower quality segments of the fixed income securities market, changes in perception of the creditworthiness of individual issuers tend to occur more frequently and in a more pronounced manner than do changes in higher quality segments of the fixed income securities market. The Prudential considers both credit risk and market risk in selecting securities for the portfolio. It will evaluate, among other things, an issuer's financial history, condition, prospects and management. It will make its own independent credit analysis and will not rely principally on the ratings assigned by the ratings services 33 (e.g., Moody's and S&P), although such ratings will be considered. By holding a diversified selection of such securities, the portfolio seeks to reduce both credit risk and volatility. The portfolio may invest up to 20% of its total assets in United States currency denominated debt issues issued outside the United States by foreign and domestic issuers. The particular risks of investments in foreign securities are described under Foreign Securities on page 39. The portfolio may also (i) purchase and sell options on debt securities; (ii) purchase and sell interest rate futures contracts and options thereon; (iii) purchase securities on a when-issued or delayed delivery basis; (iv) use interest rate swaps; and (v) make short sales. These techniques are described briefly under Options, Futures Contracts and Swaps and Short Sales on page 40, and in detail in the Statement of Additional Information. Although the portfolio is not expected to engage in substantial short-term trading, it may sell securities it owns without regard to the length of time they have been held. The portfolio's turnover rate is not expected to exceed 150%. Lars Berkman, Managing Director, PIC, and Michael Snyder, Vice President, PIC, have been co-managers of the High Yield Bond Portfolio since 1995. Mr. Berkman is also portfolio manager of The Prudential High Yield Fund and has been employed by PIC as a portfolio manager since 1990. Mr. Snyder is also the portfolio manager of the U.S. High Yield Income Fund for The Prudential and has been employed by PIC since 1987. Diversified Stock Portfolios Stock Index Portfolio. The objective of this portfolio is to achieve investment results that correspond to the price and yield performance of publicly-traded common stocks in the aggregate. The portfolio seeks to achieve this objective by following the policy of attempting to duplicate the price and yield performance of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"), an index which represents more than 70% of the total market value of all publicly-traded common stocks and is widely viewed among investors as representative of the performance of publicly-traded common stocks as a whole. The S&P 500 Index is composed of 500 selected common stocks, over 95% of which are listed on the New York Stock Exchange ("NYSE"). Standard & Poor's Corporation chooses the stocks to be included in the index on a statistical basis taking into account market values and industry diversification. Inclusion in the index in no way implies an opinion by Standard & Poor's Corporation as to a stock's attractiveness as an investment, and Standard & Poor's Corporation is not in any way affiliated with this portfolio. "Standard & Poor's," "Standard & Poor's 500" and "500" are trademarks of McGraw Hill, Inc. and have been licensed for use by The Prudential Insurance Company of America and its affiliates and subsidiaries. The Series Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Series Fund. Reference is made to the Statement of Additional Information which sets forth certain additional disclaimers and limitations of liabilities on behalf of S&P. The S&P 500 Index is a "weighted" index in which the weighting of each stock depends on its relative total market value: its market price per share times the number of shares outstanding. Because of this weighting, approximately 10% of the S&P 500 Index's value is accounted for by the stocks of the five largest companies by relative market value. As of December 31, 1994 those companies were: General Electric Co., American Telephone and Telegraph Co., Exxon Corp., Coca-Cola Co., and Royal Dutch. This portfolio will not be "managed" in the traditional sense of using economic, financial or market analysis to determine the stocks to be purchased by the portfolio. Rather, the portfolio manager will purchase stocks for the portfolio in proportion to their weighting in the S&P 500 Index. Thus, adverse financial performance by a company will not result in reduction or elimination of the portfolio's holdings of its stock and, conversely, superior financial performance by a company will not lead the portfolio to increase its holdings of the company's stock. If a stock held by this portfolio is eliminated from the S&P 500 Index, the portfolio will sell its holdings of the stock regardless of the prospects of the company. Because the portfolio will not be "managed" in the traditional sense, portfolio turnover is expected to be low and is generally not expected to exceed 10% and brokerage commissions are also expected to be correspondingly low. The following table shows the performance of the S&P 500 Index for the 25 years ending in 1994. The period covered by this table is one of generally rising stock prices, and the performance of the S&P 500 Index in this period should not be viewed as a representation of any future performance by that index. In addition, the fees and costs involved in the operation of the Stock Index Portfolio mean that the performance of a share of stock in the portfolio may not equal the performance of the S&P 500 Stock Index even if the assets held by the portfolio do equal that performance. 34 *S&P 500 WITH DIVIDENDS REINVESTED Annual Percentage Change
1970 +3.93 1983 +22.38 1971 +14.56 1984 +6.10 1972 +18.90 1985 +31.57 1973 -14.77 1986 +18.56 1974 -26.39 1987 +5.10 1975 +37.16 1988 +16.61 1976 +23.57 1989 +31.69 1977 -7.42 1990 -3.10 1978 +6.38 1991 +30.47 1979 +18.20 1992 +7.61 1980 +32.27 1993 +10.08 1981 -5.01 1994 +1.32 1982 +21.44
Source: Standard & Poor's Corporation. Percentage change calculated in accordance with specifications of SEC release number IA-327. In the seven full years since this portfolio was established its total return, compared to that of the S&P 500 Index, was as follows: Annual Percentage Change S&P 500 Total Return with Stock Index Portfolio Dividends Reinvested (after deduction of expenses) --------------------------------- ----------------------------- 1988 +16.61 +15.44 1989 +31.69 +30.93 1990 -3.10 -3.63 1991 +30.47 +29.72 1992 +7.61 +7.13 1993 +10.08 +9.66 1994 +1.32 +1.01 A fuller description of the policies followed by the Stock Index Portfolio is in the Statement of Additional Information. High Dividend Stock Portfolio. The objective of this portfolio is both current income and capital appreciation through investment primarily in common stocks and convertible securities that provide favorable prospects for investment income returns above those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index. The portfolio seeks to achieve this objective by following the policy of investing in such securities, giving emphasis to earnings, balance sheet and cash flow analysis, and the relationships that these factors have to the price and return of a given security. Under normal circumstances, the portfolio intends to invest at least 65% of its total assets in such securities. The portfolio may invest the balance of its assets in other stocks, other securities convertible into common stocks and in debt securities (including money market instruments). The portfolio may under normal circumstances invest up to 35% of its total assets in money market instruments of the type invested in by the Money Market Portfolio and without limit when the portfolio's manager believes market conditions warrant a temporary defensive posture or pending the investment of proceeds from sales of the portfolio shares. In addition, up to 35% of the portfolio's total assets may be invested in other fixed-income obligations. The portfolio anticipates that these will primarily be rated A or better by Moody's or S&P. However, the portfolio may also invest in lower-rated fixed-income securities, although it will not invest in securities rated lower than CC or Ca by Moody's or S&P, respectively. The risks of medium to lower rated securities, also known as high risk securities, are described above in connection with the High Yield Bond Portfolio. A description of debt ratings is in the Statement of Additional Information. The portfolio may also invest in non-rated fixed-income securities which, in the opinion of the manager, are of a quality comparable to rated securities in which the portfolio will invest. To the extent permitted by applicable insurance law, the portfolio may invest up to 30% of its total assets in non-United States currency denominated debt and equity securities of foreign and U.S. issuers. The particular risks of investments in foreign securities are described under Foreign Securities on page 39. In addition, the portfolio may (i) purchase and sell options on equity securities, stock indices and foreign currencies (ii) purchase and sell stock index and foreign currency futures contracts and options thereon; (iii) enter into forward foreign currency exchange contracts; and (iv) purchase securities on a when-issued or delayed delivery basis. 35 These techniques are described briefly under Options, Futures Contracts and Swaps on page 40, and in detail in the Statement of Additional Information. As a result of its investment policies, the portfolio's turnover rate may exceed 100%, although it is not expected to exceed 200%. Warren Spitz, Managing Director, PIC, has been portfolio manager for the High Dividend Stock Portfolio since 1988. Common Stock Portfolio. The objective of this portfolio is to achieve capital appreciation through investment primarily in common stocks of companies, including major established corporations as well as smaller capitalization companies, that appear to offer attractive prospects of price appreciation that is superior to broadly-based stock indices. Current income, if any, is incidental. The portfolio seeks to achieve this objective by following the policy of investing primarily in common stocks. It may also invest to a limited extent in short, intermediate or long term debt, either convertible or nonconvertible into common stock, as well as in nonconvertible preferred stock. The portfolio will attempt to maintain a flexible approach to the selection of common stocks of various types of companies whose valuations appear to offer opportunities for above-average appreciation. Thus, the portfolio may invest in securities of companies whose estimated growth in earnings exceeds that projected for the market as a whole because of factors such as expanding market share, new products or changes in market environment. Or it may invest in "undervalued" securities which are often characterized by a lack of investor recognition of the basic value of a company's assets. Securities of companies with sales and earnings trends which are currently unfavorable but which are expected to reverse may also be in the portfolio. The effort to achieve price appreciation that is superior to broadly based stock indices necessarily involves accepting a greater risk of declining values. During periods when stock prices decline generally, it can be expected that the value of the portfolio will also decline. To the extent permitted by applicable insurance law, this portfolio may invest up to 30% of its total assets in non-United States currency denominated common stock and fixed-income securities convertible into common stock of foreign and U.S. issuers. The particular risks of investments in foreign securities are described in further detail under Foreign Securities on page 39. In addition, the portfolio may (i) purchase and sell options on equity securities, stock indices and foreign currencies (ii) purchase and sell stock index and foreign currency futures contracts and options thereon; (iii) enter into forward foreign currency exchange contracts; and (iv) purchase securities on a when-issued or delayed delivery basis. These techniques are described briefly under Options, Futures Contracts and Swaps on page 40, and in detail in the Statement of Additional Information. A portion of the portfolio may be invested in short-term debt obligations of the kind held in the Money Market portfolio as described in the Statement of Additional Information in order to make effective use of cash reserves pending investment in common stocks. Thomas Jackson, Managing Director, PIC, has been portfolio manager of the Common Stock Portfolio since 1990. Prior to 1990, Mr. Jackson was Principal for Red Oak Advisors. Growth Stock Portfolio. The objective of the Growth Stock Portfolio is to achieve long-term growth of capital through investment primarily in equity securities of established companies with above-average growth prospects. Current income, if any, is incidental. In order to achieve this objective, the Growth Stock Portfolio will follow a policy of selecting stocks on a company-by-company basis primarily through the use of fundamental analysis. The portfolio manager will look for companies that have demonstrated growth in earnings and sales, high returns on equity and assets, or other strong financial characteristics, and in the opinion of the portfolio manager, are attractively valued. These companies tend to have a unique market niche, a strong new product profile or superior management. Under normal market conditions, at least 65% of the value of the total assets of the portfolio will be invested in common stocks and preferred stocks of companies which exceed $1 billion in market capitalization. The portfolio may invest up to 35% of its total assets in: (i) common stocks, preferred stocks, and other equity-related securities of companies that are undergoing changes in management or product and marketing dynamics which have not yet been reflected in reported earnings but which are expected to impact earnings in the intermediate term -- these securities often lack investor recognition and are often favorably valued; (ii) other equity-related securities; (iii) with respect to a maximum of 20% of its total assets, common stocks, preferred stocks and other equity-related securities of Canadian issuers or American Depository Receipts ("ADRs"); (iv) investment grade fixed income securities and mortgage-backed securities, including lower rated securities [rated in the fourth highest rating category by a rating service (i.e. Baa by Moody's Investor Services or BBB by Standard & Poor's)] or, if not rated, determined by the portfolio manager to be of comparable quality to securities so rated. A description of debt ratings is contained in the Appendix to the statement of additional information; and (v) obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities. 36 In addition, the portfolio may: (i) purchase and sell options on equity securities, stock indices, and foreign currencies; (ii) lend its portfolio securities; (iii) purchase and sell stock index and foreign currency futures contracts and options thereon; (iv) enter into forward foreign currency exchange contracts; and (v) enter into repurchase agreements and purchase securities on a when-issued or delayed delivery basis. These techniques are described on pages 39 through 41, and further information about some of them is included in the Statement of Additional Information. The effort to achieve superior investment returns necessarily involves a risk of exposure to declining values. Securities in which the portfolio may primarily invest have historically been more volatile than the Standard & Poor's 500 Composite Stock Price Index. Accordingly, during periods when stock prices decline generally, it can be expected that the value of the portfolio will decline more than the market indices. David Poiesz, Director and Vice President of Jennison Associates Capital Corp., has been portfolio manager of the Growth Portfolio since its inception in 1995. Mr. Poiesz joined Jennison Associates in 1983 as an equity research analyst and has been an equity portfolio manager since 1991. Small Capitalization Stock Portfolio. The objective of this portfolio is to achieve long-term growth of capital through investment primarily in equity securities of publicly-traded companies with small market capitalization. Current income, if any, is incidental. The portfolio seeks to achieve this objective by following the policy of attempting to duplicate the price and yield performance of the Standard & Poor's Small Capitalization Stock Index (the "S&P SmallCap 600 Index"), an index which consists of six-hundred smaller capitalization domestic stocks chosen for market size, liquidity, and industry group representation. Stocks in the index have market capitalizations between $35 million and $1.215 billion. However, to be included in the index, stock selections are also screened for trading volume, share turnover, ownership concentration, share price and bid/ask spreads. The initial sector weightings were selected to reflect the industry distribution of all small capitalization stocks followed by S&P. The S&P SmallCap 600 Index has above average risk and may fluctuate more than the S&P 500 Index which invests in stocks of larger, more established firms. The S&P SmallCap 600 Index is a market weighted index (stock price times shares outstanding), with each stock affecting the index in proportion to its market value. Standard & Poor's Corporation is responsible for selecting and maintaining the list of stocks to be included in the index. Inclusion in the index in no way implies an opinion by Standard & Poor's Corporation as to a stock's attractiveness as an investment. "Standard & Poor's", "Standard & Poor's Small Capitalization Stock Index" and "Standard & Poor's SmallCap 600" are trademarks of McGraw Hill. Inc. The Series Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Series Fund. Reference is made to the statement of additional information which sets forth certain additional disclaimers and limitations of liabilities on behalf of S&P. The following table shows the performance of the S&P SmallCap 600 Index for the 10 years ending in 1994. Although the index was first published in 1994, S&P reconstructed its performance for earlier years. The performance of the S&P SmallCap 600 Index in this period should not be viewed as a representation of any future performance by that index. In addition, the fees and costs involved in the operation of the Small Capitalization Stock Portfolio mean that the performance of a share of stock in the portfolio may not equal the performance of the S&P Small Cap 600 Stock Index even if the assets held by the portfolio do equal that performance. S&P SmallCap 600 With Dividends Reinvested Annual Percentage Change ------------------------------------------ 1985 +32.23 1986 +3.23 1987 -13.50 1988 +19.49 1989 +13.89 1990 -9.90 1991 +48.49 1992 +21.04 1993 +18.79 1994 -4.77 Source: Standard & Poor's Corporation. Percentage change calculated in accordance with specifications of SEC release number IA-327. 37 Under normal circumstances, this portfolio intends to be invested in all or a representative sample of the stocks in the S&P SmallCap 600 Index. The portfolio may hold cash or its equivalent, these holdings may cause its performance to differ from that of the S&P SmallCap 600 Index. The portfolio will attempt to minimize any such differences in performance through transactions involving stock index futures contracts, options on stock indices, and/or options on stock index future contracts. In addition, the portfolio may: (i) purchase and sell options on equity securities; (ii) lend its portfolio securities; and (iii) purchase securities on a when-issued or delayed delivery basis. These techniques are described briefly under Options, Futures Contracts and Swaps on page 40, and in detail in the Statement of Additional Information. The investment policies and techniques of the Small Capitalization Stock Portfolio are not fundamental and may be changed without shareholder approval if it is determined that alternative investment techniques would be more effective in achieving the portfolio's objective. Wai Chiang, Director of Portfolio Management, Prudential Diversified Investment Strategies, has been portfolio manager for the Small Capitalization Stock Portfolio since its inception in 1995. Mr. Chiang also manages the unregistered separate accounts, Pridex and Pridex 500 for The Prudential. Mr. Chiang has been employed by The Prudential as a portfolio manager since 1986. Global Equity Portfolio. The objective of this portfolio is long-term growth of capital through investment primarily in common stocks and common stock equivalents (such as convertible debt securities) of foreign and domestic issuers. Current income, if any, is incidental. The portfolio is intended to provide investors with the opportunity to invest in a portfolio of securities of companies located throughout the world. In making the allocation of assets among the various countries and geographic regions, the portfolio manager ordinarily considers such factors as prospects for relative economic growth between foreign countries; expected levels of inflation and interest rates; government policies influencing business conditions; the range of individual investment opportunities available to international investors; and other pertinent financial, tax, social, political and national factors--all in relation to the prevailing prices of the securities in each country or region. The portfolio is not required to maintain any particular geographic or currency mix of its investments. The portfolio intends to maintain investments in at least three countries (including the United States), but may, when market conditions warrant, invest up to 35% of its assets in companies located in any one country (other than the United States). In analyzing companies for investment, the portfolio manager ordinarily looks for one or more of the following characteristics: prospects for above-average earnings growth per share; high return on invested capital; healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; efficient service; pricing flexibility; strength of management; and general operating characteristics which will enable the companies to compete successfully in their marketplace--all in relation to the prevailing prices of the securities of such companies. Investing in securities of foreign companies and countries involves special risks. See Foreign Securities on page 39. When the portfolio manager believes market conditions dictate a temporary defensive strategy, or during periods of structuring and restructuring the portfolio, the portfolio may invest without limit in money market investments of the kind in which the Money Market Portfolio invests, including repurchase agreements. In addition, the portfolio may (i) purchase and sell options on equity securities, stock indices and foreign currencies; (ii) purchase and sell stock index, interest rate and foreign currency futures contracts and options thereon; (iii) enter into forward foreign currency exchange contracts; and (iv) purchase securities on a when-issued or delayed delivery basis. These techniques are described briefly under Options, Futures Contracts and Swaps on page 40, and in detail in the Statement of Additional Information. Daniel Duane, Managing Director, PIC, has been the portfolio manager of the Global Equity Portfolio since 1990. Prior to 1990, Mr. Duane was the Senior Portfolio Manager of the Global Equity Investments at First Investors Asset Management. Specialized Portfolios Natural Resources Portfolio. The objective of this portfolio is long-term growth of capital through investment primarily in common stocks and convertible securities of "natural resource companies" (as defined below) and in securities (typically debt securities and preferred stocks) the terms of which are related to the market value of some natural resource ("asset-indexed securities"). Under normal circumstances, the portfolio will invest at least 65% of its total assets in such securities. 38 Companies that primarily own, explore, mine, process or otherwise develop natural resources, or supply goods and services primarily to such companies, will be considered "natural resource companies." Natural resources generally include precious metals (e.g., gold, silver and platinum), hydrocarbons (e.g., coal, oil and natural gases), timber land, undeveloped real property and agricultural commodities. The value of equity securities of natural resource companies (including those companies that are primarily involved in providing goods and services to natural resource companies) will fluctuate pursuant to market conditions generally, as well as to the market for the particular natural resource in which the issuer is involved. The Prudential will seek securities that are attractively priced relative to the intrinsic values of the relevant natural resource or that are of companies which are positioned to benefit under existing or anticipated economic conditions. Accordingly, the portfolio may shift its emphasis from one natural resource industry to another depending upon prevailing trends or developments. However, the portfolio will not invest 25% or more of its total assets in the securities of companies in any one natural resource industry. "Asset-indexed securities," in which the portfolio may also invest, are securities whose principal amount, redemption terms or conversion terms are related to the market price of a natural resource asset. The portfolio expects to purchase asset-indexed securities which are rated, or are issued by issuers that have outstanding obligations which are rated, at least BBB or Baa by S&P or Moody's, respectively, or commercial paper rated at least A-2, or P-2 by S&P or Moody's, respectively, or in unrated securities that The Prudential determines to be of comparable quality. The portfolio reserves the right, however, to invest in asset-indexed securities rated as low as CC or Ca by Moody's or S&P, respectively, or in unrated securities of comparable quality, also known as high risk securities. The portfolio may invest a small portion of its assets in other stocks, other securities convertible into common stocks, fixed-income securities that are primarily rated A or better by Moody's or S&P (including money market instruments), and options on stocks and on natural resource-related stock indices. A description of debt ratings is in the Statement of Additional Information. The portfolio may under normal circumstances invest up to 35% of its total assets in money market instruments of the type invested in by the Money Market Portfolio and without limit when the portfolio manager believes market conditions warrant a temporary defensive posture or during periods of structuring and restructuring the portfolio. To the extent permitted by applicable insurance law, this portfolio may invest up to 30% of its total assets in non-United States currency denominated common stock and fixed-income securities convertible into common stock of foreign and U.S. issuers. The particular risks of investments in foreign securities are described under Foreign Securities on page 39. In addition, the portfolio may (i) purchase and sell options on equity securities, stock indices and foreign currencies (ii) purchase and sell stock index and foreign currency futures contracts and options thereon; (iii) enter into forward foreign currency exchange contracts; and (iv) purchase securities on a when-issued or delayed delivery basis. These techniques are described briefly under Options, Futures Contracts and Swaps on page 40, and in detail in the Statement of Additional Information. The portfolio's turnover rate may exceed 100%, although it is not expected to exceed 200%. Leigh Goehring, Vice President, PIC, has been portfolio manager of the Natural Resources Portfolio since 1992. Prior to 1992, Mr. Goehring was portfolio manager of The Prudential-Bache Option Growth Fund. Foreign Securities. The Global Equity Portfolio may invest up to 100% of its total assets in common stock and convertible securities denominated in a foreign currency and issued by foreign or domestic issuers. The Bond and High Yield Bond Portfolios may each invest up to 20% of their assets in United States currency denominated debt securities issued outside the United States by foreign or domestic issuers. In addition, the bond components of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios may each invest up to 20% of their assets in such securities. To the extent permitted by applicable insurance law, the High Dividend Stock, Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios may invest up to 30% of their total assets in debt and equity securities denominated in a foreign currency and issued by foreign or domestic issuers. Further, to the extent permitted by applicable insurance law, the Common Stock, Growth Stock, and Natural Resources Portfolios may invest up to 30% of their assets in non-United States currency denominated common stock and fixed income securities convertible into common stock of foreign and domestic issuers. Securities issued outside the United States and not publicly traded in the United States, as well as American Depository Receipts ("ADRs") and securities denominated in a foreign currency are referred to collectively in this prospectus as "foreign securities." ADRs are U.S. dollar-denominated certificates issued by a United States bank or trust company and represent the right to receive securities of a foreign issuer deposited in a domestic bank or foreign branch of a United States bank and traded on a United States exchange or in an over-the-counter market. Investment in ADRs has certain advantages over direct investment in the underlying foreign securities because they are easily transferable, have readily available market quotations, and the foreign issuers are usually subject to comparable auditing, accounting, and financial reporting standards as domestic issuers. 39 Foreign securities involve risks of political and economic instability in the country of the issuer, the difficulty of predicting international trade patterns, the possibility of imposition of exchange controls and, in the case of securities not denominated in United States currency, the risk of currency fluctuations. Such securities may be subject to greater fluctuations in price than domestic securities. Under certain market conditions, foreign securities may be less liquid than domestic securities. In addition, there may be less publicly available information about a foreign company than about a domestic company. Foreign companies generally are subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. There is generally less government regulation of securities exchanges, brokers, and listed companies abroad than in the United States, and, with respect to certain foreign countries, there is a possibility of expropriation, confiscatory taxation or diplomatic developments which could affect investment in those countries. If the security is denominated in foreign currency, it may be affected by changes in currency rates and in exchange control regulations, and costs may be incurred in connection with conversions between currencies. Finally, in the event of a default of any foreign debt obligations, it may be more difficult for a portfolio to obtain or to enforce a judgment against the issuers of such securities. See Forward Foreign Currency Exchange Contracts in the Statement of Additional Information. Options, Futures Contracts and Swaps. The description of each portfolio's investment policies also state whether they will invest in what are sometimes called derivative securities. These include options (which may be to buy or sell equity securities, debt securities, stock indices, foreign currencies and stock index futures contracts); futures contracts on interest bearing securities, stock and interest rate indices, and foreign currencies; and interest rate swaps. These investments have not in the past represented more than a very minor part of the investments of any portfolio but may increase in the future. A call option gives the owner the right to buy and a put option the right to sell a designated security or index at a predetermined price for a given period of time. They will be used primarily to hedge or minimize fluctuations in the principal value of a portfolio or to generate additional income. They involve risks which differ, depending upon the particular option. But they often offer an attractive alternative to the purchase or sale of the related security. Futures contracts represent a contractual obligation to buy or sell a designated security or index within a stated period. They can be used as a hedge against or to minimize fluctuations of a portfolio or as an efficient way of establishing certain positions more quickly than direct purchase of the securities. They can also be used to speculate, but this will not be done by any of the portfolios. They involve risks of various kinds, all of which could result in losses rather than in achieving the intended objective of any particular purchase. Because options, futures and swaps are now used to such a limited extent, a full description of these investments and the risks associated with them is in the Statement of Additional Information. Short Sales. The Bond, High Yield, Bond, Government Securities, Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios may sell securities they do not own in anticipation of a decline in the market value of those securities ("short sales"). The portfolio will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the portfolio replaces the borrowed security. The portfolio will realize a gain if the security declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss will be increased, by the amount of any premium or interest paid in connection with the short sale. Reverse Repurchase Agreements and Dollar Rolls. The Bond, High Yield Bond, and Government Securities Portfolios, as well as the fixed income portions of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios, may use reverse repurchase agreements and dollar rolls. The Money Market Portfolio and the money market portion of any portfolio may use reverse repurchase agreements. Reverse repurchase agreements involve the sale of securities held by a portfolio with an agreement by the portfolio to repurchase the same securities at an agreed upon price and date. During the reverse repurchase period, the portfolio often continues to receive principal and interest payments on the sold securities. The terms of each agreement reflect a rate of interest for use of the funds for the period, and thus these agreements have the characteristics of borrowing by the portfolio. Dollar rolls involve sales by a portfolio of securities for delivery in the current month with a simultaneous contract to repurchase substantially similar securities (same type and coupon) from the same party at an agreed upon price and date. During the roll period, the portfolio forgoes principal and interest paid on the securities. A portfolio is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. A portfolio will establish a segregated account with its custodian in which it will maintain cash, U.S. Government securities or other liquid high-grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities retained by the portfolio may decline below the price of the securities the portfolio has sold but 40 is obligated to repurchase under the agreement. In the event the buyer of securities under a reverse repurchase agreement or dollar roll files for bankruptcy or becomes insolvent, the portfolio's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the portfolio's obligation to repurchase the securities. The Bond, High Yield Bond, and Government Securities Portfolios, as well as the fixed income portions of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios, will not obligate more than 30% of their net assets in connection with reverse repurchase agreements and dollar rolls. No other portfolio will obligate more than 10% of its net assets in connection with reverse repurchase agreements. Loans of Portfolio Securities. All of the portfolios except the Money Market Portfolio may from time to time lend the securities they hold to broker-dealers, provided that such loans are made pursuant to written agreements and are continuously secured by collateral in the form of cash, U.S. Government Securities or irrevocable standby letters of credit in an amount equal to at least the market value at all times of the loaned securities plus the accrued interest and dividends. During the time securities are on loan, the portfolio will continue to receive the interest and dividends, or amounts equivalent thereto, on the loaned securities, while receiving a fee from the borrower or earning interest on the investment of the cash collateral. There is a slight risk that the borrower may become insolvent, which might delay carrying out a decision to sell the loaned security. This risk can be minimized by careful selection of borrowers and requiring and monitoring the adequacy of capital. No loans will be made to any broker affiliated with The Prudential. INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS The Series Fund is subject to certain investment restrictions which are fundamental to the operations of the Series Fund and may not be changed except with the approval of a majority vote of the persons participating in the affected portfolio. The investments of the various portfolios are generally subject to certain additional restrictions under state laws. In the event of future amendments to the applicable New Jersey statutes, each portfolio will comply, without the approval of the shareholders, with the statutory requirements as so modified. A detailed discussion of investment restrictions applicable to the Series Fund is in the Statement of Additional Information. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES The Series Fund has entered into an Investment Advisory Agreement with The Prudential under which The Prudential will, subject to the direction of the Board of Directors of the Series Fund, be responsible for the management of the Series Fund, and provide investment advice and related services to each portfolio. The Prudential manages the assets that it owns as well as those of various separate accounts established by The Prudential and those held by other investment companies for which it acts as investment advisor. Total assets under management as of December 31, 1994 was approximately $297 billion, which includes approximately $212 billion owned by The Prudential and approximately $85 billion of external assets under The Prudential's management. Subject to The Prudential's supervision, substantially all of the investment advisory services provided to the Series Fund by The Prudential are furnished, with respect to 15 of the Series Fund's 16 portfolios, by its wholly-owned subsidiary PIC, pursuant to the Service Agreement between The Prudential and PIC. The Agreement provides that The Prudential will reimburse PIC for its costs and expenses. The Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios are managed by Prudential Investment Advisors ("PIA") and Prudential Diversified Investment Strategies ("PDI"), units of PIC, using a team of portfolio managers under the supervision of Mark Stumpp, Managing Director, PIC. Investment advisory services with respect to the Growth Stock Portfolio provided by The Prudential are furnished by another wholly-owned subsidiary, Jennison Associates Capital Corp. ("Jennison"), pursuant to an Investment Subadvisory Agreement between The Prudential and Jennison. That Agreement provides that a portion of the fee received by The Prudential for providing investment advisory services to the Growth Stock Portfolio will be paid to Jennison. PIC and Jennison are both registered as investment advisors under the Investment Advisers Act of 1940. Under the Investment Advisory Agreement, The Prudential receives an investment management fee as compensation for its services to the Series Fund. The fee is a daily charge, payable quarterly, equal to an annual percentage of the average daily net assets of each individual portfolio. It is set forth on page 17. For the year ended December 31, 1994, the Series Fund's total expenses were 0.59% of the average net assets of all of the Series Fund's portfolios. The investment management fee for that period constituted 0.51% of the average net assets. Further information about the investment management arrangements and the expenses of the Series Fund is in the Statement of Additional Information. 41 Portfolio Brokerage and Related Practices. The Prudential is responsible for decisions to buy and sell securities for the portfolios, the selection of brokers and dealers to effect the transactions, and the negotiation of brokerage commissions, if any. Fixed income securities, as well as equity securities traded in the over-the-counter market, 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. An affiliated broker may be employed to execute brokerage transactions on behalf of the portfolios, as long as the commissions are reasonable and fair compared to the commissions received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time. The Series Fund may not engage in any transactions in which The Prudential or its affiliates, including The Prudential Securities Incorporated, acts as principal, including over-the-counter purchases and negotiated trades in which such a party acts as a principal. Additional information about portfolio brokerage and related transactions is in the Statement of Additional Information. STATE REGULATION The Prudential is subject to regulation and supervision by the Department of Insurance of the State of New Jersey, which periodically examines its operations and financial condition. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Prudential is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business to determine solvency and compliance with local insurance laws and regulations. In addition to the annual statements referred to above, The Prudential is required to file with New Jersey and other jurisdictions a separate statement with respect to the operations of all its variable contract accounts, in a form promulgated by the National Association of Insurance Commissioners. EXPERTS The financial statements included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP's principal business address is Two Hilton Court, Parsippany, New Jersey 07054-0319. Actuarial matters included in this prospectus have been examined by Nancy D. Davis, FSA, MAAA, whose opinion is filed as an exhibit to the registration statement. LITIGATION No litigation is pending that would have a material effect upon the Account or the Series Fund. EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION Included in the registration statements for the Contracts and the Series Fund is a Statement of Additional Information which is available without charge by writing to The Prudential at Prudential Plaza, Newark, New Jersey 07102-3777. The following table of contents of that Statement provides a brief summary of what is included in each section. I. MORE DETAILED INFORMATION ABOUT THE CONTRACT. Sales Load Upon Surrender. A description is given of exactly how The Prudential determines the amount of the part of the sales load that is imposed only upon surrenders or withdrawals during the first 10 Contract years. Reduction of Charges for Concurrent Sales to Several Individuals. Where the Contract is sold at the same time to several individuals who are members of an associated class and The Prudential's expenses will be reduced, some of the charges under those Contracts may be reduced. Sales to Persons 14 Years of Age or Younger. The face amount will increase, on the insured's 21st birthday, to 150% of the initial face amount. The application of some of the other Contract provisions may be affected. Paying Premiums by Payroll Deduction. Your employer may pay monthly premiums for you with deductions from your salary. Unisex Premiums and Benefits. In some states and under certain circumstances, premiums and benefits will not vary with the sex of the insured. 42 How the Death Benefit Will Vary. A description is given of exactly how the death benefit may increase to satisfy Internal Revenue Code requirements. Withdrawal of Excess Cash Surrender Value. If the Contract Fund value is high enough you may be able to withdraw part of the cash surrender value while keeping the Contract in effect. There will be a transaction charge. For Form A Contracts there will be a surrender charge. The death benefit will change. There may be tax consequences. You should consult your Prudential representative to discuss whether a withdrawal or a loan is preferable. Increases in Face Amount. If you wish to increase the amount of your insurance, it may be preferable to increase the amount of this Contract rather than to buy another Contract. Conditions will apply, and there will be changes in the premiums and charges. Other provisions of your Contract will be affected. Decreases in Face Amount. In addition to effecting a partial surrender of the Contract, you may, within limits, reduce the Contract's face amount without withdrawing any cash. This reduces the amount at risk and the monthly mortality charge. There could be tax consequences. Your Prudential representative should first be consulted. Tax Treatment of Contract Benefits. A fuller account is provided of how Contract owners may be affected by federal income taxes. Sale of the Contract and Sales Commissions. The Contract is sold primarily by agents of The Prudential who are also registered representatives of one of its subsidiaries, Pruco Securities Corporation, a broker and dealer registered under the Securities and Exchange Act of 1934. Generally, selling agents receive a commission of 50% of the Scheduled Premium in the first year, 10% for the next three years and smaller commissions thereafter. Tax-Qualified Pension Plans. Certain restrictions apply if the Contract is purchased to fund, in part, a tax-advantaged pension plan. Other Standard Contract Provisions. The Contract contains several provisions commonly included in all life insurance policies. They include provisions relating to beneficiaries, misstatement of age or sex, suicide, assignment, incontestability, and settlement options. Exchange of Fixed-Dollar Contract to Variable Contract. Owners of an existing Prudential fixed-dollar life insurance contract may be able to exchange it for a Contract upon favorable terms. II. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS. General Convertible Securities Warrants Options and Futures When-Issued and Delayed Delivery Securities Short Sales Short Sales Against the Box Interest Rate Swaps Loans of Portfolio Securities Illiquid Securities Forward Foreign Currency Exchange Contracts Further Information About the Policies of the Stock Index Portfolio Further Information About the Zero Coupon Bond Portfolios A more detailed description is given of these investments and the policies of these portfolios. III. INVESTMENT RESTRICTIONS. There are many restrictions upon the investments the portfolios may make and the practices in which they may engage; these are fundamental, meaning they may not be changed without Contract owner approval. IV. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES. A fuller description than that in the prospectus is given. V. PORTFOLIO TRANSACTIONS AND BROKERAGE. A description is given of how securities transactions are effected and how The Prudential selects the brokers. 43 VI. DETERMINATION OF NET ASSET VALUE. A full description is given of how the daily net asset value of each portfolio is determined. VII. SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST. A full description is given. VIII. DEBT RATINGS. A description is given of how Moody's Investors Services, Inc. and Standard & Poor's Corporation describe the creditworthiness of debt securities. IX. POSSIBLE REPLACEMENT OF THE SERIES FUND. Although it is most unlikely, it is conceivable that The Prudential might wish to replace the Series Fund portfolios with other investment options. SEC approval will be needed. X. OTHER INFORMATION CONCERNING THE SERIES FUND. Incorporation and Authorized Stock Dividends, Distributions and Taxes Custodian and Transfer Agent Experts Licenses More detail is provided about these matters. XI. DIRECTORS AND OFFICERS OF THE PRUDENTIAL AND MANAGEMENT OF THE SERIES FUND. The names and recent affiliations of The Prudential's directors and executive officers are given. The same information is given for the Series Fund. XII. FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. XIII. THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS. ADDITIONAL INFORMATION A registration statement has been filed with the SEC under the Securities Act of 1933, relating to the offering described in this prospectus. This prospectus and the Statement of Additional Information do not include all of the information set forth in the registration statement. Certain portions have been omitted pursuant to the rules and regulations of the SEC. The omitted information may, however, be obtained from the SEC's principal office in Washington, D.C., upon payment of a prescribed fee. Further information may also be obtained from The Prudential. Its address and telephone number are on the cover of this prospectus. FINANCIAL STATEMENTS The financial statements of the Account should be distinguished from the consolidated financial statements of The Prudential, which should be considered only as bearing upon the ability of The Prudential to meet its obligations under the Contracts. The financial statements of the Series Fund are in the Statement of Additional Information. 44 FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT STATEMENTS OF NET ASSETS December 31, 1994
SUBACCOUNTS -------------------------------------------------------------- AGGRESSIVELY MONEY COMMON MANAGED TOTAL MARKET BOND STOCK FLEXIBLE -------------- -------------- -------------- -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $2,587,138,095 $ 78,169,861 $ 76,194,412 $ 500,113,200 $ 699,836,622 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- NET ASSETS, representing: Equity of Contract owners....................... $2,568,337,051 $ 77,928,559 $ 76,018,846 $ 495,997,636 $ 695,664,623 Equity of The Prudential Insurance Company of America....................................... 18,801,044 241,302 175,566 4,115,564 4,171,999 -------------- -------------- -------------- -------------- -------------- $2,587,138,095 $ 78,169,861 $ 76,194,412 $ 500,113,200 $ 699,836,622 ============== ============== ============== ============== ==============
STATEMENTS OF OPERATIONS For the year ended December 31, 1994
SUBACCOUNTS -------------------------------------------------------------- AGGRESSIVELY MONEY COMMON MANAGED TOTAL MARKET BOND STOCK FLEXIBLE -------------- -------------- -------------- -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 79,801,099 $ 2,906,404 $ 4,745,723 $ 10,458,080 $ 18,588,518 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 16,768,066 504,103 518,852 3,134,155 4,527,520 Reimbursement for excess expenses [Note 3D]..... (53,999) 0 0 0 0 -------------- -------------- -------------- -------------- -------------- NET EXPENSES...................................... 16,714,067 504,103 518,852 3,134,155 4,527,520 -------------- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 63,087,032 2,402,301 4,226,871 7,323,925 14,060,998 -------------- -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 54,709,623 0 158,594 19,666,506 18,931,168 Realized gain (loss) on shares redeemed [average cost basis].......................... 167,179 0 4,403 86,672 0 Net unrealized loss on investments.............. (155,373,175) 0 (7,162,380) (18,362,891) (56,779,739) -------------- -------------- -------------- -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (100,496,373) 0 (6,999,383) 1,390,287 (37,848,571) -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (37,409,341) $ 2,402,301 $ (2,772,512) $ 8,714,212 $ (23,787,573) ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A1 STATEMENTS OF NET ASSETS (CONTINUED) December 31, 1994
SUBACCOUNTS (CONTINUED) ------------------------------------------------------------------------------ ZERO ZERO CONSERVATIVELY COUPON COUPON HIGH MANAGED BOND BOND YIELD STOCK FLEXIBLE 1995 2000 BOND INDEX -------------- -------------- -------------- -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $ 637,504,119 $ 4,804,597 $ 16,786,627 $ 54,538,773 $ 190,760,024 ============== ============== ============== ============== ============== NET ASSETS, representing: Equity of Contract owners....................... $ 633,504,352 $ 4,788,369 $ 16,177,407 $ 54,364,432 $ 190,028,325 Equity of The Prudential Insurance Company of America....................................... 3,999,767 16,228 609,220 174,341 731,699 -------------- -------------- -------------- -------------- -------------- $ 637,504,119 $ 4,804,597 $ 16,786,627 $ 54,538,773 $ 190,760,024 ============== ============== ============== ============== ============== HIGH DIVIDEND NATURAL GLOBAL STOCK RESOURCES EQUITY -------------- -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $ 150,687,304 $ 72,147,168 $ 29,938,696 ============== ============== ============== NET ASSETS, representing: Equity of Contract owners....................... $ 149,277,865 $ 71,565,256 $ 27,782,691 Equity of The Prudential Insurance Company of America....................................... 1,409,439 581,912 2,156,005 -------------- -------------- -------------- $ 150,687,304 $ 72,147,168 $ 29,938,696 ============== ============== ==============
STATEMENTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1994
SUBACCOUNTS (CONTINUED) ------------------------------------------------------------------------------ ZERO ZERO CONSERVATIVELY COUPON COUPON HIGH MANAGED BOND BOND YIELD STOCK FLEXIBLE 1995 2000 BOND INDEX -------------- -------------- -------------- -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 21,289,808 $ 286,151 $ 1,133,170 $ 5,329,778 $ 4,465,133 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 4,323,507 32,534 118,731 370,924 1,283,145 Reimbursement for excess expenses [Note 3D]..... 0 (9,637) (17,971) 0 0 -------------- -------------- -------------- -------------- -------------- NET EXPENSES...................................... 4,323,507 22,897 100,760 370,924 1,283,145 -------------- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 16,966,301 263,254 1,032,410 4,958,854 3,181,988 -------------- -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 6,635,310 1,011 31,655 38 267,733 Realized gain (loss) on shares redeemed [average cost basis].......................... 31,649 586 1,031 5,625 58,302 Net unrealized loss on investments.............. (33,092,575) (288,227) (2,416,751) (6,827,471) (2,856,319) -------------- -------------- -------------- -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (26,425,616) (286,630) (2,384,065) (6,821,808) (2,530,284) -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (9,459,315) $ (23,376) $ (1,351,655) $ (1,862,954) $ 651,704 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- HIGH DIVIDEND NATURAL GLOBAL STOCK RESOURCES EQUITY* -------------- -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 5,001,100 $ 674,356 $ 44,201 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 893,008 470,895 55,679 Reimbursement for excess expenses [Note 3D]..... 0 (2) 0 -------------- -------------- -------------- NET EXPENSES...................................... 893,008 470,893 55,679 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 4,108,092 203,463 (11,478) -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 7,633,088 1,375,424 5,622 Realized gain (loss) on shares redeemed [average cost basis].......................... 34,607 22,045 0 Net unrealized loss on investments.............. (11,478,198) (5,314,192) (1,421,127) -------------- -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (3,810,503) (3,916,723) (1,415,505) -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ 297,589 $ (3,713,260) $ (1,426,983) -------------- -------------- -------------- -------------- -------------- -------------- *Commenced Business on 5/1/94
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A2 STATEMENTS OF NET ASSETS (CONTINUED) December 31, 1994
SUBACCOUNTS ------------------------------ ZERO COUPON GOVERNMENT BOND SECURITIES 2005 -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $ 61,563,342 $ 14,093,350 ============== ============== NET ASSETS, representing: Equity of Contract owners....................... $ 61,256,996 $ 13,981,694 Equity of The Prudential Insurance Company of America....................................... 306,346 111,656 -------------- -------------- $ 61,563,342 $ 14,093,350 ============== ==============
STATEMENTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1994
SUBACCOUNTS ------------------------------ ZERO COUPON GOVERNMENT BOND SECURITIES 2005 -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 4,032,941 $ 845,736 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 445,508 89,505 Reimbursement for excess expenses [Note 3D]..... 0 (26,389) -------------- -------------- NET EXPENSES...................................... 445,508 63,116 -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 3,587,433 782,620 -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 0 3,474 Realized gain (loss) on shares redeemed [average cost basis].......................... (74,828) (2,913) Net unrealized loss on investments.............. (7,299,824) (2,073,481) -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (7,374,652) (2,072,920) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (3,787,219) $ (1,290,300) ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A3 (This page intentionally left blank.) A4 FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31, 1994 and 1993
SUBACCOUNTS -------------------------------------------------------------- MONEY TOTAL MARKET BOND ------------------------------ ------------------------------ ------------------------------ 1993 1994 (AS RESTATED) 1994 1993 1994 1993 -------------- -------------- -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 63,087,032 $ 44,057,142 $ 2,402,301 $ 1,562,897 $ 4,226,871 $ 3,075,764 Capital gains distributions received....................... 54,709,623 70,916,387 0 0 158,594 892,376 Realized gain (loss) on shares redeemed [average cost basis]........... 167,179 626,607 0 0 4,403 15,239 Net unrealized gain (loss) on investments.................... (155,373,175) 89,884,218 0 0 (7,162,380) 662,894 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (37,409,341) 205,484,354 2,402,301 1,562,897 (2,772,512) 4,646,273 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 560,003,324 595,883,814 6,444,757 5,467,177 11,829,119 18,271,190 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (942,487) 1,089,951 (213,654) (175,801) (532,267) (36,073) -------------- -------------- -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 521,651,496 802,458,119 8,633,404 6,854,273 8,524,340 22,881,390 NET ASSETS: Beginning of year................ 2,065,486,599 1,263,028,480 69,536,457 62,682,184 67,670,072 44,788,682 -------------- -------------- -------------- -------------- -------------- -------------- End of year...................... $2,587,138,095 $2,065,486,599 $ 78,169,861 $ 69,536,457 $ 76,194,412 $ 67,670,072 ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A5 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS (CONTINUED) -------------------------------------------------------------- AGGRESSIVELY COMMON MANAGED STOCK FLEXIBLE ------------------------------ ------------------------------ 1994 1993 1994 1993 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 7,323,925 $ 3,787,584 $ 14,060,998 $ 12,932,914 Capital gains distributions received....................... 19,666,506 16,988,695 18,931,168 29,168,105 Realized gain (loss) on shares redeemed [average cost basis]........... 86,672 167,532 0 122,764 Net unrealized gain (loss) on investments.................... (18,362,891) 30,362,343 (56,779,739) 18,927,854 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ 8,714,212 51,306,154 (23,787,573) 61,151,637 -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 123,951,671 108,534,011 142,298,237 150,101,012 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ 452,486 1,171,594 (55,717) (111,711) -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 133,118,369 161,011,759 118,454,947 211,140,938 NET ASSETS: Beginning of year................ 366,994,831 205,983,072 581,381,675 370,240,737 -------------- -------------- -------------- -------------- End of year...................... $ 500,113,200 $ 366,994,831 $ 699,836,622 $ 581,381,675 ============== ============== ============== ============== ZERO CONSERVATIVELY COUPON MANAGED BOND FLEXIBLE 1995 ------------------------------ ------------------------------ 1994 1993 1994 1993 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 16,966,301 $ 10,601,459 $ 263,254 $ 257,300 Capital gains distributions received....................... 6,635,310 18,959,118 1,011 0 Realized gain (loss) on shares redeemed [average cost basis]........... 31,649 120,806 586 0 Net unrealized gain (loss) on investments.................... (33,092,575) 12,220,568 (288,227) (1,749) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (9,459,315) 41,901,951 (23,376) 255,551 -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 127,164,401 163,207,517 338,277 1,203,358 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (1,173,893) 816,842 (106,380) 8,524 -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 116,531,193 205,926,310 208,521 1,467,433 NET ASSETS: Beginning of year................ 520,972,926 315,046,616 4,596,076 3,128,643 -------------- -------------- -------------- -------------- End of year...................... $ 637,504,119 $ 520,972,926 $ 4,804,597 $ 4,596,076 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A6 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS ---------------------------------------------------------------------------------------------- ZERO COUPON HIGH BOND YIELD STOCK 2000 BOND INDEX ------------------------------ ------------------------------ ------------------------------ 1993 1994 1993 1994 (AS RESTATED) 1994 1993 -------------- -------------- -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 1,032,410 $ 834,516 $ 4,958,854 $ 3,323,954 $ 3,181,988 $ 2,402,805 Capital gains distributions received....................... 31,655 5,978 38 23 267,733 339,359 Realized gain (loss) on shares redeemed [average cost basis]........... 1,031 1,154 5,625 48,986 58,302 63,772 Net unrealized gain (loss) on investments.................... (2,416,751) 919,475 (6,827,471) 2,255,362 (2,856,319) 8,649,699 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (1,351,655) 1,761,123 (1,862,954) 5,628,325 651,704 11,455,635 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 900,334 5,163,860 9,774,435 17,361,907 26,983,569 43,311,756 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ 409,426 10,638 (576,511) (16,603) (298,727) (951,071) -------------- -------------- -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... (41,895) 6,935,621 7,334,970 22,973,629 27,336,546 53,816,320 NET ASSETS: Beginning of year................ 16,828,522 9,892,901 47,203,803 24,230,174 163,423,478 109,607,158 -------------- -------------- -------------- -------------- -------------- -------------- End of year...................... $ 16,786,627 $ 16,828,522 $ 54,538,773 $ 47,203,803 $ 190,760,024 $ 163,423,478 ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A7 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS (CONTINUED) ---------------------------------------------------------------------------------------------- HIGH DIVIDEND NATURAL GLOBAL GOVERNMENT STOCK RESOURCES EQUITY* SECURITIES ------------------------------ ------------------------------ -------------- -------------- 1994 1993 1994 1993 1994 1994 -------------- -------------- -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 4,108,092 $ 1,948,922 $ 203,463 $ 300,114 $ (11,478) $ 3,587,433 Capital gains distributions received....................... 7,633,088 3,057,447 1,375,424 1,290,124 5,622 0 Realized gain (loss) on shares redeemed [average cost basis]........... 34,607 68,504 22,045 8,953 0 (74,828) Net unrealized gain (loss) on investments.................... (11,478,198) 6,361,835 (5,314,192) 6,638,189 (1,421,127) (7,299,824) -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ 297,589 11,436,708 (3,713,260) 8,237,380 (1,426,983) (3,787,219) -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 51,018,498 44,298,031 22,317,372 13,476,759 29,174,840 4,183,444 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (376,490) 886,003 (47,480) 173,903 2,190,839 (467,937) -------------- -------------- -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 50,939,597 56,620,742 18,556,632 21,888,042 29,938,696 (71,712) NET ASSETS: Beginning of year................ 99,747,707 43,126,965 53,590,536 31,702,494 0 61,635,054 -------------- -------------- -------------- -------------- -------------- -------------- End of year...................... $ 150,687,304 $ 99,747,707 $ 72,147,168 $ 53,590,536 $ 29,938,696 $ 61,563,342 ============== ============== ============== ============== ============== ============== *Commenced Business on 5/1/94 1993 -------------- OPERATIONS: Net investment income (loss)..... $ 2,505,506 Capital gains distributions received....................... 213,250 Realized gain (loss) on shares redeemed [average cost basis]........... 6,004 Net unrealized gain (loss) on investments.................... 2,070,124 -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ 4,794,884 -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 20,135,848 -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (628,148) -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 24,302,584 NET ASSETS: Beginning of year................ 37,332,470 -------------- End of year...................... $ 61,635,054 ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A8 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS (CONTINUED) ------------------------------ ZERO COUPON BOND 2005 ------------------------------ 1994 1993 -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 782,620 $ 523,407 Capital gains distributions received....................... 3,474 1,912 Realized gain (loss) on shares redeemed [average cost basis]........... (2,913) 2,893 Net unrealized gain (loss) on investments.................... (2,073,481) 817,624 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (1,290,300) 1,345,836 -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 3,624,370 5,351,388 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (146,182) (58,146) -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 2,187,888 6,639,078 NET ASSETS: Beginning of year................ 11,905,462 5,266,384 -------------- -------------- End of year...................... $ 14,093,350 $ 11,905,462 ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A9 NOTES TO FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993 NOTE 1: GENERAL The Prudential Variable Appreciable Account (the "Account") of The Prudential Insurance Company of America ("The Prudential") was established on August 11, 1987 by a resolution of The Prudential's Board of Directors in conformity with insurance laws of the State of New Jersey. The assets of the Account are segregated from The Prudential's other assets. The Account is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. There are fourteen subaccounts within the Account, each of which invests only in a corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The Series Fund is a diversified open-end management investment company, and is managed by The Prudential. NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS The net asset value per share for each portfolio of the Series Fund, the number of shares of each portfolio held by the subaccounts of the Account and the aggregate cost of investments in such shares at December 31, 1994 were as follows:
PORTFOLIOS ------------------------------------------------------------------------------- AGGRESSIVELY CONSERVATIVELY PORTFOLIO MONEY COMMON MANAGED MANAGED INFORMATION MARKET BOND STOCK FLEXIBLE FLEXIBLE - ---------------------------- -------------- -------------- -------------- -------------- --------------- Number of shares: 7,816,986 7,590,332 24,204,046 45,162,376 45,229,225 Net asset value per share: $ 10.0000 $ 10.0384 $ 20.6624 $ 15.4960 $ 14.0950 Cost: $ 78,169,861 $ 82,298,314 $ 479,554,451 $ 718,908,716 $ 652,751,738
PORTFOLIOS (CONTINUED) ------------------------------------------------------------------------------- ZERO ZERO COUPON COUPON HIGH HIGH PORTFOLIO BOND BOND YIELD STOCK DIVIDEND INFORMATION 1995 2000 BOND INDEX STOCK - ---------------------------- -------------- -------------- -------------- -------------- --------------- Number of shares: 453,570 1,415,159 7,400,245 12,753,836 10,403,600 Net asset value per share: $ 10.5929 $ 11.8620 $ 7.3655 $ 14.9571 $ 14.4842 Cost: $ 5,036,020 $ 17,707,975 $ 58,897,134 $ 172,505,026 $ 152,868,694
PORTFOLIOS (CONTINUED) -------------------------------------------------------------- ZERO COUPON PORTFOLIO NATURAL GLOBAL GOVERNMENT BOND INFORMATION RESOURCES EQUITY SECURITIES 2005 - ---------------------------- -------------- -------------- -------------- -------------- Number of shares: 4,995,241 2,157,138 5,884,837 1,311,729 Net asset value per share: $ 14.4432 $ 13.8789 $ 10.4614 $ 10.7441 Cost: $ 69,492,489 $ 31,359,823 $ 66,221,339 $ 15,136,391
NOTE 3: CHARGES AND EXPENSES A. Mortality Risk and Expense Risk Charges The mortality risk and expense risk charges at an effective annual rate of up to 0.90% may be applied daily against the net assets representing equity of the Contract owners held in each subaccount. For contracts with face amounts of $100,000 or more, the annual rate is 0.60%. B. Deferred Sales Charge A deferred sales charge is imposed upon the surrender of certain variable life insurance contracts to compensate The Prudential for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the Contract was issued. No sales charge will be imposed after the tenth year of the Contract. No sales charge will be imposed on death benefits. A10 C. Partial Withdrawal Charge The partial withdrawal of the cash surrender value from certain variable life insurance contracts invokes a charge equal to the lesser of $15 or 2% of the amount withdrawn. D. Expense Reimbursement The Account is reimbursed by The Prudential, on a non-guaranteed basis, for expenses incurred by the Series Fund in excess of the effective rate of 0.40% for all Zero Coupon Bond Portfolios, 0.45% for the Stock Index Portfolio, 0.50% for the High Dividend Stock Portfolio, 0.55% for the Natural Resources Portfolio, and 0.65% for the High Yield Bond Portfolio of the average daily net assets of these portfolios. NOTE 4: TAXES The operations of the subaccounts 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 Contract owners are not taxed to The Prudential. As a result, the net asset values of the subaccounts are not affected by federal income taxes on distributions received by the subaccounts. NOTE 5: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS The increase (decrease) in net assets resulting from surplus transfers represents the net contributions of The Prudential to the Account. NOTE 6: RELATED PARTY TRANSACTIONS The Prudential has purchased multiple individual contracts of the Account insuring the lives of certain employees. The Prudential is the owner and beneficiary of the contracts. Net premium payments of approximately $23.0 million for each of the years ended December 31, 1994 and December 31, 1993, respectively, were directed to the Aggressively Managed Flexible subaccount. Equity of Contract owners in that subaccount at December 31, 1994 and December 31, 1993 includes approximately $136.7 million and $122.8 million, respectively, owned by The Prudential. NOTE 7: RESTATEMENT Subsequent to the issuance of the Account's previously issued December 31, 1993 financial statements, The Prudential determined that in the High Yield Bond subaccount, net assets and net increase in net assets resulting from operations were overstated by approximately $284,192 due to the overvaluation of a security held in the High Yield Bond Portfolio of the Series Fund at December 31, 1993. Accordingly, the comparative 1993 financial information included in the statements of changes in net assets of the Account has been restated. A11 INDEPENDENT AUDITORS' REPORT To the Contract Owners of The Prudential Variable Appreciable Account and the Board of Directors of The Prudential Insurance Company of America Newark, New Jersey We have audited the accompanying statements of net assets of The Prudential Variable Appreciable Account of The Prudential Insurance Company of America (comprising, respectively, the Money Market, Bond, Common Stock, Aggressively Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond 1995, Zero Coupon Bond 2000, High Yield Bond, Stock Index, High Dividend Stock, Natural Resources, Global Equity, Government Securities and Zero Coupon Bond 2005 subaccounts) as of December 31, 1994, the related statements of operations for the periods presented in the year then ended, and the statements of changes in net assets for each of the periods presented in the two years 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 each of the respective subaccounts constituting The Prudential Variable Appreciable Account as of December 31, 1994, the results of their operations, and the changes in their net assets for the respective stated periods in conformity with generally accepted accounting principles. As discussed in Note 7, the 1993 financial statements of The Prudential Variable Appreciable Account have been restated. Deloitte & Touche LLP Parsippany, New Jersey February 10, 1995 A12 1 CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1994 1993 ------ ------ (IN MILLIONS) 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 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN SURPLUS AND ASSET VALUATION RESERVE (AVR)
YEARS ENDED DECEMBER 31, 1994 1993 1992 ----- ----- ----- (IN MILLIONS) 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 ======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-1 2 CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 1993 1992 ----- ----- ----- (IN MILLIONS) 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) ------ ------ ------
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 ======== ======= =======
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 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 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 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:
1994 1993 ----- ----- (IN MILLIONS) 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 ====== ======
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 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:
1994 1993 ----------------------- ------------------------ ACCIDENT PROPERTY ACCIDENT PROPERTY AND AND AND AND HEALTH CASUALTY HEALTH CASUALTY --------- ---------- ---------- ---------- (IN MILLIONS) 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 ======== ======== ======== ========
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 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 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:
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) 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 ======= ======= ======= ======= ======= ======= ======= =======
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.
ESTIMATED CARRYING FAIR VALUE VALUE ----------- ----------- (IN MILLIONS) 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 ======= =======
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 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:
1994 1993 ----------------------- ------------------- AMOUNT PERCENTAGE AMOUNT PERCENTAGE (IN MILLIONS) 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% ======== ====== ======== ======
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:
1994 1993 -------- -------- (IN MILLIONS) 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 ======= =======
F-9 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:
1994 1993 1992 ------ ------ ------ (IN MILLIONS) 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) ===== ===== =====
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:
1994 1993 -------- -------- 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%
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 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:
1994 1993 -------- -------- (IN MILLIONS) 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 ======= =======
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:
1994 1993 -------- -------- (IN MILLIONS) 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 ===== =====
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:
1994 1993 -------- -------- 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%
F-11 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:
DECEMBER 31, 1994 DECEMBER 31, 1993 ------------------------------ ------------------------------ WEIGHTED AVERAGE WEIGHTED AVERAGE BALANCE COST OF FUNDS BALANCE COST OF FUNDS -------- ---------------- -------- -------------- (IN MILLIONS) 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 ======= =======
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 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:
1994 1993 ------------------------------- ---------------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- -------- --------- (IN MILLIONS) 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
F-13 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)
TRADING OTHER THAN TRADING -------------------- ---------------------- ESTIMATED ESTIMATED NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE -------- ---------- -------- ---------- 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 ======= ======= ======= =======
TOTAL ---------------------------------------------- CARRYING ESTIMATED NOTIONAL AMOUNT FAIR VALUE -------- -------- ---------- 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* ======= ======= =======
* $1,233 of Assets and $1,596 of Liabilities are reflected in the Consolidated Statement of Financial Position F-14 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 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 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 PART IB INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION STATEMENT OF ADDITIONAL INFORMATION May 1, 1995 THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT Variable APPRECIABLE LIFE(R)___________________ INSURANCE CONTRACTS PROVIDING FOR THE INVESTMENT OF ASSETS IN THE INVESTMENT PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC. The Prudential Insurance Company of America offers two forms of variable life insurance contracts under the name Variable Appreciable Life(R) Insurance*. The first form provides a death benefit that generally remains fixed in an amount chosen by the purchaser and cash surrender values that vary daily. The second form also provides cash surrender values that vary daily but the death benefit will also vary daily. Under both forms of contract, the death benefit will never be less than the "face amount" of insurance chosen by the purchaser. There is no guaranteed minimum cash surrender value. The assets held for the purpose of paying benefits under these contracts can be invested in one or more of fourteen subaccounts of The Prudential Variable Appreciable Account. The assets invested in each subaccount are in turn invested in a corresponding portfolio of The Prudential Series Fund, Inc., a diversified, open-end management investment company (commonly known as a mutual fund) that is intended to provide a range of investment alternatives to variable contract owners. Each portfolio is, for investment purposes, in effect a separate fund. The sixteen Series Fund portfolios are: the Money Market Portfolio, the Bond Portfolio, the Government Securities Portfolio, the three Zero Coupon Bond Portfolios with different liquidation dates -- 1995 (not available for investment after November 14, 1995), 2000, and 2005, the Conservatively Managed Flexible Portfolio, the Aggressively Managed Flexible Portfolio, the High Yield Bond Portfolio, the Stock Index Portfolio, the High Dividend Stock Portfolio, the Common Stock Portfolio, the Growth Stock Portfolio, the Small Capitalization Stock Portfolio, the Global Equity Portfolio, and the Natural Resources Portfolio. A separate class of capital stock is issued for each portfolio. Shares of the Series Fund are currently sold only to separate accounts of The Prudential and certain other insurers to fund the benefits under variable life insurance and variable annuity contracts issued by those companies. The Variable Appreciable Life(R) Insurance Contract owner may also choose to invest in a fixed-rate option or in The Prudential Variable Contract Real Property Account, which is described in a separate prospectus attached to the prospectus of The Prudential Variable Appreciable Account. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT DATED MAY 1, 1995, WHICH IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, PRUDENTIAL PLAZA, NEWARK, NEW JERSEY 07102-3777 OR BY TELEPHONING (800) 437-4016 Ext. 46. The Prudential Insurance Company of America The Prudential Series Fund, Inc. Prudential Plaza Newark, New Jersey 07102-3777 Telephone: (800) 437-4016 Ext. 46 * Appreciable Life is a registered mark of The Prudential. PVAL-SAI Ed 5-95 Catalog No. 640466W STATEMENT OF ADDITIONAL INFORMATION CONTENTS Page MORE DETAILED INFORMATION ABOUT THE CONTRACT ............................... 1 Sales Load Upon Surrender ................................................ 1 Reduction of Charges for Concurrent Sales to Several Individuals ......... 1 Sales to Persons 14 Years of Age or Younger .............................. 1 Paying Premiums by Payroll Deduction ..................................... 1 Unisex Premiums and Benefits ............................................. 2 How the Death Benefit Will Vary .......................................... 2 Withdrawal of Excess Cash Surrender Value ................................ 3 Increases in Face Amount ................................................. 3 Decreases in Face Amount ................................................. 5 Tax Treatment of Contract Benefits ....................................... 5 Sale of the Contract and Sales Commissions ............................... 7 Tax-Qualified Pension Plans .............................................. 7 Other Standard Contract Provisions ....................................... 8 Exchange of Fixed-Dollar Contract to Variable Contract ................... 8 INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ....................... 8 General .................................................................. 8 Convertible Securities ................................................... 9 Warrants ................................................................. 9 Options and Futures ...................................................... 9 When-Issued and Delayed Delivery Securities .............................. 16 Short Sales .............................................................. 16 Short Sales Against the Box .............................................. 16 Interest Rate Swaps ...................................................... 17 Loans of Portfolio Securities ............................................ 17 Illiquid Securities ...................................................... 17 Forward Foreign Currency Exchange Contracts .............................. 18 Further Information About the Policies of the Stock Index Portfolio ...... 19 Further Information About the Zero Coupon Bond Portfolios ................ 20 INVESTMENT RESTRICTIONS .................................................... 21 INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES ............................ 24 PORTFOLIO TRANSACTIONS AND BROKERAGE ....................................... 25 DETERMINATION OF NET ASSET VALUE ........................................... 26 SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST ........ 28 DEBT RATINGS ............................................................... 30 POSSIBLE REPLACEMENT OF THE SERIES FUND .................................... 32 OTHER INFORMATION CONCERNING THE SERIES FUND ............................... 32 Incorporation and Authorized Stock ....................................... 32 Dividends, Distributions and Taxes ....................................... 32 Custodian and Transfer Agent ............................................. 32 Experts .................................................................. 33 Licenses ................................................................. 33 DIRECTORS AND OFFICERS OF THE PRUDENTIAL AND MANAGEMENT OF THE SERIES FUND . 33 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. ................... A1 THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS .................. B1 STATEMENT OF ASSETS AND LIABILITIES OF THE GROWTH STOCK AND SMALL CAPITALIZATION STOCK PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC. ........ C1 MORE DETAILED INFORMATION ABOUT THE CONTRACT Sales Load Upon Surrender. A contingent deferred sales load is assessed if the Contract lapses or is surrendered during the first 10 Contract years, or if a withdrawal is made under a Form A Contract during that 10 year period. No such charge is applicable to the death benefit, no matter when that may become payable. Subject to the additional limitations described below, for Contracts that lapse or are surrendered during the first 5 Contract years the charge will be equal to 50% of the first year's primary annual premium. In the next 5 Contract years that percentage is reduced uniformly on a daily basis until it reaches zero on the tenth Contract anniversary. Thus, for Contracts surrendered at the end of the sixth year, the maximum deferred sales charge will be 40% of the first year's primary annual premium, for Contracts surrendered at the end of year 7, the maximum deferred sales charge will be 30% of the first year's primary annual premium, and so forth. The contingent deferred sales load is also subject to a further limit at older issue ages (approximately above age 67) in order to comply with certain requirements of state law. Specifically, the contingent deferred sales load for such insureds is no more than $32.50 per $1,000 of face amount. The sales load is subject to a further important limitation that may, particularly for Contracts that lapse or are surrendered within the first 5 or 6 years, result in a lower contingent deferred sales load than that described above. (This limitation might also, under unusual circumstances, apply to reduce the monthly sales load deductions described in the prospectus in item (c) under Monthly Deductions from Contract Fund.) The limitation is applied in order to conform with the requirements of the Investment Company Act of 1940 and regulations adopted thereunder, which limit the amount of non-refundable sales load that may be charged on contracts within the first 2 years. The limitation is as follows: (Every Contract has associated with it a Guideline Annual Premium ("GAP"), which is an amount, generally larger than the gross annual scheduled premium for the Contract, determined actuarially in accordance with a definition set forth in a regulation of the Securities and Exchange Commission ("SEC").) The maximum aggregate sales load that The Prudential will charge (that is, the sum of the monthly sales load deduction and the contingent deferred sales charge) will not be more than 30% of the premiums actually paid until those premiums total one GAP plus no more than 9% of the next premiums paid until total premiums are equal to 5 GAPS, plus no more than 6% of all subsequent premiums. If the sales charges described above would at any time exceed this maximum amount then the charge, to the extent of any excess, will not be made. Reduction of Charges for Concurrent Sales to Several Individuals. The Prudential may reduce the sales charges and/or other charges on individual Contracts sold to members of a class of associated individuals, or to a trustee, employer or other entity representing such a class, where it is expected that such multiple sales will result in savings of sales or administrative expenses. The Prudential determines both the eligibility for such reduced charges, as well as the amount of such reductions, by considering the following factors: (1) the number of individuals; (2) the total amount of premium payments expected to be received from these Contracts; (3) the nature of the association between these individuals, and the expected persistency of the individual Contracts; (4) the purpose for which the individual Contracts are purchased and whether that purpose makes it likely that expenses will be reduced; and (5) any other circumstances which The Prudential believes to be relevant in determining whether reduced sales or administrative expenses may be expected. Some of the reductions in charges for these sales may be contractually guaranteed; other reductions may be withdrawn or modified by The Prudential on a uniform basis. The Prudential's reductions in charges for these sales will not be unfairly discriminatory to the interests of any individual Contract owners. Sales to Persons 14 Years of Age or Younger. Both Form A and Form B Contracts covering insureds of 14 years of age or less contain a special provision providing that the face amount of insurance will automatically be increased on the Contract anniversary after the insured's 21st birthday to 150% of the initial face amount, so long as the Contract is not then in default. The death benefit will also usually increase, at the same time, by the same dollar amount. In certain circumstances, however, it may increase by a smaller amount. See How a Contract's Death Benefit Will Vary in the prospectus. This increase in death benefit will also generally increase the net amount at risk under the Contract, thus increasing the mortality charge deducted each month from amounts invested under the Contract. See item (b) under Monthly Deductions from Contract Fund in the prospectus. The automatic increase in the face amount of insurance may affect future premium payments if the Contract owner wants to avoid the Contract being classified as a Modified Endowment Contract. A Contract owner should consult his or her Prudential representative before making unscheduled premium payments. Paying Premiums by Payroll Deduction. In addition to the annual, semi-annual, quarterly and monthly premium payment modes, a payroll budget method of paying premiums may also be available under certain Contracts. The employer generally deducts the necessary amounts from employee paychecks and sends premium payments to The Prudential monthly. Some Contracts sold using the payroll budget method may be eligible for a guaranteed issue program under which the initial minimum death benefit is $25,000 and the Contracts are based on unisex mortality 1 tables. Any Prudential representative authorized to sell this Contract can provide further details concerning the payroll budget method of paying premiums. Unisex Premiums and Benefits. The Contract generally employs mortality tables that distinguish between males and females. Thus, premiums and benefits under Contracts issued on males and females of the same age will generally differ. However, in those states that have adopted regulations prohibiting sex-distinct insurance rates, premiums and cost of insurance charges will be based on a blended unisex rate whether the insured is male or female. In addition, employers and employee organizations considering purchase of a Contract should consult their legal advisors to determine whether purchase of a Contract based on sex-distinct actuarial tables is consistent with Title VII of the Civil Rights Act of 1964 or other applicable law. The Prudential may offer the Contract with unisex mortality rates to such prospective purchasers. How the Death Benefit Will Vary. As noted above, there are two Forms of the Contract, Form A and Form B. The death benefit under a Form B Contract varies with investment performance while the death benefit under a Form A Contract does not, unless it must be increased to satisfy tax requirements. Under a Form A Contract, the guaranteed minimum death benefit is equal to the face amount of insurance. (However, should the death benefit become payable while a Contract loan is outstanding, the debt will be deducted from the death benefit.) If the Contract is kept in force for several years and if investment performance is reasonably favorable, the Contract Fund value may grow to the point where it is necessary to increase the death benefit in order to ensure that the Contract will satisfy the Internal Revenue Code's definition of life insurance. Thus, the death benefit under a Form A Contract will always be the greater of (1) the guaranteed minimum death benefit; and (2) the Contract Fund divided by the "net single premium" per $1 of death benefit at the insured's attained age on that date. The latter provision ensures that the Contract will always have a death benefit large enough to be treated as life insurance for tax purposes under current law. The net single premium is used only in the calculation of the death benefit, not for premium payment purposes. The following is a table of illustrative net single premiums for $1 of death benefit under Contracts issued on insureds in the preferred rating class. Increase in Insurance Male Net Single Amount Per $1 Attained Age Premium Increase in Contract Fund ----------------------------------------------------------------- 5 .09151 $10.93 25 .17000 $ 5.88 35 .23700 $ 4.22 55 .45209 $ 2.21 65 .59468 $ 1.68 Increase in Insurance Female Net Single Amount Per $1 Attained Age Premium Increase in Contract Fund ----------------------------------------------------------------- 5 .07919 $12.63 25 .15112 $ 6.62 35 .21127 $ 4.73 55 .40090 $ 2.49 65 .53639 $ 1.00 Whenever the death benefit is determined in this way, The Prudential reserves the right to refuse to accept further premium payments, although in practice the payment of the lesser of 2 years' scheduled premiums or the average of all premiums paid over the last 5 years will generally be allowed. Under a Form B Contract, the death benefit will vary with investment experience. Assuming no withdrawals, the death benefit will be equal to the face amount of insurance plus the amount (if any) by which the Contract Fund value exceeds the applicable "Tabular Contract Fund value" for the Contract (subject to an exception described below under which the death benefit is higher). Each Contract contains a table that sets forth the Tabular Contract Fund value as of the end of each of the first 20 years of the Contract. Tabular Contract Fund values between Contract anniversaries are determined by interpolation. The "Tabular Contract Fund value" for each Contract year is an amount that is slightly less than the Contract Fund value that would result as of the end of such year if only scheduled premiums were paid, they were paid when due, the selected investment options earned a net return at a uniform rate of 4% per year, full mortality charges based upon the 1980 CSO Table were deducted, maximum sales load and expense charges were deducted, and there was no Contract debt. 2 Thus, under a Form B Contract with no withdrawals, the death benefit will equal the face amount if the Contract Fund equals the Tabular Contract Fund value. If, due to investment results greater than a net return of 4%, or to payment of greater than scheduled premiums, or to smaller than maximum charges, the Contract Fund value is a given amount greater than the Tabular Contract Fund value, the death benefit will be the face amount plus that excess amount. If, due to investment results less favorable than a net return of 4%, the Contract Fund value is less than the tabular Contract Fund value, the death benefit will not fall below the initial face amount stated in the Contract; however, this unfavorable investment experience must first be offset by favorable performance or additional payments that bring the Contract Fund up to the tabular level before favorable investment results or additional payments will increase the death benefit. Again, the death benefit will reflect a deduction for the amount of any Contract debt. See Contract Loans in the prospectus. As is the case under a Form A Contract, the Contract Fund of a Form B Contract could grow to the point where it is necessary to increase the death benefit by a greater amount in order to ensure that the Contract will satisfy the Internal Revenue Code's definition of life insurance. Thus, the death benefit under a Form B Contract will always be the greatest of (1) the face amount plus the Contract Fund minus the tabular Contract Fund value; (2) the guaranteed minimum death benefit; and (3) the Contract Fund divided by the net single premium per $1 of death benefit at the insured's attained age on that date. A Contract owner may also increase or decrease the face amount of his or her Contract, subject to certain conditions. See Increase in Face Amount and Decrease in Face Amount, below. Withdrawal of Excess Cash Surrender Value. Under certain circumstances, a Contract owner may withdraw a portion of the Contract's cash surrender value without surrendering the Contract in whole or in part. The amount that a Contract owner may withdraw is limited by the requirement that the Contract Fund after withdrawal must not be less than the tabular Contract Fund value. (A Table of Tabular Contract Fund Values is included in the Contract; the values increase with each year the Contract remains in force.) But because the Contract Fund may be made up in part by an outstanding Contract loan, there is a further limitation that the amount withdrawn may not be larger than an amount sufficient to reduce the cash surrender value to zero. The amount withdrawn must be at least $2,000 under a Form A Contract (in which the death benefit is generally equal to the face-amount of insurance) and at least $500 under a Form B Contract (in which the death benefit varies daily). An owner may make no more than four such withdrawals in each Contract year, and there is an administrative processing fee for each withdrawal equal to the lesser of $15 or 2% of the amount withdrawn. An amount withdrawn may not be repaid except as a scheduled or unscheduled premium subject to the applicable charges. Upon request, The Prudential will tell a Contract owner how much he or she may withdraw. Withdrawal of part of the cash surrender value may have tax consequences. See Tax Treatment of Contract Benefits, page 5. A temporary need for funds may also be met by making a loan and you should consult your Prudential representative about how best to meet your needs. Under a Form A Contract, the face amount of insurance is reduced by not more than the amount of the withdrawal. No partial withdrawal will be permitted under a Form A Contract if it would result in a new face amount of less than the minimum face amount applicable to the insured's Contract. See Requirements for Issuance of a Contract in the prospectus. It is important to note, however, that if the face amount is decreased at any time during the first 7 Contract years, there is a danger that the Contract might be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 5. Before making any withdrawal which causes a decrease in face amount, a Contract owner should consult with his or her Prudential representative. Also, if a withdrawal under a Form A Contract is made before the end of the tenth year, the Contract Fund may be reduced not only by the amount withdrawn but also by a proportionate amount of any surrender charges that would be made if the Contract were surrendered. The proportion is based on the percentage reduction in face amount. Form A Contract owners who make a partial withdrawal will be sent replacement Contract pages showing the new face amount, scheduled premiums, maximum surrender charges, tabular values, and monthly deductions. Under a Form B Contract, the cash surrender value and Contract Fund value are reduced by the amount of the withdrawal, and the death benefit is accordingly reduced. Neither the face amount of insurance nor the amount of scheduled premiums will be changed due to a withdrawal of excess cash surrender value under a Form B Contract. No surrender charges will be assessed upon a withdrawal under a Form B Contract. Withdrawal of part of the cash surrender value increases the risk that the Contract Fund may be insufficient to provide for benefits under the Contract. If such a withdrawal is followed by unfavorable investment experience, the Contract may lapse even if scheduled premiums continue to be paid when due. This is because, for purposes of determining whether a lapse has occurred, The Prudential treats withdrawals as a return of premium. Increases in Face Amount. An owner who wishes to increase the amount of his or her insurance may do so by increasing the face amount of the Contract (which is also the guaranteed minimum death benefit), subject to state approval and underwriting requirements determined by The Prudential. An increase in face amount is in many ways similar to the purchase of a second Contract, but it differs in the following respects: the minimum permissible 3 increase is $25,000, while the minimum for a new Contract is $60,000; monthly fees are lower because only a single $3 per month administrative charge is made rather than two; a combined premium payment results in deduction of a single $2 per premium processing charge while separate premium payments for separate Contracts would involve two charges; the monthly expense charge of $0.03 per $1,000 of face amount may be lower if the increase is to a face amount greater than $100,000; and the Contract will lapse as a unit, unlike the case if two separate Contracts are purchased. These differences aside, the decision to increase face amount is comparable to the purchase of a second Contract in that it involves a commitment to higher scheduled premiums in exchange for greater insurance benefits. A Contract owner may elect to increase the face amount of his or her Contract no earlier than the first anniversary of the Contract. The following conditions must be met: (1) the owner must ask for the increase in writing on an appropriate form; (2) the amount of the increase in face amount must be at least $25,000; (3) the insured must supply evidence of insurability for the increase satisfactory to The Prudential; (4) if The Prudential requests, the owner must send in the Contract to be suitably endorsed; (5) the Contract must not be in default on the date the increase takes effect; (6) the owner must pay an appropriate premium at the time of the increase; (7) The Prudential has the right to deny more than one increase in a Contract year; and (8) if The Prudential has, between the Contract Date and the date that any requested increase in face amount will take effect, changed any of the bases on which benefits and charges are calculated under newly issued Contracts, The Prudential has the right to deny the increase. An increase in face amount resulting in a total face amount under the Contract of at least $100,000 may, subject to strict underwriting requirements, render the Contract eligible for a Select Rating. Upon an increase in face amount, The Prudential will recompute the Contract's scheduled premiums, contingent deferred sales and administrative charges, tabular values, and monthly deductions from the Contract Fund. The Contract owner has a choice, limited only by applicable state law, as to whether the recomputation will be made as of the prior or next Contract anniversary. There will be a payment required on the date of increase; the amount of the payment will depend, in part, on which Contract anniversary the Contract owner selects for the recomputation. The Prudential will tell the owner the amount of the required payment. If should also be noted that an increase in face amount may impact the status of the Contract as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 5. Therefore, before increasing the face amount, a Contract owner should consult with his or her Prudential representative. The effective date of the increase in the amount of insurance will be determined by the same rules that apply when a new Contract is purchased. Generally speaking, an increase will take effect on the latest of the date the owner applies for it, the date satisfactory evidence of insurability is provided to The Prudential or the date designated by the Contract owner, provided the necessary payment is made on or before that date. The Prudential will supply the Contract owner with pages which show the increased face amount, the effective date of the increase, and the recomputed items described two paragraphs above. The pages will also describe how the increase in face amount affects the various provisions of the Contract, including a statement that, for the amount of the increase in face amount, the period stated in the Incontestability and Suicide provisions (see Other Standard Contract Provisions, below on page 8) will run from the effective date of the increase. For the purpose of determining the sales load that will be charged after the increase and upon any subsequent lapse or surrender, the Contract is treated as if there were two separate Contracts, a "base Contract" representing the Contract before the increase and an "incremental Contract" representing the increase viewed as a separate Contract. At the time of the increase, a certain portion of the Contract Fund is allocated to the incremental Contract as a prepayment of premiums for purposes of the sales load limit. That portion is equal to the Guideline Annual Premium ("GAP") of the incremental Contract divided by the GAP of the entire Contract after the increase. Premium payments made after the increase are also allocated between the base Contract and the incremental Contract for purposes of the sales load limit. A portion of each premium payment after the increase is allocated to the increase based on the GAP for the incremental Contract divided by the GAP for the entire Contract. A monthly deduction equal to 0.5% of the primary annual premium for each part of the Contract (i.e., the base and incremental Contracts, respectively) will be made until each part of the Contract has been in force for 5 years, although The Prudential reserves the right to continue to make this deduction thereafter. Similarly, the amount, if any, of sales charges upon lapse or surrender and the application of the overall limitation upon sales load, as described above in Sales Load Upon Surrender, page 1, will be determined as explained in that section as if there were two Contracts rather than one. Moreover, the contingent deferred administrative charge is also determined as if there were two separate Contracts. Thus, an owner considering an increase in face amount should be aware that such an increase will entail charges, including periodic sales load deductions and contingent deferred sales and administrative charges, comparable to the purchase of a new Contract. Each Contract owner who elects to increase the face amount of his or her Contract will be granted a "free-look" right which will apply only to the increase in face amount, not the entire Contract. The right is comparable to the right afforded to a purchaser of a new Contract. See Short-Term Cancellation Right or "Free Look" in the 4 prospectus. The "free-look" right would have to be exercised no later than 45 days after execution of the application for the increase or, if later, within 10 days after either receipt of the Contract as increased or receipt of the withdrawal right notice by the owner. Upon exercise of the "free-look" right, the owner will receive a refund in the amount of the aggregate premiums paid since the increase was requested and attributable to the increase, not the base Contract, as determined pursuant to the proportional premium allocation rule described above. There will be no adjustment for investment experience. All charges deducted after the increase will be reduced to what they would have been had no increase been effected. A Contract owner may transfer the total amount attributable to the increase in face amount from the subaccounts or the Real Property Account to the fixed-rate option at any time within 2 years after the increase in face amount. Decreases in Face Amount. A Contract owner may effect a partial surrender of a Contract (see Surrender of a Contract in the prospectus) or a partial withdrawal of excess cash surrender value (see Withdrawal of Excess Cash Surrender Value above). A Contract owner also has the additional option of decreasing the face amount (which is also the guaranteed minimum death benefit) of his or her Contract without withdrawing any such surrender value. Contract owners who conclude that, because of changed circumstances, the amount of insurance is greater than needed will thus be able to decrease their amount of insurance protection, and the monthly deductions for the cost of insurance, without decreasing their current cash surrender value. The cash surrender value of the Contract on the date of the decrease will not change, except that an administrative processing fee of $15 may be deducted from that value (unless that fee is separately paid at the time the decrease in face amount is requested). The Contract's Contract Fund value, however, will be reduced by deduction of a proportionate part of the then applicable contingent deferred sales and administrative charges, if any. Scheduled premiums for the Contract will also be proportionately reduced. The Contracts of owners who exercise the right to reduce face amount will be amended to show the new face amount, tabular values, scheduled premiums, monthly charges, and, if applicable, the remaining contingent deferred sales and administrative charges. No decreases in face amount will be permitted in the first Contract year. The minimum permissible decrease is $10,000. No decrease will be permitted that causes the face amount of the Contract to drop below the minimum face amount applicable to the insured's Contract. See Requirements for Issuance of a Contract in the prospectus. No reduction will be permitted to the extent that it would cause the Contract to fail to qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue Code. If the face amount of a Contract in force on a Select Rating basis is reduced below $100,000, it is no longer eligible for the Select Rating. A decrease in face amount will be effected as of the Monthly date immediately preceding receipt of a proper request to decrease face amount. Monthly charges previously deducted on that date and attributed to the decreased portion of the face amount will be credited to the Contract Fund as of that date. It is important to note, however, that if the face amount is decreased at any time during the first 7 Contract years, there is a danger the Contract might be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 5. Before requesting any decreases in face amount, a Contract owner should consult his or her Prudential representative. Tax Treatment of Contract Benefits. Each prospective purchaser is urged to consult a qualified tax advisor. The following discussion is not intended as tax advice, and it is not a complete statement of what the effect of federal income taxes will be under all circumstances. Rather, it provides information about how The Prudential believes the tax laws apply in the most commonly occurring circumstances. There is no guarantee, however, that the current federal income tax laws and regulations or interpretations will not change. Treatment as Life Insurance. The Contract will be treated as "life insurance" as long as it satisfies certain definitional tests set forth in Section 7702 of the Internal Revenue Code (the "Code") and as long as the underlying investments for the Contract satisfy diversification requirements set forth in Treasury Regulations issued pursuant to Section 817(h) of the Code. These diversification requirements must ordinarily be met within 1 year after Contract owner funds are first allocated to the particular portfolio of the Series Fund, and within 30 days after the end of each calendar quarter thereafter. Each portfolio must meet one of two alternative tests. Under the first test, no more than 55% of the portfolio's assets can be invested in any one investment; no more than 70% of the assets can be invested in any two investments; no more than 80% can be invested in any three investments; and no more than 90% can be invested in any four investments. Under the second test, the portfolio must meet the tax law diversification requirements for a regulated investment company and no more than 55% of the value of the portfolio's assets can be invested in cash, cash items, Government securities, and securities of other regulated investment companies. A third test is available for portfolios that underlie only variable life insurance contracts, such as the Zero Coupon Bond Portfolios. Under this test, such portfolios can be invested without limit in Treasury securities and, where the portfolio is invested in part in Treasury securities, the percentages of the first test are revised and applied to the portion of the portfolio not invested in Treasury securities. 5 For purposes of determining whether a variable account is adequately diversified, each United States Government agency or instrumentality is treated as a separate issuer. Compliance with diversification requirements will generally limit the amount of assets that may be invested in federally insured certificates of deposit and all types of securities issued or guaranteed by each United States Government agency or instrumentality. The Prudential believes that it has taken adequate steps to cause the Contract to be treated as life insurance for tax purposes. This means that (1) except as noted below, the Contract owner should not be taxed on any part of the Contract Fund, including additions attributable to interest, dividends or appreciation; and (2) the death benefit should be excludible from the gross income of the beneficiary under section 101(a) of the Code. However, Section 7702 of the Code, which defines life insurance for tax purposes, gives the Secretary of the Treasury authority to prescribe regulations to carry out the purposes of the Section. In this regard, proposed regulations governing mortality charges were issued in 1991 and proposed regulations under Sections 101, 7707, and 7702A governing the treatment of life insurance policies that provide accelerated death benefits were issued in 1992. None of these proposed regulations has yet been finalized. Additional regulations under Section 7702 may also be promulgated in the future. Moreover, in connection with the issuance of temporary regulations under Section 817(h), the Treasury Department announced that such regulations do not provide guidance concerning the extent to which Contract owners may direct their investments to particular divisions of a separate account. Such guidance will be included in regulations or rulings under Section 817(d) relating to the definition of a variable contract. The Prudential intends to comply with final regulations issued under sections 7702 and 817. Therefore, it reserves the right to make such changes as it deems necessary to assure that the Contract continues to qualify as life insurance for tax purposes. Any such changes will apply uniformly to affected Contract owners and will be made only after advance written notice to affected Contract owners. Pre-Death Distributions. The taxation of pre-death distributions depends on whether the Contract is classified as a Modified Endowment Contract. The following discussion first deals with distributions under Contracts not so classified, and then with Modified Endowment Contracts. 1. A surrender or lapse of the Contract may have tax consequences. Upon surrender, the owner will not be taxed on the cash surrender value except for the amount, if any, that exceeds the gross premiums paid less the untaxed portion of any prior withdrawals. The amount of any unpaid Contract debt will, upon surrender or lapse, be added to the cash surrender value and treated, for this purpose, as if it had been received. Any loss incurred upon surrender is generally not deductible. The tax consequences of a surrender may differ if the proceeds are received under any income payment settlement option. A withdrawal generally is not taxable unless it exceeds total premiums paid to the date of withdrawal less the untaxed portion of any prior withdrawals. However, under certain limited circumstances, in the first 15 Contract years all or a portion of a withdrawal or partial surrender may be taxable if the Contract Fund exceeds the total premiums paid less the untaxed portion of any prior withdrawals, even if total withdrawals do not exceed total premiums paid to date. Extra premiums for optional benefits and riders generally do not count in computing the gross premiums paid, which in turn determines the extent to which a withdrawal might be taxed. Loans received under the Contract will ordinarily be treated as indebtedness of the owner and will not be considered to be distributions subject to tax. 2. Some of the above rules are changed if the Contract is classified as a Modified Endowment Contract under section 7702A of the Code. It is possible for the Contract to be classified as a Modified Endowment Contract under at least two circumstances: premiums substantially in excess of scheduled premiums are paid; or a decrease in the face amount of insurance is made (or a rider removed) during the first 7 Contract years. Moreover, the addition of a rider or the increase in the face amount of insurance after the Contract Date may have an impact on the Contract's status as a Modified Endowment Contract. Contract owners contemplating any of these steps should first consult a qualified tax advisor and their Prudential representative. If the Contract is classified as a Modified Endowment Contract, then pre-death distributions, including loans and withdrawals, are includible in income to the extent that the Contract Fund prior to surrender charges exceeds the gross premiums paid for the Contract increased by the amount of any loans previously includible in income and reduced by any untaxed amounts previously received other than the amount of any loans excludible from income. These rules may also apply to pre-death distributions, including loans, made during the 2 year period prior to the Contract becoming a Modified Endowment Contract. In addition, pre-death distributions from such Contracts (including full surrenders) will be subject to a penalty of 10 per cent of the amount includible in income unless the amount is distributed on or after age 6 59 1/2, on account of the taxpayer's disability or as a life annuity. It is presently unclear how the penalty tax provisions apply to Contracts owned by nonnatural persons such as corporations. Under certain circumstances, the Code requires two or more Modified Endowment Contracts issued during a calendar year period to be treated as a single contract for purposes of applying the above rules. Withholding. The taxable portion of any amounts received under the Contract will be subject to withholding to meet federal income tax obligations if the Contract owner fails to elect that no taxes be withheld or in certain other circumstances. Contract owners who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. All recipients of such amounts may be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient. Other Tax Considerations. Transfer of the Contract to a new owner or assignment of the Contract may have tax consequences depending on the circumstances. In the case of a transfer of the Contract for a valuable consideration, the death benefit may be subject to federal income taxes under section 101(a)(2) of the Code. In addition, a transfer of the Contract to or the designation of a beneficiary who is either 37 1/2 years younger than the Contract owner or a grandchild of the Contract owner may have Generation Skipping Transfer tax consequences under Section 2601 of the Code. In certain circumstances, deductions for interest paid or accrued on Contract debt or on other loans that are incurred or continued to purchase or carry the Contract may be denied under section 163 of the Code as personal interest or under section 264 of the Code. Contract owners should consult a tax advisor regarding the application of these provisions to their circumstances. Business-owned life insurance is subject to additional rules. Section 264(a)(1) of the Code generally precludes business Contract owners from deducting premium payments. Under section 264(a)(4) of the Code, a deduction is not allowed for any interest paid or accrued on any Contract debt on an insurance policy to the extent the indebtedness exceeds $50,000 per officer, employee or financially interested person. The Code also imposes an indirect tax upon additions to the Contract Fund or the receipt of death benefits under business-owned life insurance policies under certain circumstances by way of the corporate alternative minimum tax. The individual situation of each Contract owner or beneficiary will determine the federal estate taxes and the state and local estate, inheritance and other taxes due if the owner or insured dies. Sale of the Contract and Sales Commissions. Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of The Prudential, acts as the principal underwriter of the Contract. Prusec, organized in 1971 under New Jersey law, is registered as a broker and dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Prusec's principal business address is 1111 Durham Avenue, South Plainfield, New Jersey 07080. The Contract is sold by registered representatives of Prusec who are also authorized by state insurance departments to do so. The Contract may also be sold through other broker-dealers authorized by Prusec and applicable law to do so. Registered representatives of such other broker-dealers may be paid on a different basis than described below. Where the insured is less than 60 years of age, the representative will generally receive a commission of no more than 50% of the scheduled premiums for the first year, no more than 12% of the scheduled premiums for the second, third, and fourth years, no more than 3% of the scheduled premiums for the fifth through tenth years, and no more than 2% of the scheduled premiums thereafter. For insureds over 59 years of age, the commission will be lower. The representative may be required to return all or part of the first year commission if the Contract is not continued through the second year. Representatives with less than 3 years of service may be paid on a different basis. Representatives who meet certain productivity, profitability, and persistency standards with regard to the sale of the Contract will be eligible for additional compensation. Sales expenses in any year are not equal to the deduction for sales load in that year. The Prudential expects to recover its total sales expenses over the periods the Contracts are in effect. To the extent that the sales charges are insufficient to cover total sales expenses, the sales expenses will be recovered from The Prudential's surplus, which may include amounts derived from the mortality and expense risk charge and the guaranteed minimum death benefit risk charge described in the prospectus under Daily Deduction from the Contract Fund, and item (d) under Monthly Deductions from Contract Fund. Tax-Qualified Pension Plans. The Contracts may be acquired in connection with the funding of retirement plans satisfying the qualification requirements of Section 401 of the Internal Revenue Code. Such Contracts may be issued with a minimum face amount of $10,000, and increases and decreases in face amount may be effected in minimum increments of $10,000. The monthly charge for anticipated mortality costs and the scheduled premiums under such Contracts will be the same for male and female insureds of a particular age and underwriting classification. Illustrations reflecting such premiums and charges will be given to purchasers of Contracts issued in connection with qualified plans. Only certain of the riders normally available with the Contracts are available to Contracts issued in connection with qualified plans. See Riders in the prospectus. Moreover, fixed reduced 7 paid-up insurance and payment of the cash surrender value are the only options on lapse available to Contracts issued in connection with qualified plans. See Lapse and Reinstatement in the prospectus. Finally, Contracts issued in connection with qualified plans may not invest in the Real Property Account. Prior to purchase of a Contract in connection with a qualified plan, the provisions of the Code relating to such plans and life insurance thereunder should be examined. Other Standard Contract Provisions. Beneficiary. The beneficiary is designated and named in the application by the Contract owner. Thereafter, the owner may change the beneficiary, provided it is in accordance with the terms of the Contract. Should the insured die with no surviving beneficiary, the insured's estate will become the beneficiary. Incontestability. After the Contract has been in force during the insured's lifetime for 2 years from the Contract Date or, with respect to any change in the Contract that requires The Prudential's approval and could increase its liability, after the change has been in effect during the insured's lifetime for 2 years from the effective date of the change, The Prudential will not contest its liability under the Contract in accordance with its terms. Misstatement of Age or Sex. If the insured's stated age or sex (except where unisex rates apply) or both are incorrect in the Contract, The Prudential will adjust the death benefits payable, as required by law, to reflect the correct age and sex. Any death benefit will be based on what the most recent charge for mortality would have provided at the correct age and sex. Suicide Exclusion. Generally, if the insured, whether sane or insane, dies by suicide within 2 years from the Contract Date, The Prudential will pay no more under the Contract than the sum of the premiums paid. If the insured, whether sane or insane, dies by suicide within 2 years from the effective date of an increase in the face amount of insurance, The Prudential will pay, with respect to the amount of the increase, no more than the sum of the scheduled premiums attributable to the increase. Assignment. This Contract may not be assigned if such assignment would violate any federal, state, or local law or regulation. Generally, the Contract may not be assigned to an employee benefit plan or program without The Prudential's consent. The Prudential assumes no responsibility for the validity or sufficiency of any assignment, and it will not be obligated to comply with any assignment unless it has received a copy at one of its Home Offices. Settlement Options. The Contract grants to most owners, or to the beneficiary, a variety of optional ways of receiving Contract proceeds, other than in a lump sum. Any Prudential representative authorized to sell this Contract can explain these options upon request. Exchange of Fixed-Dollar Contract to Variable Contract. The Prudential may, on a non-discriminatory basis, permit the owner of an Appreciable Life insurance policy issued by The Prudential (an Appreciable Life policy is a general account, universal life type policy with guaranteed minimum values) to exchange his or her policy for a comparable Variable Appreciable Life Contract with the same Contract Date, scheduled premiums, and Contract fund. No charge will be made for the exchange. There is no new "free look" right when an Appreciable Life insurance policy owner elects to exchange his or her policy for a comparable Variable Appreciable Life Contract. Although The Prudential does not give tax advice, The Prudential does believe, based on its understanding of federal income tax laws as currently interpreted, that the original date exchange of an Appreciable Life Contract should be considered to be a tax-free exchange under the Internal Revenue Code of 1986 as amended. It should be noted, however, that the exchange of an Appreciable Life Contract for a Variable Appreciable Life Contract may impact the status of the Contract as Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 5. A contract owner should consult with his or her tax advisor and Prudential representative before making an exchange. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS General. The Prudential Series Fund, Inc. (the "Series Fund") has sixteen separate portfolios available to Contract owners: the Money Market Portfolio, the Bond Portfolio, the Government Securities Portfolio, the three Zero Coupon Bond Portfolios with different liquidation dates -- 1995 (not available for investment after November 14, 1995), 2000, and 2005, the Conservatively Managed Flexible Portfolio, the Aggressively Managed Flexible Portfolio, the High Yield Bond Portfolio, the Stock Index Portfolio, the High Dividend Stock Portfolio, the Common Stock Portfolio, the Growth Stock Portfolio, the Small Capitalization Stock Portfolio, the Global Equity Portfolio, and the Natural Resources Portfolio. The portfolios are managed by The Prudential Insurance Company of America ("The Prudential"), see INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 24. 8 Each of the portfolios seeks to achieve a different investment objective. Accordingly, each portfolio can be expected to have different investment results and to be subject to different financial and market risks. Financial risk refers to the ability of an issuer of a debt security to pay principal and interest and to the earnings stability and overall financial soundness of an issuer of an equity security. Market risk refers to the degree to which the price of a security will react to changes in conditions in securities markets in general, and with particular reference to debt securities, to changes in the overall level of interest rates. The investment objectives of the Series Fund's portfolios can be found under Investment Objectives and Policies of the Portfolios in the prospectus. The policies employed to manage the Zero Coupon Bond Portfolios are also discussed in greater detail in FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS, page 20. Convertible Securities. The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources Portfolios may invest in convertible securities and such securities may constitute a major part of the holdings of the High Dividend Stock, Natural Resources and Global Equity Portfolios. A convertible security is a fixed-income security (a bond or preferred stock) which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or a different issuer. Convertible securities are senior to common stocks in a corporation's capital structure, but are usually subordinated to similar nonconvertible securities. While providing a fixed income stream (generally higher in yield than the income derivable from a common stock but lower than that afforded by a similar nonconvertible security), a convertible security also affords an investor the opportunity, through its conversion feature, to participate in capital appreciation attendant upon a market price advance in the convertible security's underlying common stock. The price of a convertible security tends to increase as the market value of the underlying stock rises, whereas it tends to decrease as the market value of the underlying stock declines. While no securities investment is without risk, investments in convertible securities generally entail less risk than investments in the common stock of the same issuer. Warrants. The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources Portfolios may invest in warrants on common stocks. Warrants are options to buy a number of shares of stock at a predetermined price during a specified period. The risk associated with the purchase of a warrant is that the purchase price will be lost if the market price of the stock does not reach a level that justifies the exercise or sale of the warrant before it expires. From time to time, the Bond and the High Yield Bond Portfolios may invest in debt securities that are offered together with warrants, but only when the debt security meets the portfolio's investment criteria and the value of the warrant is relatively very small. If the warrant later becomes valuable, it will ordinarily be sold rather than be exercised. Options and Futures Options on Equity Securities. The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources Portfolios may purchase and write (i.e., sell) put and call options on equity securities that are traded on securities exchanges or that are listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or that result from privately negotiated transactions with broker-dealers ("OTC options"). A call option is a short-term contract pursuant to which the purchaser or holder, in return for a premium paid, has the right to buy the equity security underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying equity security against payment of the exercise price. A put option is a similar contract which gives the purchaser or holder, in return for a premium, the right to sell the underlying equity security at a specified price during the term of the option. The writer of the put, who receives the premium, has the obligation to buy the underlying security at the exercise price upon exercise by the holder of the put. A portfolio will write only "covered" options on stocks. A call option is covered if: (1) the portfolio owns the security underlying the option; or (2) the portfolio has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities it holds; or (3) the portfolio holds on a share-for-share basis a call on the same security as the call written where the exercise price of the call held is equal to or less than the exercise price of the call written or greater than the exercise price of the call written if the difference is maintained by the portfolio in cash, Treasury bills or other high grade short-term debt obligations in a segregated account with its custodian. A put option is covered if: (1) the portfolio deposits and maintains with its custodian in a segregated account cash, U.S. Government securities or other liquid high-grade debt obligations having a value equal to or greater than the exercise price of the option; or (2) the portfolio holds on a share-for-share basis a put on the same security as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written or less than the exercise price if the difference is maintained by the portfolio in cash, Treasury bills or other high grade short-term debt obligations in a segregated account with its custodian. 9 The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources Portfolios may also purchase "protective puts" (i.e., put options acquired for the purpose of protecting a portfolio security from a decline in market value). In exchange for the premium paid for the put option, the portfolio acquires the right to sell the underlying security at the exercise price of the put regardless of the extent to which the underlying security declines in value. The loss to the portfolio is limited to the premium paid for, and transaction costs in connection with, the put plus the initial excess, if any, of the market price of the underlying security over the exercise price. However, if the market price of the security underlying the put rises, the profit the portfolio realizes on the sale of the security will be reduced by the premium paid for the put option less any amount (net of transaction costs) for which the put may be sold. Similar principles apply to the purchase of puts on debt securities and stock indices, as described below under Options on Debt Securities and Options on Stock Indices. These portfolios may purchase call options for hedging and investment purposes. No portfolio intends to invest more than 5% of its net assets at any one time in the purchase of call options on stocks. These portfolios may also purchase putable and callable equity securities, which are securities coupled with a put or a call option provided by the issuer. If the writer of an exchange-traded option wishes to terminate the obligation, he or she may effect a "closing purchase transaction" by buying an option of the same series as the option previously written. Similarly, the holder of an exchange-traded option may liquidate his or her position by exercise of the option or by effecting a "closing sale transaction" by selling an option of the same series as the option previously purchased. A portfolio will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from a closing purchase transaction with respect to a call option is likely to be offset in whole or in part by appreciation of the underlying equity security owned by the portfolio. Unlike exchange-traded options, OTC options generally do not have a continuous liquid market. Consequently, the portfolio will generally be able to realize the value of an OTC option it has purchased only by exercising it or reselling it to the dealer who issued it. Similarly, when the portfolio writes an OTC option, it generally will be able to close out the OTC option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the portfolio originally wrote the OTC option. There is, in general, no guarantee that closing purchase or closing sale transactions can be effected. A portfolio's use of options on equity securities is subject to certain special risks, in addition to the risk that the market value of the security will move adversely to the portfolio's option position. An option position may be closed out only on an exchange, board of trade or other trading facility which provides a secondary market for an option of the same series. Although a portfolio will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange or otherwise may exist. In such event it might not be possible to effect closing transactions in particular options, with the result that the portfolio would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of such options and upon the subsequent disposition of underlying securities acquired through the exercise of call options or upon the purchase of underlying securities for the exercise of put options. If a portfolio as a covered call option writer is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in the class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, which might cause an exchange to institute special procedures that might interfere with the timely execution of customers' orders. The purchase and sale of OTC options will also be subject to certain risks. Unlike exchange-traded options, OTC options generally do not have a continuous liquid market. Consequently, a portfolio will generally be able to realize the value of an OTC option it has purchased only by exercising it or reselling it to the dealer who issued it. 10 Similarly, when a portfolio writes an OTC option, it generally will be able to close out the OTC option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the portfolio originally wrote the OTC option. While the portfolios will seek to enter into OTC options only with dealers who agree to and which are expected to be able to be capable of entering into closing transactions with the portfolio, there can be no assurance that the portfolio will be able to liquidate an OTC option at a favorable price at any time prior to expiration. In the event of insolvency of the other party, the portfolio may be unable to liquidate an OTC option. The Prudential monitors the creditworthiness of dealers with whom the Series Fund enters into OTC option transactions under the general supervision of the Series Fund's Board of Directors. Options on Debt Securities. The Bond, Government Securities, Conservatively Managed Flexible, Aggressively Managed Flexible, and High Yield Bond Portfolios may purchase and write (i.e., sell) put and call options on debt securities (including U.S. Government debt securities) that are traded on U.S. securities exchanges or that result from privately negotiated transactions with primary U.S. Government securities dealers recognized by the Federal Reserve Bank of New York ("over-the-counter" or "OTC" options). Options on debt are similar to options on stock, except that the option holder has the right to take or make delivery of a debt security, rather than stock. A portfolio will write only "covered" options. Options on debt securities are covered in the same manner as options on stocks, discussed above, except that, in the case of call options on U.S. Treasury Bills, the portfolio might own U.S. Treasury Bills of a different series from those underlying the call option, but with a principal amount and value corresponding to the option contract amount and a maturity date no later than that of the securities deliverable under the call option. The principal reason for a portfolio to write an option on one or more of its securities is to realize through the receipt of the premiums paid by the purchaser of the option a greater current return than would be realized on the underlying security alone. Calls on debt securities will not be written when, in the opinion of The Prudential, interest rates are likely to decline significantly, because under those circumstances the premium received by writing the call likely would not fully offset the foregone appreciation in the value of the underlying security. These portfolios may also write straddles (i.e., a combination of a call and a put written on the same security at the same strike price where the same issue of the security is considered "cover" for both the put and the call). In such cases, the portfolio will also segregate or deposit for the benefit of the portfolio's broker cash or liquid high-grade debt obligations equivalent to the amount, if any, by which the put is "in the money." It is contemplated that each portfolio's use of straddles will be limited to 5% of the portfolio's net assets (meaning that the securities used for cover or segregated as described above will not exceed 5% of the portfolio's net assets at the time the straddle is written). The writing of a call and a put on the same security at the same strike price where the call and the put are covered by different securities is not considered a straddle for purposes of this limit. These portfolios may purchase "protective puts" in an effort to protect the value of a security that it owns against a substantial decline in market value. Protective puts are described above in Options on Equity Securities, page 9. A portfolio may wish to protect certain portfolio securities against a decline in market value at a time when put options on those particular securities are not available for purchase. A portfolio may therefore purchase a put option on securities other than those it wishes to protect even though it does not hold such other securities in its portfolio. While changes in the value of the put option should generally offset changes in the value of the securities being hedged, the correlation between the two values may not be as close in these transactions as in transactions in which the portfolio purchases a put option on an underlying security it owns. These portfolios may also purchase call options on debt securities for hedging or investment purposes. No portfolio currently intends to invest more than 5% of its net assets at any one time in the purchase of call options on debt securities. A portfolio may also purchase putable and callable debt securities, which are securities coupled with a put or call option provided by the issuer. If the writer of an exchange-traded option wishes to terminate the obligation, he or she may effect a "closing purchase transaction" or a "closing sale transaction" in a manner similar to that discussed above in connection with options on equity securities. The staff of the Securities and Exchange Commission has taken the position that purchased OTC options and the assets used as "cover" for written OTC options are illiquid for purposes of a portfolio's 15% limitation on investment in illiquid securities. However, pursuant to the terms of certain no-action letters issued by the staff, the securities used as cover for written OTC options may be considered liquid provided that the portfolio sells OTC options only to qualified dealers who agree that the portfolio may repurchase any OTC option it writes for a maximum price to be calculated by a predetermined formula. In such cases, the OTC option would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. The use of debt options is subject to the same risks described above in connection with stock options. 11 Options on Stock Indices. The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global Equity, and Natural Resources Portfolios may purchase and sell put and call options on stock indices traded on securities exchanges or listed on NASDAQ or that result from privately negotiated transactions with broker-dealers ("OTC options"). The Stock Index and Small Capitalization Stock Portfolios may utilize options on stock indices by constructing "put/call" combinations that are functionally comparable to a long stock index futures position as described below under Additional Information Regarding the Use of Options and Futures Contracts by the Stock Index Portfolio. Options on stock indices are similar to options on stock except that rather than the right to take or make delivery of stock at a specified price, an option on a stock index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to such difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple (the "multiplier"). The writer of the option is obligated, in return for the premium received, to make delivery of this amount. Unlike stock options, all settlements are in cash, and gain or loss depends on price movements in the stock market generally (or in a particular industry or segment of the market) rather than price movements in individual stocks. The multiplier for an index option performs a function similar to the unit of trading for a stock option. It determines the total dollar value per Contract of each point in the difference between the exercise price of an option and the current level of the underlying index. A multiplier of 100 means that a one-point difference will yield $100. Options on different indices may have different multipliers. These portfolios may purchase put and call options for hedging and investment purposes. No portfolio intends to invest more than 5% of its net assets at any one time in the purchase of puts and calls on stock indices. A portfolio may effect closing sale and purchase transactions involving options on stock indices, as described above in connection with stock options. A portfolio will write only "covered" options on stock indices. A call option is covered if the portfolio holds a portfolio of stocks at least equal to the value of the index times the multiplier times the number of contracts. When a portfolio writes a call option on a broadly based stock market index, the portfolio will segregate or put into escrow with its custodian or pledge to a broker as collateral for the option, cash, cash equivalents or "qualified securities" (defined below) with a market value at the time the option is written of not less than 100% of the current index value times the multiplier times the number of contracts. If a portfolio has written an option on an industry or market segment index, it will segregate or put into escrow with its custodian or pledge to a broker as collateral for the option at least five "qualified securities," all of which are stocks of issuers in such industry or market segment, with a market value at the time the option is written of not less than 100% of the current index value times the multiplier times the number of contracts. Such stocks will include stocks which represent at least 50% of the weighting of the industry or market segment index and will represent at least 50% of the portfolio's holdings in that industry or market segment. No individual security will represent more than 15% of the amount so segregated, pledged or escrowed in the case of broadly based stock market index options or 25% of such amount in the case of industry or market segment index options. If at the close of business on any day the market value of such qualified securities so segregated, escrowed or pledged falls below 100% of the current index value times the multiplier times the number of contracts, the portfolio will so segregate, escrow or pledge an amount in cash, Treasury bills or other high-grade short-term obligations equal in value to the difference. In addition, when a portfolio writes a call on an index which is in-the-money at the time the call is written, the portfolio will segregate with its custodian or pledge to the broker as collateral, cash or U.S. Government or other high-grade short-term debt obligations equal in value to the amount by which the call is in-the-money times the multiplier times the number of contracts. Any amount segregated pursuant to the foregoing sentence may be applied to the portfolio's obligation to segregate additional amounts in the event that the market value of the qualified securities falls below 100% of the current index value times the multiplier times the number of contracts. A "qualified security" is an equity security which is listed on a securities exchange or NASDAQ against which the portfolio has not written a stock call option and which has not been hedged by the portfolio by the sale of stock index futures. However, if the portfolio holds a call on the same index as the call written where the exercise price of the call held is equal to or less than the exercise price of the call written or greater than the exercise price of the call written if the difference is maintained by the portfolio in cash, Treasury bills or other high-grade short-term obligations in a segregated account with its custodian, it will not be subject to the requirement described in this paragraph. A put option is covered if: (1) the portfolio holds in a segregated account cash, Treasury bills or other high-grade short-term debt obligations of a value equal to the strike price times the multiplier times the number of contracts; or (2) the portfolio holds a put on the same index as the put written where the strike price of the put held is equal to or greater than the strike price of the put written or less than the strike price of the put written if the difference is maintained by the portfolio in cash, Treasury bills or other high-grade short-term debt obligations in a segregated account with its custodian. In instances involving the purchase of futures contracts by a portfolio, an amount of 12 cash and cash equivalents, equal to the market value of the futures contracts, will be deposited in a segregated account with the portfolio's custodian and/or in a margin account with a broker to collateralize the position and thereby ensure that the use of such futures is unleveraged. The purchase and sale of options on stock indices will be subject to the risks described above under Options on Equity Securities. In addition, the distinctive characteristics of options on indices create certain risks that are not present with stock options. Index prices may be distorted if trading of certain stocks included in the index is interrupted. Trading in the index options also may be interrupted in certain circumstances, such as if trading were halted in a substantial number of stocks included in the index. If this occurred, a portfolio would not be able to close out options which it had purchased or written and, if restrictions on exercise were imposed, might be unable to exercise an option it holds, which could result in substantial losses to the portfolio. It is the policy of the portfolios to purchase or write options only on stock indices which include a number of stocks sufficient to minimize the likelihood of a trading halt in options on the index. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. A portfolio will not purchase or sell any index option contract unless and until, in its manager's opinion, the market for such options has developed sufficiently that the risk in connection with such transactions is no greater than the risk in connection with options on stocks. There are certain special risks associated with writing calls on stock indices. Because exercises of index options are settled in cash, a call writer such as a portfolio cannot determine the amount of its settlement obligations in advance and, unlike call writing on specific stocks, cannot precisely provide in advance for, or cover, its potential settlement obligations by acquiring and holding the underlying securities. The portfolios, however, will follow the "cover" procedures described above. Price movements in a portfolio's equity security portfolio probably will not correlate precisely with movements in the level of the index and, therefore, in writing a call on a stock index a portfolio bears the risk that the price of the securities held by the portfolio may not increase as much as the index. In such event, the portfolio would bear a loss on the call which is not completely offset by movement in the price of the portfolio's equity securities. It is also possible that the index may rise when the portfolio's securities do not rise in value. If this occurred, the portfolio would experience a loss on the call which is not offset by an increase in the value of its securities portfolio and might also experience a loss in its securities portfolio. However, because the value of a diversified securities portfolio will, over time, tend to move in the same direction as the market, movements in the value of a portfolio's securities in the opposite direction as the market would be likely to occur for only a short period or to a small degree. When a portfolio has written a call, there is also a risk that the market may decline between the time the portfolio has a call exercised against it, at a price which is fixed as of the closing level of the index on the date of the exercise, and the time the portfolio is able to sell stocks in its portfolio. As with stock options, a portfolio will not learn that an index option has been exercised until the day following the exercise date but, unlike a call on stock where the portfolio would be able to deliver the underlying securities in settlement, the portfolio may have to sell part of its stock portfolio in order to make settlement in cash, and the price of such stocks might decline before they can be sold. This timing risk makes certain strategies involving more than one option substantially more risky with options in stock indices than with stock options. For example, even if an index call which a portfolio has written is "covered" by an index call held by the portfolio with the same strike price, the portfolio will bear the risk that the level of the index may decline between the close of trading on the date the exercise notice is filed with the clearing corporation and the close of trading on the date the portfolio exercises the call it holds or the time the portfolio sells the call, which in either case would occur no earlier than the day following the day the exercise notice was filed. There are also certain special risks involved in purchasing put and call options on stock indices. If a portfolio holds an index option and exercises it before final determination of the closing index value for that day, it runs the risk that the level of the underlying index may change before closing. If such a change causes the exercised option to fall out-of-the-money, the portfolio will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer. Although the portfolio may be able to minimize the risk by withholding exercise instructions until just before the daily cutoff time or by selling rather than exercising an option when the index level is close to the exercise price, it may not be possible to eliminate this risk entirely because the cutoff times for index options may be earlier than those fixed for other types of options and may occur before definitive closing index values are announced. Options on Foreign Currencies. The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global Equity, and Natural Resources Portfolios may purchase and write put and call options on foreign currencies traded on U.S. or foreign securities exchanges or boards of trade for hedging purposes in a manner similar to that in which forward foreign currency exchange contracts (see 13 Forward Foreign Currency Exchange Contracts, page 18) and futures contracts on foreign currencies (discussed under Futures Contracts, page 14) will be employed. Options on foreign currencies are similar to options on stock, except that the option holder has the right to take or make delivery of a specified amount of foreign currency, rather than stock. A portfolio may purchase and write options to hedge the portfolio's securities denominated in foreign currencies. If there is a decline in the dollar value of a foreign currency in which the portfolio's securities are denominated, the dollar value of such securities will decline even though the foreign currency value remains the same. To hedge against the decline of the foreign currency, a portfolio may purchase put options on such foreign currency. If the value of the foreign currency declines, the gain realized on the put option would offset, in whole or in part, the adverse effect such decline would have on the value of the portfolio's securities. Alternatively, a portfolio may write a call option on the foreign currency. If the foreign currency declines, the option would not be exercised and the decline in the value of the portfolio securities denominated in such foreign currency would be offset in part by the premium the portfolio received for the option. If, on the other hand, the portfolio manager anticipates purchasing a foreign security and also anticipates a rise in such foreign currency (thereby increasing the cost of such security), the portfolio may purchase call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements of the exchange rates. Alternatively, a portfolio could write a put option on the currency and, if the exchange rates move as anticipated, the option would expire unexercised. A portfolio's successful use of currency exchange options on foreign currencies depends upon the manager's ability to predict the direction of the currency exchange markets and political conditions, which requires different skills and techniques than predicting changes in the securities markets generally. For instance, if the currency being hedged has moved in a favorable direction, the corresponding appreciation of the portfolio's securities denominated in such currency would be partially offset by the premiums paid on the options. Further, if the currency exchange rate does not change, the portfolio net income would be less than if the portfolio had not hedged since there are costs associated with options. The use of these options is subject to various additional risks. The correlation between movements in the price of options and the price of the currencies being hedged is imperfect. The use of these instruments will hedge only the currency risks associated with investments in foreign securities, not market risks. The portfolio's ability to establish and maintain positions will depend on market liquidity. The ability of the portfolio to close out an option depends upon a liquid secondary market. There is no assurance that liquid secondary markets will exist for any particular option at any particular time. Because there are two currencies involved, developments in either or both countries can affect the values of options on foreign currencies. In addition, the quantities of currency underlying option contracts represent odd lots in a market dominated by transactions between banks; this can mean extra transaction costs upon exercise. Option markets may be closed while round-the-clock interbank currency markets are open, and this can create price and rate discrepancies. Futures Contracts. The Conservatively Managed Flexible, Aggressively Managed Flexible, Stock Index, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources Portfolios may, to the extent permitted by applicable regulations, attempt to reduce the risk of investment in equity securities by hedging a portion of their equity portfolios through the use of stock index futures contracts. A stock index futures contract is an agreement in which the seller of the contract agrees to deliver to the buyer an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying stocks in the index is made. The Bond, High Yield Bond, Government Securities, Conservatively Managed Flexible, Aggressively Managed Flexible, and Global Equity Portfolios may, to the extent permitted by applicable regulations, purchase and sell for hedging purpose futures contracts on interest-bearing securities (such as U.S. Treasury bonds and notes) or interest rate indices (referred to collectively as "interest rate futures contracts"). The Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global Equity, and Natural Resources Portfolios may, to the extent permitted by applicable regulations, purchase and sell futures contracts on foreign currencies or groups of foreign currencies for hedging purposes. When the futures contract is entered into, each party deposits with a broker or in a segregated custodial account approximately 5% of the contract amount, called the "initial margin." Subsequent payments to and from the broker, called the "variation margin," will be made on a daily basis as the underlying security, index or rate fluctuates making the long and short positions in the futures contracts more or less valuable, a process known as 14 "marking to the market." The Board of Directors currently intends to limit futures trading so that a portfolio will not enter into futures contracts or related options if the aggregate initial margins and premiums exceed 5% of the fair market value of its assets, after taking into account unrealized profits and unrealized losses on any such contracts and options. A portfolio's successful use of futures contracts depends upon the investment manager's ability to predict the direction of the relevant market. The correlation between movement in the price of the futures contract and the price of the securities or currencies being hedged is imperfect. The ability of a portfolio to close out a futures position depends on a liquid secondary market. There is no assurance that liquid secondary markets will exist for any particular futures contract at any particular time. There are several additional risks associated with a portfolio's use of futures contracts for hedging purposes. One such risk arises because of imperfect correlation between movements in the price of the futures contract and the price of the securities or currency that are the subject of the hedge. In the case of futures contracts on stock or interest rate indices, the correlation between the price of the futures contract and movements in the index might not be perfect. To compensate for differences in historical volatility, a portfolio could purchase or sell future contracts with a greater or lesser value than the securities or currency it wished to hedge or purchase. In addition, temporary price distortions in the futures market could be caused by a variety of factors. Further, the ability of a portfolio to close out a futures position depends on a liquid secondary market. There is no assurance that a liquid secondary market on an exchange will exist for any particular futures contract at any particular time. Further, each portfolio's successful use of futures contracts is to some extent dependent on the ability of the portfolio manager to predict correctly movements in the direction of the market, interest rates and/or currency exchange rates. In addition, the hours of trading of futures contracts may not conform to the hours during which the portfolio may trade the underlying securities and/or currency. To the extent that the futures markets close before the securities or currency markets, significant price and rate movements can take place in the securities and/or currency markets that cannot be reflected in the futures markets. Additional Information Regarding the Use of Options and Futures Contracts by the Stock Index and Small Capitalization Stock Portfolios. As explained in the prospectus, the Stock Index Portfolio seeks to duplicate the performance of the S&P 500 Index and the Small Capitalization Stock Portfolio seeks to duplicate the performance of the S&P SmallCap 600 Index. The portfolios will be as fully invested in the S&P Indices stocks as is feasible in light of cash flow patterns and the cash requirements for efficiently investing in a unit of the basket of stocks comprising the S&P 500 and S&P SmallCap 600 Indices, respectively. When the portfolios do have short-term investments, they may purchase stock index futures contracts in an effort to have the portfolio better mimic the performance of a fully invested portfolio. When a portfolio purchases stock index futures contracts, an amount of cash and cash equivalents, equal to the market value of the futures contracts, will be deposited in a segregated account with the portfolio's custodian and/or in a margin account with a broker to collateralize the position and thereby ensure that the use of futures is unleveraged. As with the other portfolios, the Board of Directors currently intends to limit futures trading so that the Stock Index and Small Capitalization Stock Portfolios will not enter into futures contracts or related options if the aggregate initial margins and premiums exceed 5% of the fair market value of its assets, after taking into account unrealized profits and unrealized losses on any such contracts and options. As an alternative to the purchase of a stock index futures contract, the portfolio may construct synthetic positions involving options on stock indices and options on stock index futures that are equivalent to such a long futures position. In particular, the portfolio may utilize "put/call combinations" as synthetic long stock index futures positions. A put/call combination is the simultaneous purchase of a call and the sale of a put with the same strike price and maturity. It is equivalent to a forward position and, if settled every day, is equivalent to a long futures position. When constructing put/call combinations, the portfolio will segregate cash or cash equivalents in a segregated account equal to the market value of the portfolio's forward position to collateralize the position and ensure that it is unleveraged. Options on Futures Contracts. To the extent permitted by applicable insurance law and federal regulations, the Conservatively Managed Flexible, Aggressively Managed Flexible, Stock Index, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity and Natural Resources, Portfolios may enter into certain transactions involving options on stock index futures contracts, and the Bond, Government Securities, Conservatively Managed Flexible, Aggressively Managed Flexible, High Yield Bond, and Global Equity Portfolios may enter into certain transactions involving options on interest rate futures contracts; and the Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global Equity, and Natural Resources Portfolios may enter into certain transactions involving options on foreign currency futures contracts. An option on a futures contract gives the purchaser or holder the right, but not the obligation, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified price at any time during the option exercise period. The writer of the option is required upon 15 exercise to assume an offsetting futures position (a short position if the option is a call and a long position if the option is a put). Upon exercise of the option, the assumption of offsetting futures positions by the writer and holder of the option will be accomplished by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. As an alternative to exercise, the holder or writer of an option may terminate a position by selling or purchasing an option of the same series. There is no guarantee that such closing transactions can be effected. As noted above, the Stock Index and Small Capitalization Stock Portfolios intend to utilize options on stock index futures contracts by constructing "put/call" combinations that are economically comparable to a long stock index futures position. The other portfolios intend to utilize options on futures contracts for the same purposes that they use the underlying futures contracts. Options on futures contracts are subject to risks similar to those described above with respect to option on securities, options on stock indices, and futures contracts. These risks include the risk that the portfolio manager may not correctly predict changes in the market, the risk of imperfect correlation between the option and the securities being hedged, and the risk that there might not be a liquid secondary market for the option. There is also the risk of imperfect correlation between the option and the underlying futures contract. If there were no liquid secondary market for a particular option on a futures contract, the portfolio might have to exercise an option it held in order to realize any profit and might continue to be obligated under an option it had written until the option expired or was exercised. If the portfolio were unable to close out an option it had written on a futures contract, it would continue to be required to maintain initial margin and make variation margin payments with respect to the option position until the option expired or was exercised against the portfolio. When-Issued and Delayed Delivery Securities. From time to time, in the ordinary course of business, the Bond, Government Securities, Conservatively Managed Flexible, Aggressively Managed Flexible, High Yield Bond, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity and Natural Resources Portfolios may purchase equity securities on a when-issued or delayed delivery basis, that is, delivery and payment can take place a month or more after the date of the transaction. Each of these portfolios will limit such purchases to those in which the date for delivery and payment falls within 120 days of the date of the commitment. A portfolio will make commitments for such when-issued transactions only with the intention of actually acquiring the securities. A portfolio's custodian will maintain, in a separate account, cash, U.S. Government securities or other high grade debt obligations having a value equal to or greater than such commitments. If a portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other portfolio security, incur a gain or loss due to market fluctuations. In addition, the Money Market Portfolio and short-term portions of the other portfolios may purchase money market securities on a when-issued or delayed delivery basis on the terms set forth under item 6 in SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST, page 28. Short Sales. The Bond, Government Securities, Conservatively Managed Flexible, Aggressively Managed Flexible and High Yield Bond Portfolios may sell securities they do not own in anticipation of a decline in the market value of those securities ("short sales"). To complete such a transaction, the portfolio will borrow the security to make delivery to the buyer. The portfolio is then obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the portfolio. Until the security is replaced, the portfolio is required to pay to the lender any interest which accrues during the period of the loan. To borrow the security the portfolio may be required to pay a premium which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker to the extent necessary to meet margin requirements until the short position is closed out. Until the portfolio replaces the borrowed security, it will (a) maintain in a segregated account cash or U.S. Government securities at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current market value of the security sold short and will not be less than the market value of the security at the time it was sold short or (b) otherwise cover its short position. The portfolio will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the portfolio replaces the borrowed security. The portfolio will realize a gain if the security declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss will be increased, by the amount of any premium or interest paid in connection with the short sale. No more than 25% of any portfolio's net assets will be, when added together: (i) deposited as collateral for the obligation to replace securities borrowed to effect short sales and (ii) allocated to segregated accounts in connection with short sales. Short Sales Against the Box. All portfolios (other than the Money Market and Zero Coupon Bond Portfolios) may make short sales of securities or maintain a short position, provided that at all times when a short position is open 16 the portfolio owns an equal amount of such securities or securities convertible into or exchangeable, with or without payment of any further consideration, for an equal amount of the securities of the same issuer as the securities sold short (a "short sale against the box"); provided, that if further consideration is required in connection with the conversion or exchange, cash or U.S. Government securities in an amount equal to such consideration must be put in a segregated account. Interest Rate Swaps. The Bond, Government Securities, and High Yield Bond Portfolios and the fixed income portions of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios may use interest rate swaps to increase or decrease a portfolio's exposure to long- or short-term interest rates. No portfolio currently intends to invest more than 5% of its net assets at any one time in interest rate swaps. Interest rate swaps, in their most basic form, involve the exchange by a portfolio with another party of their respective commitments to pay or receive interest. For example, a portfolio might exchange its right to receive certain floating rate payments in exchange for another party's right to receive fixed rate payments. Interest rate swaps can take a variety of other forms, such as agreements to pay the net differences between two different indices or rates, even if the parties do not own the underlying instruments. Despite their differences in form, the function of interest rate swaps is generally the same-- to increase or decrease a portfolio's exposure to long- or short-term interest rates. For example, a portfolio may enter into a swap transaction to preserve a return or spread on a particular investment or a portion of its portfolio or to protect against any increase in the price of securities the portfolio anticipates purchasing at a later date. The use of swap agreements is subject to certain risks. As with options and futures, if the investment manager's prediction of interest rate movements is incorrect, the portfolio's total return will be less than if the portfolio had not used swaps. In addition, if the counterparty's creditworthiness declines, the value of the swap would likely decline. Moreover, there is no guarantee that a portfolio could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party. A portfolio will maintain appropriate liquid assets in a segregated custodial account to cover its current obligations under swap agreements. If a portfolio enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the portfolio's accrued obligations under the swap agreement over the accrued amount the portfolio is entitled to receive under the agreement. If a portfolio enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the portfolio's accrued obligations under the agreement. Loans of Portfolio Securities. All of the portfolios except the Money Market Portfolio may from time to time lend the securities they hold to broker-dealers, provided that such loans are made pursuant to written agreements and are continuously secured by collateral in the form of cash, U.S. Government securities or irrevocable standby letters of credit in an amount equal to at least the market value at all times of the loaned securities plus the accrued interest and dividends. During the time securities are on loan, the portfolio will continue to receive the interest and dividends or amounts equivalent thereto on the loaned securities while receiving a fee from the borrower or earning interest on the investment of the cash collateral. The right to terminate the loan will be given to either party subject to appropriate notice. Upon termination of the loan, the borrower will return to the lender securities identical to the loaned securities. The portfolio will not have the right to vote securities on loan, but would terminate the loan and retain the right to vote if that were considered important with respect to the investment. The primary risk in lending securities is that the borrower may become insolvent on a day on which the loaned security is rapidly advancing in price. In such event, if the borrower fails to return the loaned securities, the existing collateral might be insufficient to purchase back the full amount of the security loaned, and the borrower would be unable to furnish additional collateral. The borrower would be liable for any shortage; but the portfolio would be an unsecured creditor with respect 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 and by monitoring collateral. No portfolio will lend securities to broker-dealers affiliated with The Prudential, including Prudential Securities Incorporated. This will not affect a portfolio's ability to maximize its securities lending opportunities. Illiquid Securities. Each portfolio, other than the Money Market Portfolio, may invest up to 15% of its net assets in illiquid securities. The Money Market Portfolio may invest up to 10% of its net assets in illiquid securities. Illiquid securities are those which may not be sold in the ordinary course of business within seven days at approximately the value at which the portfolio has valued them. Variable and floating rate instruments that cannot be disposed of within seven days and repurchase agreements with a maturity of greater than seven days are considered illiquid. The portfolios may purchase securities which are not registered under the Securities Act of 1933 but which can be sold to qualified institutional buyers in accordance with Rule 144A under that Act. Any such security will not be considered illiquid so long as it is determined by the adviser, acting under guidelines approved and monitored 17 by the Board of Directors, that an adequate trading market exists for that security. In making that determination, the adviser will consider, among other relevant factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers willing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades. A portfolio's treatment of Rule 144A securities as liquid could have the effect of increasing the level of portfolio illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. In addition, the adviser, acting under guidelines approved and monitored by the Board of Directors, may conditionally determine, for purposed of the 15% test, that certain commercial paper issued in reliance on the exemption from registration in Section 4(2) of the Securities Act of 1933 will not be considered illiquid, whether or not it may be resold under Rule 144A. To make that determination, the following conditions must be met: (1) the security must not be traded flat or in default as to principal or interest; (2) the security must be rated in one of the two highest rating categories by at least two nationally recognized statistical rating organizations ("NRSROs"), or if only one NRSRO rates the security, by that NRSRO; if the security is unrated, the adviser must determine that the security is of equivalent quality; and (3) the adviser must consider the trading market for the specific security, taking into account all relevant factors. The adviser will continue to monitor the liquidity of any Rule 144A security or any Section 4(2) commercial paper which has been determined to be liquid and, if a security is no longer liquid because of changed conditions, the holdings of illiquid securities will be reviewed to determine if any steps are required to assure that the 15% test continues to be satisfied. Forward Foreign Currency Exchange Contracts. To the extent permitted by applicable insurance law, the Conservatively Managed Flexible, Aggressively Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global Equity, and Natural Resources Portfolios may purchase securities denominated in foreign currencies. To address the currency fluctuation risk that such investments entail, these portfolios may enter into forward foreign currency exchange contracts in several circumstances. When a portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when a portfolio anticipates the receipt in a foreign currency of dividends or interest payments on a security which it holds, the portfolio may desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. By entering into a forward contract for a fixed amount of dollars, for the purchase or sale of the amount of foreign currency involved in the underlying transactions, the portfolio will be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received. Additionally, when a portfolio's manager believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, the portfolio may enter into a forward contract for a fixed amount of dollars, to sell the amount of foreign currency approximating the value of some or all of the portfolio securities denominated in such foreign currency. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date on which the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. The portfolios will not enter into such forward contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate a portfolio to deliver an amount of foreign currency in excess of the value of the securities or other assets denominated in that currency held by the portfolio. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the long-term investment decisions made with regard to overall diversification strategies. However, the portfolios believe that it is important to have the flexibility to enter into such forward contracts when it is determined that the best interests of the portfolios will thereby be served. A portfolio's custodian will place cash or liquid high-grade equity or debt securities into a segregated account of the portfolio in an amount equal to the value of the portfolio's total assets committed to the consummation of forward foreign currency exchange contracts. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the portfolio's commitments with respect to such contracts. The portfolios generally will not enter into a forward contract with a term of greater than 1 year. At the maturity of a forward contract, a portfolio may either sell the portfolio security and make delivery of the foreign currency or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract with the same currency trader obligating it to purchase, on the same maturity date, the same amount of the foreign currency. It is impossible to forecast with absolute precision the market value of a particular portfolio security at the expiration of the contract. Accordingly, it may be necessary for a portfolio to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the 18 amount of foreign currency that the portfolio is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. If a portfolio retains the portfolio security and engages in an offsetting transaction, the portfolio will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. Should forward prices decline during the period between the portfolio's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the portfolio will realize a gain to the extent that the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the portfolio will suffer a loss to the extent that the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. The portfolios' dealing in forward foreign currency exchange contracts will be limited to the transactions described above. Of course, the portfolios are not required to enter into such transactions with regard to their foreign currency-denominated securities. It also should be realized that this method of protecting the value of the portfolio securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities which are unrelated to exchange rates. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedge currency, at the same time they tend to limit any potential gain which might result should the value of such currency increase. Although the portfolios value their assets daily in terms of U.S. dollars, they do not intend physically to convert their holdings of foreign currencies into U.S. dollars on a daily basis. They will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a portfolio at one rate, while offering a lesser rate of exchange should the portfolio desire to resell that currency to the dealer. The High Yield Bond Portfolio may also invest up to 10% of its total assets in foreign currency denominated debt securities of foreign or domestic issuers; however, the portfolio will not engage in such investment activity unless it has been first authorized to do so by the Series Fund's Board of Directors. If the portfolio does engage in such investment activity, it may also enter into forward foreign currency exchange contracts. Further Information About the Policies of the Stock Index Portfolio. Under normal circumstances, the Stock Index Portfolio generally intends to purchase all 500 stocks represented in the S&P 500 Index and to invest its assets as fully in those stocks (in proportion to their weighting in the index) as is feasible in light of cash flows into and out of the portfolio. In order to reduce transaction costs, a weighted investment in the 500 stocks comprising the S&P 500 Index is most efficiently made in relatively large amounts. Prior to the commencement of the public offering of this portfolio's shares, The Prudential purchased $25,000,000 worth of shares of this portfolio in order to permit the portfolio to make an initial investment in the 500 stocks (in proportion to their weighting in the S&P 500 index). As additional cash is received from the purchase of shares in the portfolio, it may be held temporarily in short-term, high quality investments of the sort in which the Money Market Portfolio invests, until the portfolio has a sufficient amount of assets in such investments to make an efficient weighted investment in the 500 stocks comprising the S&P 500 Index. If net cash outflows from the portfolio are anticipated, the portfolio may sell stocks (in proportion to their weighting in the S&P 500 Index) in amounts in excess of those needed to satisfy the cash outflows and hold the balance of the proceeds in short-term investments if such a transaction appears, taking into account transaction costs, to be more efficient than selling only the amount of stocks needed to meet the cash requirements. The portfolio will not, however, increase its holdings of cash in anticipation of any decline in the value of the S&P 500 Index or of the stock markets generally. The portfolio will instead remain as fully invested in the S&P 500 Index stocks as feasible in light of its cash flow patterns during periods of market declines as well as advances, and investors in the portfolio thus run the risk of remaining fully invested in common stocks during a period of general decline in the stock markets. Tracking accuracy is measured by the difference between total return for the S&P Index with dividends reinvested and total return for the portfolio with dividends reinvested before deductions of portfolio fees and expenses. Tracking accuracy is monitored by the portfolio manager on a daily basis. All tracking accuracy deviations are reviewed to determine the effectiveness of investment policies and techniques. If the portfolio does hold short-term investments as a result of the patterns of cash flows to and from the portfolio, such holdings may cause its performance to differ from that of the S&P 500 Index. The portfolio will attempt to minimize any such difference in performance through transactions involving stock index futures contracts, options on stock indices, and/or options on stock index future contracts. These derivative investment instruments are described above under Options on Stock Indices, Stock Index Futures Contracts, and Options on Futures Contracts on pages 12 through 15. The portfolio will not use such instruments for speculative purposes or to hedge against any decline in the value of the stocks held in the portfolio, but instead will employ them only as a temporary substitute for investment of cash holdings directly in the 500 stocks when the portfolio's cash holdings are too small to make such an investment in an efficient manner. 19 For example, if the portfolio's cash reserves are insufficient to invest efficiently in another unit of the basket of stocks comprising the S&P 500 Index, the portfolio may purchase S&P 500 futures contracts to hedge against a rise in the value of the stocks the portfolio intends to acquire. In its attempt to minimize any difference in performance between the portfolio and the S&P 500 Index, the portfolio currently intends to engage in transactions involving the S&P 500 Index futures contracts; the NYSE Composite Index futures contracts; options on the S&P 500 Index, the S&P 100 Index, and the NYSE Composite Index; and options on the S&P 500 Index futures contracts and the NYSE Composite Index futures contracts. There can be no assurance that the portfolio's attempt to minimize such performance difference through the use of any of these instruments will succeed. See Additional Information Regarding the Use of Options and Futures Contracts by the Stock Index and Small Capitalization Stock Portfolios, page 15, for a more detailed discussion of the manner in which the portfolio will employ these instruments, and Options on Stock Indices, page 12, for a description of other risks involved in the use of such instruments. The above described investment policies and techniques of the Stock Index portfolio are non-fundamental and may be changed without shareholder approval if it is determined that alternative investment techniques would be more effective in achieving the portfolio's objective. Further Information About the Zero Coupon Bond Portfolios. As stated in the prospectus, the objective of Zero Coupon Portfolios 1995 (not available for investment after November 14, 1995), 2000, and 2005 is to achieve the highest predictable compounded investment return for a specified period of time, consistent with the safety of invested capital. This discussion provides a more detailed explanation of the investment policies that will be employed to manage these portfolios. If each Zero Coupon Bond Portfolio held only stripped securities that were obligations of the United States Government, maturing on the liquidation date, the compounded yield of the portfolio from the date of initial investment until the liquidation date could be calculated arithmetically to a high degree of accuracy. By: (i) including stripped corporate obligations and interest bearing debt securities; (ii) including securities with maturity dates within 2 years of the liquidation date; and (iii) more actively managing the portfolio, the accuracy of the predicted yield is reduced somewhat with the objective of achieving an increased yield. The reduction in accuracy is kept to an acceptably small amount, however, by an investment technique known as "immunization." By purchasing securities with maturity dates or with interest payment dates prior to the liquidation date, a risk is incurred that the payments received will not be able to be reinvested at interest rates as high as or higher than the yield initially predicted. This is known as "reinvestment risk." By including securities with maturity dates after the liquidation date, a risk is incurred that, because interest rates have increased, the market value of such securities will be lower than had been anticipated. This is known as "market risk." It is also possible, conversely, that payments received prior to the liquidation date can be reinvested at higher rates than the predicted yield and that the value of unmatured securities on the liquidation date will be greater than anticipated. Reinvestment risk and market risk are thus reciprocal in that any change in the general level of interest rates has an opposite effect on the two classes of securities described above. The portfolios' investment advisor (The Prudential) seeks to balance these risks by making use of the concept of "duration." A bond's duration is the average weighted period of time until receipt of all scheduled cash payments under the bond (whether principal or interest), where the weights are the present value of the amounts to be received on each payment date. Unlike the concept of a bond's "term to maturity," therefore, duration takes into account both the amount and timing of a bond's interest payments, in addition to its maturity date and yield to maturity. The duration of a zero coupon bond is the product of the face amount of the bond and the time until maturity. As applied to a portfolio of bonds, a portfolio's "duration" is the average weighted period of time until receipt of all scheduled payments, whether principal or interest, from all bonds in the portfolio. When a portfolio's duration is equal to the length of time remaining until its liquidation date, fluctuations in the amount of income accumulated by the portfolio through reinvestment of coupon or principal payments received prior to the liquidation date (i.e., fluctuations caused by reinvestment risk) will, over the period ending on the liquidation date, be approximately equal in magnitude to, but opposite in direction from, fluctuations in the market value on the liquidation date of the portfolio's unmatured bonds (i.e., fluctuations caused by market risk). By maintaining each portfolio's duration within 1 year of the length of time remaining until its liquidation date, The Prudential believes that each portfolio's value on its liquidation date, and hence an investor's compounded investment return to that date, will largely be immunized against changes in the general level of interest rates. The success of this technique could be affected, however, by such factors as changes in the relationship between long-term and short-term interest rates and changes in the difference between the yield on corporate and Treasury securities. The Prudential will also calculate a projected yield for each Zero Coupon Bond Portfolio. At the beginning of each week, after the net asset value of each Zero Coupon Bond Portfolio has been determined, The Prudential will calculate the compounded annual yield that will result if all securities in the portfolio are held until the liquidation 20 date or, if earlier, until their maturity dates (with the proceeds reinvested until the liquidation date). This is the predicted yield for that date. It can also be expressed as the amount to which a premium of $10,000 is predicted to grow by the portfolio's liquidation date. Both of these numbers will be furnished upon request. Unless there is a significant change in the general level of interest rates -- in which case a recalculation will be made -- the predicted yield is not likely to vary materially over the course of each week. As stated in the prospectus, as much as 30% of each portfolio's assets may be invested in zero coupon debt securities issued by United States corporations or in high grade interest bearing debt securities, provided that no more than 20% of the assets of the portfolio may be invested in interest bearing securities. The extent to which the portfolio invests in interest bearing securities, up to those limits, may rise as the portfolio moves closer to its liquidation date since both reinvestment risk and market risk become smaller as the period to the liquidation date decreases. INVESTMENT RESTRICTIONS Set forth below are certain investment restrictions applicable to the portfolios. Restrictions 1, 3, 5, and 8-11 are fundamental and may not be changed without shareholder approval as required by the 1940 Act. Restrictions 2, 4, 6, 7, and 12 are not fundamental and may be changed by the Board of Directors without shareholder approval. None of the portfolios will: 1. Buy or sell real estate and mortgages, although the portfolios may buy and sell securities that are secured by real estate and securities of real estate investment trusts and of other issuers that engage in real estate operation. Buy or sell commodities or commodities contracts, except that the Diversified Stock, Balanced, and Specialized Portfolios may purchase and sell stock index futures contracts and related options; the Fixed Income Portfolios (other than the Money Market and Zero Coupon Bond Portfolios), the Global Equity Portfolio, and the Balanced Portfolios may purchase and sell interest rate futures contracts and related options; and all portfolios (other than the Money Market, Government Securities and Zero Coupon Bond, and Small Capitalization Stock Portfolios) may purchase and sell foreign currency futures contracts and related options and forward foreign currency exchange contracts. 2. Except as part of a merger, consolidation, acquisition or reorganization, invest more than 5% of the value of its total assets in the securities of any one investment company or more than 10% of the value of its total assets, in the aggregate, in the securities of two or more investment companies, or acquire more than 3% of the total outstanding voting securities of any one investment company. 3. Acquire securities for the purpose of exercising control or management of any company except in connection with a merger, consolidation, acquisition or reorganization. 4. Make short sales of securities or maintain a short position, except that the Bond, High Yield Bond, Government Securities, Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios may sell securities short up to 25% of their net assets and except that the portfolios (other than the Money Market and Zero Coupon Bond Portfolios) may make short sales against the box. Collateral arrangements entered into with respect to options, futures contracts and forward contracts are not deemed to be short sales. Collateral arrangements entered into with respect to interest rate swap agreements are not deemed to be short sales. 5. Purchase securities on margin or otherwise borrow money or issue senior securities except that the Bond, High Yield Bond and Government Securities Portfolios, as well as the fixed income portions of the Balanced Portfolios, may enter into reverse repurchase agreements, dollar rolls and may purchase securities on a when-issued and delayed delivery basis; except that the Money Market Portfolio and the money market portion of any portfolio may enter into reverse repurchase agreements and may purchase securities on a when-issued and delayed delivery basis; and except that the Common Stock, Growth Stock, Small Capitalization Stock, High Dividend Stock, Natural Resources, Global Equity, Aggressively Managed Flexible and Conservatively Managed Flexible Portfolios may purchase securities on a when-issued or a delayed delivery basis. The Series Fund may also obtain such short-term credit as it needs for the clearance of securities transactions and may borrow from a bank for the account of any portfolio as a temporary measure to facilitate redemptions (but not for leveraging or investment) or to exercise an option, an amount that does not exceed 5% of the value of the portfolio's total assets (including the amount owed as a result of the borrowing) at the time the borrowing is made. Interest paid on borrowings will not be available for investment. Collateral arrangements with respect to futures contracts and options thereon and forward foreign currency exchange contracts (as permitted by restriction no. 1) are not deemed to be the issuance of a senior security or the purchase of a security on margin. Collateral arrangements with respect to the writing of the following options by the following portfolios are not deemed to be the issuance of a senior security or the purchase of a security on 21 margin: Diversified Stock and Specialized Portfolios other than the Stock Index Portfolio (options on equity securities, stock indices, foreign currencies)and the Small Capitalization Stock Portfolio (options on equity securities, stock indices); Balanced Portfolios (options on debt securities, equity securities, stock indices, foreign currencies); Bond and High Yield Bond Portfolios (options on debt securities, foreign currencies); Government Securities Portfolio (options on debt securities). Collateral arrangements entered into by the Fixed Income Portfolios (other than the Money Market and Zero Coupon Bond Portfolios) and the Balanced Portfolios with respect to interest rate swap agreements are not deemed to be the issuance of a senior security or the purchase of a security on margin. 6. Enter into reverse repurchase agreements if, as a result, the portfolio's obligations with respect to reverse repurchase agreements would exceed 10% of the portfolio's net assets (defined to mean total assets at market value less liabilities other than reverse repurchase agreements); except that the Bond, High Yield Bond, and Government Securities Portfolios, as well as the fixed income portions of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios, may enter into reverse repurchase agreements and dollar rolls provided that the portfolio's obligations with respect to those instruments do not exceed 30% of the portfolio's net assets (defined to mean total assets at market value less liabilities other than reverse repurchase agreements and dollar rolls). 7. Pledge or mortgage assets, except that no more than 10% of the value of any portfolio may be pledged (taken at the time the pledge is made) to secure authorized borrowing and except that a portfolio may enter into reverse repurchase agreements. Collateral arrangements entered into with respect to futures and forward contracts and the writing of options are not deemed to be the pledge of assets. Collateral arrangements entered into with respect to interest rate swap agreements are not deemed to be the pledge of assets. 8. Lend money, except that loans of up to 10% of the value of each portfolio may be made through the purchase of privately placed bonds, debentures, notes, and other evidences of indebtedness of a character customarily acquired by institutional investors that may or may not be convertible into stock or accompanied by warrants or rights to acquire stock. Repurchase agreements and the purchase of publicly traded debt obligations are not considered to be "loans" for this purpose and may be entered into or purchased by a portfolio in accordance with its investment objectives and policies. 9. Underwrite the securities of other issuers, except where the Series Fund may be deemed to be an underwriter for purposes of certain federal securities laws in connection with the disposition of portfolio securities and with loans that a portfolio may make pursuant to item 8 above. 10. Make an investment unless, when considering all its other investments, 75% of the value of a portfolio's assets would consist of cash, cash items, obligations of the United States Government, its agencies or instrumentalities, and other securities. For purposes of this restriction, "other securities" are limited for each issuer to not more than 5% of the value of a portfolio's assets and to not more than 10% of the issuer's outstanding voting securities held by the Series Fund as a whole. Some uncertainty exists as to whether certain of the types of bank obligations in which a portfolio may invest, such as certificates of deposit and bankers' acceptances, should be classified as "cash items" rather than "other securities" for purposes of this restriction, which is a diversification requirement under the 1940 Act. Interpreting most bank obligations as "other securities" limits the amount a portfolio may invest in the obligations of any one bank to 5% of its total assets. If there is an authoritative decision that any of these obligations are not "securities" for purposes of this diversification test, this limitation would not apply to the purchase of such obligations. 11. Purchase securities of a company in any industry if, as a result of the purchase, a portfolio's holdings of securities issued by companies in that industry would exceed 25% of the value of the portfolio, except that this restriction does not apply to purchases of obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities or issued by domestic banks. For purposes of this restriction, neither finance companies as a group nor utility companies as a group are considered to be a single industry and will be grouped instead according to their services; for example, gas, electric, and telephone utilities will each be considered a separate industry. For purposes of this exception, domestic banks shall include all banks which are organized under the laws of the United States or a state (as defined in the 1940 Act), U.S. branches of foreign banks that are subject to the same regulations as U.S. banks and foreign branches of domestic banks (as permitted by the SEC). 12. Invest more than 15% of its net assets in illiquid securities or invest more than 10% of its net assets in the securities of unseasoned issuers. (The Money Market Portfolio will not invest more than 10% of its net assets in illiquid securities.) For purposes of this restriction, (a) illiquid securities are those deemed illiquid pursuant to SEC regulations and guidelines, as they may be revised from time to time: and (b) unseasoned 22 issuers are issuers (other than U.S. Government agencies or instrumentalities) having a record, together with predecessors, of less than 3 years' continuous operation. The Natural Resources Portfolio will generally invest a substantial majority of its total assets in securities of natural resource companies. With respect to item 11 above, as it relates to the Natural Resources Portfolio, the following categories will be considered separate and distinct industries: integrated oil/domestic, integrated oil/international, crude oil production, natural gas production, gas pipeline, oil service, coal, forest products, paper, foods (including corn and wheat), tobacco, fertilizers, aluminum, copper, iron and steel, all other basic metals (e.g., nickel, lead), gold, silver, platinum, mining finance, plantations (e.g., edible oils), mineral sands, and diversified resources. A company will be deemed to be in a particular industry if the majority of its revenues is derived from or the majority of its assets is dedicated to one of the categories described in the preceding sentence. The Board of Directors of the Series Fund will review these industry classifications from time to time to determine whether they are reasonable under the circumstances and may change such classifications, without shareholder approval, to the extent necessary. Certain additional non-fundamental investment policies are applicable only to the Money Market Portfolio. That portfolio will not: 1. Invest in oil and gas interests, common stock, preferred stock, warrants or other equity securities. 2. Write or purchase any put or call option or combination of them, except that it may purchase putable securities. 3. Invest in any security with a remaining maturity in excess of 13 months, except that securities held pursuant to repurchase agreements may have a remaining maturity of more than 13 months. Certain additional non-fundamental investment policies are applicable only to the High Yield Bond Portfolio. That portfolio will not: 1. Invest in any non-fixed income equity securities, including warrants, except when attached to or included in a unit with fixed income securities, but not including preferred stock. 2. Invest more than 20% of the market or other fair value of its total assets in United States currency denominated issues of foreign governments and other foreign issuers; or invest more than 10% of the market or other fair value of its total assets in securities which are payable in currencies other than United States dollars. The portfolio will not engage in investment activity in non-U.S. dollar denominated issues without first obtaining authorization to do so from the Series Fund's Board of Directors. See INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS, page 8. The investments of the various portfolios are generally subject to certain additional restrictions under the laws of the State of New Jersey. In the event of future amendments to the applicable New Jersey statutes, each portfolio will comply, without the approval of the shareholders, with the statutory requirements as so modified. The pertinent provisions of New Jersey law as they stand are, in summary form, as follows: 1. An Account may not purchase any evidence of indebtedness issued, assumed or guaranteed by any institution created or existing under the laws of the U.S., any U.S. state or territory, District of Columbia, Puerto Rico, Canada or any Canadian province, if such evidence of indebtedness is in default as to interest. "Institution" includes any corporation, joint stock association, business trust, business joint venture, business partnership, savings and loan association, credit union or other mutual savings institution. 2. The stock of a corporation may not be purchased unless: (i) the corporation has paid a cash dividend on the class of stock during each of the past 5 years preceding the time of purchase; or (ii) during the 5-year period the corporation had aggregate earnings available for dividends on such class of stock sufficient to pay average dividends of 4% per annum computed upon the par value of such stock or upon stated value if the stock has no par value. This limitation does not apply to any class of stock which is preferred as to dividends over a class of stock whose purchase is not prohibited. 3. Any common stock purchased must be: (i) listed or admitted to trading on a securities exchange in the United States or Canada; or (ii) included 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 have market quotations available. 4. Any security of a corporation may not be purchased if after the purchase more than 10% of the market value of the assets of a portfolio would be invested in the securities of such corporation. As a result of these currently applicable requirements of New Jersey law, which impose substantial limitations on the ability of the Series Fund to invest in the stock of companies whose securities are not publicly traded or who have not recorded a 5-year history of dividend payments or earnings sufficient to support such payments, the 23 portfolios will not generally hold the stock of newly organized corporations. Nonetheless, an investment not otherwise eligible under items 1 or 2 above may be made if, after giving effect to the investment, the total cost of all such non-eligible investments does not exceed 5% of the aggregate market value of the assets of the portfolio. Investment limitations also arise under the insurance laws and regulations of Arizona and may arise under the laws and regulations of other states. Although compliance with the requirements of New Jersey law set forth above will ordinarily result in compliance with any applicable laws of other states, under some circumstances the laws of other states could impose additional restrictions on the portfolios. For example, the Series Fund will generally invest no more than 10% of its assets in the obligations of banks of the foreign countries described in item 2 of SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST, page 28. Current federal income tax laws require that the assets of each portfolio be adequately diversified so that The Prudential and other insurers with separate accounts which invest in the Series Fund and not the Contract owners, are considered the owners of assets held in the Account for federal income tax purposes. See Tax Treatment of Contract Benefits, page 5. The Prudential intends to maintain the assets of each portfolio pursuant to those diversification requirements. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES The Series Fund and The Prudential have entered into an Investment Advisory Agreement under which The Prudential will, subject to the direction of the Board of Directors of the Series Fund, be responsible for the management of the Series Fund, and provide investment advice and related services to each portfolio. As noted in the prospectus, The Prudential has also 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 the Investment Advisory Agreement. In addition, The Prudential has entered into a Subadvisory Agreement with its wholly-owned subsidiary Jennison Associates Capital Corp. ("Jennison") under which Jennison furnishes investment advisory services in connection with the management of the Growth Stock Portfolio. Under the Investment Advisory Agreement, The Prudential receives an investment management fee as compensation for its services to the Series Fund. The fee is a daily charge, payable quarterly, equal to an annual percentage of the average daily net assets of each individual portfolio. The investment management fee for the Stock Index Portfolio is equal to an annual rate of 0.35% of the average daily net assets of the portfolio. For the Money Market, Bond, Government Securities, High Dividend Stock, and Zero Coupon Bond and Small Capitalization Stock Portfolios, that fee is equal to an annual rate of 0.4% of the average daily net assets of each of the portfolios. For the Common Stock and Natural Resources Portfolios, the fee is equal to an annual rate of 0.45% of the average daily net assets of each of the portfolios. The fee for the Conservatively Managed Flexible and High Yield Bond Portfolios is equal to an annual rate of 0.55% of the average daily net assets of each of the portfolios. For the Aggressively Managed Flexible and Growth Stock Portfolios, the fee is equal to an annual rate of 0.6% of the average daily net assets of the portfolio. The fee for the Global Equity Portfolio is equal to an annual rate of 0.75% of the average daily net assets of the portfolio. The Prudential reimburses PIC for the costs and expenses it incurs under the Service Agreement. The Prudential pays Jennison a portion of the fee it receives for providing investment advisory services to the Growth Stock Portfolio. The Investment Advisory Agreement requires The Prudential to pay for maintaining any Prudential staff and personnel who perform clerical, accounting, administrative, and similar services for the Series Fund, other than investor services and any daily Series Fund accounting services. It also requires The Prudential to pay for the equipment, office space and related facilities necessary to perform these services and the fees or salaries of all officers and directors of the Series Fund who are affiliated persons of The Prudential or any subsidiary of The Prudential. Each portfolio pays all other expenses incurred in its individual operation and also pays a portion of the Series Fund's general administrative expenses allocated on the basis of the asset size of the respective portfolios. Expenses that will be borne directly by the portfolios include redemption expenses, expenses of portfolio transactions, shareholder servicing costs, interest, certain taxes, charges of the Custodian and Transfer Agent, and other expenses attributable to a particular portfolio. Expenses that will be allocated among all portfolios include legal expenses, state franchise taxes, auditing services, costs of printing proxies, costs of stock certificates, Securities and Exchange Commission fees, accounting costs, the fees and expenses of directors of the Series Fund who are not affiliated persons of The Prudential or any subsidiary of The Prudential, and other expenses properly payable by the entire Series Fund. If the Series Fund is sued, litigation costs may be directly applicable to one or more portfolios or allocated on the basis of the size of the respective portfolios, depending upon the nature of the 24 lawsuit. The Series Fund's Board of Directors has determined that this is an appropriate method of allocating expenses. Under the Investment Advisory Agreement, The Prudential has agreed to refund to a portfolio (except the Global Equity Portfolio) the portion of the investment management fee for that portfolio equal to the amount that the aggregate annual ordinary operating expenses of that portfolio (excluding interest, taxes, and brokerage fees and commissions but including investment management fees) exceeds 0.75% of the portfolio's average daily net assets. There is no expense limitation or reimbursement provision for the Global Equity Portfolio. The Investment Advisory Agreement with The Prudential was most recently approved by the Series Fund's Board of Directors, including a majority of the Directors who are not interested persons of The Prudential, on February 28, 1995 with respect to all portfolios. The Investment Advisory Agreement was most recently approved by the shareholders in accordance with instructions from Contract owners at their 1989 annual meeting with respect to all portfolios except the Growth Stock and Small Capitalization Stock Portfolios. A Supplemental Advisory Agreement regarding the Growth Stock and Small Capitalization Stock Portfolios was approved by the Series Fund Board of Directors on December 20, 1994 and by the sole shareholder of the Growth Stock and Small Capitalization Stock Portfolios on April 5, 1995. The Investment Advisory and Supplemental Investment Advisory Agreements will continue in effect if approved annually by: (1) a majority of the non-interested persons of the Series Fund's Board of Directors; and (2) by a majority of the entire Board of Directors or by a majority vote of the shareholders of each portfolio. The required shareholder approval of the Agreements shall be effective with respect to any portfolio if a majority of the voting shares of that portfolio vote to approve the Agreements, even if the Agreements are not approved by a majority of the voting shares of any other portfolio or by a majority of the voting shares of the entire Series Fund. The Agreements provide that they may not be assigned by The Prudential and that they may be terminated upon 60 days notice by the Series Fund's Board of Directors or by a majority vote of its shareholders. The Prudential may terminate the Agreements upon 90 days notice. The Service Agreement between The Prudential and PIC was most recently ratified by shareholders of the Series Fund at their 1989 annual meeting with respect to all portfolios except for the Growth Stock and Small Capitalization Stock Portfolios, which had not yet been established. The Service Agreement with respect to those portfolios and the Investment Subadvisory Agreement with Jennison were ratified by the sole shareholder of those portfolios on April 5, 1995. The Service Agreement between The Prudential and PIC will continue in effect as to the Series Fund for a period of more than 2 years from its execution, only so long as such continuance is specifically approved at least annually in the same manner as the Investment Advisory Agreement between The Prudential and the Series Fund. The Service 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 Series Fund in the event of the assignment or termination of the Investment Advisory Agreement between The Prudential and the Series Fund. The Prudential is not relieved of its responsibility for all investment advisory services under the Investment Advisory Agreement. The Prudential also serves as the investment advisor to several other investment companies. When investment opportunities arise that may be appropriate for more than one entity for which The Prudential serves as investment advisor, The Prudential will not favor one over another and may allocate investments among them 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 investor advisor have different investment objectives and positions, The Prudential may from time to time buy a particular security for one or more such entities while at the same time it sells such securities for another. PORTFOLIO TRANSACTIONS AND BROKERAGE The Prudential is responsible for decisions to buy and sell securities, options on securities and indices, and futures and related options for the Series Fund. The Prudential is also responsible for the selection of brokers, dealers, and futures commission merchants to effect the transactions and the negotiation of brokerage commissions, if any. Broker-dealers may receive brokerage commissions on Series Fund portfolio transactions, including options and the purchase and sale of underlying securities upon the exercise of options. Orders may be directed to any broker or futures commission merchant including, to the extent and in the manner permitted by applicable law, Prudential Securities Incorporated, an indirect wholly-owned subsidiary of The Prudential. Bonds, including convertible bonds, and equity securities traded in the over-the-counter market are generally traded on a "net" basis with dealers acting as principal 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 which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments and U.S. Government agency securities may be purchased directly from the issuer, in which case no commissions or discounts are paid. 25 The Series Fund will not deal with Prudential Securities Incorporated in any transaction in which Prudential Securities Incorporated acts as principal. Thus, it will not deal with Prudential Securities Incorporated if execution involves Prudential Securities Incorporated's acting as principal with respect to any part of the Series Fund's order. Portfolio securities may not be purchased from any underwriting or selling syndicate of which Prudential Securities Incorporated, during the existence of the syndicate, is a principal underwriter (as defined in the 1940 Act) except in accordance with rules of the Securities and Exchange Commission. This limitation, in the opinion of the Series Fund, will not significantly affect the portfolios' current ability to pursue their respective investment objectives. However, in the future it is possible that the Series Fund may under other circumstances be at a disadvantage because of this limitation in comparison to other funds not subject to such a limitation. In placing orders for portfolio securities of the Series Fund, The Prudential is required to give primary consideration to obtaining the most favorable price and efficient execution. Within the framework of this policy, The Prudential will consider the research and investment services provided by brokers, dealers or futures commission merchants who effect or are parties to portfolio transactions of the Series Fund, The Prudential or The Prudential's other clients. Such research and investment services are those which brokerage houses customarily provide to institutional investors and include statistical and economic data and research reports on particular companies and industries. Such services are used by The Prudential in connection with all of its investment activities, and some of such services obtained in connection with the execution of transactions for the Series Fund may be used in managing other investment accounts. Conversely, brokers, dealers or futures commission merchants furnishing such services may be selected for the execution of transactions for such other accounts, and the services furnished by such brokers, dealers or futures commission merchants may be used by The Prudential in providing investment management for the Series Fund. Commission rates are established pursuant to negotiations with the broker, dealer or futures commission merchant based on the quality and quantity of execution services provided by the broker in the light of generally prevailing rates. The Prudential's policy is to pay higher commissions to brokers, other than Prudential Securities Incorporated, for particular transactions than might be charged if a different broker had been selected on occasions when, in The Prudential's opinion, this policy furthers the objective of obtaining best price and execution. The Prudential's present policy is not to permit higher commissions to be paid on Series Fund transactions in order to secure research, statistical, and investment services from brokers. The Prudential might in the future authorize the payment of such higher commissions but only with the prior concurrence of the Board of Directors of the Series Fund, if it is determined that the higher commissions are necessary in order to secure desired research and are reasonable in relation to all the services that the broker provides. Subject to the above considerations, Prudential Securities Incorporated may act as a securities broker or futures commission merchant for the Series Fund. In order for Prudential Securities Incorporated to effect any portfolio transactions for the Series Fund, the commissions received by Prudential Securities Incorporated must be reasonable and fair compared to the commissions received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time. This standard would allow Prudential Securities Incorporated to receive no more than the remuneration that would be expected to be received by an unaffiliated broker or futures commission merchant in a commensurate arm's-length transaction. Furthermore, the Board of Directors of the Series Fund, including a majority of the non-interested directors, has adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to Prudential Securities Incorporated are consistent with the foregoing standard. In accordance with Rule 11a2-2(T) under the Securities Exchange Act of 1934, Prudential Securities Incorporated may not retain compensation for effecting transactions on a securities exchange for the Series Fund unless the Series Fund has expressly authorized the retention of such compensation in a written contract executed by the Series Fund and Prudential Securities Incorporated. Rule 11a2-2(T) provides that Prudential Securities Incorporated must furnish to the Series Fund at least annually a statement setting forth the total amount of all compensation retained by Prudential Securities Incorporated from transactions effected for the Series Fund during the applicable period. Brokerage and futures transactions with Prudential Securities Incorporated are also subject to such fiduciary standards as may be imposed by applicable law. For the years 1994, 1993, and 1992, the Series Fund paid a total of $11,579,886, $9,492,283, and $5,802,658, respectively, in brokerage commissions. Of those amounts, $560,155, $977,695, and $873,920, for 1994, 1993, and 1992, respectively, was paid out to Prudential Securities Incorporated. For 1994, the commissions paid to this affiliated broker constituted 4.8% of the total commissions paid by the Series Fund for that year. Transactions through this affiliated broker accounted for 6.04% of the aggregate dollar amount of transactions for the Series Fund involving the payment of commissions. DETERMINATION OF NET ASSET VALUE Shares in the Series Fund are currently offered continuously, without sales charge, at prices equal to the respective net asset values of the portfolios, only to separate accounts to fund benefits payable under the Contracts described 26 in the variable life insurance and variable annuity prospectuses. The Series Fund may at some later date also offer its shares to other separate accounts of The Prudential or other insurers. The Prudential acts as principal underwriter to the Series Fund. As such, The Prudential receives no underwriting compensation from the Series Fund. As noted in the prospectus, the net asset value of the shares of each portfolio is determined once daily on each day the New York Stock Exchange ("NYSE") is open for business. The NYSE is open for business Monday through Friday except for the days on which the following holidays are observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In determining the net asset value of the Bond, High Yield Bond, and Government Securities Portfolios, securities (other than debt obligations with remaining maturities of less than 60 days, which are valued at amortized cost) will be valued utilizing an independent pricing service to determine valuations for normal institutional size trading units of securities. The pricing service considers such factors as security prices, yields, maturities, call features, ratings, and developments relating to specific securities in arriving at securities valuations. The net asset value of shares of the Money Market Portfolio will normally remain at $10 per share, because the net investment income of this portfolio (including realized and unrealized gains and losses on portfolio holdings) will be declared as a dividend each time the portfolio's net income is determined. See DIVIDENDS, DISTRIBUTIONS AND TAXES, page 32. If in the view of the Board of Directors of the Series Fund it is inadvisable to continue to maintain the net asset value of the Money Market Portfolio at $10 per share, the Board reserves the right to alter the procedure. The Series Fund will notify Contract owners of any such alteration. All short-term debt obligations in the Money Market Portfolio of 13 months' maturity or less are valued on an amortized cost basis. This means that each obligation will be valued initially at its purchase price and thereafter by amortizing any discount or premium uniformly to maturity, regardless of the impact of fluctuating interest rates on the market value of the obligation. This highly practical method of valuation is in widespread use and almost always results in a value that is extremely close to the actual market value. In order to continue to utilize the amortized cost method of valuation, the Money Market Portfolio may not purchase any security with a remaining maturity of more than 13 months and must maintain a dollar-weighted average portfolio maturity of 90 days or less. In the event of sizeable changes in interest rates, however, the value determined by this method may be higher or lower than the price that would be received if the obligation were sold. The Series Fund's Board of Directors has established procedures to determine whether, on these occasions, if any should occur, the deviation might be enough to affect the value of shares in the Money Market Portfolio by more than 1/2 of one percent, and, if it does, an appropriate adjustment will be made in the value of the obligations. The portfolio may only be invested in securities of high quality as described in detail below in SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST. The net asset value of the Stock Index, High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources Portfolios will be determined in the following manner. Any security for which the primary market is on an exchange is generally valued at the last sale price on such exchange as of the close of the NYSE (which is currently 4:00 p.m. New York City time) or, in the absence of recorded sales, at the mean between the most recently quoted bid and asked prices. NASDAQ National Market System equity securities are valued at the last sale price or, if there was no sale on such day, at the mean between the most recently quoted bid and asked prices. Other over-the-counter equity securities are valued at the mean between the most recently quoted bid and asked prices. Convertible debt securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed to be over-the-counter, are valued at the mean between the most recently quoted bid and asked prices. Corporate bonds (other than convertible debt securities) and Government bonds held by the High Dividend Stock and Natural Resources Portfolios are valued on the same basis as securities in the Bond and High Yield Bond Portfolios, as described above. Short-term debt instruments which mature in less than 60 days are valued at amortized cost. For valuation purposes, quotations of foreign securities in a foreign currency are converted to U.S. dollar equivalents. Generally, trading in foreign securities, as well as corporate bonds, U.S. Government securities, and money market instruments, is substantially completed each day at various times prior to the close of the NYSE. The values of any such securities are determined as of such times for purposes of computing a portfolio's net asset value. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. If an extraordinary event occurs after the close of an exchange on which that security is traded, the security will be valued at fair value as determined in good faith by the applicable portfolio manager under procedures established by and under the general supervision of the Series Fund's Board of Directors. In determining the net asset value of each of the Balanced Portfolios, the method of valuation of a security depends on the type of investment involved. Intermediate or long-term fixed income securities are valued in the same way as such securities are valued in the Bond Portfolio, and common stocks and convertible debt securities are valued in the same way as such securities are valued in the Common Stock Portfolio. Short-term debt obligations with 27 a maturity of 12 months or less are valued on an amortized cost basis in accordance with an order obtained from the Securities and Exchange Commission. Each Balanced Portfolio must maintain a dollar-weighted average maturity for its short-term debt obligations of 120 days or less. As discussed above in connection with the Money Market Portfolio, the values determined by the amortized cost method may deviate from market value under certain circumstances. The Series Fund's Board of Directors has established procedures to monitor whether any material deviation occurs and, if so, will promptly consider what action, if any, should be initiated to prevent unfair results to Contract owners. The short-term portion of these portfolios may be invested only in high quality instruments, as described below in SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST. In determining the net asset value of the shares of the Zero Coupon Bond Portfolios 1995, 2000, and 2005, securities (other than debt obligations with maturities of less than 60 days, which are valued at amortized cost) will be valued utilizing an independent pricing service to determine valuations for normal institutional size trading units of securities. The pricing service considers such factors as security prices, yields, maturities, call features, ratings, and developments relating to specific securities in arriving at securities valuations. With respect to all the portfolios which utilize such investments, options on stock and stock indices traded on national securities exchanges are valued at the average of the quoted bid and asked prices as of the close of the respective exchange (which is currently 4:10 p.m. New York City time). Futures contracts are marked to market daily, and options thereon are valued at their last sale price, as of the close of the applicable commodities exchanges (which is currently 4:15 p.m. New York City time). Securities or assets for which market quotations are not readily available will be valued at fair value as determined by The Prudential under the direction of the Board of Directors of the Series Fund. SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST The Money Market Portfolio, and the other portfolios to the extent their investment policies so provide, may invest in the following liquid, short-term, debt securities regularly bought and sold by financial institutions: 1. U.S. Treasury Bills and other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. These are debt securities (including bills, certificates of indebtedness, notes, and bonds) issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. Government that is established under the authority of an act of Congress. Although all obligations of agencies and instrumentalities are not direct obligations of the U.S. Treasury, payment of the interest and principal on them is generally backed directly or indirectly by the U.S. Government. This support can range from the backing of the full faith and credit of the United States, to U.S. Treasury guarantees or to the backing solely of the issuing instrumentality itself. Securities which are not backed by the full faith and credit of the United States include but are not limited to obligations of the Tennessee Valley Authority, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the United States Postal Service, each of which has the right to borrow from the U.S. Treasury to meet its obligations, and obligations of the Federal Farm Credit System and the Federal Home Loan Banks, the obligations of which may only be satisfied by the individual credit of the issuing agency. Obligations of the Government National Mortgage Association, the Farmers Home Administration, and the Export-Import Bank are examples of securities that are backed by the full faith and credit of the United States. 2. Obligations (including certificates of deposit, bankers' acceptances, and time deposits) of domestic banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and foreign offices of foreign banks provided that such bank has, at the time of the portfolio's investment, total assets of at least $1 billion or the equivalent. Obligations of any savings and loan association or savings bank organized under the laws of the United States or any state thereof, provided that such association or savings bank has, at the time of the portfolio's investment, total assets of at least $1 billion. The term "certificates of deposit" includes both Eurodollar certificates of deposit, which are traded in the over-the-counter market, and Eurodollar time deposits, for which there is generally not a market. "Eurodollars" are dollars deposited in banks outside the United States. An investment in Eurodollar instruments involves risks that are different in some respects from an investment in debt obligations of domestic issuers, including future political and economic developments such as possible expropriation or confiscatory taxation that might adversely affect the payment of principal and interest on the Eurodollar instruments. "Certificates of deposit" are certificates evidencing the indebtedness of a commercial bank to repay funds deposited with it for a definite period of time (usually from 14 days to 1 year). "Bankers' acceptances" are credit instruments evidencing the obligation of a bank to pay a draft which has been drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. "Time deposits" are non-negotiable deposits in a bank for a fixed period of time. 3. Commercial paper, variable amount demand master notes, bills, notes and other obligations issued by a U.S. company, a foreign company or a foreign government, its agencies, instrumentalities or political subdivisions, 28 denominated in U.S. dollars, and, at the date of investment, rated at least A or A-2 by Standard & Poor's Corporation ("S&P"), A or Prime-2 by Moody's Investors Service ("Moody's") or, if not rated, issued by an entity having an outstanding unsecured debt issue rated at least A or A-2 by S&P or A or Prime-2 by Moody's. For a description of corporate bond ratings, see DEBT RATINGS, page 30. If such obligations are guaranteed or supported by a letter of credit issued by a bank, such bank (including a foreign bank) must meet the requirements set forth in paragraph 2 above. If such obligations are guaranteed or insured by an insurance company or other non-bank entity, such insurance company or other non-bank entity must represent a credit of high quality, as determined by the Series Fund's investment adviser (which as noted above is currently The Prudential) under the supervision of the Series Fund's Board of Directors. As stated above in paragraphs 2 and 3, the Money Market Portfolio and short-term portions of the other portfolios may contain obligations of foreign branches of domestic banks and domestic branches of foreign banks, as well as commercial paper, bills, notes, and other obligations issued in the United States by foreign issuers, including foreign governments, their agencies, and instrumentalities. This involves certain additional risks. These risks include future political and economic developments in the country of the issuer, the possible imposition of withholding taxes on interest income payable on such obligations held by the Series Fund, the possible seizure or nationalization of foreign deposits, and the possible establishment of exchange controls or other foreign governmental laws or restrictions which might affect adversely the payment of principal and interest on such obligations held by the Series Fund. In addition, there may be less publicly available information about a foreign issuer than about a domestic one, and foreign issuers may not be subject to the same accounting, auditing and financial recordkeeping standards and requirements as domestics issuers. Securities issued by foreign issuers may be subject to greater fluctuations in price than securities issued by U.S. entities. Finally, in the event of default with respect to any such foreign debt obligations, it may be more difficult for the Series Fund to obtain or to enforce a judgment against the issuers of such securities. 4. Repurchase Agreements. When the Money Market Portfolio purchases money market securities of the types described above, it may on occasion enter into a repurchase agreement with the seller wherein the seller and the buyer agree at the time of sale to repurchase of the security at a mutually agreed upon time and price. The period of maturity is usually quite short, possibly overnight or a few days, although it may extend over a number of months. The resale price is in excess of the purchase price, reflecting an agreed-upon market rate effective for the period of time the portfolio's money is invested in the security, and is not related to the coupon rate of the purchased security. Repurchase agreements may be considered loans of money to the seller of the underlying security, which are collateralized by the securities underlying the repurchase agreement. The Series Fund will not enter into repurchase agreements unless the agreement is "fully collateralized" (i.e., the value of the securities is, and during the entire term of the agreement remains, at least equal to the amount of the 'loan' including accrued interest). The Series Fund will take possession of the securities underlying the agreement and will value them daily to assure that this condition is met. The Series Fund has adopted standards for the parties with whom it will enter into repurchase agreements which it believes are reasonably designed to assure that such a party presents no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase agreement. In the event that a seller defaults on a repurchase agreement, the Series Fund may incur a loss in the market value of the collateral, as well as disposition costs; and, if a party with whom the Series Fund had entered into a repurchase agreement becomes involved in bankruptcy proceedings, the Series Fund's ability to realize on the collateral may be limited or delayed and a loss may be incurred if the collateral securing the repurchase agreement declines in value during the bankruptcy proceedings. The Series Fund will not enter into repurchase agreements with The Prudential or its affiliates, including Prudential Securities Incorporated. This will not affect the Series Fund's ability to maximize its opportunities to engage in repurchase agreements. 5. Reverse Repurchase Agreements. The Money Market Portfolio may use reverse repurchase agreements, which are described under Reverse Repurchase Agreements and Dollar Rolls in the prospectus. No portfolio may obligate more than 10% of its net assets in connection with reverse repurchase agreements, except that the Bond, High Yield Bond, and Government Securities Portfolios, as well as the fixed income portions of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios, may obligate up to 30% of their net assets in connection with reverse repurchase agreements and dollar rolls. 6. When-Issued and Delayed Delivery Securities. From time to time, in the ordinary course of business, the Money Market Portfolio may purchase securities on a when-issued or delayed delivery basis (i.e., delivery and payment can take place a month or more after the date of the transaction). The purchase price and the interest rate payable on the securities are fixed on the transaction date. The securities so purchased are subject to market fluctuation, and no interest accrues to the portfolio until delivery and payment take place. At the time the portfolio makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction and thereafter reflect the value, each day, of such securities in determining its net asset value. The portfolio will make commitments for when-issued transactions only with the intention of actually acquiring the securities and, to 29 facilitate such acquisitions, the Series Fund's custodian bank will maintain in a separate account securities of the portfolio having a value equal to or greater than such commitments. On delivery dates for such transactions, the portfolio will meet its obligations from maturities or sales of the securities held in the separate account and/or from then available cash flow. If the portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other obligation, incur a gain or loss due to market fluctuation. No when-issued commitments will be made if, as a result, more than 15% of the portfolio's net assets would be so committed. The Board of Directors of the Series Fund has adopted policies for the Money Market Portfolio to conform to amendments of an SEC rule applicable to money market funds, like the portfolio. These policies do not apply to any other portfolio. The policies are as follows: (1) The portfolio will not invest more than 5% of its assets in the securities of any one issuer (except U.S. Government securities); however, the portfolio may exceed the 5% limit with respect to a single security rated in the highest rating category for up to three business days after the purchase thereof; (2) To be eligible for investment, a security must be a United States dollar-denominated instrument that the Series Fund's Board has determined to present minimal credit risks and must be rated in one of the two highest rating categories by at least two nationally recognized statistical rating organizations ("NRSROs") assigning a rating to the security or issue, or if only one NRSRO has assigned a rating, that NRSRO. An unrated security must be deemed to be of comparable quality as determined by the Series Fund's Board. In other words, the portfolio will invest in only first tier or second tier securities. First tier securities are securities which are rated by at least two NRSROs, or by the only NRSRO that has rated the security, in the highest short-term rating category, or unrated securities of comparable quality as determined by the Series Fund's Board. Second tier securities are eligible securities that are not first tier securities; (3) The portfolio will not invest more than 5% of its total assets in second tier securities; (4) The portfolio may not invest more than 1% of its assets in second tier securities of any one issuer; (5) In the event a first tier security held by the portfolio is downgraded and becomes a second tier security, or in the case of an unrated security the Series Fund's Board determines it is no longer of comparable quality to a first tier security, or in the event The Prudential becomes aware that an NRSRO has rated a second tier security or an unrated portfolio security below its second highest rating, the Board will reassess promptly whether the security presents minimal credit risks and shall cause the portfolio to take such action as the Board determines is in the best interests of the portfolio and its shareholders; (6) In the event of a default or if because of a rating downgrade a security held in the portfolio is no longer an eligible investment, the portfolio will sell the security as soon as practicable unless the Series Fund's Board makes a specific finding that such action would not be in the best interest of the portfolio; and (7) The portfolio's dollar-weighted average maturity will be no more than 90 days. The Series Fund's Board of Directors has adopted written procedures delegating to the investment advisor under certain guidelines the responsibility to make several of the above-described determinations, including certain credit quality determinations. DEBT RATINGS Moody's Investors Services, Inc. describes its categories of corporate debt securities and its "Prime-1" and "Prime-2" commercial paper as follows: Bonds: Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. 30 Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Commercial paper: o Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: -- Leading market positions in well-established industries. -- High rates of return of funds employed. -- Conservative capitalization structures with moderate reliance on debt and ample asset protection. -- Broad margins in earnings coverage of fixed financial charges and high internal cash generation. -- Well established access to a range of financial markets and assured sources of alternate liquidity. o Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Standard & Poor's Corporation describes its grades of corporate debt securities and its "A" commercial paper as follows: Bonds: AAA Bonds rated AAA are highest grade obligations. They possess the ultimate degree of protection as to principal and interest. Marketwise they move with interest rates, and hence provide the maximum safety on all counts. AA Bonds rated AA also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree. Here, too, prices move with the long term money market. A Bonds rated A are regarded as upper medium grade. They have considerable investment strength but are not entirely free from adverse effects of changes in economic and trade conditions. Interest and principal are regarded as safe. They are predominately reflect money rates in their market behavior, but to some extent, also economic conditions. BBB Bonds rated BBB, or medium grade, are borderline between definitely sound obligations and those where the speculative element begins to predominate. These bonds have adequate asset coverage and normally are protected by satisfactory earnings. Their susceptibility to changing conditions, particularly to depressions, necessitates constant watching. Marketwise, the bonds are more responsive to business and trade conditions than to interest rates. This group is the lowest which qualifies for commercial bank investment. BB-B-CCC-CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Commercial paper: Commercial paper rated A by Standard & Poor's Corporation has the following characteristics: Liquidity ratios are better than the industry average. Long term senior debt rating is "A" or better. In some cases BBB credits may be acceptable. The issuer has access to at least two additional channels of borrowings. Basic earnings and cash flow have an upward trend with allowances made for unusual circumstances. Typically, the issuer's industry is well established, the issuer has a strong position within its industry and the reliability and quality of management 31 is unquestioned. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this classification. POSSIBLE REPLACEMENT OF THE SERIES FUND Although The Prudential believes it to be unlikely, it is possible that in the judgment of its management, one or more of the portfolios of the Series Fund may become unsuitable for investment by Contract owners because of investment policy changes, tax law changes, or the unavailability of shares for investment. In that event, The Prudential may seek to substitute the shares of another portfolio or of an entirely different mutual fund. Before this can be done, the approval of the SEC, and possibly one or more state insurance departments, will be required. Contract owners will be notified of such substitution. In addition, although it is highly unlikely, it is conceivable that in the future it may become disadvantageous for both variable life insurance and variable annuity contract separate accounts to invest in the same underlying mutual fund. Although neither the companies which invest in the Series Fund nor the Series Fund currently foresees any such disadvantage, the Series Fund's Board of Directors intends to monitor events in order to identify any material conflict between variable life insurance and variable annuity contract owners and to determine what action, if any, should be taken in response thereto. Material conflicts could result from such things as: (1) changes in state insurance law; (2) changes in federal income tax law; (3) changes in the investment management of any portfolio of the Series Fund; or (4) difference between voting instructions given by variable life insurance and variable annuity contract owners. The Prudential will bear the expense, if it does become necessary, of remedying any material conflict including establishing a new underlying investment company and segregating the assets held under variable life insurance and variable annuity contracts. OTHER INFORMATION CONCERNING THE SERIES FUND Incorporation and Authorized Stock. The Series Fund was incorporated under Maryland law on November 15, 1982. The authorized Capital Stock of the Series Fund consists of 2 billion shares, par value $0.01 per share. The shares of Capital Stock are divided into sixteen classes: Money Market Portfolio Capital Stock (200 million shares), Bond Portfolio Capital Stock (200 million shares), Government Securities Portfolio Capital Stock (100 million shares), Zero Coupon Bond Portfolio 1995 Capital Stock (25 million shares), Zero Coupon Bond Portfolio 2000 Capital Stock (25 million shares), Zero Coupon Bond Portfolio 2005 Capital Stock (50 million shares), Conservatively Managed Flexible Portfolio Capital Stock (300 million shares), Aggressively Managed Flexible Portfolio Capital Stock (300 million shares), High Yield Bond Portfolio Capital Stock (100 million shares), Stock Index Portfolio Capital Stock (100 million shares), High Dividend Stock Portfolio Capital Stock (100 million shares), Common Stock Portfolio Capital Stock (200 million shares), Growth Stock Portfolio Capital Stock (50 million shares), Small Capitalization Stock Portfolio Capital Stock (50 million shares), Global Equity Portfolio Capital Stock (100 million shares), Natural Resources Portfolio Capital Stock (100 million shares). The shares of each portfolio, when issued, will be fully paid and non-assessable, will have no conversion, exchange or similar rights, and will be freely transferable. Each share of stock will have a pro rata interest in the assets of the portfolio to which the stock of that class relates and will have no interest in the assets of any other portfolio. Dividends, Distributions and Taxes. The Series Fund is qualified as a regulated investment company under Section 851 of the Internal Revenue Code and distributes substantially all of each portfolio's net investment income and realized gains from securities transactions to the respective subaccounts, which immediately reinvest it. For each taxable year in which it and each of its portfolios so qualify, the Series Fund will not be subject to tax on net investment income and realized gains from securities transactions distributed to shareholders. Custodian and Transfer Agent. Chemical Bank, 4 New York Plaza, New York, N.Y. 10004, is the custodian of the assets held by all the portfolios, except the Global Equity Portfolio, and is authorized to use the facilities of the Depository Trust Company and the facilities of the book-entry system of the Federal Reserve Bank with respect to securities held by these portfolios. Chemical Bank is also authorized to use the facilities of the Mortgage Backed Security Clearing Corporation (a subsidiary of the Midwest Stock Exchange) with respect to mortgage-backed securities held by any of these portfolios. Chemical Bank maintains certain financial and accounting books and records pursuant to an agreement with the Series Fund. Brown Brothers Harriman & Co. ("Brown Brothers"), 40 Water Street, Boston, MA 02109, is the custodian of the assets of the Global Equity Portfolio. Brown Brothers employs subcustodians, who were approved by the directors of the Series Fund in accordance with regulations of the Securities and Exchange Commission, for the purpose of providing custodial service for the Global Equity Portfolio's foreign assets held outside the United States. Morgan Guaranty Trust Company, 60 Wall Street, New York, NY 10260 is the custodian of the assets held in connection with repurchase agreements entered into by the portfolios and is authorized to use the facilities of the book-entry system of the Federal Reserve Bank. The directors of the Series Fund monitor the activities of the custodians and the subcustodians. 32 The Prudential is the transfer agent and dividend-disbursing agent for the Series Fund. The Prudential as transfer agent issues and redeems shares of the Series Fund and maintains records of ownership for the shareholders. Experts. The financial statements of the Series Fund included in this statement of additional information and the FINANCIAL HIGHLIGHTS included in the prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and are included in reliance upon the report 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, NJ 07054-0319. Licenses. As part of the Investment Advisory Agreement, The Prudential has granted the Series Fund a royalty-free, non-exclusive license to use the words "The Prudential" and its registered service mark of a rock representing the Rock of Gibraltar. However, The Prudential may terminate this license if The Prudential or a company controlled by it ceases to be the Series 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 Investment Advisory Agreement shall also terminate 120 days following receipt by the Series Fund of such notice, unless a majority of the outstanding voting securities of the Series Fund vote to continue the Agreement notwithstanding termination of the license. The Series Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's ("S&P"). S&P makes no representation or warranty, express or implied, to Contract owners or any member of the public regarding the advisability of investing in securities generally or in the Series Fund particularly or the ability of the S&P 500 Index or the S&P SmallCap 600 Index to track general stock market performance. S&P's only relationship to the Series Fund is the licensing of certain trademarks and trade names of S&P and the S&P 500 Index. The S&P 500 Index and the S&P SmallCap 600 Index are determined, composed and calculated by S&P without regard to the Series Fund, the Stock Index Portfolio or the Small Capitalization Stock Portfolio. S&P has no obligation to take the needs of the Series Fund or the Contract owners into consideration in determining, composing or calculating the S&P 500 Index or the S&P SmallCap 600 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Series Fund shares or the timing of the issuance or sale of those shares or in the determination or calculation of the equation by which the shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Series Fund Shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED AS TO RESULTS TO BE OBTAINED BY SERIES FUND, CONTRACT OWNERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. DIRECTORS AND OFFICERS OF THE PRUDENTIAL AND MANAGEMENT OF THE SERIES FUND 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. 33 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. 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. 34 MANAGEMENT OF THE SERIES FUND The names of all directors and officers of the Series Fund and the principal occupation of each during the last 5 years are shown below. Unless otherwise stated, the address of each director and officer is Prudential Plaza, Newark, New Jersey 07102-3777. ROBERT P. HILL*, Chairman of the Board--Executive Vice President of The Prudential. E. MICHAEL CAULFIELD*, President and Director--Chief Executive Officer of Prudential Preferred Financial Services since 1995; 1993 to 1995: President of Prudential Preferred Financial Services; prior to 1993: President of Prudential Property and Casualty Insurance. 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). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006. 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. No director or officer of the Series Fund who is also an officer, director or employee of The Prudential or its affiliates is entitled to any remuneration from the Series Fund for services as one of its directors or officers. Each director of the Series Fund who is not an interested person of the Series Fund will receive a fee of $2,000 per year plus $200 per portfolio for each meeting of the Board attended and will be reimbursed for all expenses incurred in connection with attendance at meetings. *These members of the Board are interested persons of The Prudential, its affiliates or the Series Fund as defined in the 1940 Act. Certain actions of the Board, including the annual continuance of the Investment Advisory Agreement between the Series 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 Series Fund. Mr. Hill and Mr. Caulfield, two of the five members of the Board, are interested persons of The Prudential and the Series 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 Series Fund. Messrs. Fenster, McDonald, and Weber are not interested persons of The Prudential, its affiliates or the Series 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. 35 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments................................ $ 581,582,129 Cash....................................... 892 Interest receivable........................ 2,410,515 -------------- Total Assets............................. 583,993,536 -------------- LIABILITIES Accrued expenses........................... 130,371 Payable to investment adviser.............. 581,688 -------------- Total Liabilities........................ 712,059 -------------- NET ASSETS................................... $ 583,281,477 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 583,281 Paid-in capital, in excess of par........ 582,698,196 -------------- Net assets, December 31, 1994.............. $ 583,281,477 -------------- -------------- Net asset value per share of 58,328,148 outstanding shares of common stock (authorized 200,000,000 shares).......... $ 10.0000 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Interest................................... $ 24,040,312 --------------- EXPENSES Investment management fee.................. 2,145,819 Shareholders' reports...................... 160,709 Accounting fees............................ 72,868 Custodian expense -- net................... 39,561 S.E.C. fees................................ 36,474 Professional fees.......................... 33,486 Directors' expense......................... 2,034 Miscellaneous expenses..................... 28 --------------- 2,490,979 --------------- NET INVESTMENT INCOME........................ 21,549,333 --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... $ 21,549,333 --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 21,549,333 $ 14,815,991 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (21,549,333) (14,815,991) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [18,862,200 and 9,104,900 shares, respectively]..................... 188,622,000 91,049,000 Reinvestment of dividend distributions [2,154,934 and 1,481,599 shares, respectively]......................................................................... 21,549,333 14,815,991 Capital stock repurchased [(10,162,500) and (15,984,800) shares, respectively]......... (101,625,000) (159,848,000) ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. 108,546,333 (53,983,009) ------------------ ------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS............................................................................ 108,546,333 (53,983,009) NET ASSETS: Beginning of year...................................................................... 474,735,144 528,718,153 ------------------ ------------------- End of year............................................................................ $ 583,281,477 $ 474,735,144 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A1 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $563,227,825)............................ $ 531,295,677 Cash....................................... 702 Interest receivable........................ 11,014,524 -------------- Total Assets............................. 542,310,903 -------------- LIABILITIES Accrued expenses........................... 39,255 Payable to investment adviser.............. 579,489 Payable for portfolio shares redeemed...... 43,560 -------------- Total Liabilities........................ 662,304 -------------- NET ASSETS................................... $ 541,648,599 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 539,579 Paid-in capital, in excess of par........ 583,467,451 -------------- 584,007,030 Undistributed net investment income........ 381,010 Accumulated net realized losses............ (10,807,293) Net unrealized depreciation................ (31,932,148) -------------- Net assets, December 31, 1994.............. $ 541,648,599 -------------- -------------- Net asset value per share of 53,957,906 outstanding shares of common stock (authorized 200,000,000 shares).......... $ 10.0384 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Interest................................... $ 38,674,225 --------------- EXPENSES Investment management fee.................. 2,251,096 Shareholders' reports...................... 180,661 Accounting fees............................ 77,978 Custodian expense -- net................... 28,771 Professional fees.......................... 21,380 Directors' expense......................... 2,086 Miscellaneous expenses..................... 98 --------------- 2,562,070 --------------- NET INVESTMENT INCOME........................ 36,112,155 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments........... (4,246,256) Net unrealized loss on investments......... (50,839,016) --------------- NET LOSS ON INVESTMENTS...................... (55,085,272) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 18,973,117) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 36,112,155 $ 31,295,792 Net realized gain (loss) on investments................................................ (4,246,256) 8,958,204 Net unrealized gain(loss) on investments............................................... (50,839,016) 7,179,211 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (18,973,117) 47,433,207 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (35,627,999) (31,001,007) Net realized gain from investment transactions......................................... (1,267,553) (7,690,651) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (36,895,552) (38,691,658) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [3,414,897 and 9,888,368 shares, respectively]...................... 36,662,212 111,911,952 Reinvestment of dividend distributions [3,610,015 and 3,457,814 shares, respectively]......................................................................... 36,895,552 38,691,658 Capital stock repurchased [(4,963,909) and (1,044,056) shares, respectively]........... (52,266,357) (11,890,355) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 21,291,407 138,713,255 ------------------ ------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. (34,577,262) 147,454,804 NET ASSETS: Beginning of year...................................................................... 576,225,861 428,771,057 ------------------ ------------------- End of year............................................................................ $ 541,648,599 $ 576,225,861 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A2 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $507,031,047)............................ $ 478,087,478 Cash....................................... 329 Interest receivable........................ 8,947,544 Receivable for portfolio shares sold....... 1,059,634 -------------- Total Assets............................. 488,094,985 -------------- LIABILITIES Accrued expenses........................... 5,192 Payable to investment adviser.............. 515,488 -------------- Total Liabilities........................ 520,680 -------------- NET ASSETS................................... $ 487,574,305 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 466,072 Paid-in capital, in excess of par........ 526,044,120 -------------- 526,510,192 Undistributed net investment income........ 931,495 Accumulated net realized losses............ (10,923,813) Net unrealized depreciation................ (28,943,569) -------------- Net assets, December 31, 1994.............. $ 487,574,305 -------------- -------------- Net asset value per share of 46,607,219 outstanding shares of common stock (authorized 100,000,000 shares).......... $ 10.4614 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Interest................................... $ 35,819,887 --------------- EXPENSES Investment management fee.................. 2,125,130 Shareholders' reports...................... 168,609 Accounting fees............................ 73,159 Custodian expense -- net................... 13,387 Professional fees.......................... 9,127 Directors' expense......................... 2,077 Miscellaneous expenses..................... 31 S.E.C. fees................................ (3,561) --------------- 2,387,959 --------------- NET INVESTMENT INCOME........................ 33,431,928 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments........... (10,380,614) Net unrealized loss on investments......... (52,690,952) --------------- NET LOSS ON INVESTMENTS...................... (63,071,566) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 29,639,638) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 33,431,928 $ 25,803,560 Net realized gain (loss) on investments................................................ (10,380,614) 884,434 Net unrealized gain(loss) on investments............................................... (52,690,952) 19,594,824 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (29,639,638) 46,282,818 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (32,955,665) (25,487,269) Net realized gain from investment transactions......................................... 0 (1,904,203) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (32,955,665) (27,391,472) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [3,591,224 and 15,693,270 shares, respectively]..................... 41,656,912 185,551,898 Reinvestment of dividend distributions [3,094,061 and 2,328,874 shares, respectively]......................................................................... 32,955,665 27,391,472 Capital stock repurchased [(5,912,961) and (449,498) shares, respectively]............. (64,569,681) (5,251,752) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 10,042,896 207,691,618 ------------------ ------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS............................................................................ (52,552,407) 226,582,964 NET ASSETS: Beginning of year...................................................................... 540,126,712 313,543,748 ------------------ ------------------- End of year............................................................................ $ 487,574,305 $ 540,126,712 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A3 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. ZERO COUPON BOND 1995 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $17,721,753)............................. $ 17,758,646 Cash....................................... 5,351 -------------- Total Assets............................. 17,763,997 -------------- LIABILITIES Accrued expenses........................... 5,142 Payable to investment adviser.............. 25,223 -------------- Total Liabilities........................ 30,365 -------------- NET ASSETS................................... $ 17,733,632 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 16,741 Paid-in capital, in excess of par........ 17,695,936 -------------- 17,712,677 Distributions in excess of net investment income................................... (15,516) Distributions in excess of net realized gains.................................... (422) Net unrealized appreciation................ 36,893 -------------- Net assets, December 31, 1994.............. $ 17,733,632 -------------- -------------- Net asset value per share of 1,674,113 outstanding shares of common stock (authorized 25,000,000 shares)........... $ 10.5929 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Interest................................... $ 1,119,611 --------------- EXPENSES Investment management fee.................. 60,662 Accounting fees............................ 18,250 Custodian expense -- net................... 5,694 Shareholders' reports...................... 4,264 Directors' expense......................... 1,816 S.E.C. fees................................ 1,006 Professional fees.......................... 493 --------------- 92,185 --------------- NET INVESTMENT INCOME........................ 1,027,426 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments........... 1,948 Net unrealized loss on investments......... (1,029,896) --------------- NET LOSS ON INVESTMENTS...................... (1,027,948) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 522) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 1,027,426 $ 965,547 Net realized gain on investments....................................................... 1,948 7,307 Net unrealized gain(loss) on investments............................................... (1,029,896) 111,542 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (522) 1,084,396 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (1,001,231) (972,442) Net realized gain from investment transactions......................................... (3,573) 0 ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (1,004,804) (972,442) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [301,289 and 111,174 shares, respectively].......................... 3,295,000 1,287,000 Reinvestment of dividend distributions [94,042 and 85,653 shares, respectively]........ 1,004,804 972,442 Capital stock repurchased [(52,950) and (31,181) shares, respectively]................. (592,000) (360,000) Initial capitalization repurchased [(18,027) and (35,953) shares, respectively]........ (197,000) (416,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 3,510,804 1,483,442 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 2,505,478 1,595,396 NET ASSETS: Beginning of year...................................................................... 15,228,154 13,632,758 ------------------ ------------------- End of year............................................................................ $ 17,733,632 $ 15,228,154 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A4 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. ZERO COUPON BOND 2000 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $20,000,846)............................. $ 20,665,896 Cash....................................... 2,106 -------------- Total Assets............................. 20,668,002 -------------- LIABILITIES Accrued expenses........................... 3,844 Payable to investment adviser.............. 29,162 -------------- Total Liabilities........................ 33,006 -------------- NET ASSETS................................... $ 20,634,996 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 17,396 Paid-in capital, in excess of par........ 19,986,241 -------------- 20,003,637 Distributions in excess of net investment income................................... (34,092) Accumulated net realized gains............. 401 Net unrealized appreciation................ 665,050 -------------- Net assets, December 31, 1994.............. $ 20,634,996 -------------- -------------- Net asset value per share of 1,739,587 outstanding shares of common stock (authorized 25,000,000 shares)........... $ 11.8620 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Interest................................... $ 1,521,379 --------------- EXPENSES Investment management fee.................. 84,265 Accounting fees............................ 18,250 Shareholders' reports...................... 5,206 Directors' expense......................... 1,819 Miscellaneous expenses..................... 535 Custodian expense -- net................... (3,054) --------------- 107,021 --------------- NET INVESTMENT INCOME........................ 1,414,358 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments........... 38,776 Net unrealized loss on investments......... (3,049,221) --------------- NET LOSS ON INVESTMENTS...................... (3,010,445) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 1,596,087) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 1,414,358 $ 1,247,229 Net realized gain on investments....................................................... 38,776 8,483 Net unrealized gain(loss) on investments............................................... (3,049,221) 1,576,324 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (1,596,087) 2,832,036 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (1,398,377) (1,258,808) Net realized gain from investment transactions......................................... (38,912) (7,940) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (1,437,289) (1,266,748) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [102,167 and 397,878 shares, respectively].......................... 1,340,000 5,460,000 Reinvestment of dividend distributions [118,462 and 92,723 shares, respectively]....... 1,437,289 1,266,748 Capital stock repurchased [(60,345) and (121,421) shares, respectively]................ (787,000) (1,675,000) Initial capitalization repurchased [(38,338) and (80,105) shares, respectively]........ (507,000) (1,105,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 1,483,289 3,946,748 ------------------ ------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS............................................................................ (1,550,087) 5,512,036 NET ASSETS: Beginning of year...................................................................... 22,185,083 16,673,047 ------------------ ------------------- End of year............................................................................ $ 20,634,996 $ 22,185,083 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A5 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. ZERO COUPON BOND 2005 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $16,718,218)............................. $ 16,531,317 Cash....................................... 971 Interest receivable........................ 404 -------------- Total Assets............................. 16,532,692 -------------- LIABILITIES Accrued expenses........................... 3,464 Payable to investment adviser.............. 23,530 -------------- Total Liabilities........................ 26,994 -------------- NET ASSETS................................... $ 16,505,698 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 15,363 Paid-in capital, in excess of par........ 16,654,038 -------------- 16,669,401 Undistributed net investment income........ 23,198 Net unrealized depreciation................ (186,901) -------------- Net assets, December 31, 1994.............. $ 16,505,698 -------------- -------------- Net asset value per share of 1,536,257 outstanding shares of common stock (authorized 50,000,000 shares)........... $ 10.7441 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Interest................................... $ 1,042,827 --------------- EXPENSES Investment management fee.................. 57,716 Accounting fees............................ 18,250 Custodian expense -- net................... 4,522 Shareholders' reports...................... 3,767 Directors' expense......................... 1,816 S.E.C. fees................................ 1,318 Miscellaneous expenses..................... 262 --------------- 87,651 --------------- NET INVESTMENT INCOME........................ 955,176 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net unrealized loss on investments......... (2,370,041) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 1,414,865) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 955,176 $ 751,943 Net realized gain on investments....................................................... 0 6,214 Net unrealized gain(loss) on investments............................................... (2,370,041) 1,440,496 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (1,414,865) 2,198,653 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (938,283) (751,577) Net realized gain from investment transactions......................................... (3,855) (2,358) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (942,138) (753,935) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [461,883 and 442,819 shares, respectively].......................... 5,262,071 5,590,000 Reinvestment of dividend distributions [86,081 and 60,299 shares, respectively]........ 942,138 753,935 Capital stock repurchased [(31,239) and (169,578) shares, respectively]................ (366,000) (2,099,000) Initial capitalization repurchased [(122,127) and (82,494) shares, respectively]....... (1,448,071) (1,040,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 4,390,138 3,204,935 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 2,033,135 4,649,653 NET ASSETS: Beginning of year...................................................................... 14,472,563 9,822,910 ------------------ ------------------- End of year............................................................................ $ 16,505,698 $ 14,472,563 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A6 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $3,443,877,594).......................... $3,468,953,719 Cash....................................... 2,043 Interest and dividends receivable.......... 24,063,629 Receivable for securities sold............. 20,886,513 -------------- Total Assets............................. 3,513,905,904 -------------- LIABILITIES Accrued expenses........................... 304,995 Payable for securities purchased........... 7,467,333 Payable to investment adviser.............. 4,963,479 Payable for portfolio shares redeemed...... 65,811 -------------- Total Liabilities........................ 12,801,618 -------------- NET ASSETS................................... $3,501,104,286 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 2,483,940 Paid-in capital, in excess of par........ 3,488,749,211 -------------- 3,491,233,151 Distributions in excess of net investment income................................... (2,593,413) Accumulated distributions in excess of net realized gains........................... (12,611,577) Net unrealized appreciation................ 25,076,125 -------------- Net assets, December 31, 1994.............. $3,501,104,286 -------------- -------------- Net asset value per share of 248,394,018 outstanding shares of common stock (authorized 300,000,000 shares).......... $ 14.0950 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 21,577,417 Interest................................... 121,932,781 --------------- 143,510,198 --------------- EXPENSES Investment management fee.................. 18,730,421 Shareholders' reports...................... 982,095 Foreign withholding tax.................... 524,162 Accounting fees............................ 216,958 S.E.C. fees................................ 165,214 Custodian expense -- net................... 114,541 Professional fees.......................... 102,549 Directors' expense......................... 3,365 Miscellaneous expenses..................... 182 --------------- 20,839,487 --------------- NET INVESTMENT INCOME........................ 122,670,711 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments -- Securities transactions.................. 30,566,616 Futures contracts........................ 184,405 --------------- Net realized gain on investments........... 30,751,021 Net unrealized loss on investments......... (184,854,002) --------------- NET LOSS ON INVESTMENTS...................... (154,102,981) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 31,432,270) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 122,670,711 $ 83,594,970 Net realized gain on investments....................................................... 30,751,021 116,251,058 Net unrealized gain(loss) on investments............................................... (184,854,002) 86,497,365 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (31,432,270) 286,343,393 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (120,740,360) (84,057,597) Net realized gain from investment transactions......................................... (37,214,012) (113,728,724) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (157,954,372) (197,786,321) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [34,889,459 and 48,698,296 shares, respectively].................... 514,344,688 736,447,769 Reinvestment of dividend distributions [11,198,868 and 13,291,624 shares, respectively]......................................................................... 157,954,372 197,786,321 Capital stock repurchased [(5,887,371) and (2,225,762) shares, respectively]........... (84,977,146) (33,653,303) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 587,321,914 900,580,787 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 397,935,272 989,137,859 NET ASSETS: Beginning of year...................................................................... 3,103,169,014 2,114,031,155 ------------------ ------------------- End of year............................................................................ $ 3,501,104,286 $ 3,103,169,014 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A7 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $3,347,362,272).......................... $3,478,056,152 Cash....................................... 1,392 Interest and dividends receivable.......... 23,489,135 Receivable for securities sold............. 35,026,977 -------------- Total Assets............................. 3,536,573,656 -------------- LIABILITIES Accrued expenses........................... 323,207 Payable for securities purchased........... 49,250,851 Payable to investment adviser.............. 5,363,453 Payable for portfolio shares redeemed...... 95,846 -------------- Total Liabilities........................ 55,033,357 -------------- NET ASSETS................................... $3,481,540,299 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 2,246,733 Paid-in capital, in excess of par........ 3,405,640,023 -------------- 3,407,886,756 Accumulated distributions in excess of net investment income........................ (7,770,622) Accumulated distributions in excess of net realized gains........................... (49,268,078) Net unrealized appreciation (depreciation) Securities............................... 130,693,880 Foreign currency translations............ (1,637) -------------- Net assets, December 31, 1994.............. $3,481,540,299 -------------- -------------- Net asset value per share of 224,673,289 outstanding shares of common stock (authorized 300,000,000 shares).......... $ 15.4960 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 40,972,935 Interest................................... 80,410,745 --------------- 121,383,680 --------------- EXPENSES Investment management fee.................. 20,399,604 Shareholders' reports...................... 895,362 Foreign withholding tax.................... 571,581 Accounting fees............................ 231,918 Custodian expense -- net................... 153,924 S.E.C. fees................................ 129,279 Professional fees.......................... 120,289 Directors' expense......................... 3,420 Miscellaneous expenses..................... 189 --------------- 22,505,566 --------------- NET INVESTMENT INCOME........................ 98,878,114 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) on investments -- Securities transactions.................. 23,860,613 Futures contracts........................ (22,340) --------------- Net realized gain on investments........... 23,838,273 --------------- Net unrealized loss on investments and foreign currencies-- Securities............................... (230,569,722) Foreign currency translations............ (1,637) --------------- Net unrealized loss on investments and foreign currencies....................... (230,571,359) --------------- NET LOSS ON INVESTMENTS AND FOREIGN CURRENCIES................................... (206,733,086) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 107,854,972) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 98,878,114 $ 94,441,961 Net realized gain on investments....................................................... 23,838,273 202,429,143 Net unrealized gain(loss) on investments and foreign currency translations............. (230,571,359) 106,972,046 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (107,854,972) 403,843,150 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (96,126,295) (96,961,144) Net realized gain from investment transactions......................................... (98,311,584) (167,511,713) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (194,437,879) (264,472,857) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [22,611,559 and 28,416,647 shares, respectively].................... 370,947,414 490,167,019 Reinvestment of dividend distributions [12,531,550 and 15,710,066 shares, respectively]......................................................................... 194,437,879 264,472,857 Capital stock repurchased [(4,617,224) and (2,154,837) shares, respectively]........... (73,719,278) (37,398,394) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 491,666,015 717,241,482 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 189,373,164 856,611,775 NET ASSETS: Beginning of year...................................................................... 3,292,167,135 2,435,555,360 ------------------ ------------------- End of year............................................................................ $ 3,481,540,299 $ 3,292,167,135 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A8 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. HIGH YIELD BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $326,056,650)............................ $ 299,082,997 Cash....................................... 219 Interest and dividends receivable.......... 7,505,266 Receivable for securities sold............. 1,590,651 -------------- Total Assets............................. 308,179,133 -------------- LIABILITIES Accrued expenses........................... 38,417 Payable for securities purchased........... 1,457,852 Payable to investment adviser.............. 458,151 -------------- Total Liabilities........................ 1,954,420 -------------- NET ASSETS................................... $ 306,224,713 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 415,757 Paid-in capital, in excess of par........ 340,891,135 -------------- 341,306,892 Accumulated distributions in excess of net investment income........................ (1,410,346) Accumulated net realized losses............ (6,698,180) Net unrealized depreciation................ (26,973,653) -------------- Net assets, December 31, 1994.............. $ 306,224,713 -------------- -------------- Net asset value per share of 41,575,673 outstanding shares of common stock (authorized 100,000,000 shares).......... $ 7.3655 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 1,451,223 Interest................................... 30,539,834 --------------- 31,991,057 --------------- EXPENSES Investment management fee.................. 1,683,950 Accounting fees............................ 140,525 Shareholders' reports...................... 108,517 Custodian expense -- net................... 25,191 S.E.C. fees................................ 14,855 Professional fees.......................... 6,374 Directors' expense......................... 1,962 Miscellaneous expenses..................... 17 --------------- 1,981,391 --------------- NET INVESTMENT INCOME........................ 30,009,666 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments........... (4,761,509) Net unrealized loss on investments......... (34,417,342) --------------- NET LOSS ON INVESTMENTS...................... (39,178,851) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 9,169,185) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- (AS RESTATED) OPERATIONS: Net investment income.................................................................. $ 30,009,666 $ 21,969,043 Net realized gain (loss) on investments................................................ (4,761,509) 9,902,123 Net unrealized gain (loss) on investments.............................................. (34,417,342) 6,056,112 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (9,169,185) 37,927,278 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (30,650,298) (22,294,669) Net realized gain from investment transactions......................................... (228) (156) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (30,650,526) (22,294,825) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [7,836,280 and 12,700,848 shares, respectively]..................... 64,526,000 105,011,000 Reinvestment of dividend distributions [4,067,658 and 2,686,600 shares, respectively]......................................................................... 30,650,526 22,294,825 Capital stock repurchased [(3,976,156) and (1,650,203) shares, respectively]........... (31,985,000) (13,774,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 63,191,526 113,531,825 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 23,371,815 129,164,278 NET ASSETS: Beginning of year...................................................................... 282,852,898 153,688,620 ------------------ ------------------- End of year............................................................................ $ 306,224,713 $ 282,852,898 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A9 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. STOCK INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $584,600,736)............................ $ 665,573,026 Cash....................................... 125 Interest and dividends receivable.......... 1,826,860 -------------- Total Assets............................. 667,400,011 -------------- LIABILITIES Accrued expenses........................... 43,939 Payable for securities purchased........... 1,961,738 Payable to investment adviser.............. 594,419 Payable for daily variation margin on open futures contracts (see Note 2)........... 178,025 Payable for portfolio shares redeemed...... 87,683 -------------- Total Liabilities........................ 2,865,804 -------------- NET ASSETS................................... $ 664,534,207 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 444,295 Paid-in capital, in excess of par........ 584,354,669 -------------- 584,798,964 Accumulated distributions in excess of net investment income........................ (448,482) Distributions in excess of net realized gains.................................... (1,303,715) Net unrealized appreciation Securities............................... 80,972,290 Futures contracts........................ 515,150 -------------- Net assets, December 31, 1994.............. $ 664,534,207 -------------- -------------- Net asset value per share of 44,429,452 outstanding shares of common stock (authorized 100,000,000 shares).......... $ 14.9571 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 17,703,412 Interest................................... 848,482 --------------- 18,551,894 --------------- EXPENSES Investment management fee.................. 2,223,022 Shareholders' reports...................... 169,859 Foreign withholding tax.................... 104,365 Accounting fees............................ 92,457 Custodian expense -- net................... 25,969 Professional fees.......................... 17,287 S.E.C. fees................................ 17,213 Directors' expense......................... 2,108 Miscellaneous expenses..................... 35 --------------- 2,652,315 --------------- NET INVESTMENT INCOME........................ 15,899,579 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments -- Securities transactions.................. 225,124 Futures contracts........................ (1,036,890) --------------- Net realized loss on investments........... (811,766) --------------- Net unrealized gain (loss) on investments -- Securities............................... (8,921,232) Futures contracts........................ 486,200 --------------- Net unrealized loss on investments......... (8,435,032) --------------- NET LOSS ON INVESTMENTS...................... (9,246,798) --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... $ 6,652,781 --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 15,899,579 $ 12,982,334 Net realized gain (loss) on investments................................................ (811,766) 2,033,345 Net unrealized gain (loss) on investments.............................................. (8,435,032) 33,892,763 ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 6,652,781 48,908,442 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (15,754,398) (13,030,262) Net realized gain from investment transactions......................................... (958,203) (1,280,819) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (16,712,601) (14,311,081) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [4,553,644 and 10,331,253 shares, respectively]..................... 68,598,345 152,405,579 Reinvestment of dividend distributions [1,130,115 and 959,900 shares, respectively].... 16,712,601 14,311,081 Capital stock repurchased [(1,718,830) and (1,313,029) shares, respectively]........... (25,854,984) (19,639,158) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 59,455,962 147,077,502 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 49,396,142 181,674,863 NET ASSETS: Beginning of year...................................................................... 615,138,065 433,463,202 ------------------ ------------------- End of year............................................................................ $ 664,534,207 $ 615,138,065 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A10 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. HIGH DIVIDEND STOCK PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $873,043,522)............................ $ 859,427,250 Cash....................................... 763 Interest and dividends receivable.......... 4,068,061 -------------- Total Assets............................. 863,496,074 -------------- LIABILITIES Accrued expenses........................... 94,060 Payable for securities purchased........... 2,875,386 Payable to investment adviser.............. 855,376 -------------- Total Liabilities........................ 3,824,822 -------------- NET ASSETS................................... $ 859,671,252 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 593,526 Paid-in capital, in excess of par........ 873,328,334 -------------- 873,921,860 Undistributed net investment income........ 145,759 Distributions in excess of net realized gains.................................... (780,095) Net unrealized depreciation................ (13,616,272) -------------- Net assets, December 31, 1994.............. $ 859,671,252 -------------- -------------- Net asset value per share of 59,352,571 outstanding shares of common stock (authorized 100,000,000 shares).......... $ 14.4842 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 28,264,031 Interest................................... 5,609,616 --------------- 33,873,647 --------------- EXPENSES Investment management fee.................. 3,061,395 Foreign withholding tax.................... 442,666 Shareholders' reports...................... 222,968 S.E.C. fees................................ 90,342 Accounting fees............................ 75,849 Custodian expense -- net................... 39,777 Professional fees.......................... 8,495 Directors' expense......................... 2,142 Miscellaneous expenses..................... 37 --------------- 3,943,671 --------------- NET INVESTMENT INCOME........................ 29,929,976 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments........... 41,343,251 Net unrealized loss on investments......... (64,632,006) --------------- NET LOSS ON INVESTMENTS...................... (23,288,755) --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... $ 6,641,221 --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 29,929,976 $ 14,507,277 Net realized gain on investments....................................................... 41,343,251 21,045,993 Net unrealized gain(loss) on investments............................................... (64,632,006) 35,871,500 ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 6,641,221 71,424,770 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (29,421,933) (14,844,865) Net realized gain from investment transactions......................................... (44,325,396) (18,679,382) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (73,747,329) (33,524,247) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [16,514,586 and 19,384,187 shares, respectively].................... 261,909,000 300,016,000 Reinvestment of dividend distributions [5,080,100 and 2,176,775 shares, respectively]......................................................................... 73,747,329 33,524,247 Capital stock repurchased [(746,813) and (196,958) shares, respectively]............... (11,659,000) (3,017,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 323,997,329 330,523,247 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 256,891,221 368,423,770 NET ASSETS: Beginning of year...................................................................... 602,780,031 234,356,261 ------------------ ------------------- End of year............................................................................ $ 859,671,252 $ 602,780,031 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A11 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. COMMON STOCK PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $2,419,493,392).......................... $2,665,964,937 Cash....................................... 155 Interest and dividends receivable.......... 5,114,347 Receivable for securities sold............. 391,399 -------------- Total Assets............................. 2,671,470,838 -------------- LIABILITIES Accrued expenses........................... 239,413 Payable for securities purchased........... 50,317,741 Payable to investment adviser.............. 2,947,775 Payable for portfolio shares redeemed...... 193,892 -------------- Total Liabilities........................ 53,698,821 -------------- NET ASSETS................................... $2,617,772,017 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 1,266,927 Paid-in capital, in excess of par........ 2,372,417,930 -------------- 2,373,684,857 Accumulated distributions in excess of net investment income........................ (5,718,849) Accumulated net realized gains............. 3,334,464 Net unrealized appreciation................ 246,471,545 -------------- Net assets, December 31, 1994.............. $2,617,772,017 -------------- -------------- Net asset value per share of 126,692,657 outstanding shares of common stock (authorized 200,000,000 shares).......... $ 20.6624 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 50,216,245 Interest................................... 20,648,244 --------------- 70,864,489 --------------- EXPENSES Investment management fee.................. 10,874,059 Foreign withholding tax.................... 1,200,006 Shareholders' reports...................... 651,725 S.E.C. fees................................ 144,182 Accounting fees............................ 143,460 Custodian expense -- net................... 77,177 Professional fees.......................... 71,071 Directors' expense......................... 2,913 Miscellaneous expenses..................... 127 --------------- 13,164,720 --------------- NET INVESTMENT INCOME........................ 57,699,769 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments........... 84,713,465 Net unrealized loss on investments......... (76,779,978) --------------- NET GAIN ON INVESTMENTS...................... 7,933,487 --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... $ 65,633,256 --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 57,699,769 $ 36,054,825 Net realized gain on investments....................................................... 84,713,465 124,861,589 Net unrealized gain (loss) on investments.............................................. (76,779,978) 185,462,685 ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 65,633,256 346,379,099 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (56,757,732) (36,692,128) Net realized gain from investment transactions......................................... (106,046,594) (103,435,491) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (162,804,326) (140,127,619) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [19,167,446 and 21,331,255 shares, respectively].................... 412,393,503 447,667,281 Reinvestment of dividend distributions [7,934,974 and 6,632,819 shares, respectively]......................................................................... 162,804,326 140,127,619 Capital stock repurchased [(2,170,186) and (1,143,204) shares, respectively]........... (46,752,467) (24,126,373) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 528,445,362 563,668,527 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 431,274,292 769,920,007 NET ASSETS: Beginning of year...................................................................... 2,186,497,725 1,416,577,718 ------------------ ------------------- End of year............................................................................ $ 2,617,772,017 $ 2,186,497,725 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A12 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $333,259,423)............................ $ 340,065,997 Foreign currency, at value (cost: $7,107,458).............................. 7,169,111 Dividends and interest receivable.......... 240,756 Receivable for securities sold............. 2,036,391 Receivable for portfolio shares sold....... 5,435 Other assets............................... 163,813 -------------- Total Assets............................. 349,681,503 -------------- LIABILITIES Bank overdraft............................. 151,478 Accrued expenses........................... 507,759 Payable for securities purchased........... 2,689,594 Payable to investment adviser.............. 598,694 -------------- Total Liabilities........................ 3,947,525 -------------- NET ASSETS................................... $ 345,733,978 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 249,106 Paid-in capital, in excess of par........ 339,734,079 -------------- 339,983,185 Distributions in excess of net investment income................................... (306,676) Accumulated net realized losses............ (830,366) Net unrealized appreciation on securities and foreign currency translations........ 6,887,835 -------------- Net assets, December 31, 1994.............. $ 345,733,978 -------------- -------------- Net asset value per share of 24,910,615 outstanding shares of common stock (authorized 100,000,000 shares).......... $ 13.8790 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 2,857,120 Interest................................... 602,579 --------------- 3,459,699 --------------- EXPENSES Investment management fee.................. 1,798,467 Custodian expense -- net................... 695,706 Income taxes -- foreign.................... 284,990 Accounting fees............................ 101,774 S.E.C. fees................................ 82,504 Shareholders' reports...................... 17,205 Professional fees.......................... 2,375 Directors' expense......................... 1,886 Miscellaneous expenses..................... 70 --------------- 2,984,977 --------------- NET INVESTMENT INCOME........................ 474,722 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES AND FOREIGN CURRENCIES Net realized loss on securities and foreign currency transactions.................... (578,250) Net unrealized loss on securities and foreign currency translations............ (16,334,560) --------------- NET LOSS ON SECURITIES AND FOREIGN CURRENCIES................................... (16,912,810) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... $ (16,438,088) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 474,722 $ 113,317 Net realized gain (loss) on securities and foreign currency transactions............... (578,250) 2,342,360 Net unrealized gain (loss) on securities and foreign currency translations............. (16,334,560) 21,161,913 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (16,438,088) 23,617,590 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (499,141) (403,351) Net realized gain from investment transactions......................................... (394,438) (839,910) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (893,579) (1,243,261) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [17,513,960 and 5,977,164 shares, respectively]..................... 254,421,899 78,356,145 Reinvestment of dividend distributions [64,991 and 90,677 shares, respectively]........ 893,579 1,243,261 Capital stock repurchased [(751,122) and (141,366) shares, respectively]............... (10,781,034) (1,761,681) Initial capitalization repurchased [(735,674) and (391,272) shares, respectively]...... (10,558,000) (5,164,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 233,976,444 72,673,725 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 216,644,777 95,048,054 NET ASSETS: Beginning of year...................................................................... 129,089,201 34,041,147 ------------------ ------------------- End of year............................................................................ $ 345,733,978 $ 129,089,201 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A13 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. NATURAL RESOURCES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994 ASSETS Investments, at value (cost: $227,082,786)............................ $ 230,156,734 Cash....................................... 204 Interest and dividends receivable.......... 455,179 -------------- Total Assets............................. 230,612,117 -------------- LIABILITIES Accrued expenses........................... 37,673 Payable for securities purchased........... 3,040,439 Payable to investment adviser.............. 260,076 -------------- Total Liabilities........................ 3,338,188 -------------- NET ASSETS................................... $ 227,273,929 -------------- -------------- Net assets were comprised of: Common stock, at $0.01 par value......... $ 157,357 Paid-in capital, in excess of par........ 222,958,907 -------------- 223,116,264 Undistributed net investment income........ 36,877 Accumulated net realized gains............. 1,046,840 Net unrealized appreciation................ 3,073,948 -------------- Net assets, December 31, 1994.............. $ 227,273,929 -------------- -------------- Net asset value per share of 15,735,726 outstanding shares of common stock (authorized 100,000,000 shares).......... $ 14.4432 -------------- --------------
STATEMENT OF OPERATIONS Year Ended December 31, 1994 INVESTMENT INCOME Dividends.................................. $ 2,919,308 Interest................................... 547,273 --------------- 3,466,581 --------------- EXPENSES Investment management fee.................. 917,600 Foreign withholding tax.................... 155,276 Shareholders' reports...................... 56,649 Accounting fees............................ 45,569 Custodian expense -- net................... 28,357 S.E.C. fees................................ 27,962 Professional fees.......................... 4,165 Directors' expense......................... 1,894 Miscellaneous expenses..................... 10 --------------- 1,237,482 --------------- NET INVESTMENT INCOME........................ 2,229,099 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments -- Securities transactions.................. 4,039,297 Options written.......................... 32,757 --------------- Net realized gain on investments........... 4,072,054 Net unrealized loss on investments......... (16,859,455) --------------- NET LOSS ON INVESTMENTS...................... (12,787,401) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... ($ 10,558,302) --------------- ---------------
STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31 --------------------------------------- 1994 1993 ------------------ ------------------- OPERATIONS: Net investment income.................................................................. $ 2,229,099 $ 1,708,004 Net realized gain on investments....................................................... 4,072,054 4,531,550 Net unrealized gain (loss) on investments.............................................. (16,859,455) 15,555,589 ------------------ ------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (10,558,302) 21,795,143 ------------------ ------------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income.................................................................. (2,145,214) (1,727,285) Net realized gain from investment transactions......................................... (4,370,759) (3,710,814) ------------------ ------------------- TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (6,515,973) (5,438,099) ------------------ ------------------- CAPITAL TRANSACTIONS: Capital stock sold [5,475,055 and 4,020,200 shares, respectively]...................... 85,097,000 61,876,000 Reinvestment of dividend distributions [446,624 and 360,819 shares, respectively]...... 6,515,973 5,438,099 Capital stock repurchased [(393,177) and (161,277) shares, respectively]............... (6,107,000) (2,363,000) ------------------ ------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 85,505,973 64,951,099 ------------------ ------------------- TOTAL INCREASE IN NET ASSETS............................................................. 68,431,698 81,308,143 NET ASSETS: Beginning of year...................................................................... 158,842,231 77,534,088 ------------------ ------------------- End of year............................................................................ $ 227,273,929 $ 158,842,231 ------------------ ------------------- ------------------ -------------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. A14 THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS MONEY MARKET PORTFOLIO DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS -- 99.7% AMOUNT VALUE ------------- -------------- BANK-RELATED INSTRUMENTS -- 17.0% Bank of Montreal, C.D., 5.800%, 01/30/95.............................. $ 25,000,000 $ 25,000,000 Bank of Tokyo, Ltd., C.D., 6.460%, 03/30/95.............................. 10,000,000 10,000,000 Fuji Bank, Ltd, C.D., 5.906%, 01/20/95.............................. 10,000,000 10,000,000 Industrial Bank of Japan, Ltd., T.D., 6.375%, 03/28/95.............................. 10,000,000 10,000,000 Mitsubishi Bank, Ltd, T.D., 7.000%, 01/03/95.............................. 4,047,000 4,047,000 Republic National Bank of New York, C.D., 4.300%, 03/08/95.............................. 10,000,000 9,994,761 Sanwa Bank, Ltd., C.D., 5.950%, 01/30/95.............................. 11,000,000 11,000,000 6.040%, 02/02/95.............................. 6,000,000 6,000,000 Societe Generale, C.D., 5.650%, 02/07/95.............................. 5,000,000 5,000,000 Sumitomo Bank, Ltd., C.D., 5.960%, 01/30/95.............................. 5,000,000 5,000,000 Sumitomo Bank, Ltd., T.D., 6.060%, 02/01/95.............................. 3,000,000 3,000,000 -------------- 99,041,761 -------------- COMMERCIAL PAPER -- 68.9% American Express Centurion Bank, %4.500%, 08/04/95, Tranche #TR00037........... 2,000,000 1,999,883 %4.813%, 08/18/95, Tranche #TR00039........... 3,000,000 2,999,813 American Home Products Corp., 5.900%, 01/31/95.............................. 28,000,000 27,871,511 American Honda Finance Corp., 5.980%, 01/31/95.............................. 4,000,000 3,981,396 6.150%, 01/30/95.............................. 2,000,000 1,990,775 Aristar, Inc., 5.540%, 01/23/95.............................. 1,000,000 996,922 5.940%, 02/01/95.............................. 1,700,000 1,691,866 6.040%, 02/01/95.............................. 1,000,000 995,134 Asset Securitization Cooperative Corp., 5.500%, 01/17/95-01/23/95..................... 14,000,000 13,965,472 5.520%, 01/23/95.............................. 6,000,000 5,981,600 5.970%, 02/01/95.............................. 6,000,000 5,971,145 Associates Corp. of North America, 5.770%, 01/31/95.............................. 8,000,000 7,964,098 %Avco Financial Services, Inc., 4.677%, 09/13/95.............................. 4,000,000 4,000,000 Bankers Trust New York Corp., 5.440%, 01/24/95.............................. 20,000,000 19,936,533 Chrysler Financial Corp., 5.750%, 01/18/95.............................. 11,000,000 10,973,646 CIT Group Holdings, Inc., 6.270%, 03/13/95.............................. 9,000,000 8,891,843 Coca-Cola Enterprises, Inc., 6.015%, 02/01/95.............................. 10,000,000 9,951,546 6.170%, 03/07/95.............................. 5,000,000 4,946,013 Commercial Credit Co., 5.750%, 01/31/95.............................. 2,000,000 1,991,056
DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- Corporate Asset Funding Co., Inc., 5.500%, 01/11/95.............................. $ 1,000,000 $ 998,778 Dean Witter, Discover & Co., 5.780%, 01/23/95.............................. 373,000 371,802 5.970%, 02/01/95.............................. 1,397,000 1,390,282 Duracell, Inc., 6.300%, 02/10/95.............................. 1,000,000 993,350 Falcon Asset Securitization Corp., 6.170%, 02/06/95-03/07/95..................... 15,725,000 15,608,336 First National Bank of Chicago, 5.688%, 02/22/95, Tranche #TR00087............ 2,000,000 2,000,000 Ford Motor Credit Co., 5.780%, 02/01/95.............................. 8,000,000 7,962,751 6.000%, 01/23/95.............................. 1,423,000 1,418,257 6.050%, 01/17/95.............................. 1,000,000 997,647 Fuji Bank, Ltd., 6.200%, 02/10/95.............................. 3,000,000 2,980,367 General Electric Capital Corp., 5.430%, 01/11/95.............................. 2,000,000 1,997,587 5.850%, 01/30/95.............................. 5,000,000 4,978,063 6.450%, 04/13/95.............................. 9,650,000 9,477,104 General Mills, Inc., 5.600%, 02/03/95.............................. 2,870,000 2,856,160 General Motors Acceptance Corp., 5.740%, 01/17/95.............................. 27,400,000 27,338,837 Golden Peanut Co., 5.600%, 02/01/95.............................. 3,000,000 2,986,467 Greyhound Financial Corp., 6.200%, 01/13/95.............................. 1,000,000 998,278 6.290%, 02/08/95.............................. 3,000,000 2,981,130 6.300%, 01/27/95.............................. 5,000,000 4,979,000 Hanson Finance, PLC, 5.470%, 01/17/95.............................. 1,000,000 997,873 6.260%, 03/03/95.............................. 2,000,000 1,979,481 6.280%, 03/01/95.............................. 2,000,000 1,980,113 Heller Financial, Inc., 6.300%, 03/13/95-03/14/95..................... 5,000,000 4,939,275 Household Finance Corp., 5.500%, 01/12/95.............................. 4,000,000 3,994,500 International Lease Finance Corp., 5.750%, 01/18/95.............................. 2,000,000 1,995,208 ITT Financial Corp., 6.200%, 01/20/95.............................. 14,000,000 13,959,011 Maguire/Thomas Partners, 6.125%, 01/13/95.............................. 1,715,000 1,712,082 6.360%, 03/21/95.............................. 5,000,000 5,000,000 MCA Funding Corp., 5.100%, 01/09/95.............................. 7,800,000 7,793,370 McKenna Triangle National Corp., 6.250%, 03/08/95.............................. 4,000,000 3,955,556 Merrill Lynch & Co., Inc., 5.750%, 01/17/95.............................. 15,000,000 14,966,458 5.870%, 01/31/95.............................. 3,000,000 2,986,303 Money Market Auto Loan Trust 1990-1, %3.325%, 11/30/95............................. 2,300,000 2,300,000 %3.375%, 11/30/95............................. 5,000,000 5,000,000
B1 MONEY MARKET PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- Money Market Credit Card Trust 1989-1, %3.720%, 06/10/96............................. $ 2,368,182 $ 2,368,070 %3.830%, 06/10/96............................. 1,090,909 1,090,909 %4.420%, 06/10/96............................. 986,364 986,364 Morgan Stanley Group, Inc., %3.530%, 12/15/95, Tranche #TR00102........... 5,000,000 5,000,000 %3.593%, 12/15/95, Tranche #TR00102........... 2,000,000 2,000,000 6.270%, 03/01/95.............................. 2,500,000 2,475,181 National Australia Funding, Inc., 5.600%, 02/01/95.............................. 3,330,000 3,314,978 NationsBank Corp. of North Carolina, 5.400%, 01/23/95.............................. 1,560,000 1,555,320 PNC Bank N.A., 5.520%, 01/06/95, Tranche #TR00010............ 19,000,000 18,999,874 PNC Bank of Ohio, 3.500%, 01/31/95, Tranche #TR00002............ 2,000,000 1,999,805 Preferred Receivables Funding Corp., 5.650%, 01/11/95.............................. 4,000,000 3,994,978 Republic National Bank of New York, 5.750%, 02/01/95.............................. 2,000,000 1,999,994 Sears, Roebuck Acceptance Corp., 5.870%, 01/27/95.............................. 3,000,000 2,988,260 6.050%, 02/06/95.............................. 14,000,000 13,920,006 Sumitomo Corp. of America, 5.125%, 01/09/95.............................. 4,000,000 3,996,583 WCP Funding, Inc., 6.280%, 03/06/95.............................. 2,000,000 1,978,369 Westpac Capital Corp., 5.500%, 01/17/95.............................. 2,000,000 1,995,721 6.280%, 03/14/95.............................. 3,000,000 2,963,367 Whirlpool Corp., 5.570%, 01/09/95.............................. 3,500,000 3,496,750 5.660%, 02/02/95.............................. 1,000,000 995,283 Whirlpool Financial Corp., 5.500%, 01/12/95.............................. 13,000,000 12,982,125 5.600%, 02/06/95-02/09/95..................... 2,000,000 1,988,956 5.610%, 02/10/95.............................. 2,000,000 1,988,156 WMX Technologies, 5.225%, 02/07/95.............................. 3,000,000 2,984,760 -------------- 402,037,487 -------------- MEDIUM TERM NOTES -- 10.7% %American Express Centurion Bank, M.T.N., 4.813%, 09/19/95, Tranche #TR00080............ 2,000,000 1,999,861 %Beneficial Corp., M.T.N., 4.487%, 07/19/95, Tranche #TR00768............ 7,000,000 6,997,412 Fifth Third Bank, M.T.N., 6.200%, 02/07/95, Tranche #TR00075............ 4,000,000 4,000,188 Ford Motor Credit Co., 9.300%, 03/15/95.............................. 2,000,000 2,017,850 General Motors Acceptance Corp., M.T.N., 6.900%, 05/08/95, Tranche #TR00347............ 500,000 501,829
DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- **Goldman Sachs Group L.P., M.T.N., 5.375%, 01/11/96, Series A.................... $ 28,000,000 $ 28,000,000 Merrill Lynch & Co., Inc., M.T.N., %4.823%, 09/22/95, Tranche #TR00106........... 3,000,000 2,999,580 4.885%, 10/02/95, Tranche #TR00110............ 6,500,000 6,499,055 %Morgan Stanley Group, Inc., M.T.N., 3.405%, 01/16/96, Tranche #TR00010............ 4,000,000 4,000,000 Society Bank of North America, M.T.N., 3.550%, 01/20/95, Tranche #TR00005............ 2,500,000 2,499,810 Toyota Motor Credit Corp., M.T.N., 5.700%, 01/23/95, Tranche #TR00029............ 3,000,000 2,998,996 -------------- 62,514,581 -------------- PROMISSORY NOTES -- 3.1% Lehman Brothers Holdings, Inc., 5.028%, 05/23/95.............................. 15,000,000 15,000,000 Orix America, Inc., 5.850%, 01/27/95.............................. 3,000,000 2,988,300 -------------- 17,988,300 -------------- TOTAL SHORT-TERM INVESTMENTS..................................... 581,582,129 -------------- OTHER ASSETS -- 0.3% (net of liabilities)........................................... 1,699,348 -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 583,281,477 -------------- -------------- The following abbreviations are used in portfolio descriptions: C.D. Certificates of Deposit L.P. Limited Partnership M.T.N. Medium Term Note PLC Public Limited Company (British Corporation) T.D. Time Deposit **Indicates a restricted security; the aggregate cost of the restricted securities is $28,000,000. The aggregate value, $28,000,000 is approximately 4.8% of net assets. (See Note 2) %Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B2 BOND PORTFOLIO DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS -- 95.3% VALUE VALUE ------------- -------------- FINANCIAL -- 14.4% Abbey National First Capital, 8.200%, 10/15/04.............................. $ 3,000,000 $ 2,928,630 Aristar, Inc., 5.750%, 07/15/98.............................. 2,000,000 1,837,600 7.500%, 07/01/99.............................. 2,000,000 1,919,440 Associates Corp. of North America, 8.375%, 01/15/98.............................. 500,000 499,995 8.800%, 01/14/95.............................. 1,000,000 1,000,380 Chase Manhattan Corp., 8.000%, 06/15/99.............................. 2,000,000 1,964,800 Chemical Bank, 6.625%, 08/15/05.............................. 2,000,000 1,713,160 Chrysler Finance Corp., M.T.N., 5.260%, 07/06/95, Tranche #TR00029............ 900,000 890,334 5.340%, 07/05/95, Tranche #TR00028............ 2,300,000 2,276,356 Chrysler Financial Corp., 9.500%, 12/15/99.............................. 5,000,000 5,187,800 Citicorp, M.T.N., 8.500%, 02/24/97, Tranche #TR00128............ 3,000,000 3,018,390 Coles Myer Finance USA, Ltd., M.T.N., 5.560%, 02/15/99, Tranche #TR00018............ 6,000,000 5,413,140 Countrywide Funding Corp., M.T.N., 6.880%, 08/03/98, Tranche #TR00025............ 4,000,000 3,811,040 Equicredit Home Equity Loan Trust, CMO, 7.850%, 08/15/07, Series 1994-3, Class A-3.... 5,000,000 4,823,438 First Fidelity Bancorp, 9.750%, 05/25/95.............................. 5,000,000 5,049,300 Ford Motor Credit Co., 6.250%, 02/26/98.............................. 3,000,000 2,826,090 General Motors Acceptance Corp., 8.400%, 10/15/99.............................. 3,700,000 3,698,483 General Motors Acceptance Corp., M.T.N., 7.500%, 11/04/97, Tranche #TR00598............ 2,000,000 1,946,940 Goldman Sachs Group, L.P., 6.100%, 04/15/98.............................. 2,000,000 1,856,980 **John Hancock Mutual Life Insurance Co., 7.375%, 02/15/24.............................. 3,000,000 2,414,670 Mellon Financial Co., 6.500%, 12/01/97.............................. 2,000,000 1,912,200 NationsBank Corp. of North Carolina, 6.625%, 01/15/98.............................. 3,000,000 2,859,210 %Nomura Asset Securities Corp., CMO, 8.026%, 12/15/06, 1994 MDA, Class A-3......... 3,000,000 2,821,875 **Potomac Capital Investment Corp., M.T.N., 6.190%, 04/28/97, Series B.................... 3,500,000 3,466,627 Republic New York Corp., 9.125%, 05/15/21.............................. 2,850,000 2,978,591
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Sovereign Bancorp, Inc. 6.750%, 09/01/00.............................. $ 5,000,000 $ 4,475,000 Union Bank Finland, Ltd., 5.250%, 06/15/96.............................. 3,000,000 2,872,530 Zurich Reinsurance Centre Holdings, Inc., 7.125%, 10/15/23.............................. 2,000,000 1,587,680 -------------- 78,050,679 -------------- FOREIGN -- 15.7% Australia & New Zealand Banking Group, Ltd., 6.250%, 02/01/04.............................. 3,000,000 2,566,560 **Banco Del Estado-Chile, 8.390%, 08/01/01.............................. 2,100,000 1,979,250 **Banco Ganadero, SA, M.T.N., 9.750%, 08/26/99, Tranche #TR00001............ 4,100,000 3,977,000 Canadian Pacific Forest Products Ltd., 10.250%, 01/15/03............................. 4,000,000 3,963,390 Carter Holt Harvey, Ltd., 8.875%, 12/01/04.............................. 2,500,000 2,524,150 **Cemex, SA, 8.875%, 06/10/98.............................. 6,000,000 5,265,000 Central Puerto and Cent Negue, SA, 10.750%, 11/02/97............................. 3,000,000 2,872,500 **Compania Sud Americana de Vapores, SA, 7.375%, 12/08/03.............................. 4,000,000 3,275,000 %Hydro-Quebec, 3.438%, 09/30/49, Series G-1E4................ 3,000,000 2,507,813 **Kansallis-Osake Pankki, N.Y., 8.650%, 12/29/49.............................. 5,000,000 4,837,500 Korea Development Bank, 8.090%, 10/06/04.............................. 5,400,000 5,284,940 National Australia Bank, Ltd., 9.700%, 10/15/98.............................. 1,700,000 1,774,970 Nippon Telegraph & Telephone Corp., 9.500%, 07/27/98.............................. 1,800,000 1,869,588 Noranda, Inc., 8.125%, 06/15/04.............................. 2,000,000 1,912,380 Nova Scotia, Province of Canada, 8.875%, 07/01/19.............................. 3,000,000 2,900,460 Ontario, Province of Canada, 15.750%, 03/15/12............................. 3,475,000 4,139,280 **%Petroleos Mexicanos, 5.563%, 03/08/99.............................. 2,500,000 2,375,000 Republic of Argentina, 8.375%, 12/20/03.............................. 4,000,000 2,850,000 Republic of Columbia, 7.250%, 02/23/04.............................. 2,500,000 2,059,375 8.750%, 10/06/99.............................. 3,500,000 3,338,125 Republic of Italy, 6.875%, 09/27/23.............................. 4,000,000 3,150,880 Republic of South Africa, 9.625%, 12/15/99.............................. 4,000,000 3,961,250 **Republic of Trinidad and Tobago, 11.750%, 10/03/04............................. 4,000,000 4,050,000 Saskatchewan, Province of Canada, 8.000%, 07/15/04.............................. 4,000,000 3,872,560 Svenska Handelsbanken, 8.125%, 08/15/07.............................. 2,500,000 2,350,225
B3 BOND PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- **Tenaga Nasional Berhad, 7.875%, 06/15/04.............................. $ 3,000,000 $ 2,856,570 United States of Mexico with Rights, 6.250%, 12/31/19, Class B..................... 4,000,000 2,175,000 -------------- 84,688,766 -------------- INDUSTRIAL -- 17.2% Arkla, Inc., M.T.N., 9.320%, 12/18/00, Tranche #TR00043............ 2,000,000 1,962,460 9.380%, 03/15/96, Tranche #TR00018............ 1,300,000 1,308,567 Boise Cascade Corp., 9.875%, 02/15/01.............................. 1,000,000 1,002,040 Borden, Inc., 7.875%, 02/15/23.............................. 2,000,000 1,463,680 Carnival Cruise Lines, Inc., 5.750%, 03/15/98.............................. 3,000,000 2,766,810 Comsat Corp., 8.125%, 04/01/04.............................. 4,000,000 3,898,480 Crane Co., 7.250%, 06/15/99.............................. 3,000,000 2,842,020 Delta Air Lines, Inc., M.T.N., 7.790%, 12/01/98.............................. 1,000,000 928,400 8.380%, 06/12/98, Tranche #TR00017............ 2,000,000 1,897,680 Enterprise Rent A Car, M.T.N., 8.750%, 12/15/99 Tranche #TR00001............. 3,000,000 2,989,650 Federal Express Corp., 9.650%, 06/15/12.............................. 3,000,000 3,164,610 Fleming Companies, Inc., C.D., 10.625%, 12/15/01............................. 4,000,000 4,000,000 Georgia-Pacific Corp., 9.625%, 03/15/22.............................. 1,500,000 1,515,075 J.C. Penney Co., Inc., 9.750%, 06/15/21.............................. 6,400,000 6,902,144 Laidlaw, Inc., 8.250%, 05/15/23.............................. 2,500,000 2,177,225 News America Holdings, Inc., 7.450%, 06/01/00.............................. 3,000,000 2,796,330 7.750%, 02/01/24.............................. 3,300,000 2,684,352 Noble Affiliates, Inc., 7.250%, 10/15/23.............................. 2,000,000 1,596,200 Oryx Energy Co., M.T.N., 6.050%, 02/01/96, Tranche #TR00013............ 3,000,000 2,887,500 Philip Morris Companies, Inc., 7.500%, 01/15/02.............................. 2,500,000 2,343,100 9.000%, 01/01/01.............................. 4,800,000 4,858,032 Procter & Gamble Co., ESOP, 9.360%, 01/01/21, Series A.................... 4,900,000 5,286,120 PT Alatief Freeport Financial Co., 9.750%, 04/15/01.............................. 5,750,000 5,606,250 Royal Caribbean Cruises Ltd., 11.375%, 05/15/02............................. 4,000,000 4,250,000 Sears, Roebuck & Co., 9.375%, 11/01/11.............................. 2,000,000 2,090,040 **Shurgard Securities Trust, CMO, 8.240%, 06/15/04.............................. 3,000,000 2,882,813 Tele-Communications, Inc., 10.125%, 04/15/22............................. 5,000,000 5,015,400 Time Warner, Inc., **6.050%, 07/01/95............................ 2,500,000 2,479,075 7.450%, 02/01/98.............................. 2,200,000 2,096,885
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Transco Energy Co., 11.250%, 07/01/99............................. $ 2,500,000 $ 2,659,375 Westinghouse Electric Corp., 8.375%, 06/15/02.............................. 2,000,000 1,858,260 Whitman Corp., 7.500%, 08/15/01.............................. 3,000,000 2,852,100 -------------- 93,060,673 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 45.5% Federal Farm Credit Bank, 8.650%, 10/01/99, Series A.................... 150,000 153,375 Federal Farm Credit Bank, M.T.N., 7.900%, 03/01/96.............................. 2,800,000 2,816,744 Federal Home Loan Mortgage Corporation, 9.800%, 03/25/96.............................. 4,000,000 4,095,000 Federal Home Loan Mortgage Corporation, CMO, 6.800%, 08/15/05, Series 1224, Class 1224-F... 5,000,000 4,757,800 Federal Home Loan Mortgage Corporation, REMIC, 6.500%, 10/15/06, Series 1194, Class 1194-G... 5,000,000 4,428,100 7.500%, 09/15/05, Series 1295, Class 1295-G... 8,300,000 7,934,219 Federal National Mortgage Association, 7.000%, 10/01/13-01/01/24..................... 33,044,696 30,002,267 9.000%, 10/01/16-09/01/21..................... 792,613 797,724 11.000%, 11/01/20............................. 6,159,127 6,647,977 Federal National Mortgage Association, REMIC, Zero Coupon, 09/25/15, Tranche #TR1989-102, Class 102A.................................. 1,387,991 1,027,113 6.500%, 07/25/20, Tranche #TR1992-138, Class D........................................... 5,000,000 4,492,150 8.600%, 04/25/03, Series 1989-92, Class 92-D........................................ 1,086,155 1,087,849 9.000%, 03/25/20, Series 1990-24, Class 24-E........................................ 2,000,000 2,028,120 Government National Mortgage Association, 7.500%, 05/20/02.............................. 690,383 649,823 International Bank for Reconstruction and Development, 12.375%, 10/15/02............................. 750,000 923,213 Resolution Funding Corp., Zero Coupon, 10/15/15......................... 17,100,000 3,219,075 8.125%, 10/15/19, Class A..................... 700,000 703,283 8.625%, 01/15/21.............................. 200,000 211,562 United States Treasury Bonds, 6.250%, 08/15/23.............................. 4,800,000 3,902,256 8.125%, 08/15/19.............................. 8,250,000 8,359,560 10.750%, 08/15/05............................. 10,800,000 12,973,500 11.250%, 02/15/15............................. 6,400,000 8,456,000 11.625%, 11/15/04............................. 15,130,000 18,950,325 12.000%, 08/15/13............................. 6,000,000 7,978,140 United States Treasury Notes, 3.875%, 09/30/95.............................. 7,000,000 6,837,040 6.250%, 02/15/03.............................. 6,000,000 5,426,220 6.375%, 08/15/02, Series 2002................. 4,200,000 3,845,604 6.875%, 03/31/97, Series 1997................. 1,500,000 1,472,805 7.250%, 08/15/04.............................. 1,100,000 1,055,824 7.500%, 02/29/96, Series 1996................. 9,300,000 9,310,137
B4 BOND PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- 7.875%, 02/15/96-07/31/96, Series 1996........ $ 36,000,000 $ 36,151,740 8.875%, 11/15/97, Series 1997................. 20,370,000 20,907,972 9.000%, 05/15/98, Series B-1998............... 3,000,000 3,100,770 9.250%, 01/15/96, Series 1996................. 12,000,000 12,228,720 9.250%, 08/15/98, Series D-1998............... 9,300,000 9,703,992 -------------- 246,635,999 -------------- UTILITIES -- 2.5% %Central Maine Power Co., M.T.N., 5.978%, 08/03/95, Tranche #TR00036............ 4,000,000 4,000,000 Consolidated Edison of New York, Inc., 9.700%, 12/01/25.............................. 2,100,000 2,273,922 Pennsylvania Power & Light Co., 9.375%, 07/01/21.............................. 1,150,000 1,179,268 Southern Union Co., 7.600%, 02/01/24.............................. 3,000,000 2,511,450 Texas Utilities Electric Co., 5.875%, 04/01/98.............................. 4,000,000 3,702,920 -------------- 13,667,560 -------------- TOTAL LONG-TERM BONDS (Cost $548,035,825)............................................ 516,103,677 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 2.8% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95, (see Note 4)................ 15,192,000 15,192,000 -------------- OTHER ASSETS -- 1.9% (net of liabilities)........................................... 10,352,922 -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 541,648,599 -------------- -------------- The following abbreviations are used in portfolio descriptions: C.D. Certificates of Deposit CMO Collateralized Mortgage Obligations ESOP Employee Stock Ownership Plan L.P. Limited Partnership M.T.N. Medium Term Note REMIC Real Estate Mortgage Investment Conduit SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) **Indicates a restricted security; the aggregate cost of the restricted securities is $42,727,259. The aggregate value, $39,858,505 is approximately 7.4% of net assets. (See Note 2) %Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B5 GOVERNMENT SECURITIES PORTFOLIO DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS -- 90.5% VALUE VALUE ------------- -------------- FINANCIAL -- 8.0% Collateralized Mortgage Obligation, Trust 63 (Class E), 9.000%, 09/20/99.............................. $ 1,000,000 $ 995,310 ContiMortgage Home Equity Loan Trust, CMO, 7.960%, 09/15/09, Series 1994-4, Class A2..... 5,000,000 4,900,000 Equicon Home Equity Loan Trust, CMO, 7.850%, 03/18/14, Series 1994-2, Class A2..... 3,000,000 2,949,375 Equicredit Home Equity Loan Trust, CMO, 7.440%, 10/15/05, Series 1994-3, Class A2..... 5,000,000 4,871,875 European Investment Bank, 9.125%, 06/01/02.............................. 3,500,000 3,672,515 Green Tree Financial Corp., CMO, 7.250%, 11/15/19, Series 1994-6, Class A2..... 5,000,000 4,880,469 Olympic Automobile Receivables Trust, CMO, 6.850%, 06/15/01, Series 1994-B, Class A2..... 3,000,000 2,914,687 %People's Bank Credit Card Master Trust, CMO, 5.525%, 03/15/01, Series 1994-2, Class A...... 4,000,000 3,730,562 Vanderbilt Mortgage Finance, CMO, 7.600%, 07/10/19, Series 1994-A, Class A2..... 4,000,000 3,856,250 Western Financial Grantor Trust, CMO, 6.650%, 12/01/99, Series 1994-3, Class A...... 3,570,339 3,489,449 World Omni Automobile Lease Securitization Trust, CMO, 6.450%, 09/25/00, Series 1994-A, Class A...... 3,000,000 2,907,188 -------------- 39,167,680 -------------- INDUSTRIAL -- 0.6% %Aircraft Lease Portfolio Securitization, Ltd., CMO, 7.800%, 09/15/04, Series 1994-1, Class A4..... 3,000,000 2,918,906 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 81.9% Federal Farm Credit Bank, M.T.N., 5.930%, 08/18/03.............................. 3,859,000 3,330,819 7.900%, 03/01/96.............................. 7,000,000 7,041,860 8.600%, 05/30/06.............................. 1,250,000 1,286,913 Federal Home Loan Bank, 5.000%, 10/25/95.............................. 5,000,000 4,903,100 Federal Home Loan Mortgage Corporation, Gold Fixed Participation, 6.095%, 02/23/01.............................. 12,000,000 11,032,440 6.130%, 08/19/99.............................. 7,000,000 6,492,500 6.270%, 01/27/04.............................. 5,000,000 4,326,550 6.485%, 02/18/04.............................. 10,000,000 8,734,400 6.550%, 04/02/03.............................. 4,000,000 3,558,760 6.600%, 11/12/99.............................. 4,000,000 3,820,000 7.500%, 01/01/00-07/23/07..................... 28,463,802 26,902,313
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Federal Home Loan Mortgage Corporation, REMIC, 7.500%, 09/15/05, Series 1295, Class 1295-G... $ 2,100,000 $ 2,007,453 Federal National Mortgage Association, Zero Coupon, 10/09/19......................... 22,500,000 3,009,375 7.600%, 04/14/04.............................. 7,000,000 6,573,420 7.850%, 09/10/98.............................. 3,000,000 3,010,320 8.200%, 12/23/96, Series K.................... 5,000,000 5,026,550 8.200%, 08/10/98, Series F.................... 2,000,000 1,996,240 8.500%, 06/10/96, Series G.................... 5,500,000 5,549,830 11.000%, 11/01/20............................. 7,527,510 8,124,968 Federal National Mortgage Association, M.T.N., 5.930%, 09/26/03.............................. 5,000,000 4,309,000 5.990%, 10/01/03.............................. 5,000,000 4,327,100 7.800%, 02/21/07.............................. 5,000,000 4,701,563 8.625%, 06/30/04.............................. 3,000,000 3,087,330 Federal National Mortgage Association, REMIC, 6.500%, 07/25/20, Trust 1992-138, Class D..... 4,000,000 3,593,720 8.950%, 12/25/18, Trust 1990-45, Class 45-G... 2,000,000 1,993,750 Financing Corp., 9.400%, 02/08/18.............................. 9,850,000 10,955,072 Government National Mortgage Association, 7.000%, 09/15/22-01/15/24..................... 33,750,027 30,290,650 8.500%, 07/15/08-08/15/24..................... 7,292,192 7,165,689 International Bank for Reconstruction and Development, 7.625%, 01/19/23.............................. 5,000,000 4,662,300 8.375%, 10/01/99.............................. 7,900,000 8,102,398 Private Export Funding Corp., 8.750%, 06/30/03, Series KK................... 9,950,000 10,294,867 Resolution Funding Corp., 8.125%, 10/15/19, Principle Only Class A...... 4,200,000 4,219,698 Student Loan Marketing Association, 7.300%, 08/01/12.............................. 19,850,000 18,255,648 Tennessee Valley Authority Power, 8.375%, 10/01/99, Power 1989, Series D........ 6,300,000 6,402,375 8.625%, 11/15/29, Power 1989, Series G........ 3,100,000 3,076,037 United States Treasury Bonds, 6.250%, 08/15/23.............................. 1,600,000 1,300,752 7.625%, 11/15/22.............................. 3,200,000 3,088,512 7.875%, 02/15/21.............................. 500,000 493,750 8.000%, 11/15/21.............................. 11,400,000 11,444,574 8.125%, 08/15/19-08/15/21..................... 18,605,000 18,887,658 8.750%, 08/15/20.............................. 11,300,000 12,219,933 8.875%, 08/15/17-02/15/19..................... 11,850,000 12,917,785 9.250%, 02/15/16.............................. 800,000 900,128 10.375%, 11/15/12............................. 4,000,000 4,760,000 10.750%, 08/15/05............................. 7,300,000 8,769,125 11.250%, 02/15/15............................. 3,400,000 4,492,250 11.625%, 11/15/04............................. 3,750,000 4,696,875 United States Treasury Bonds, Stripped, Zero Coupon, 02/15/05-02/15/12................ 4,750,000 1,756,783
B6 GOVERNMENT SECURITIES PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- United States Treasury Notes, 4.625%, 08/15/95.............................. $ 4,700,000 $ 4,633,918 5.875%, 05/15/95.............................. 2,300,000 2,294,963 6.875%, 08/31/99.............................. 2,400,000 2,310,000 7.000%, 04/15/99.............................. 13,000,000 12,597,780 7.125%, 09/30/99.............................. 11,700,000 11,363,625 7.750%, 03/31/96-11/30/99..................... 7,000,000 6,995,320 8.000%, 08/15/99.............................. 10,100,000 10,158,378 8.500%, 11/15/00.............................. 2,000,000 2,061,560 8.625%, 08/15/97.............................. 7,600,000 7,743,715 8.875%, 02/15/99.............................. 10,700,000 11,074,500 -------------- 399,126,892 -------------- TOTAL LONG-TERM BONDS (Cost $470,157,047)............................................ 441,213,478 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 7.6% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. 36,874,000 $ 36,874,000 -------------- OTHER ASSETS -- 1.9% (net of liabilities)........................................... 9,486,827 -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 487,574,305 -------------- -------------- The following abbreviations are used in portfolio descriptions: CMO Collateralized Mortgage Obligations M.T.N. Medium Term Note REMIC Real Estate Mortgage Investment Conduit %Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B7 ZERO COUPON BOND 1995 PORTFOLIO DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS -- 100.1% VALUE VALUE ------------- -------------- INDUSTRIAL -- 4.1% Schering-Plough Corp., Zero Coupon, 12/02/96......................... $ 850,000 $ 731,400 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 96.0% Certificate of Accrual on Treasury Securities, Zero Coupon, 02/15/97......................... 1,003,000 855,027 Coupon Treasury Receipts, Zero Coupon, 05/15/95-02/15/97................ 13,002,145 11,928,682 Treasury Investment Growth Receipts, Zero Coupon, 11/15/95......................... 236,000 222,494 United States Treasury Bills, Zero Coupon, 11/16/95......................... 3,000,000 2,822,490 United States Treasury Bonds, Stripped, Zero Coupon, 02/15/97......................... 1,407,000 1,198,553 -------------- 17,027,246 -------------- TOTAL LONG-TERM BONDS (Cost $17,721,753)............................................. 17,758,646 -------------- LIABILITIES -- (0.1%) (net of other assets).......................................... (25,014) -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 17,733,632 -------------- --------------
ZERO COUPON BOND 2000 PORTFOLIO DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS -- 100.1% VALUE VALUE ------------- -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS Certificate of Accrual on Treasury Securities, Zero Coupon, 05/15/01......................... $ 1,088,000 $ 666,117 Coupon Treasury Receipts, Zero Coupon, 11/15/00-08/15/01................ 3,622,026 2,208,859 Treasury Investment Growth Receipts, Zero Coupon, 02/15/02......................... 9,831,000 5,669,144 United States Treasury Bonds, Stripped, Zero Coupon, 02/15/00-05/15/02................ 19,368,000 12,121,776 -------------- TOTAL LONG-TERM BONDS (Cost $20,000,846)............................................. 20,665,896 -------------- LIABILITIES -- (0.1%) (net of other assets).......................................... (30,900) -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 20,634,996 -------------- --------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B8 ZERO COUPON BOND 2005 PORTFOLIO DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS -- 96.3% VALUE VALUE ------------- -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS Certificate of Accrual on Treasury Securities, Zero Coupon, 08/15/04-05/15/11................ $ 4,605,000 $ 1,873,840 Principal Treasury Receipts, Zero Coupon, 05/15/03......................... 1,590,000 829,360 Treasury Investment Growth Receipts, Zero Coupon, 05/15/04-11/15/11................ 13,113,500 4,451,632 United States Treasury Bonds, Stripped, Zero Coupon, 05/15/04-11/15/07................ 21,221,000 8,740,485 -------------- TOTAL LONG-TERM BONDS (Cost $16,082,218)............................................. 15,895,317 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 3.9% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. 636,000 636,000 -------------- LIABILITIES -- (0.2%) (net of other assets).......................................... (25,619) -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 16,505,698 -------------- --------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B9 CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 34.8% SHARES VALUE ------------- -------------- AEROSPACE -- 1.1% +Coltec Industries, Inc......................... 311,000 $ 5,325,875 GenCorp, Inc.................................... 676,800 8,037,000 Loral Corp...................................... 338,100 12,805,538 Rockwell International Corp..................... 253,100 9,048,325 +UNC, Inc....................................... 289,100 1,734,600 -------------- 36,951,338 -------------- AUTOS - CARS & TRUCKS -- 1.9% A.O. Smith Corp................................. 466,800 11,436,600 Ford Motor Co................................... 318,300 8,912,400 General Motors Corp............................. 192,800 8,145,800 General Motors Corp. (Class 'E' Stock).......... 325,600 12,535,600 General Motors Corp. (Class 'H' Stock).......... 465,900 16,248,263 Titan Wheel International, Inc.................. 332,600 9,229,650 -------------- 66,508,313 -------------- BANKS AND SAVINGS & LOANS -- 2.4% First Bank System, Inc.......................... 490,900 16,322,425 First Interstate Bancorp........................ 300,000 20,287,500 KeyCorp......................................... 937,400 23,435,000 Norwest Corp.................................... 1,060,200 24,782,175 -------------- 84,827,100 -------------- CHEMICALS -- 1.1% Imperial Chemical Industries, PLC, ADR.......... 371,300 17,265,450 OM Group, Inc................................... 308,400 7,401,600 W.R. Grace & Co................................. 318,800 12,313,650 -------------- 36,980,700 -------------- CHEMICALS - SPECIALTY -- 0.8% Ferro Corp...................................... 655,200 15,642,900 M.A. Hanna Co................................... 464,000 11,020,000 -------------- 26,662,900 -------------- COMMERCIAL SERVICES -- 0.2% +Welbilt Corp................................... 168,600 5,627,025 -------------- COMPUTER SERVICES -- 0.5% National Data Corp.............................. 413,400 10,645,050 +Paxar Corp..................................... 818,343 8,183,430 -------------- 18,828,480 -------------- CONSTRUCTION -- 0.2% Ply-Gem Industries.............................. 400,000 7,650,000 -------------- CONTAINERS -- 0.5% Ball Corp....................................... 363,600 11,453,400 +Sealed Air Corp................................ 167,800 6,082,750 -------------- 17,536,150 -------------- DIVERSIFIED GAS -- 0.1% +Basin Exploration, Inc......................... 148,000 1,628,000 -------------- DRUGS AND HOSPITAL SUPPLIES -- 1.1% Schering-Plough Corp............................ 289,000 21,386,000 Warner-Lambert Co............................... 210,600 16,216,200 -------------- 37,602,200 -------------- ELECTRICAL EQUIPMENT -- 0.3% Belden Corp..................................... 524,300 11,665,675 -------------- ELECTRONICS -- 0.4% +ADT Ltd........................................ 620,000 6,665,000 +IMO Industries, Inc............................ 477,900 5,973,750 -------------- 12,638,750 --------------
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- FINANCIAL SERVICES -- 1.3% American Express Co............................. 319,000 $ 9,410,500 Dean Witter, Discover & Co...................... 736,500 24,948,938 Reinsurance Group of America, Inc............... 487,800 12,012,075 -------------- 46,371,513 -------------- FOODS -- 0.4% Universal Foods Corp............................ 542,000 14,905,000 -------------- FOREST PRODUCTS -- 0.6% Mead Corp....................................... 455,900 22,168,137 -------------- FURNITURE -- 0.1% Leggett & Platt, Inc............................ 128,700 4,504,500 -------------- GAS PIPELINES -- 0.4% Enron Oil & Gas Co.............................. 332,700 6,238,125 +Seagull Energy Corp............................ 387,200 7,405,200 -------------- 13,643,325 -------------- HOSPITAL MANAGEMENT -- 1.3% +Healthtrust, Inc.-The Hospital Co.............. 735,700 23,358,475 National Medical Enterprises, Inc............... 1,650,000 23,306,250 -------------- 46,664,725 -------------- HOUSING RELATED -- 0.8% +Giant Cement Holdings, Inc..................... 415,200 4,930,500 +Owens-Corning Fiberglas Corp................... 662,800 21,209,600 -------------- 26,140,100 -------------- INSURANCE -- 2.4% Emphesys Financial Group, Inc................... 314,600 9,988,550 Equitable of Iowa Companies..................... 372,700 10,528,775 Financial Security Assurance Holdings, Ltd...... 226,200 4,750,200 National Re Corp................................ 207,600 5,449,500 PennCorp Financial Group, Inc................... 638,400 8,379,000 Provident Life & Accident Insurance Co. (Class 'B' Stock).................................... 177,200 3,854,100 TIG Holdings, Inc............................... 588,300 11,030,625 Trenwick Group, Inc............................. 276,200 11,703,975 W.R. Berkley Corp............................... 192,800 7,230,000 Western National Corp........................... 900,000 11,587,500 -------------- 84,502,225 -------------- LEISURE -- 0.4% +Caesars World, Inc............................. 213,100 14,224,424 -------------- MACHINERY -- 0.6% DT Industries, Inc.............................. 234,500 2,520,875 +INDRESCO, Inc.................................. 390,700 5,567,475 Kaydon Corp..................................... 229,700 5,512,800 Parker-Hannifin Corp............................ 136,500 6,210,750 -------------- 19,811,900 -------------- MEDIA -- 2.2% Central Newspapers (Class 'A' Stock)............ 331,700 9,329,063 Comcast Corp. (Class 'A' Stock)................. 362,500 5,573,438 Comcast Corp. (Special Class 'A' Stock)......... 9,600 150,600 Lee Enterprises, Inc............................ 168,700 5,820,150 Media General, Inc. (Class 'A' Stock)........... 123,600 3,507,150 +Tele-Communications, Inc. (Class 'A' Stock).... 848,200 18,448,350 Time Warner, Inc................................ 599,500 21,057,437 Times Mirror Co. (Class 'A' Stock).............. 400,000 12,550,000 -------------- 76,436,188 --------------
B10 CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- MISCELLANEOUS - BASIC INDUSTRY -- 4.8% American Publishing Co. (Class 'A' Stock)....... 161,400 $ 1,775,400 BW/IP, Inc. (Class 'A' Stock)................... 379,200 6,493,800 Danaher Corp.................................... 227,800 11,902,550 Diebold, Inc.................................... 421,400 17,330,075 Donaldson Company, Inc.......................... 400,400 9,609,600 +Enterra Corp................................... 280,300 5,325,700 +FMC Corp....................................... 110,800 6,398,700 +IDEX Corp...................................... 190,400 8,044,400 +Itel Corp...................................... 168,700 5,841,238 ITT Corp........................................ 144,000 12,762,000 +Litton Industries, Inc......................... 259,700 9,608,900 Mark IV Industries, Inc......................... 545,300 10,769,675 Mascotech, Inc.................................. 607,300 7,818,988 Pentair, Inc.................................... 472,950 19,982,137 +SPS Transaction Services, Inc.................. 192,800 5,061,000 Textron, Inc.................................... 96,400 4,856,150 Trinity Industries, Inc......................... 385,500 12,143,250 +Wolverine Tube, Inc............................ 279,500 6,638,125 York International Corp......................... 199,000 7,338,125 -------------- 169,699,813 -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.0% Eastman Kodak Co................................ 372,300 17,777,325 Whitman Corp.................................... 913,400 15,756,150 -------------- 33,533,475 -------------- PETROLEUM -- 0.9% Cabot Oil & Gas Corp. (Class 'A' Stock)......... 594,400 8,618,800 Elf Aquitaine, ADR.............................. 530,100 18,686,025 Parker & Parsley Petroleum Co................... 257,800 5,284,900 -------------- 32,589,725 -------------- PETROLEUM SERVICES -- 0.7% +Mesa, Inc...................................... 1,008,400 4,915,950 Murphy Oil Corp................................. 190,800 8,109,000 Oryx Energy Co.................................. 849,400 10,086,625 -------------- 23,111,575 -------------- RAILROADS -- 1.1% Burlington Northern, Inc........................ 259,000 12,464,375 +Chicago & North Western Transportation Co...... 671,600 12,928,300 Illinois Central Corp........................... 440,000 13,530,000 -------------- 38,922,675 -------------- REAL ESTATE DEVELOPMENT -- 0.7% Zeneca Group, PLC, ADR.......................... 607,200 24,971,100 -------------- RESTAURANTS -- 0.4% Morrison Restaurants, Inc....................... 350,300 8,582,350 +Shoney's, Inc.................................. 530,100 6,758,775 -------------- 15,341,125 -------------- RETAIL -- 1.3% +Best Products Corp., Inc....................... 1,081,600 7,030,400 +Caldor Corp.................................... 382,100 8,501,725 Harcourt General, Inc........................... 277,500 9,781,875 K mart Corp..................................... 621,400 8,078,200 Rite Aid Corp................................... 258,200 6,035,425 Sears, Roebuck & Co............................. 139,800 6,430,800 -------------- 45,858,425 -------------- RUBBER -- 0.3% Goodyear Tire & Rubber Co....................... 269,800 9,072,024 --------------
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- STEEL -- 0.3% +Material Sciences Corp......................... 675,000 $ 10,715,624 -------------- TELECOMMUNICATIONS -- 1.6% +Airtouch Communications, Inc................... 385,500 11,227,688 Century Telephone Enterprises, Inc.............. 337,300 9,950,350 MCI Communications Corp......................... 661,100 12,147,713 +Nextel Communications, Inc. (Class 'A' Stock)........................................ 495,400 7,121,375 Rochester Telephone Corp........................ 797,700 16,851,412 -------------- 57,298,538 -------------- TEXTILES -- 0.4% +Owens-Illinois, Inc............................ 552,700 6,079,700 V.F. Corp....................................... 181,900 8,844,888 -------------- 14,924,588 -------------- TRUCKING/SHIPPING -- 0.2% Ryder System, Inc............................... 385,500 8,481,000 -------------- TOTAL COMMON STOCKS (Cost $1,152,952,120).......................................... 1,218,998,355 -------------- PAR MARKET LONG-TERM BONDS -- 27.3% VALUE VALUE ------------- -------------- FINANCIAL -- 5.2% Associates Corp. of North America, 6.875%, 01/15/97.............................. $ 5,250,000 $ 5,117,018 8.250%, 12/01/99.............................. 34,100,000 33,900,515 8.375%, 01/15/98.............................. 1,100,000 1,099,989 Banc One Credit Card Master Trust, CMO, 7.750%, 12/15/99, Series 1994-B, Class B...... 5,100,000 5,036,250 %Chrysler Financial Corp., 3.813%, 11/15/96.............................. 13,200,000 13,264,415 Chrysler Financial Corp., M.T.N., 5.390%, 08/27/96, Tranche #TR00041............ 7,300,000 7,005,810 CIGNA Mortgage Securities, Inc., 9.400%, 01/15/02, Series 1988-1, Class A2..... 3,362,186 3,329,614 Citicorp, M.T.N., 8.500%, 02/24/97, Tranche #TR00128............ 5,100,000 5,131,263 Dean Witter, Discover & Co., 6.000%, 03/01/98.............................. 2,500,000 2,334,275 Discover Card Trust, 7.875%, 04/16/98, Series #1991-C, Class B..... 10,000,000 9,959,300 Federal Express Corp., M.T.N., 10.010%, 06/01/98, Tranche #SR00067........... 3,000,000 3,101,790 10.050%, 06/15/99, Tranche #SR00068........... 500,000 521,055 First Union Corp., 9.450%, 06/15/99.............................. 4,000,000 4,112,080 Ford Credit Grantor Trust, CMO, 7.300%, 10/15/99, Series 1994-8, Class A...... 11,669,941 11,527,714 Ford Motor Credit Co., 7.750%, 11/15/02.............................. 3,300,000 3,146,979 General Motors Acceptance Corp., 8.250%, 08/01/96.............................. 5,000,000 4,985,950
B11 CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- General Motors Acceptance Corp., M.T.N., 6.300%, 09/10/97, Tranche #TR00532............ $ 5,000,000 $ 4,735,700 6.500%, 06/10/96.............................. 13,000,000 12,725,960 7.375%, 07/20/98, Tranche #TR00667............ 4,650,000 4,474,184 7.500%, 11/04/97, Tranche #TR00598............ 15,000,000 14,602,050 7.850%, 03/05/97, Tranche #TR00187............ 3,300,000 3,259,938 Mellon Financial Co., 6.500%, 12/01/97.............................. 1,650,000 1,577,565 Standard Credit Card Master Trust, 7.250%, 04/07/08, Series 1994-2A, Class A..... 4,650,000 4,237,313 Standard Credit Card Trust, 9.375%, 03/10/96, Series 1990-1............... 7,000,000 7,028,420 Union Bank Finland, Ltd., 5.250%, 06/15/96.............................. 16,650,000 15,942,542 Westinghouse Credit Corp., M.T.N., 8.750%, 06/03/96, Tranche #00248.............. 2,600,000 2,606,968 -------------- 184,764,657 -------------- FOREIGN -- 4.5% **Banco Del Estado-Chile, 8.390%, 08/01/01.............................. 3,700,000 3,487,250 **Banco Ganadero, SA, M.T.N., 9.750%, 08/26/99, Tranche #TR00001............ 7,300,000 7,081,000 **%Cemex, SA, 6.250%, 10/25/95, Series B.................... 4,250,000 4,165,000 **Cemex, SA, M.T.N., 9.500%, 09/20/01, Tranche #TR00010............ 12,500,000 10,625,000 **Compania Sud Americana de Vapores, SA, 7.375%, 12/08/03.............................. 10,000,000 8,187,500 Controladora Commercial Mexicana, SA, 8.750%, 04/21/98.............................. 5,190,000 4,411,500 Empresa Columbia de Petroleos, 7.250%, 07/08/98.............................. 8,250,000 7,342,500 Financiera Energetic Nacional, 6.625%, 12/13/96.............................. 5,000,000 4,800,000 **Financiera Energetic Nacional, M.T.N., 9.000%, 11/08/99.............................. 9,900,000 9,420,432 Fomento Economico Mexicano, SA, 9.500%, 07/22/97.............................. 5,150,000 5,107,352 **Grupo Condumex, SA, M.T.N., 6.250%, 07/27/96.............................. 4,300,000 3,827,000 **Grupo Embotellador Mexicana, 10.750%, 11/19/97............................. 8,015,000 7,133,350 Grupo Televisa, SA, 10.000%, 11/09/97............................. 7,250,000 6,561,250 %Hydro-Quebec, 3.438%, 09/30/49.............................. 3,500,000 2,925,780 **Kansallis-Osake Pankki, N.Y., 8.650%, 12/29/49.............................. 10,000,000 9,675,000 Kansallis-Osake Pankki, N.Y., C.D., 6.125%, 05/15/98.............................. 6,160,000 5,715,494
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Korea Development Bank, 5.875%, 12/01/98.............................. $ 1,900,000 $ 1,727,290 6.750%, 12/01/05.............................. 10,400,000 8,811,504 9.250%, 06/15/98.............................. 10,000,000 10,159,300 Korea Electric Power Corp., 7.750%, 04/01/13.............................. 2,350,000 2,038,343 Republic of Columbia, 7.125%, 05/11/98.............................. 2,775,000 2,548,664 7.250%, 02/23/04.............................. 5,400,000 4,448,250 8.750%, 10/06/99.............................. 925,000 882,219 Republic of South Africa, 9.625%, 12/15/99.............................. 8,200,000 8,120,563 **Republic of Trinidad and Tobago, 11.750%, 10/03/04............................. 9,300,000 9,416,250 United Mexican States, 5.820%, 06/28/01.............................. 1,375,000 976,250 6.970%, 08/12/00.............................. 2,300,000 1,771,000 8.500%, 09/15/02.............................. 6,850,000 5,514,250 -------------- 156,879,291 -------------- INDUSTRIAL -- 4.3% Arkla, Inc., M.T.N., 9.250%, 12/18/97, Tranche #TR00027............ 3,000,000 2,988,840 Avenor, Inc., 9.375%, 02/15/04.............................. 11,225,000 10,590,086 Coca-Cola Enterprises, Inc., 6.500%, 11/15/97.............................. 3,750,000 3,582,975 Columbia/HCA Healthcare Corp., M.T.N., 8.850%, 01/01/07, Tranche #TR00009............ 12,700,000 12,674,600 Comdisco, Inc., 8.950%, 05/15/95.............................. 19,420,000 19,533,800 Delta Air Lines, Inc., 9.750%, 05/15/21.............................. 10,800,000 9,927,575 10.375%, 02/01/11............................. 6,850,000 6,697,040 **Enterprise Rent A Car, M.T.N., 8.750%, 12/15/99.............................. 13,750,000 13,702,563 Ford Motor Co., 9.000%, 09/15/01.............................. 3,900,000 3,979,482 Hanson Overseas Corp., 5.500%, 01/15/96.............................. 2,000,000 1,953,980 News America Holdings, Inc., 7.750%, 01/20/24.............................. 4,550,000 3,716,304 Oryx Energy Co., M.T.N., 6.050%, 02/01/96, Tranche #TR00013............ 12,000,000 11,550,000 PT Alatief Freeport Financial Co., 9.750%, 04/15/01.............................. 8,950,000 8,726,250 RJR Nabisco, Inc., 8.625%, 12/01/02.............................. 14,350,000 13,310,056 8.750%, 08/15/05.............................. 2,550,000 2,324,886 Sears, Roebuck & Co., M.T.N., 9.420%, 04/01/96, Series IV................... 1,000,000 1,018,625 Sears, Roebuck Acceptance Corp., 9.000%, 09/15/96.............................. 2,000,000 2,024,140 Tele-Communications, Inc., 7.875%, 08/01/13.............................. 6,800,000 5,664,060 9.875%, 06/15/22.............................. 4,700,000 4,606,658 **Time Warner, Inc., 6.050%, 07/01/95.............................. 8,000,000 7,933,040
B12 CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Westinghouse Electric Corp., M.T.N., 8.700%, 06/20/96, Tranche #TR00029............ $ 2,950,000 $ 2,956,136 -------------- 149,461,096 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 13.3% Federal National Mortgage Association, 9.050%, 04/10/00.............................. 14,000,000 14,647,500 United States Treasury Bonds, 6.250%, 08/15/23.............................. 29,585,000 24,051,717 11.250%, 02/15/15............................. 168,850,000 223,093,063 12.000%, 08/15/13............................. 50,450,000 67,082,861 United States Treasury Notes, 6.000%, 11/30/97.............................. 87,600,000 83,534,484 7.250%, 11/15/96.............................. 21,000,000 20,835,990 7.500%, 10/31/99.............................. 8,550,000 8,427,050 7.750%, 11/30/99.............................. 4,525,000 4,508,031 7.875%, 11/15/04.............................. 19,075,000 19,128,601 -------------- 465,309,297 -------------- TOTAL LONG-TERM BONDS (Cost $997,384,451)............................................ 956,414,341 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 36.9% AMOUNT VALUE ------------- -------------- BANK-RELATED INSTRUMENTS -- 5.9% Bank of Tokyo, Ltd., C.D., 6.460%, 03/30/95.............................. 25,000,000 25,000,000 Banque Nationale De Paris, C.D., 6.010%, 02/01/95.............................. 35,000,000 35,000,000 Chemical Bank, N.Y., T.D., 6.250%, 01/03/95.............................. 7,393,000 7,393,000 Fuji Bank, Ltd., C.D., 5.906%, 01/20/95.............................. 7,000,000 7,000,000 6.360%, 03/21/95.............................. 15,000,000 15,000,000 Fuji Bank, Ltd., T.D., 6.400%, 01/03/95.............................. 25,000,000 25,000,000 National Westminister Bank, PLC, C.D., 5.800%, 01/23/95.............................. 1,000,000 999,870 Republic National Bank of New York, C.D., 4.300%, 03/08/95.............................. 21,000,000 20,988,906 Sanwa Bank, Ltd., C.D., 6.040%, 02/02/95.............................. 50,000,000 50,000,000 Sumitomo Bank, Ltd., C.D., 5.960%, 01/30/95.............................. 10,000,000 10,000,000 Sumitomo Bank, Ltd., T.D., 6.060%, 02/01/95.............................. 10,000,000 10,000,000 -------------- 206,381,776 -------------- COMMERCIAL PAPER -- 23.8% %American Express Centurion Bank, 4.500%, 08/04/95, Tranche #TR00037............ 4,000,000 3,999,765 American Home Products Corp., 5.900%, 01/31/95.............................. 61,440,000 61,158,059 American Honda Finance Corp., 5.980%, 01/31/95.............................. 13,000,000 12,939,535 Aristar, Inc., 5.540%, 01/23/95.............................. 1,000,000 996,922 6.300%, 03/20/95.............................. 2,000,000 1,973,400
DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- Asset Securitization Cooperative Corp., 5.500%, 01/23/95.............................. $ 9,000,000 $ 8,972,500 5.970%, 02/02/95.............................. 6,000,000 5,970,150 6.050%, 02/01/95.............................. 12,800,000 12,737,618 Bankers Trust New York Corp., 5.150%, 04/03/95.............................. 25,637,000 25,306,924 5.440%, 01/24/95.............................. 17,200,000 17,145,419 Barclays Bank, PLC, 6.100%, 02/17/95.............................. 500,000 496,188 Chrysler Financial Corp., 5.750%, 01/17/95.............................. 23,000,000 22,948,569 CIESCO, 5.500%, 01/11/95.............................. 5,000,000 4,993,889 CIT Group Holdings, Inc., 5.500%, 01/17/95.............................. 13,000,000 12,972,194 5.970%, 02/01/95.............................. 14,000,000 13,932,672 Coca-Cola Enterprises, Inc., 6.015%, 02/01/95.............................. 23,000,000 22,888,555 6.120%, 01/31/95.............................. 31,970,000 31,817,823 6.170%, 03/07/95.............................. 4,900,000 4,847,092 Corporate Receivables Corp., 6.170%, 03/07/95.............................. 47,000,000 46,492,518 6.570%, 05/23/95.............................. 11,100,000 10,816,395 Dean Witter, Discover & Co., 5.970%, 02/01/95.............................. 7,344,000 7,308,680 Deerfield Capital, 6.090%, 01/17/95.............................. 19,900,000 19,852,870 Duracell, Inc., 6.300%, 02/10/95.............................. 2,000,000 1,986,700 Falcon Asset Securitization Corp., 6.100%, 01/13/95.............................. 11,000,000 10,981,360 6.170%, 03/07/95.............................. 8,975,000 8,878,092 General Electric Capital Corp., 6.430%, 04/13/95.............................. 6,150,000 6,040,154 6.450%, 04/13/95-04/18/95..................... 36,350,000 35,684,396 General Motors Acceptance Corp., 5.740%, 01/17/95.............................. 60,500,000 60,364,951 Golden Peanut Co., 5.600%, 02/01/95-02/03/95..................... 9,500,000 9,455,589 Greyhound Financial Corp., 6.180%, 02/16/95.............................. 7,649,000 7,591,225 6.290%, 02/08/95.............................. 5,000,000 4,968,550 6.300%, 01/27/95.............................. 7,000,000 6,970,600 6.330%, 02/07/95.............................. 2,000,000 1,987,692 Hanson Finance, PLC, 5.470%, 01/17/95.............................. 2,000,000 1,995,746 6.260%, 03/03/95.............................. 5,000,000 4,948,703 6.270%, 03/09/95.............................. 13,000,000 12,852,829 6.280%, 03/01/95.............................. 4,000,000 3,960,227 Heller Financial, Inc., 6.300%, 03/14/95.............................. 6,000,000 5,926,500 International Lease Finance Corp., 6.200%, 03/20/95.............................. 10,000,000 9,869,111 ITT Corp., 5.820%, 01/17/95.............................. 7,000,000 6,984,157 ITT Financial Corp., 6.200%, 01/20/95.............................. 28,000,000 27,918,022 Maguire/Thomas Partners, 6.100%, 01/18/95.............................. 5,000,000 4,987,292 MCA Funding Corp., 5.100%, 01/09/95.............................. 5,000,000 4,995,750 5.120%, 01/17/95.............................. 22,000,000 21,956,196
B13 CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- McKenna Triangle National Corp., 6.100%, 01/23/95.............................. $ 1,000,000 $ 996,611 Merrill Lynch & Co., Inc., 5.750%, 01/17/95.............................. 15,000,000 14,966,458 Morgan Stanley Group, Inc., 6.270%, 03/01/95.............................. 8,500,000 8,415,616 National Australia Funding, Inc., 5.600%, 02/01/95.............................. 2,000,000 1,990,978 NationsBank Corp. of North Carolina, 5.400%, 01/23/95.............................. 19,000,000 18,943,000 Newell Co., 6.000%, 01/05/95.............................. 21,054,000 21,046,982 Preferred Receivables Funding Corp., 5.650%, 01/11/95.............................. 13,000,000 12,983,678 Public Service Electric & Gas Co., 6.020%, 01/17/95.............................. 11,000,000 10,974,248 Republic National Bank of New York, 5.750%, 02/01/95.............................. 5,000,000 4,999,985 Sears Roebuck Acceptance Corp., 6.050%, 02/07/95.............................. 37,000,000 36,782,368 State Street Bank & Trust, 5.950%, 01/17/95.............................. 33,377,000 33,299,769 WCP Funding, Inc., 6.280%, 03/06/95.............................. 4,000,000 3,956,738 Westpac Capital Corp., 6.280%, 03/14/95.............................. 6,000,000 5,926,733 Whirlpool Corp., 5.660%, 02/02/95.............................. 2,000,000 1,990,567 Whirlpool Financial Corp., 5.600%, 02/06/95-02/09/95..................... 3,000,000 2,983,667 5.610%, 02/10/95.............................. 5,000,000 4,970,392 WMX Technologies, 5.200%, 05/12/95.............................. 4,000,000 3,925,467 5.225%, 02/07/95.............................. 3,000,000 2,984,760 Xerox Credit Corp., 5.970%, 02/01/95.............................. 32,000,000 31,846,107 -------------- 835,855,703 -------------- MEDIUM TERM NOTES -- 2.4% PNC Bank N.A., M.T.N., 5.150%, 02/22/95, Tranche #TR00005............ 10,000,000 10,000,066 %Corestates Capital Corp., M.T.N., 6.020%, 07/19/95, Tranche #TR00076............ 10,000,000 10,002,084 **%Goldman Sachs Group, L.P., M.T.N., 3.875%, 04/13/95.............................. 48,000,000 48,000,000 %Xerox Credit Corp., M.T.N., 6.800%, 06/02/95, Tranche #TR00016............ 15,000,000 15,003,075 -------------- 83,005,225 -------------- PROMISSORY NOTES -- 1.3% Diamond Lease USA, Inc., 6.100%, 01/18/95.............................. 1,000,000 997,458 Lehman Brothers Holdings, Inc., 5.028%, 05/23/95.............................. 32,000,000 32,000,000 Seiko Corporation of America, 6.100%, 01/20/95.............................. 3,000,000 2,991,358 SRD Finance, Inc., 6.100%, 01/12/95.............................. 3,000,000 2,995,425
DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- Sumitomo Electric Finance U.S.A., Inc., 6.050%, 01/26/95.............................. $ 8,000,000 $ 7,969,078 -------------- 46,953,319 -------------- REPURCHASE AGREEMENTS -- 3.5% Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. 121,345,000 121,345,000 -------------- TOTAL SHORT-TERM INVESTMENTS..................................... 1,293,541,023 -------------- OTHER ASSETS -- 1.0% (net of liabilities)........................................... 32,150,567 -------------- TOTAL NET ASSETS -- 100.0%....................................... $3,501,104,286 -------------- -------------- The following abbreviations are used in portfolio descriptions: ADR American Depository Receipt C.D. Certificates of Deposit CMO Collateralized Mortgage Obligations M.T.N. Medium Term Note PLC Public Limited Company (British Corporation) SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) T.D. Time Deposit **Indicates a restricted security; the aggregate cost of the restricted securities is $148,547,029. The aggregate value, $142,653,385 is approximately 4.1% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994. %Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B14 AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 58.8% SHARES VALUE ------------- -------------- AEROSPACE -- 0.8% Boeing Co....................................... 287,200 $ 13,426,600 Loral Corp...................................... 392,000 14,847,000 -------------- 28,273,600 -------------- ALUMINUM -- 1.1% Aluminum Co. of America......................... 426,700 36,962,888 -------------- AUTOS - CARS & TRUCKS -- 1.2% Ford Motor Co................................... 442,900 12,401,200 General Motors Corp. (Class 'E' Stock).......... 814,600 31,362,100 -------------- 43,763,300 -------------- BANKS AND SAVINGS & LOANS -- 1.9% Bank of New York Company, Inc................... 1,549,400 44,932,600 Norwest Corp.................................... 597,800 13,973,575 Washington Mutual, Inc.......................... 407,800 6,881,625 -------------- 65,787,800 -------------- BEVERAGES -- 0.3% +Dr. Pepper/Seven-Up Cos., Inc.................. 467,300 11,974,563 -------------- CHEMICALS -- 2.4% A. Schulman, Inc................................ 189,400 5,208,500 Air Products & Chemicals, Inc................... 470,900 21,013,913 Dow Chemical Co................................. 316,800 21,304,800 Eastman Chemical Co............................. 326,500 16,488,250 Imperial Chemical Industries, PLC, ADR.......... 275,400 12,806,100 +McWhorter Technologies, Inc.................... 243,950 3,628,756 OM Group, Inc................................... 183,700 4,408,800 -------------- 84,859,119 -------------- CHEMICALS - SPECIALTY -- 0.9% IMC Global, Inc................................. 699,100 30,236,075 -------------- COMMERCIAL SERVICES -- 1.0% First Financial Management Corp................. 156,700 9,656,638 ServiceMaster, L.P.............................. 443,550 10,811,531 Southeby's Holdings, Inc. (Class 'A' Stock)..... 465,100 5,348,650 Wellman, Inc.................................... 355,300 10,037,225 -------------- 35,854,044 -------------- COMPUTER SERVICES -- 2.7% +American Management Systems, Inc............... 673,100 12,957,175 Automatic Data Processing, Inc.................. 690,400 40,388,400 First Data Corp................................. 509,800 24,151,775 +Microsoft Corp................................. 161,300 9,859,463 National Data Corp.............................. 232,200 5,979,150 -------------- 93,335,963 -------------- COSMETICS & SOAPS -- 0.3% Gillette Co..................................... 125,700 9,396,075 -------------- DIVERSIFIED GAS -- 0.4% +Basin Exploration, Inc......................... 281,700 3,098,700 Cross Timbers Oil Co............................ 810,000 12,150,000 -------------- 15,248,700 -------------- DIVERSIFIED OFFICE EQUIPMENT -- 0.8% International Business Machines Corp............ 381,000 28,003,500 -------------- DRUGS AND HOSPITAL SUPPLIES -- 2.6% Abbott Laboratories............................. 580,700 18,945,338 Baxter International, Inc....................... 725,000 20,481,250
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Pfizer, Inc..................................... 285,300 $ 22,039,425 Schering-Plough Corp............................ 350,100 25,907,400 +Thermotrex Corp................................ 354,100 4,780,350 -------------- 92,153,763 -------------- ELECTRICAL EQUIPMENT -- 1.2% Baldor Electric Co.............................. 489,440 13,214,880 Belden, Inc..................................... 409,700 9,115,825 W.W. Grainger, Inc.............................. 177,600 10,256,400 Westinghouse Electric Corp...................... 674,200 8,258,950 -------------- 40,846,055 -------------- ELECTRONICS -- 2.0% +ADT Ltd........................................ 1,314,400 14,129,800 Emerson Electric Co............................. 883,800 55,237,500 -------------- 69,367,300 -------------- FINANCIAL SERVICES -- 2.2% Dean Witter, Discover & Co...................... 903,400 30,602,675 Federal Home Loan Mortgage Corp................. 403,700 20,386,850 GFC Financial Corp.............................. 232,400 7,378,700 Manufactured Home Communities, Inc.............. 717,900 14,268,262 T. Rowe Price & Associates...................... 170,200 5,106,000 -------------- 77,742,487 -------------- FOODS -- 2.4% Archer-Daniels-Midland Co....................... 3,512,040 72,435,825 Pioneer Hi-Bred International, Inc.............. 301,500 10,401,750 -------------- 82,837,575 -------------- FOREST PRODUCTS -- 1.8% Caraustar Industries, Inc....................... 419,500 9,333,875 International Paper Co.......................... 134,800 10,160,550 Willamette Industries, Inc...................... 881,200 41,857,000 -------------- 61,351,425 -------------- GAS PIPELINES -- 0.3% +Seagull Energy Corp............................ 535,400 10,239,525 -------------- HEALTHCARE -- 0.2% +Sybron International Corp...................... 205,100 7,075,950 -------------- HOSPITAL MANAGEMENT -- 2.1% Columbia / HCA Healthcare Corp.................. 840,442 30,676,132 +Health Care and Retirement Corp................ 576,400 17,364,050 +Healthtrust, Inc.-The Hospital Co.............. 374,700 11,896,725 +Homedco Group, Inc............................. 111,500 4,195,188 National Medical Enterprises, Inc............... 583,600 8,243,350 -------------- 72,375,445 -------------- INSURANCE -- 3.4% American International Group, Inc............... 411,800 40,356,400 CCP Insurance, Inc.............................. 74,800 1,524,050 Chubb Corp...................................... 302,000 23,367,250 General Re Corp................................. 323,900 40,082,625 NAC Re Corp..................................... 277,400 9,292,900 PennCorp Financial Group, Inc................... 256,100 3,361,313 -------------- 117,984,538 -------------- LEISURE -- 1.3% Carnival Corp. (Class 'A' Stock)................ 1,755,500 37,304,375 Royal Caribbean Cruise, Ltd..................... 233,600 6,657,600 -------------- 43,961,975 -------------- MACHINERY -- 0.1% +Thermo Fibertek, Inc........................... 219,800 3,489,325 --------------
B15 AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- MEDIA -- 3.4% American Media, Inc. (Class 'A' Stock).......... 408,600 $ 6,639,750 Capital Cities/ABC, Inc......................... 347,400 29,615,850 Comcast Corp. (Class 'A' Stock)................. 276,000 4,243,500 Gannett Co., Inc................................ 400,000 21,300,000 +Rogers Communications, Inc. (Class 'B' Stock)........................................ 350,100 4,679,441 Shaw Communications, Inc. (Class 'B' Stock)..... 703,700 5,016,572 +Tele-Communications, Inc. (Class 'A' Stock).... 1,107,200 24,081,600 Tribune Co...................................... 420,400 23,016,900 -------------- 118,593,613 -------------- MINERAL RESOURCES -- 1.8% Placer Dome, Inc................................ 912,000 19,836,000 Potash Corp. of Saskatchewan, Inc............... 876,500 29,801,000 +Sante Fe Pacific Gold Corp..................... 950,300 12,235,112 -------------- 61,872,112 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 6.1% +American Business Information, Inc............. 624,500 11,553,250 Danaher Corp.................................... 110,300 5,763,175 Expeditors International of Washington, Inc..... 359,000 7,808,250 General Electric Co............................. 660,800 33,700,800 Illinois Tool Works, Inc........................ 936,600 40,976,250 Libbey, Inc..................................... 323,600 5,663,000 Martin Marietta Materials, Inc.................. 631,800 11,214,450 Modine Manufacturing Co......................... 308,900 8,880,875 Pentair, Inc.................................... 258,200 10,908,950 +Scholastic Corp................................ 139,800 7,129,800 The Rival Co.................................... 181,700 3,179,750 +Thermo Electron Corp........................... 563,100 25,269,113 Tyco International Ltd.......................... 881,600 41,876,000 -------------- 213,923,663 -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.7% +DeVRY, Inc..................................... 380,100 11,783,100 Kellwood Co..................................... 533,900 11,211,900 -------------- 22,995,000 -------------- PETROLEUM -- 2.5% Amoco Corp...................................... 401,000 23,709,125 Royal Dutch Petroleum Co., ADR.................. 586,300 63,027,250 -------------- 86,736,375 -------------- PETROLEUM SERVICES -- 0.8% +Mesa, Inc...................................... 1,037,800 5,059,275 Total SA, ADR................................... 739,100 21,803,450 -------------- 26,862,725 -------------- RAILROADS -- 0.3% Illinois Central Corp........................... 372,700 11,460,525 -------------- REAL ESTATE DEVELOPMENT -- 1.6% Crescent Real Estate Equities, Inc.............. 480,600 13,036,275 Duke Realty Investments, Inc.................... 434,000 12,260,500 Equity Residential Properties Trust............. 451,100 13,533,000 Federal Realty Investment Trust................. 285,200 5,882,250 Weingarten Realty Investors..................... 306,800 11,620,050 -------------- 56,332,075 -------------- RESTAURANTS -- 0.2% Sbarro, Inc..................................... 342,900 8,915,400 --------------
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- RETAIL -- 2.0% Dayton-Hudson Corp.............................. 307,400 $ 21,748,550 Edison Brothers Stores.......................... 143,400 2,652,900 Harcourt General, Inc........................... 468,800 16,525,200 Tiffany & Co.................................... 203,300 7,928,700 +Toys 'R' Us, Inc............................... 707,400 21,575,700 -------------- 70,431,050 -------------- STEEL -- 2.1% Broken Hill Proprietary Co., Ltd., ADR.......... 539,050 33,218,955 +LTV Corp....................................... 933,000 15,161,250 Worthington Industries, Inc..................... 1,206,100 24,122,000 -------------- 72,502,205 -------------- TELECOMMUNICATIONS -- 2.4% +Airtouch Communications, Inc................... 527,900 15,375,088 AT&T Corp....................................... 846,200 42,521,550 TCA Cable TV, Inc............................... 482,300 10,490,025 Telecomunicacoes Brasileiras, SA, ADR........... 39,700 1,776,455 Telefonos de Mexico (Class 'L' Stock), ADR...... 290,000 11,890,000 -------------- 82,053,118 -------------- TEXTILES -- 0.4% Russell Corp.................................... 168,900 5,299,237 Unifi, Inc...................................... 272,500 6,948,750 -------------- 12,247,987 -------------- TOBACCO -- 1.1% Philip Morris Companies, Inc.................... 438,900 25,236,750 UST, Inc........................................ 463,400 12,859,350 -------------- 38,096,100 -------------- TOTAL COMMON STOCKS (Cost $1,884,990,437).......................................... 2,046,142,938 -------------- PAR MARKET LONG-TERM BONDS -- 24.6% VALUE VALUE ------------- -------------- FINANCIAL -- 3.1% Associates Corp. of North America, 8.250%, 12/01/99.............................. $ 33,900,000 $ 33,701,685 Banc One Credit Card Master Trust, CMO, 7.750%, 12/15/99, Series 1994-B, Class B...... 5,000,000 4,937,500 Chase Manhattan Credit Card Trust, 7.400%, 05/15/00, Series 1992-1............... 5,000,000 4,921,850 Ford Credit Grantor Trust, CMO, 7.300%, 10/15/99, TR 1994-8, Class A.......... 13,614,932 13,449,000 Ford Motor Credit Co., 7.750%, 11/15/02.............................. 2,815,000 2,684,468 General Motors Acceptance Corp., M.T.N., 6.500%, 06/10/96.............................. 10,000,000 9,789,200 7.000%, 05/19/97, Tranche #TR00401............ 10,000,000 9,683,700 7.000%, 06/02/97, Tranche #TR00476............ 6,000,000 5,806,980 7.375%, 07/20/98, Tranche #TR00667............ 4,500,000 4,329,855 7.850%, 03/05/97, Tranche #TR00187............ 3,200,000 3,161,153
B16 AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- %MBNA Master Credit Card Trust, CMO, 5.495%, 01/15/02, Series 1994-1, Class A...... $ 7,500,000 $ 7,480,313 Standard Credit Card Master Trust, CMO, 7.250%, 04/07/08, Series 1994-2A, Class A..... 4,500,000 4,100,625 Westinghouse Credit Corp., M.T.N., 8.750%, 06/03/96, Tranche #TR00248............ 3,330,000 3,338,924 -------------- 107,385,253 -------------- FOREIGN -- 4.4% **Banco Del Estado-Chile, 8.390%, 08/01/01.............................. 3,500,000 3,298,750 Banco Ganadero, SA, M.T.N., 9.750%, 08/26/99, Tranche #TR00001............ 7,300,000 7,081,000 **Cemex, SA, 8.875%, 06/10/98.............................. 5,000,000 4,387,500 **Cemex, SA, M.T.N., 9.500%, 09/20/01, Tranche #TR00010............ 12,500,000 10,625,000 **Compania Sud Americana de Vapores, SA, 7.375%, 12/08/03.............................. 7,250,000 5,935,938 Controladora Commercial Mexicana, SA, 8.750%, 04/21/98.............................. 15,100,000 12,835,000 Empresa Columbia de Petroleos, 7.250%, 07/08/98.............................. 8,250,000 7,342,500 Empresas La Moderna, SA, 10.250%, 11/12/97............................. 2,000,000 1,750,000 Financiera Energetic Nacional, 6.625%, 12/13/96.............................. 5,100,000 4,896,000 **Financiera Energetic Nacional, M.T.N., 9.000%, 11/08/99.............................. 9,900,000 9,420,432 Fomento Economico Mexicano, SA, 9.500%, 07/22/97.............................. 3,700,000 3,669,359 **Grupo Embotellador Mexicana, 10.750%, 11/19/97............................. 8,020,000 7,137,800 Grupo Televisa, SA, 10.000%, 11/09/97............................. 4,000,000 3,620,000 **Kansallis-Osake Pankki, N.Y., 8.650%, 12/29/49.............................. 9,000,000 8,707,500 Korea Development Bank, 5.875%, 12/01/98.............................. 1,900,000 1,727,290 6.750%, 12/01/05.............................. 8,000,000 6,778,080 9.250%, 06/15/98.............................. 10,400,000 10,565,672 Korea Electric Power Corp., 7.750%, 04/01/13.............................. 2,225,000 1,929,921 New Zealand Government, 9.875%, 01/15/11.............................. 7,300,000 8,225,713 Republic of Columbia, 7.125%, 05/11/98.............................. 2,700,000 2,479,782 7.250%, 02/23/04.............................. 4,100,000 3,377,375 8.750%, 10/06/99.............................. 900,000 858,375 Republic of South Africa, 9.625%, 12/15/99.............................. 8,300,000 8,219,593 **Republic of Trinidad and Tobago, 11.750%, 10/03/04............................. 9,000,000 9,112,500
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- United Mexican States, 5.820%, 06/28/01.............................. $ 1,375,000 $ 976,250 6.970%, 08/12/00.............................. 2,300,000 1,771,000 8.500%, 09/15/02.............................. 6,925,000 5,574,625 -------------- 152,302,955 -------------- INDUSTRIAL -- 5.3% Avenor, Inc., 9.375%, 02/15/04.............................. 11,100,000 10,472,156 Columbia/HCA Healthcare Corp., M.T.N., 8.850%, 01/01/07, Tranche #TR00009............ 15,400,000 15,369,200 Delta Air Lines, Inc., 7.710%, 05/14/97.............................. 1,300,000 1,238,328 9.750%, 05/15/21.............................. 10,790,000 9,918,384 9.875%, 01/01/98.............................. 27,650,000 27,964,381 10.375%, 02/01/11............................. 6,950,000 6,794,807 Enterprise Rent A Car, M.T.N., 8.750%, 12/15/99, Tranche #TR00001............ 13,750,000 13,702,563 Fleming Companies, Inc., C.D., 10.625%, 12/15/01............................. 28,000,000 28,000,000 Ford Motor Co., 9.000%, 09/15/01.............................. 3,000,000 3,061,140 News America Holdings, Inc., 7.750%, 01/20/24.............................. 4,650,000 3,797,981 %Occidental Petroleum Corp., M.T.N., 6.312%, 11/04/99.............................. 5,000,000 4,960,460 Oryx Energy Co., 9.300%, 05/01/96.............................. 2,350,000 2,330,355 Oryx Energy Co., M.T.N., 6.050%, 02/01/96, Tranche #TR00013............ 10,500,000 10,106,250 PT Alatief Freeport Financial Co., 9.750%, 04/15/01.............................. 7,600,000 7,410,000 RJR Nabisco, Inc., 8.625%, 12/01/02.............................. 14,080,000 13,059,621 8.750%, 08/15/05.............................. 2,500,000 2,279,300 Tele-Communications, Inc., 7.875%, 08/01/13.............................. 7,000,000 5,830,650 9.875%, 06/15/22.............................. 4,700,000 4,606,657 Transco Energy, 9.125%, 05/01/98.............................. 14,000,000 14,017,500 -------------- 184,919,733 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 11.8% Federal National Mortgage Association, Zero Coupon, 07/05/14......................... 10,000,000 2,035,200 Government National Mortgage Association, 8.950%, 10/15/28, Pool #222286................ 4,024,004 4,000,514 United States Treasury Bonds, 6.250%, 08/15/23.............................. 21,510,000 17,486,985 8.875%, 08/15/17.............................. 53,900,000 58,717,043 8.875%, 02/15/19, Series 2019................. 29,800,000 32,537,726 9.250%, 02/15/16, Series 2016................. 16,200,000 18,227,592 11.250%, 02/15/15............................. 119,750,000 158,219,688 12.000%, 08/15/13............................. 17,250,000 22,937,153 United States Treasury Notes, 6.500%, 08/15/97.............................. 15,000,000 14,545,350 7.500%, 10/31/99, Series 1999................. 42,250,000 41,642,445
B17 AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- 7.750%, 11/30/99.............................. $ 16,125,000 $ 16,064,530 7.875%, 11/15/04.............................. 24,750,000 24,819,547 -------------- 411,233,773 -------------- TOTAL LONG-TERM BONDS (Cost $886,300,335)............................................ 855,841,714 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 16.5% AMOUNT VALUE ------------- -------------- BANK-RELATED INSTRUMENTS -- 1.1% Bank of Tokyo, Ltd., C.D., 6.460%, 03/30/95.............................. 5,000,000 5,000,000 Banque Nationale De Paris, C.D., 6.010%, 02/01/95.............................. 15,000,000 15,000,000 Fuji Bank, Ltd, C.D., 5.906%, 01/20/95.............................. 14,000,000 14,000,000 Sanwa Bank, Ltd., C.D., 6.040%, 02/02/95.............................. 4,000,000 4,000,000 -------------- 38,000,000 -------------- COMMERCIAL PAPER -- 5.2% American Home Products Corp., 5.900%, 01/31/95.............................. 16,000,000 15,926,578 American Honda Finance Corp., 5.980%, 01/31/95.............................. 2,000,000 1,990,698 American Telephone & Telegraph Co., 6.300%, 03/24/95.............................. 500,000 493,000 Asset Securitization Cooperative Corp., 5.970%, 02/02/95.............................. 4,000,000 3,980,100 6.050%, 02/01/95.............................. 3,100,000 3,084,892 Bankers Trust New York Corp., 5.150%, 04/03/95.............................. 5,000,000 4,935,625 5.440%, 01/24/95.............................. 7,800,000 7,775,248 Chemical Bank, 6.000%, 01/23/95.............................. 250,000 249,167 6.250%, 01/03/95.............................. 656,000 656,000 CIT Group Holdings, Inc., 5.500%, 01/17/95.............................. 11,000,000 10,976,472 Coca-Cola Enterprises, Inc., 6.170%, 03/07/95.............................. 16,000,000 15,827,240 Corporate Asset Funding Co., Inc., 5.500%, 01/11/95.............................. 3,000,000 2,996,333 Dean Witter, Discover & Co., 5.970%, 02/01/95.............................. 16,000,000 15,923,053 First National Bank of Chicago, 5.180%, 02/27/95, Tranche #TR00072............ 1,000,000 999,143 5.688%, 02/22/95, Tranche #TR00087............ 5,000,000 5,000,000 Ford Motor Credit Co., 6.070%, 01/31/95.............................. 4,335,000 4,314,534 Gateway Fuel Corp., 5.800%, 01/20/95.............................. 1,082,000 1,079,037 General Electric Capital Corp., 5.500%, 01/12/95.............................. 4,000,000 3,994,500
DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- General Motors Acceptance Corp., 5.740%, 01/17/95.............................. $ 16,100,000 $ 16,064,061 Greyhound Financial Corp., 6.300%, 01/27/95.............................. 2,000,000 1,991,600 Hanson Finance, PLC, 6.280%, 03/01/95.............................. 1,000,000 990,057 Household Finance Corp., 5.500%, 01/12/95.............................. 5,000,000 4,993,125 International Lease Finance Corp., 6.200%, 03/20/95.............................. 5,000,000 4,934,556 ITT Corp., 5.820%, 01/17/95.............................. 2,000,000 1,995,473 ITT Financial Corp., 6.200%, 01/23/95.............................. 6,000,000 5,979,333 Konica Finance USA Corp., 6.200%, 01/10/95.............................. 1,000,000 998,794 McKenna Triangle National Corp., 6.150%, 01/17/95.............................. 100,000 99,761 Merrill Lynch & Co., Inc., 5.750%, 01/17/95.............................. 5,000,000 4,988,819 Morgan Guaranty Trust Co., 6.500%, 05/18/95.............................. 259,200 252,882 NationsBank Corp. of North Carolina, 5.400%, 01/23/95.............................. 11,000,000 10,967,000 Newell Co., 6.000%, 01/05/95.............................. 8,946,000 8,943,018 Public Service Electric & Gas Co., 6.020%, 01/10/95.............................. 8,700,000 8,689,816 Sears, Roebuck Acceptance Corp., 6.050%, 02/06/95.............................. 10,000,000 9,942,861 Transamerica Corp., 6.150%, 01/20/95.............................. 350,000 348,984 -------------- 182,381,760 -------------- MEDIUM TERM NOTES -- 0.6% NationsBank Corp. of Texas, M.T.N., 6.030%, 01/31/95, Tranche #TR00023............ 5,000,000 5,000,000 PNC Bank N.A., M.T.N., 5.150%, 02/22/95, Tranche #TR00005............ 5,000,000 5,000,033 %Xerox Credit Corp., M.T.N., 6.800%, 06/02/95, Tranche #TR00016............ 10,000,000 10,002,050 -------------- 20,002,083 -------------- PROMISSORY NOTES -- 0.1% SRD Finance, Inc., 6.150%, 01/12/95.............................. 3,000,000 2,995,388 Sumitomo Electric Finance U.S.A., Inc., 6.050%, 01/26/95.............................. 2,000,000 1,992,269 -------------- 4,987,657 --------------
B18 AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS -- 9.5% Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. $ 330,700,000 $ 330,700,000 -------------- TOTAL SHORT-TERM INVESTMENTS..................................... 576,071,500 -------------- OTHER ASSETS -- 0.1% (net of liabilities)........................................... 3,484,147 -------------- TOTAL NET ASSETS -- 100.0%....................................... $3,481,540,299 -------------- -------------- The following abbreviations are used in portfolio descriptions: ADR American Depository Receipt C.D. Certificates of Deposit CMO Collateralized Mortgage Obligations L.P. Limited Partnership M.T.N. Medium Term Note PLC Public Limited Company (British Corporation) SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) **Indicates a restricted security; the aggregate cost of the restricted securities is $63,175,092. The aggregate value, $58,625,420 is approximately 1.7% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994. %Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B19 HIGH YIELD BOND PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 0.7% SHARES VALUE ------------- -------------- BEVERAGES -- 0.0% **+Dr. Pepper Bottling Holdings, Inc. (Class 'B' Stock)........................................ 5,807 $ 20,325 -------------- CHEMICALS - SPECIALTY -- 0.1% **+Thermadyne Holdings Corp. (Class 'B' Stock)........................................ 3,787 45,444 -------------- CONTAINERS -- 0.0% +Gaylord Container Corp. (Class 'A' Stock)...... 1,738 15,859 -------------- ELECTRONICS -- 0.2% **+Berg Electronics Holding Corp................ 154,080 693,360 -------------- FINANCIAL SERVICES -- 0.0% **+PM Holdings Corp............................. 1,103 0 -------------- FOODS -- 0.0% **+Specialty Foods Acquisition Corp............. 30,000 22,500 -------------- HOUSING RELATED -- 0.0% +U.S. Home Corp................................. 1,290 20,800 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 0.0% +Total Renal Care, Inc. (Class 'B' Stock)....... 4,500 0 -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.0% **+Acme Boot, Inc............................... 1,250 0 -------------- PETROLEUM SERVICES -- 0.0% +Mesa, Inc...................................... 6,417 31,283 -------------- RETAIL -- 0.0% **+Loehmann's Holdings, Inc..................... 19,708 19,708 -------------- TOBACCO -- 0.4% +RJR Nabisco Holdings Corp...................... 204,501 1,124,756 -------------- TOTAL COMMON STOCKS (Cost $2,424,049).............................................. 1,994,035 -------------- MARKET PREFERRED STOCKS -- 4.2% SHARES VALUE ------------- -------------- AIRLINES -- 0.0% USAir Group, Inc. (Conv. Pfd.; Class 'B' Stock)........................................ 5,000 75,625 -------------- BANKS AND SAVINGS & LOANS -- 0.4% **Riggs National Corp., Series B................ 47,500 1,163,750 -------------- ELECTRONICS -- 0.6% [Berg Electronics Holding Corp. (Class 'E' Stock)........................................ 73,345 1,870,298 -------------- FINANCIAL SERVICES -- 0.2% [SD Warren Co................................... 20,000 520,000 -------------- FOODS -- 0.1% Pantry Pride, Inc. (Ex. Pfd.; Class 'B' Stock)........................................ 2,950 281,725 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 1.3% [FoxMeyer Health Corp. (Ex. Pfd.; Class 'A' Stock)........................................ 7,533 241,056 [Harvard Industries, Inc. (Ex. Pfd.)............ 98,161 2,564,456 [Supermarkets General Holdings Corp. (Ex. Pfd.)......................................... 56,670 1,246,740 -------------- 4,052,252 -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.0% [+Pay 'n Pak Stores (Cum. Ex. Pfd.)............. 82,384 0 -------------- PETROLEUM-CANADIAN -- 0.1% %+Gulf Canada Resources Ltd., Series 1...................................... 122,000 305,000 -------------- REAL ESTATE DEVELOPMENT -- 0.1% [UDC Homes, Inc. (Ex. Pfd.)..................... 107,789 296,420 --------------
DECEMBER 31, 1994
MARKET PREFERRED STOCKS (CONTINUED) SHARES VALUE ------------- -------------- RETAIL -- 0.9% Color Tile, Inc................................. 10,000 $ 1,680,000 **Color Tile, Inc. (Class 'A' Stock)............ 47,500 1,187,500 Grand Union Holdings Corp. (Cum. Conv. Pfd.; Class 'C' Stock).............................. 9,000 1,125 -------------- 2,868,625 -------------- STEEL -- 0.3% **Republic Engineered Steels, Inc............... 76,167 856,883 -------------- TELECOMMUNICATIONS -- 0.2% Tele Communications, Inc. (Ex. Pfd.; Class 'B' Stock)........................................ 9,900 559,350 -------------- TOTAL PREFERRED STOCKS (Cost $16,088,791)............................................. 12,849,928 -------------- MARKET RIGHTS AND WARRANTS -- 0.1% SHARES VALUE ------------- -------------- COMMUNICATIONS -- 0.0% ++Dial Call Communications, Inc. (Warrant)...... 3,793 4,741 -------------- CONTAINERS -- 0.1% ++Gaylord Container Corp. (Warrant)............. 21,259 154,128 -------------- ENVIRONMENTAL SERVICES -- 0.0% ++ICF Kaiser International, Inc. (Warrant)...... 7,200 7,200 -------------- FINANCIAL SERVICES -- 0.0% ++SD Warren Co. (Warrant)....................... 20,000 0 -------------- HEALTHCARE -- 0.0% ++Eye Care Centers of America, Inc. (Warrant)... 1,250 0 -------------- HOUSING RELATED -- 0.0% **++J.M. Peters Co., Inc. (Warrant)............. 9,875 0 ++Miles Homes, Inc. (Warrant)................... 15,000 0 ++U.S. Home Corp. (Class 'B' Warrant)........... 1,056 6,072 -------------- 6,072 -------------- INDUSTRIAL -- 0.0% ++United International Holdings, Inc. (Warrant)..................................... 6,000 0 -------------- LEISURE -- 0.0% ++Casino America, Inc. (Warrant)................ 6,526 1,000 ++Casino Magic Finance Corp. (Warrant).......... 10,500 525 **++Louisiana Casino Cruise, Inc. (Warrant)..... 4,200 0 **++President Riverboat Casinos, Inc. (Warrant)..................................... 15,000 7,500 ++President Riverboat Casinos, Inc. (Warrant)... 22,075 11,038 -------------- 20,063 -------------- LODGING -- 0.0% ++Santa Fe Hotel, Inc. (Warrant)................ 50 0 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 0.0% ++Berry Plastics Corp. (Warrant)................ 1,000 15,000 **++Fitzgerald's Gaming Corp. (Warrant)......... 500 0 ++Foamex - JPS Automotive, L.P. (Warrant)....... 2,000 0 ++Health O Meter, Inc. (Warrant)................ 1,000 0 **++Purity Supreme (Warrant).................... 5,198 104 **++Sam Houston Race Park (Warrant)............. 4,000 100 **++Southdown, Inc. (Warrant)................... 5,000 20,000 ++Uniroyal Technology Corp.(Warrant)............ 12,500 6,250 -------------- 41,454 --------------
B20 HIGH YIELD BOND PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET RIGHTS AND WARRANTS (CONTINUED) SHARES VALUE ------------- -------------- RETAIL -- 0.0% **++Apparel Ventures (Warrant).................. 500 $ 0 -------------- TELECOMMUNICATIONS -- 0.0% **++Pagemart, Inc. (Warrant).................... 9,200 0 -------------- TOTAL RIGHTS AND WARRANTS (Cost $130,633)................................................ 233,658 -------------- PAR MARKET LONG-TERM BONDS -- 87.9% VALUE VALUE ------------- -------------- FINANCIAL -- 5.6% American Financial Corp., 12.000%, 09/03/99............................. $ 1,000,000 $ 1,002,500 12.000%, 09/03/99, Series A................... 500,000 501,250 GB Property Funding Corp., 10.875%, 01/15/04............................. 1,000,000 810,000 Indah Kiat International Finance Co., 12.500%, 06/15/06............................. 3,000,000 2,917,500 Lomas Mortgage USA, Inc., 10.250%, 10/01/02............................. 1,250,000 1,037,500 *Mesa Capital Corp., Zero Coupon, 06/30/96-06/30/98................ 3,017,000 2,602,970 *PM Holdings Corp., Zero Coupon, 09/01/05, Series B............... 3,281,000 1,464,146 **PSF Finance, L.P., 12.250%, 06/15/04............................. 1,000,000 1,005,000 Reliance Group Holdings, Inc., 9.750%, 11/15/03.............................. 1,500,000 1,312,500 SD Warren Co., 12.000%, 12/15/04............................. 1,750,000 1,789,375 Tiphook Finance Corp., 7.125%, 05/01/98.............................. 593,000 432,890 8.000%, 03/15/00.............................. 1,940,000 1,358,000 *Transtar Holdings, L.P., Zero Coupon, 12/15/03, Series B............... 2,000,000 1,035,000 -------------- 17,268,631 -------------- FOREIGN -- 1.1% *Bell Cablemedia, PLC, Zero Coupon, 07/15/04......................... 1,500,000 802,500 *Diamond Cable Communication, PLC, Zero Coupon, 09/30/04......................... 2,000,000 980,000 **Tubos De Acero De Mexico, SA, M.T.N., 13.750%, 12/08/99, Tranche #TR00001........... 1,000,000 955,000 *Videotron Holdings, PLC, Zero Coupon, 07/01/04......................... 1,000,000 525,000 -------------- 3,262,500 -------------- INDUSTRIAL -- 81.2% Acme Boot, Inc., 11.500%, 12/15/00, Series B................... 1,250,000 500,000 ACME Holdings, Inc., 11.750%, 06/01/00............................. 2,500,000 1,050,000 Adelphia Communications Corp., &9.500%, 02/15/04, Series B................... 2,092,220 1,506,398 12.500%, 05/15/02............................. 1,500,000 1,402,500 Affinity Group, Inc., 11.500%, 10/15/03............................. 1,500,000 1,432,500 American Media Operations, Inc., 11.625%, 11/15/04............................. 1,000,000 1,025,000 *American Standard, Inc., Zero Coupon, 06/01/05......................... 1,250,000 803,125 Americold Corp., 11.500%, 03/01/05, Series B................... 750,000 675,000
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- *Apparel Retailers, Inc., Zero Coupon, 08/15/05, Series B............... $ 5,500,000 $ 3,080,000 Apparel Ventures, Inc., 12.250%, 12/31/00, Series B................... 500,000 447,500 Applied Extrusion Technologies, Inc., 11.500%, 04/01/02, Series B................... 1,000,000 990,000 Arcadian Partners, L.P., 10.750%, 05/01/05, Series B................... 2,500,000 2,350,000 Astrum International Corp., 11.500%, 06/08/03............................. 389,000 390,945 Aztar Corp., 11.000%, 10/01/02............................. 1,000,000 910,000 13.750%, 10/01/04............................. 1,500,000 1,522,500 Baldwin Co., 10.375%, 08/01/03, Series B................... 1,750,000 945,000 Bally's Park Place Funding, Inc., 9.250%, 03/15/04.............................. 2,000,000 1,720,000 *Bell & Howell Holdings Co., Zero Coupon, 03/01/05......................... 3,250,000 1,584,375 Berg Electronics, Inc., 11.375%, 05/01/03............................. 1,000,000 992,500 Berry Plastics Corp., 12.250%, 04/15/04............................. 1,000,000 965,000 Big Flower Press, Inc., 10.750%, 08/01/03............................. 2,000,000 1,860,000 *Building Materials Corp. of America, Zero Coupon, 07/01/04, Series B............... 3,000,000 1,530,000 Cablevision Industries Corp., 9.250%, 04/01/08, Series B.................... 750,000 671,250 10.750%, 01/30/02............................. 1,000,000 995,000 Cablevision Systems Corp., 9.875%, 02/15/13.............................. 1,000,000 900,000 *Call-Net Enterprises, Inc., Zero Coupon, 12/01/04......................... 2,000,000 1,045,000 Carrols Corp., 11.500%, 08/15/03............................. 2,250,000 2,070,000 Casino America, Inc., 11.500%, 11/15/01............................. 2,000,000 1,690,000 Casino Magic Finance Corp., 11.500%, 10/15/01, Series B................... 1,750,000 1,120,000 *Cencall Communications Corp., Zero Coupon, 01/15/04......................... 500,000 175,000 Chancellor Broadcasting Co., 12.500%, 10/01/04............................. 2,000,000 2,000,000 Charter Medical Corp., 11.250%, 04/15/04, Series A................... 1,000,000 1,030,000 Chiquita Brands International, Inc., 10.500%, 08/01/04............................. 327,000 320,460 11.500%, 06/01/01............................. 250,000 243,750 Clark R&M Holdings, Inc., Zero Coupon, 02/15/00, Series A............... 1,500,000 855,000 Clean Harbors, Inc., 12.500%, 05/15/01............................. 1,000,000 957,500 CMI Industries, Inc., 9.500%, 10/01/03.............................. 750,000 622,500 Cole National Group, Inc., 11.250%, 10/01/01............................. 875,000 822,500 Color Tile, Inc., 10.750%, 12/15/01............................. 2,000,000 1,760,000 Computervision Corp., 10.875%, 08/15/97............................. 1,500,000 1,380,000 Container Corp. of America, 11.250%, 05/01/04, Series A................... 1,000,000 1,025,000 Continental Cablevision, Inc., 9.500%, 08/01/13.............................. 1,000,000 915,000 Continental Homes Holding Corp., 12.000%, 08/01/99............................. 1,000,000 940,000
B21 HIGH YIELD BOND PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Dairy Mart Convenience Stores, Inc., 10.250%, 03/15/04............................. $ 750,000 $ 555,000 Dan River, Inc., 10.125%, 12/15/03............................. 1,000,000 900,000 **&Del Monte Corp., 12.250%, 09/01/02............................. 2,388,000 2,220,840 Di Giorgio Corp., 12.000%, 02/15/03............................. 1,500,000 1,440,000 *Dial Call Communications, Inc., Zero Coupon, 04/15/04-12/15/05................ 3,250,000 1,077,500 Doehler-Jarvis, Inc., 11.875%, 06/01/02............................. 3,000,000 2,940,000 Domtar, Inc., 11.750%, 03/15/99............................. 1,000,000 1,027,500 12.000%, 04/15/01............................. 1,000,000 1,040,000 Engle Homes, Inc, 11.750%, 12/15/00............................. 1,000,000 920,000 Eye Care Centers of America, Inc., 12.000%, 10/01/03............................. 1,250,000 975,000 Fairchild Corp., 13.125%, 03/15/06............................. 655,000 563,300 Fairchild Industries, Inc., 12.250%, 02/01/99............................. 2,480,000 2,380,800 Family Restaurants, Inc., *Zero Coupon, 02/01/04........................ 1,800,000 954,000 9.750%, 02/01/02.............................. 1,250,000 981,250 Farm Fresh, Inc., 12.250%, 10/01/00............................. 1,500,000 1,300,000 Federated Department Stores, 11.290%, 06/30/02, Series B................... 250,000 252,188 ***Fitzgerald's Gaming Corp., Zero Coupon, 03/15/96......................... 500,000 270,000 Flagstar Corp., 10.750%, 09/15/01............................. 1,250,000 1,171,875 11.250%, 11/01/04............................. 2,567,000 2,117,775 Florida Steel Corp., 11.500%, 12/15/00............................. 500,000 490,000 Florsheim Shoe Co., 12.750%, 09/01/02............................. 1,000,000 970,000 Foamex, L.P., 11.250%, 10/01/02............................. 1,500,000 1,425,000 *Foamex - JPS Automotive, L.P., Zero Coupon, 07/01/04, Series B............... 2,000,000 1,050,000 Food 4 Less Supermarkets, Inc., *Zero Coupon, 12/15/04, Series B.............. 2,500,000 1,850,000 13.750%, 06/15/01............................. 1,000,000 1,085,000 Forecast Group, L.P., 11.375%, 12/15/00............................. 1,000,000 670,000 Forest Oil Corp., 11.250%, 09/01/03............................. 1,500,000 1,327,500 Forstmann & Co., Inc., **14.750%, 04/15/99........................... 500,000 515,000 14.750%, 04/15/99............................. 1,330,000 1,383,200 Fort Howard Corp., 14.125%, 11/01/04............................. 3,500,000 3,526,250 12.625%, 11/01/00............................. 500,000 515,000 Fresh Del Monte Produce, 10.000%, 05/01/03, Series B................... 500,000 340,000 G-I Holdings, Inc., Zero Coupon, 10/01/98......................... 500,000 305,000 G.U. Acquisition Corp., 13.000%, 03/02/98............................. 1,000,000 300,000 Garden State Newspapers, Inc., 12.000%, 07/01/04............................. 2,250,000 2,250,000 Gaylord Container Corp., 11.500%, 05/15/01............................. 500,000 515,000 Geneva Steel, Inc., 11.125%, 03/15/01............................. 1,000,000 940,000
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Georgia Gulf Corp., 15.000%, 04/15/00............................. $ 500,000 $ 510,000 Gillett Holdings, Inc., 12.250%, 06/30/02, Series A................... 1,000,000 1,057,500 Grand Casinos Resorts, Inc., 12.500%, 02/01/00, Series B................... 1,000,000 940,000 Great Dane Holdings, Inc., 12.750%, 08/01/01............................. 1,925,000 1,905,750 GS Technologies Operating Co., 12.000%, 09/01/04............................. 1,750,000 1,728,125 Gulf Canada Resources Ltd., 9.250%, 01/15/04.............................. 500,000 458,750 Harvard Industries, Inc., 12.000%, 07/15/04............................. 1,250,000 1,259,375 Health O Meter, Inc., 13.000%, 08/15/02............................. 1,000,000 900,000 Hills Stores Co., 10.250%, 09/30/03............................. 500,000 465,000 Hollywood Casino Corp., 14.000%, 04/01/98............................. 1,750,000 1,732,500 Horsehead Industries, Inc., 14.000%, 06/01/99............................. 2,000,000 1,980,000 15.750%, 06/01/97............................. 296,000 304,880 Host Marriott Hospitality, Inc., 9.875%, 05/01/01, Series D.................... 938,000 938,000 10.500%, 05/01/06, Series M................... 253,000 251,735 10.875%, 11/01/01, Series E................... 220,000 223,300 ICF Kaiser International, Inc., 12.000%, 12/31/03............................. 1,500,000 1,305,000 *Imax Corp., 7.000%, 03/01/01.............................. 1,500,000 1,252,500 Imo Industries, Inc., 12.000%, 11/01/01............................. 1,500,000 1,513,125 12.250%, 08/15/97............................. 750,000 750,000 *Indspec Chemical Corp., Zero Coupon, 12/01/03, Class B................ 1,249,000 711,930 Inter-City Products Corp., 9.750%, 03/01/00.............................. 1,750,000 1,631,875 Interlake Corp., 12.125%, 03/01/02............................. 2,500,000 2,325,000 *Ivex Holdings Corp., Zero Coupon, 03/15/05, Series B............... 2,000,000 800,000 Ivex Packaging Corp., 12.500%, 12/15/02............................. 1,250,000 1,243,750 **J B Williams Holdings, Inc., 12.000%, 03/01/04............................. 1,000,000 935,000 J.B. Poindexter & Co., 12.500%, 05/15/04............................. 3,250,000 3,055,000 J.M. Peters Co., 12.750%, 05/01/02............................. 1,250,000 1,037,500 Jones Intercable, Inc., 10.500%, 03/01/08............................. 1,250,000 1,225,000 Jordan Industries, Inc., *Zero Coupon, 08/01/05........................ 500,000 250,000 10.375%, 08/01/03............................. 500,000 445,000 JPS Automotive Products Corp., 11.125%, 06/15/01............................. 500,000 480,000 JPS Textile Group, Inc., 7.000%, 05/15/00.............................. 1,000,000 410,000 9.850%, 06/01/99.............................. 1,049,000 645,135 K & F Industries, Inc., 11.875%, 12/01/03............................. 1,500,000 1,458,750 13.750%, 08/01/01............................. 500,000 450,000 K. Hovnanian Enterprises, Inc., 11.250%, 04/15/02............................. 1,000,000 835,000 Kaiser Aluminum & Chemical Corp., 12.750%, 02/01/03............................. 1,375,000 1,385,313
B22 HIGH YIELD BOND PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Kloster Cruise Ltd., 13.000%, 05/01/03............................. $ 1,500,000 $ 1,350,000 Lady Luck Gaming Corp., 10.500%, 03/01/01, Series B................... 1,000,000 390,000 Lamson & Sessions Co., 14.000%, 06/01/97............................. 500,000 505,000 Laroche Industries, Inc., 13.000%, 08/15/04............................. 1,000,000 920,000 Loehmann's Holdings, Inc., 10.250%, 10/01/97............................. 300,000 289,500 13.750%, 02/15/99............................. 1,600,000 1,584,000 Louisiana Casino Cruises, Inc., 11.500%, 12/01/98............................. 1,400,000 1,190,000 MacAndrews & Forbes Group, Inc., 12.250%, 07/01/96............................. 750,000 742,500 13.000%, 03/01/99............................. 1,250,000 1,225,000 Mail-Well Corp., 10.500%, 02/15/04............................. 2,500,000 2,175,000 Malette, Inc., 12.250%, 07/15/04............................. 2,500,000 2,525,000 *Marcus Cable Operating Co., L.P., Zero Coupon, 08/01/04......................... 3,000,000 1,590,000 Marvel Holdings, Inc., Zero Coupon, 04/15/98, Series B............... 2,000,000 1,230,000 Maxxam Group, Inc., *Zero Coupon, 08/01/03........................ 2,500,000 1,425,000 11.250%, 08/01/03............................. 1,000,000 937,500 Miles Homes, Inc., 12.000%, 04/01/01............................. 1,250,000 862,500 Moran Transportation Co., 11.750%, 07/15/04, Series B................... 1,000,000 945,000 Motor Wheel Corp., 11.500%, 03/01/00, Series B................... 2,500,000 2,312,500 *Neodata Services, Inc., Zero Coupon, 05/01/03, Series B............... 2,000,000 1,560,000 NewCity Communications, Inc., 11.375%, 11/01/03............................. 1,500,000 1,380,000 Newflo Corp., 13.250%, 11/15/02............................. 1,000,000 985,000 *Nextel Communications, Inc., Zero Coupon, 09/01/03-08/15/04................ 2,000,000 760,000 NL Industries, Inc., *Zero Coupon, 10/15/05........................ 2,250,000 1,395,000 11.750%, 10/15/03............................. 1,250,000 1,250,000 Nortek, Inc., 9.875%, 03/01/04.............................. 1,750,000 1,557,500 **%Northwest Airlines, Inc, 12.092%, 12/31/00............................. 1,976,884 1,907,693 NVR, Inc., 11.000%, 04/15/03............................. 2,000,000 1,670,000 NWCG Holdings Corp., Zero Coupon, 06/15/99, Series B............... 3,000,000 1,530,000 OrNda Healthcorp, 11.375%, 08/15/04............................. 1,000,000 1,025,000 12.250%, 05/15/02............................. 1,500,000 1,605,000 Outdoor Systems, Inc., 10.750%, 08/15/03............................. 1,250,000 1,125,000 Overhead Door Co., 12.250%, 02/01/00............................. 1,000,000 1,012,500 PA Holdings Corp., 13.750%, 07/15/99............................. 224,000 235,200 Pagemart, Inc., 12.250%, 11/01/03............................. 2,000,000 1,200,000 Pamida, Inc., 11.750%, 03/15/03............................. 1,500,000 1,402,500
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Pathmark Stores, Inc., *Zero Coupon, 11/01/03........................ $ 2,500,000 $ 1,275,000 9.625%, 05/01/03.............................. 500,000 445,000 11.625%, 06/15/02............................. 1,000,000 960,000 Petroleum Heat & Power Company, Inc., 9.375%, 02/01/06.............................. 500,000 425,000 10.125%, 04/01/03............................. 1,240,000 1,128,400 **PF Acquisition Corp., 12.250%, 02/01/05............................. 1,500,000 1,500,000 Pier 1 Imports, Inc., 11.500%, 07/15/03............................. 347,000 357,410 Pilgrim's Pride Corp., 10.875%, 08/01/03............................. 1,750,000 1,649,375 **Polymer Group, Inc., 12.250%, 07/15/02............................. 1,250,000 1,193,750 **President Riverboat Casinos, Inc., 13.000%, 09/15/01............................. 2,500,000 2,200,000 Presidio Oil Co., 11.500%, 09/15/00, Series B................... 800,000 580,000 %14.050%, 07/15/02, Series B.................. 400,000 248,000 Presley Cos., 12.500%, 07/01/01............................. 1,750,000 1,505,000 ***Pricellular Wireless Corp., Zero Coupon, 11/15/01......................... 1,000,000 660,000 Pueblo Xtra International, Inc., 9.500%, 08/01/03.............................. 500,000 420,000 Purity Supreme, Inc., 11.750%, 08/01/99, Series B................... 1,250,000 1,037,500 Ralphs Grocery Co., 9.000%, 04/01/03, Series B.................... 1,250,000 1,212,500 ***Remington Arms Co., 9.500%, 12/01/03.............................. 1,000,000 840,000 Republic Engineered Steel, Inc., 9.875%, 12/15/01.............................. 1,000,000 905,000 Rexene Corp., 11.750%, 12/01/04............................. 1,000,000 1,025,000 Robin Media Group, Inc., 11.125%, 04/01/97............................. 1,250,000 1,187,500 Rohr, Inc., 11.625%, 05/15/03............................. 1,000,000 995,000 Ryland Group, Inc., 9.625%, 06/01/04.............................. 1,000,000 840,000 **Sam Houston Race Park, Ltd., 11.750%, 07/15/99............................. 1,000,000 350,000 Santa Fe Hotel, Inc., 11.000%, 12/15/00............................. 500,000 440,000 Scott Cable Communications, Inc., 12.250%, 04/15/01............................. 250,000 200,000 Seminole Kraft Corp., 13.500%, 10/15/96............................. 287,000 287,000 Seven-Up/RC Bottling Co., 11.500%, 08/01/99............................. 1,250,000 1,050,000 Showboat, Inc., 13.000%, 08/01/09............................. 1,500,000 1,425,000 Silgan Corp., 11.750%, 06/15/02............................. 1,000,000 1,035,000 *Silgan Holdings, Inc., Zero Coupon, 12/15/02......................... 2,000,000 1,680,000 Southdown, Inc., 14.000%, 10/15/01, Series B................... 500,000 556,250 Southland Corp., 12.000%, 06/15/09, Series C................... 500,000 490,000 Specialty Foods Acquisition Corp., *Zero Coupon, 08/15/05, Series B.............. 2,000,000 805,000 10.250%, 08/15/01, Series B................... 1,000,000 890,000 11.250%, 08/15/03, Series B................... 1,250,000 1,087,500
B23 HIGH YIELD BOND PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- SPX Corp., 11.750%, 06/01/02............................. $ 2,500,000 $ 2,487,500 **Star Markets, Inc., 13.000%, 11/01/04............................. 1,000,000 1,017,500 Station Casinos, Inc., 9.625%, 06/01/03.............................. 2,000,000 1,680,000 Stone Consolidated Corp., 10.250%, 12/15/00............................. 650,000 640,250 Stone Container Corp., 9.875%, 02/01/01.............................. 1,500,000 1,410,000 12.625%, 07/15/98............................. 1,500,000 1,571,250 Surgical Health Corp., 11.500%, 07/15/04............................. 600,000 600,000 *Talley Industries, Inc., Zero Coupon, 10/15/05......................... 2,750,000 1,375,000 Talley Manufacturing & Technology, Inc., 10.750%, 10/15/03............................. 500,000 450,000 Thrifty Payless, Inc., 11.750%, 04/15/03............................. 3,000,000 2,940,000 *Total Renal Care, Inc., Zero Coupon, 08/15/04......................... 500,000 375,000 Triangle Pacific Corp., 10.500%, 08/01/03............................. 2,000,000 1,915,000 Trism, Inc., 10.750%, 12/15/00............................. 500,000 475,000 *Triton Energy Corp., Zero Coupon, 12/15/00......................... 2,000,000 1,492,500 Trump Plaza Funding, 10.875%, 06/15/01............................. 800,000 608,000 Trump Taj Mahal Funding, Inc., 11.350%, 11/15/99, Series A................... 2,000,000 1,330,000 Uniroyal Technology Corp., 11.750%, 06/01/03............................. 2,000,000 1,620,000 %Unisys Corp., 13.500%, 07/01/97............................. 750,000 802,500 United Artists Theatre Circuit, Inc., 11.500%, 05/01/02, Series B................... 1,000,000 1,032,500 United International Holdings, Inc., Zero Coupon, 11/15/99......................... 6,000,000 3,030,000 US Air, Inc., 9.625%, 02/01/01.............................. 2,000,000 1,100,000 10.375%, 03/01/13, Series 93-A3............... 1,000,000 815,000 12.875%, 04/01/00............................. 950,000 762,375 Valcor, Inc., 9.625%, 11/01/03.............................. 750,000 690,000 Wainoco Oil Corp., 12.000%, 08/01/02............................. 1,500,000 1,530,000 Waters Corp., 12.750%, 09/30/04, Series B................... 1,250,000 1,256,250 Webb Corp., 9.000%, 02/15/06.............................. 375,000 285,000 Webcraft Technologies, Inc., 9.375%, 02/15/02.............................. 1,500,000 1,297,500 Wheeling-Pittsburgh Corp., 9.375%, 11/15/03.............................. 1,400,000 1,190,000 Wherehouse Entertainment, Inc., 13.000%, 08/01/02, Series B................... 150,000 75,000 White Rose Foods, Inc., Zero Coupon, 11/01/98......................... 1,750,000 945,000 Wickes Lumber Co., 11.625%, 12/15/03............................. 2,500,000 2,425,000 Williamhouse Regency, Inc., 11.500%, 06/15/05............................. 2,000,000 1,840,000
DECEMBER 31, 1994
PAR MARKET LONG-TERM BONDS (CONTINUED) VALUE VALUE ------------- -------------- Young Broadcasting Corp., 11.750%, 11/15/04............................. $ 500,000 $ 505,000 -------------- 248,816,277 -------------- TOTAL LONG-TERM BONDS (Cost $293,001,887)............................................ 269,347,408 -------------- MARKET OTHER LONG-TERM INVESTMENTS -- 0.1% SHARES VALUE ------------- -------------- **+PG Partners L.P.............................. 7,541 361,968 (Cost $115,290) PRINCIPAL SHORT-TERM INVESTMENTS -- 4.7% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. 14,296,000 14,296,000 -------------- OTHER ASSETS -- 2.3% (net of liabilities)........................................... 7,141,716 -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 306,224,713 -------------- -------------- The following abbreviations are used in portfolio descriptions: L.P. Limited Partnership M.T.N. Medium Term Note PLC Public Limited Company (British Corporation) SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) *Denotes deferred interest security that accrues no interest until a predetermined date at which time a specified coupon rate becomes effective. **Indicates a restricted security; the aggregate cost of the restricted securities is $21,440,552. The aggregate value, $19,903,619 is approximately 6.5% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994. ++Non-income producing. %Indicates a variable rate security. [Payment-in-kind preferred stock--dividend is paid in additional preferred shares in lieu of cash. &Payment-in-kind bonds--interest is paid in additional bonds in lieu of cash.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B24 STOCK INDEX PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 96.1% SHARES VALUE ------------- -------------- AEROSPACE -- 2.1% AlliedSignal, Inc............................... 54,100 $ 1,839,400 Boeing Co....................................... 64,850 3,031,737 E-Systems, Inc.................................. 6,200 258,075 General Dynamics Corp........................... 12,100 526,350 Lockheed Corp................................... 11,900 864,237 Loral Corp...................................... 16,300 617,362 Martin Marietta Corp............................ 18,400 816,500 McDonnell Douglas Corp.......................... 7,500 1,065,000 Northrop Grumman Corp........................... 9,300 390,600 Raytheon Co..................................... 25,800 1,647,975 Rockwell International Corp..................... 41,800 1,494,350 United Technologies Corp........................ 24,200 1,521,575 -------------- 14,073,161 -------------- AIRLINES -- 0.3% +AMR Corp....................................... 14,600 777,450 Delta Air Lines, Inc............................ 9,900 499,950 Southwest Airlines Co........................... 27,100 453,925 +USAir Group, Inc............................... 10,500 45,938 -------------- 1,777,263 -------------- ALUMINUM -- 0.5% Alcan Aluminum, Ltd............................. 42,450 1,077,169 Aluminum Co. of America......................... 16,900 1,463,962 Reynolds Metals Co.............................. 12,100 592,900 -------------- 3,134,031 -------------- AUTOS - CARS & TRUCKS -- 2.6% Chrysler Corp................................... 67,800 3,322,200 Cummins Engine Co., Inc......................... 8,300 375,575 Dana Corp....................................... 18,800 439,450 Echlin, Inc..................................... 10,900 327,000 Ford Motor Co................................... 191,800 5,370,400 General Motors Corp............................. 142,700 6,029,075 Genuine Parts Co................................ 23,650 851,400 Johnson Controls, Inc........................... 7,500 367,500 +Navistar International Corp.................... 14,500 219,312 Safety Kleen Corp............................... 11,050 162,987 -------------- 17,464,899 -------------- BANKS AND SAVINGS & LOANS -- 5.1% Banc One Corp................................... 77,622 1,969,658 Bank of Boston Corp............................. 20,300 525,262 BankAmerica Corp................................ 70,548 2,786,646 Bankers Trust NY Corp........................... 15,300 847,237 Barnett Banks, Inc.............................. 18,700 717,612 Boatmen's Bancshares, Inc....................... 19,500 528,937 Chase Manhattan Corp............................ 36,501 1,254,722 Chemical Banking Corp........................... 48,382 1,735,704 Citicorp........................................ 74,100 3,065,887 CoreStates Financial Corp....................... 28,000 728,000 First Chicago Corp.............................. 17,800 849,950 First Fidelity Bancorp.......................... 15,600 700,050 First Interstate Bancorp........................ 15,500 1,048,187 First Union Corp................................ 32,500 1,344,688 Fleet Financial Group, Inc...................... 26,700 867,750 Golden West Financial Corp...................... 12,200 430,050 Great Western Financial Corp.................... 24,500 392,000 H.F. Ahmanson & Co.............................. 22,200 357,975 J.P. Morgan & Co., Inc.......................... 36,650 2,052,400 KeyCorp......................................... 47,100 1,177,500 Mellon Bank Corp................................ 27,850 852,906 NationsBank Corp................................ 52,239 2,357,285 NBD Bancorp, Inc................................ 30,425 832,884
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Norwest Corp.................................... 60,800 $ 1,421,200 PNC Bank Corp................................... 44,300 935,838 Shawmut National Corp........................... 22,300 365,163 Suntrust Banks, Inc............................. 23,100 1,103,025 U.S. Bancorp.................................... 18,900 427,613 Wachovia Corp................................... 32,400 1,044,900 Wells Fargo & Co................................ 10,400 1,508,000 -------------- 34,229,029 -------------- BEVERAGES -- 3.5% Adolph Coors Co. (Class 'B' Stock).............. 7,100 118,925 Anheuser-Busch Companies, Inc................... 49,900 2,538,663 Brown-Forman Corp. (Class 'B' Stock)............ 15,300 466,650 Coca-Cola Co.................................... 246,100 12,674,150 PepsiCo, Inc.................................... 150,800 5,466,500 Seagram Co., Ltd................................ 70,300 2,073,850 -------------- 23,338,738 -------------- CHEMICALS -- 2.8% Air Products & Chemicals, Inc................... 21,700 968,362 Dow Chemical Co................................. 52,500 3,530,625 E.I. du Pont de Nemours & Co.................... 129,700 7,295,625 Eastman Chemical Co............................. 15,900 802,950 Hercules, Inc................................... 7,800 899,925 Mallinckrodt Group, Inc......................... 14,800 442,150 Monsanto Co..................................... 22,500 1,586,250 Nalco Chemical Co............................... 12,900 432,150 Rohm & Haas Co.................................. 13,100 748,337 Sigma-Aldrich Corp.............................. 9,000 297,000 Union Carbide Corp.............................. 28,600 840,125 W.R. Grace & Co................................. 17,900 691,388 -------------- 18,534,887 -------------- CHEMICALS - SPECIALTY -- 0.4% Engelhard Corp.................................. 18,850 419,413 First Mississippi Corp.......................... 3,700 92,500 Great Lakes Chemical Corp....................... 13,700 780,900 Morton International, Inc....................... 28,100 800,850 Praxair, Inc.................................... 25,100 514,550 Raychem Corp.................................... 7,800 277,875 -------------- 2,886,088 -------------- COMMERCIAL SERVICES -- 0.2% Deluxe Corp..................................... 15,300 405,450 John H. Harland Co.............................. 5,900 118,000 Moore Corp., Ltd................................ 18,300 345,413 Ogden Corp...................................... 7,600 142,500 -------------- 1,011,363 -------------- COMPUTER SERVICES -- 2.8% Autodesk, Inc................................... 8,800 348,700 Automatic Data Processing, Inc.................. 26,700 1,561,950 +Ceridian Corp.................................. 8,200 220,375 +Cisco Systems.................................. 50,000 1,756,250 Computer Associates International, Inc.......... 31,350 1,520,475 +Computer Sciences Corp......................... 9,900 504,900 First Data Corp................................. 20,600 975,925 +Harris Computer Systems Corp................... 370 4,532 +Intergraph Corp................................ 7,600 61,750 +Lotus Development Corp......................... 9,000 369,000 +Microsoft Corp................................. 109,900 6,717,638 +Novell, Inc.................................... 70,000 1,198,750 +Oracle Systems Corp............................ 54,400 2,400,400
B25 STOCK INDEX PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- +Sun Microsystems, Inc.......................... 19,300 $ 685,150 +Tandem Computers, Inc.......................... 21,100 361,338 -------------- 18,687,133 -------------- CONSTRUCTION -- 0.2% Fluor Corp...................................... 15,600 672,750 Foster Wheeler Corp............................. 6,800 202,300 Kaufman & Broad Home Corp....................... 6,366 81,962 Pulte Corp...................................... 5,100 117,300 -------------- 1,074,312 -------------- CONTAINERS -- 0.2% Ball Corp....................................... 5,400 170,100 Bemis Co., Inc.................................. 10,000 240,000 +Crown Cork & Seal, Inc......................... 17,300 653,075 -------------- 1,063,175 -------------- COSMETICS & SOAPS -- 2.3% Alberto Culver Co. (Class 'B' Stock)............ 5,000 136,250 Avon Products, Inc.............................. 13,400 800,650 Clorox Co....................................... 9,900 582,862 Colgate Palmolive Co............................ 28,500 1,806,188 Gillette Co..................................... 41,900 3,132,025 International Flavors & Fragrances, Inc......... 21,000 971,250 Procter & Gamble Co............................. 130,552 8,094,224 -------------- 15,523,449 -------------- DIVERSIFIED GAS -- 0.2% Coastal Corp.................................... 19,900 512,425 Eastern Enterprises............................. 4,100 107,625 ENSERCH Corp.................................... 12,200 160,125 NICOR, Inc...................................... 10,300 234,325 ONEOK, Inc...................................... 4,600 82,800 -------------- 1,097,300 -------------- DIVERSIFIED OFFICE EQUIPMENT -- 2.3% Alco Standard Corp.............................. 10,388 651,847 Avery Dennison Corp............................. 10,500 372,750 +COMPAQ Computer Corp........................... 49,400 1,951,300 Honeywell, Inc.................................. 24,900 784,350 International Business Machines Corp............ 111,100 8,165,850 Pitney-Bowes, Inc............................... 29,600 939,800 +Unisys Corp.................................... 31,100 268,238 Xerox Corp...................................... 20,182 1,998,018 -------------- 15,132,153 -------------- DRUGS AND HOSPITAL SUPPLIES -- 7.7% Abbott Laboratories............................. 155,000 5,056,875 Allergan, Inc................................... 12,100 341,825 +ALZA Corp...................................... 15,200 273,600 American Home Products Corp..................... 58,200 3,652,050 +Amgen, Inc..................................... 25,600 1,510,400 Bausch & Lomb, Inc.............................. 11,300 382,787 Baxter International, Inc....................... 53,600 1,514,200 Becton, Dickinson & Co.......................... 14,000 672,000 +Biomet, Inc.................................... 21,600 302,400 Bristol-Myers Squibb Co......................... 97,140 5,621,978 C.R. Bard, Inc.................................. 9,900 267,300 Eli Lilly & Co.................................. 55,800 3,661,875 Johnson & Johnson............................... 122,600 6,712,350 Medtronic, Inc.................................. 22,000 1,223,750 Merck & Co., Inc................................ 240,050 9,151,906 Pfizer, Inc..................................... 58,300 4,503,675 Schering-Plough Corp............................ 36,700 2,715,800 St. Jude Medical, Inc........................... 8,500 337,875
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- United States Surgical Corp..................... 10,500 $ 199,500 Upjohn Co....................................... 32,700 1,005,525 Warner-Lambert Co............................... 25,500 1,963,500 -------------- 51,071,171 -------------- ELECTRICAL EQUIPMENT -- 0.1% Westinghouse Electric Corp...................... 66,800 818,300 -------------- ELECTRONICS -- 4.1% +Advanced Micro Devices, Inc.................... 17,700 440,288 Amdahl Corp..................................... 23,300 256,300 AMP, Inc........................................ 20,200 1,469,550 Apple Computer, Inc............................. 22,400 873,600 +Cray Research, Inc............................. 4,700 74,025 +Data General Corp.............................. 5,400 54,000 +Digital Equipment Corp......................... 26,400 877,800 EG&G, Inc....................................... 9,700 137,012 Emerson Electric Co............................. 42,700 2,668,750 Harris Corp..................................... 7,400 314,500 Hewlett-Packard Co.............................. 48,500 4,843,937 Intel Corp...................................... 79,800 5,097,225 Micron Technology, Inc.......................... 19,800 873,675 Motorola, Inc................................... 107,800 6,238,925 +National Semiconductor Corp.................... 23,900 466,050 Perkin-Elmer Corp............................... 8,100 207,562 Tandy Corp...................................... 12,265 614,783 Tektronix, Inc.................................. 5,600 191,800 Texas Instruments, Inc.......................... 17,500 1,310,312 Thomas & Betts Corp............................. 3,500 234,938 +Zenith Electronics Corp........................ 8,300 96,488 -------------- 27,341,520 -------------- FINANCIAL SERVICES -- 2.6% American Express Co............................. 94,200 2,778,900 Beneficial Corp................................. 9,700 378,300 Dean Witter, Discover & Co...................... 32,245 1,092,299 Federal Home Loan Mortgage Corporation.......... 34,150 1,724,575 Federal National Mortgage Association........... 51,700 3,767,637 H & R Block, Inc................................ 19,800 735,075 Household International , Inc................... 17,500 649,688 MBNA Corp....................................... 27,800 649,825 Merrill Lynch & Co., Inc........................ 39,200 1,401,400 National City Corp.............................. 28,200 729,675 Salomon, Inc.................................... 20,600 772,500 Transamerica Corp............................... 14,200 706,450 Travelers, Inc.................................. 62,031 2,016,008 -------------- 17,402,332 -------------- FOODS -- 3.2% Archer-Daniels-Midland Co....................... 98,764 2,037,007 Campbell Soup Co................................ 47,900 2,113,587 ConAgra, Inc.................................... 47,600 1,487,500 CPC International, Inc.......................... 28,200 1,501,650 Fleming Companies, Inc.......................... 6,700 155,775 General Mills, Inc.............................. 30,000 1,710,000 Giant Food, Inc. (Class 'A' Stock).............. 10,900 237,075 H.J. Heinz & Co................................. 47,100 1,730,925 Hershey Foods Corp.............................. 16,300 788,513 Kellogg Co...................................... 42,500 2,470,313 Pet, Inc........................................ 19,900 393,025 Pioneer Hi-Bred International, Inc.............. 16,600 572,700 Quaker Oats Co.................................. 26,000 799,500 Ralston-Ralston Purina Group.................... 19,240 858,585 Sara Lee Corp................................... 91,000 2,297,750
B26 STOCK INDEX PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Sysco Corp...................................... 34,800 $ 896,100 W. M. Wrigley, Jr. Co........................... 22,300 1,101,063 -------------- 21,151,068 -------------- FOREST PRODUCTS -- 1.8% Boise Cascade Corp.............................. 7,686 205,600 Champion International Corp..................... 17,900 653,350 Federal Paper Board Co., Inc.................... 8,500 246,500 Georgia-Pacific Corp............................ 17,200 1,229,800 International Paper Co.......................... 23,600 1,778,850 James River Corp. of Virginia................... 15,900 321,975 Kimberly-Clark Corp............................. 31,000 1,565,500 Louisiana Pacific Corp.......................... 21,000 572,250 Mead Corp....................................... 11,100 539,737 Potlatch Corp................................... 5,800 216,050 Scott Paper Co.................................. 14,100 974,663 Stone Container Corp............................ 17,066 294,388 Temple Inland, Inc.............................. 10,500 473,813 Union Camp Corp................................. 13,100 617,338 Westvaco Corp................................... 12,400 486,700 Weyerhaeuser Co................................. 39,300 1,473,750 -------------- 11,650,264 -------------- GAS PIPELINES -- 0.6% +Columbia Gas System, Inc....................... 9,500 223,250 Consolidated Natural Gas Co..................... 17,900 635,450 Enron Corp...................................... 47,400 1,445,700 NorAm Energy Corp............................... 21,100 113,413 Panhandle Eastern Corp.......................... 22,990 454,053 Peoples Energy Corp............................. 6,400 167,200 Transco Energy Co............................... 7,600 126,350 Williams Companies, Inc......................... 19,900 499,987 -------------- 3,665,403 -------------- HOSPITAL MANAGEMENT -- 0.6% +Beverly Enterprises, Inc....................... 17,000 244,375 Columbia / HCA Healthcare Corp.................. 68,132 2,486,818 Community Psychiatric Centers................... 6,900 75,900 Manor Care, Inc................................. 11,850 324,394 National Medical Enterprises, Inc............... 30,600 432,225 Service Corp. International..................... 17,800 493,950 Shared Medical Systems Corp..................... 4,700 153,925 -------------- 4,211,587 -------------- HOUSING RELATED -- 0.6% Armstrong World Industries, Inc................. 7,100 273,350 Centex Corp..................................... 6,000 136,500 Fleetwood Enterprises, Inc...................... 8,700 163,125 Lowe's Companies, Inc........................... 30,000 1,042,500 Masco Corp...................................... 29,300 662,913 Maytag Corp..................................... 19,500 292,500 +Owens-Corning Fiberglas Corp................... 8,600 275,200 Skyline Corp.................................... 1,000 19,250 Stanley Works................................... 9,000 321,750 Whirlpool Corp.................................. 14,200 713,550 -------------- 3,900,638 -------------- INSURANCE -- 3.1% Aetna Life & Casualty Co........................ 21,500 1,013,187 Alexander & Alexander Services, Inc............. 8,500 157,250 American General Corp........................... 40,400 1,141,300 American International Group, Inc............... 60,225 5,902,050 Chubb Corp...................................... 16,800 1,299,900 CIGNA Corp...................................... 13,700 871,662 Continental Corp................................ 10,600 201,400 General Re Corp................................. 15,750 1,949,062
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Jefferson-Pilot Corp............................ 9,650 $ 500,594 Lincoln National Corp........................... 17,800 623,000 Marsh & McLennan Companies, Inc................. 13,800 1,093,650 Providian Corp.................................. 18,500 571,188 SAFECO Corp..................................... 11,700 608,400 St. Paul Companies, Inc......................... 16,000 716,000 Torchmark Corp.................................. 13,900 484,763 U.S. Healthcare, Inc............................ 30,500 1,258,125 United Healthcare Corp.......................... 32,700 1,475,587 UNUM Corp....................................... 14,500 547,375 USF&G Corp...................................... 14,900 203,013 USLIFE Corp..................................... 4,100 142,987 -------------- 20,760,493 -------------- LEISURE -- 1.0% +Bally Entertainment Corp....................... 7,200 44,100 Brunswick Corp.................................. 18,300 345,412 Handleman Co.................................... 5,850 66,544 Hasbro, Inc..................................... 16,500 482,625 +King World Productions, Inc.................... 6,650 229,425 Mattel, Inc..................................... 34,356 863,195 Outboard Marine Corp............................ 3,900 76,537 Walt Disney Co.................................. 102,200 4,713,975 -------------- 6,821,813 -------------- LODGING -- 0.3% Hilton Hotels Corp.............................. 9,400 633,325 Marriott International, Inc..................... 23,700 666,563 +Promus Companies, Inc.......................... 19,950 618,450 -------------- 1,918,338 -------------- MACHINERY -- 1.2% Briggs & Stratton Corp.......................... 5,200 170,300 Caterpillar, Inc................................ 38,500 2,122,312 Cincinnati Milacron, Inc........................ 6,900 163,013 +Clark Equipment Co............................. 3,200 173,600 Cooper Industries, Inc.......................... 22,100 754,162 Deere & Co...................................... 16,500 1,093,125 Dover Corp...................................... 10,700 552,387 Eaton Corp...................................... 14,900 737,550 Giddings & Lewis, Inc........................... 6,900 101,775 +Giddings & Lewis, Inc. (Contingent Payment Right)........................................ 1,000 0 Harnischfeger Industries, Inc................... 8,400 236,250 Ingersoll-Rand Co............................... 19,700 620,550 PACCAR, Inc..................................... 7,130 315,503 Parker-Hannifin Corp............................ 9,300 423,150 Snap-On Inc..................................... 8,000 266,000 SPX Corp........................................ 1,500 24,938 Timken Co....................................... 6,400 225,600 +Varity Corp.................................... 8,810 319,363 -------------- 8,299,578 -------------- MEDIA -- 3.0% Capital Cities/ABC, Inc......................... 29,800 2,540,450 CBS, Inc........................................ 12,150 672,806 Comcast Corp. (Special Class 'A' Stock)......... 44,400 696,525 Dow Jones & Co., Inc............................ 18,300 567,300 Dun & Bradstreet Corp........................... 32,760 1,801,800 Gannett Co., Inc................................ 27,800 1,480,350 Interpublic Group of Companies, Inc............. 14,400 462,600 Knight-Ridder, Inc.............................. 9,900 499,950 McGraw-Hill, Inc................................ 9,400 628,625 Meredith Corp................................... 2,900 135,213
B27 STOCK INDEX PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- New York Times Co. (Class 'A' Stock)............ 19,800 $ 438,075 R. R. Donnelley & Sons Co....................... 29,500 870,250 +Tele-Communications, Inc. (Class 'A' Stock).... 109,900 2,390,325 Time Warner, Inc................................ 71,940 2,526,893 Times Mirror Co. (Class 'A' Stock).............. 24,000 753,000 Tribune Co...................................... 12,500 684,375 +Viacom, Inc. (Class 'B' Stock)................. 66,367 2,696,159 -------------- 19,844,696 -------------- MINERAL RESOURCES -- 1.1% American Barrick Resources Corp................. 67,100 1,492,975 ASARCO, Inc..................................... 8,700 247,950 Burlington Resources, Inc....................... 24,600 861,000 Cyprus Amax Minerals Co......................... 17,600 459,800 Echo Bay Mines, Ltd............................. 21,800 231,625 Homestake Mining Co............................. 26,300 450,388 Inco, Ltd....................................... 22,200 635,475 Newmont Mining Corp............................. 16,100 579,600 Phelps Dodge Corp............................... 13,300 822,937 Pittston Services Group......................... 7,300 193,450 Placer Dome, Inc................................ 45,800 996,150 +Sante Fe Pacific Gold Corp..................... 46,916 604,044 -------------- 7,575,394 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 4.5% Bassett Furniture Industries, Inc............... 2,612 74,442 Browning-Ferris Industries, Inc................. 37,400 1,061,225 Crane Co........................................ 5,500 147,813 Ecolab, Inc..................................... 12,000 252,000 +FMC Corp....................................... 6,900 398,475 General Electric Co............................. 326,400 16,646,400 General Signal Corp............................. 9,262 295,226 Illinois Tool Works, Inc........................ 21,400 936,250 ITT Corp........................................ 22,400 1,985,200 +JWP, Inc....................................... 4,200 0 Millipore Corp.................................. 5,500 266,062 Morrison Knudsen Corp........................... 5,800 73,950 NACCO Industries, Inc. (Class 'A' Stock)........ 1,600 77,400 Pall Corp....................................... 21,900 410,625 PPG Industries, Inc............................. 40,400 1,499,850 Rollins Environmental Services, Inc............. 9,400 45,825 Teledyne, Inc................................... 10,300 207,287 Textron, Inc.................................... 17,100 861,412 Trinova Corp.................................... 5,600 164,500 TRW, Inc........................................ 12,300 811,800 Tyco International, Ltd......................... 14,300 679,250 W.W. Grainger, Inc.............................. 9,500 548,625 WMX Technologies, Inc........................... 91,700 2,407,125 Zurn Industries, Inc............................ 2,000 36,000 -------------- 29,886,742 -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 2.3% American Greetings Corp. (Class 'A' Stock)...... 13,800 372,600 Black & Decker Corp............................. 16,500 391,875 Corning, Inc.................................... 42,400 1,266,700 Dial Corp....................................... 17,600 374,000 Eastman Kodak Co................................ 63,300 3,022,575 Jostens, Inc.................................... 8,100 150,863 Minnesota Mining & Manufacturing Co............. 80,500 4,296,687 +National Education Corp........................ 2,700 11,138 Polaroid Corp................................... 9,500 308,750
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Premark International, Inc...................... 12,300 $ 538,125 Rubbermaid, Inc................................. 30,800 885,500 Unilever N.V., ADR.............................. 30,400 3,541,600 Whitman Corp.................................... 19,700 339,825 -------------- 15,500,238 -------------- PETROLEUM -- 8.8% Amerada Hess Corp............................... 17,500 798,438 Amoco Corp...................................... 94,730 5,600,911 Ashland Oil, Inc................................ 11,600 400,200 Atlantic Richfield Co........................... 30,485 3,101,848 Chevron Corp.................................... 123,900 5,529,037 Exxon Corp...................................... 236,800 14,385,600 Kerr-McGee Corp................................. 9,900 455,400 Louisiana Land & Exploration Co................. 6,500 236,438 +Maxus Energy Corp.............................. 23,000 77,625 Mobil Corp...................................... 75,800 6,386,150 Occidental Petroleum Corp....................... 59,700 1,149,225 Pennzoil Co..................................... 9,100 401,538 Phillips Petroleum Co........................... 49,700 1,627,675 Royal Dutch Petroleum Co........................ 102,000 10,965,000 Santa Fe Energy Resources, Inc.................. 15,970 127,760 Sun Co., Inc.................................... 21,000 603,750 Tenneco, Inc.................................... 32,700 1,389,750 Texaco, Inc..................................... 49,600 2,969,800 Unocal Corp..................................... 46,300 1,261,675 USX-Marathon Group.............................. 54,800 897,350 -------------- 58,365,170 -------------- PETROLEUM SERVICES -- 0.9% Baker Hughes, Inc............................... 26,700 487,275 Dresser Industries, Inc......................... 35,000 660,625 Halliburton Co.................................. 21,800 722,125 Helmerich & Payne, Inc.......................... 5,100 130,687 McDermott International, Inc.................... 9,700 240,075 Oryx Energy Co.................................. 18,600 220,875 +Rowan Companies, Inc........................... 15,200 93,100 Schlumberger, Ltd............................... 46,600 2,347,475 Sonat, Inc...................................... 16,000 448,000 +Western Atlas, Inc............................. 9,700 364,963 -------------- 5,715,200 -------------- RAILROADS -- 1.0% Burlington Northern, Inc........................ 17,300 832,562 Conrail Inc..................................... 15,100 762,550 CSX Corp........................................ 19,856 1,382,474 Norfolk Southern Corp........................... 25,800 1,564,125 Santa Fe Pacific Corp........................... 36,260 634,550 Union Pacific Corp.............................. 39,300 1,793,063 -------------- 6,969,324 -------------- RESTAURANTS -- 0.7% Luby's Cafeterias, Inc.......................... 4,550 101,806 McDonald's Corp................................. 133,800 3,913,650 +Ryan's Family Steak Houses, Inc................ 8,500 63,750 +Shoney's, Inc.................................. 7,900 100,725 Wendy's International, Inc...................... 19,700 283,188 -------------- 4,463,119 -------------- RETAIL -- 5.9% Albertson's, Inc................................ 48,300 1,400,700 American Stores Co.............................. 27,600 741,750 Brown Group, Inc................................ 3,000 96,000 Bruno's, Inc.................................... 13,700 114,737 Charming Shoppes, Inc........................... 18,300 121,237 Circuit City Stores, Inc........................ 18,700 416,075
B28 STOCK INDEX PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Dayton Hudson Corp.............................. 13,614 $ 963,190 Dillard Department Stores, Inc. (Class 'A' Stock)........................................ 21,950 587,163 Great Atlantic & Pacific Tea Co., Inc........... 7,000 126,875 Hartcourt General, Inc.......................... 15,406 543,062 +Hartmarx Corp.................................. 2,600 15,275 Home Depot, Inc................................. 85,749 3,944,454 J.C. Penney Co., Inc............................ 44,700 1,994,737 K mart Corp..................................... 85,700 1,114,100 +Kroger Co...................................... 22,100 533,163 Liz Claiborne, Inc.............................. 15,600 263,250 Longs Drug Stores, Inc.......................... 3,600 114,300 May Department Stores Co........................ 47,300 1,596,375 Melville Corp................................... 20,200 623,675 Mercantile Stores Co., Inc...................... 7,100 280,450 Newell Co....................................... 30,000 630,000 Nike, Inc. (Class 'B' Stock).................... 14,100 1,052,212 Nordstrom, Inc.................................. 15,400 646,800 Oshkosh B' Gosh, Inc. (Class 'A' Stock)......... 1,900 26,600 Pep Boys-Manny, Moe & Jack...................... 11,700 362,700 +Price/Costco, Inc.............................. 42,566 548,037 Reebok International, Ltd....................... 15,600 616,200 Rite Aid Corp................................... 17,100 399,713 Sears, Roebuck & Co............................. 66,900 3,077,400 Sherwin-Williams Co............................. 16,200 536,625 Stride Rite Corp................................ 9,400 104,575 Supervalu, Inc.................................. 13,700 335,650 The Gap, Inc.................................... 27,300 832,650 The Limited, Inc................................ 68,700 1,245,187 TJX Companies, Inc.............................. 14,300 223,438 +Toys 'R' Us, Inc............................... 54,850 1,672,925 Wal-Mart Stores, Inc............................ 438,600 9,320,250 Walgreen Co..................................... 23,700 1,036,875 Winn Dixie Stores, Inc.......................... 14,300 734,663 Woolworth Corp.................................. 24,400 366,000 -------------- 39,359,068 -------------- RUBBER -- 0.2% B.F. Goodrich Co................................ 4,700 203,863 Cooper Tire & Rubber Co......................... 16,200 382,725 Goodyear Tire & Rubber Co....................... 28,900 971,762 -------------- 1,558,350 -------------- STEEL -- 0.4% +Armco, Inc..................................... 19,500 129,188 +Bethlehem Steel Corp........................... 21,000 378,000 +Inland Steel Industries, Inc................... 8,900 312,612 Nucor Corp...................................... 16,600 921,300 USX-U.S. Steel Group............................ 14,140 501,970 Worthington Industries, Inc..................... 17,300 346,000 -------------- 2,589,070 -------------- TELECOMMUNICATIONS -- 4.5% +Airtouch Communications........................ 94,200 2,743,575 Alltel Corp..................................... 30,000 903,750 Ameritech Corp.................................. 104,600 4,223,225 +Andrew Corp.................................... 4,900 256,025 AT&T Corporation................................ 299,173 15,033,443 +DSC Communications Corp........................ 21,200 760,550 +M/A-Com, Inc................................... 2,300 16,675 MCI Communications Corp......................... 123,300 2,265,638 Northern Telecom, Ltd........................... 48,000 1,602,000
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Scientific-Atlanta, Inc......................... 14,500 $ 304,500 Sprint Corp..................................... 65,400 1,806,675 -------------- 29,916,056 -------------- TEXTILES -- 0.2% National Service Industries, Inc................ 9,500 243,438 Russell Corp.................................... 7,200 225,900 Springs Industries, Inc......................... 3,700 136,900 V.F. Corp....................................... 12,018 584,375 -------------- 1,190,613 -------------- TOBACCO -- 1.9% American Brands, Inc............................ 39,000 1,462,500 Philip Morris Companies, Inc.................... 166,100 9,550,750 +RJR Nabisco Holdings Corp...................... 62,557 344,063 UST, Inc........................................ 38,600 1,071,150 -------------- 12,428,463 -------------- TRUCKING/SHIPPING -- 0.3% Consolidated Freightways, Inc................... 6,500 145,438 +Federal Express Corp........................... 10,400 626,600 Roadway Services, Inc........................... 7,600 431,300 Ryder System, Inc............................... 14,600 321,200 Yellow Corp..................................... 6,000 143,250 -------------- 1,667,788 -------------- UTILITY - COMMUNICATIONS -- 4.2% Bell Atlantic Corp.............................. 83,100 4,134,225 BellSouth Corp.................................. 94,400 5,109,400 GTE Corp........................................ 182,620 5,547,083 NYNEX Corp...................................... 79,800 2,932,650 Pacific Telesis Group........................... 80,500 2,294,250 Southwestern Bell Corp.......................... 115,000 4,643,125 U S West, Inc................................... 86,800 3,092,250 -------------- 27,752,983 -------------- UTILITY - ELECTRIC -- 3.8% American Electric Power Co., Inc................ 35,300 1,160,487 Baltimore Gas & Electric Co..................... 27,650 611,756 Carolina Power & Light Co....................... 30,500 812,062 Central & South West Corp....................... 36,400 823,550 CINergy Corp.................................... 27,739 648,399 Consolidated Edison Co. of NY, Inc.............. 44,900 1,156,175 Detroit Edison Co............................... 28,300 739,337 Dominion Resources, Inc......................... 32,050 1,145,788 Duke Power Co................................... 39,200 1,494,500 Entergy Corp.................................... 42,900 938,438 FPL Group, Inc.................................. 35,900 1,260,987 Houston Industries, Inc......................... 24,700 879,938 Niagara Mohawk Power Corp....................... 26,200 373,350 Northern States Power Co........................ 12,900 567,600 Ohio Edison Co.................................. 28,200 521,700 Pacific Enterprises............................. 15,700 333,625 Pacific Gas & Electric Co....................... 82,600 2,013,375 PacifiCorp...................................... 54,200 982,375 PECO Energy Co.................................. 42,500 1,041,250 Public Service Enterprise Group, Inc............ 47,100 1,248,150 SCEcorp......................................... 84,800 1,240,200 Southern Co..................................... 124,300 2,486,000 Texas Utilities Co.............................. 42,829 1,370,528 Unicom Corp..................................... 41,000 984,000 Union Electric Company.......................... 19,600 693,350 -------------- 25,526,920 -------------- TOTAL COMMON STOCKS (Cost $557,376,390)............................................ 638,348,680 --------------
B29 STOCK INDEX PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PRINCIPAL SHORT-TERM INVESTMENTS -- 4.1% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS -- 3.9% Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. $ 25,939,000 $ 25,939,000 -------------- U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2% United States Treasury Bills, /5.590%, 03/16/95............................ 100,000 98,882 /5.640%, 03/16/95............................ 1,200,000 1,186,464 -------------- 1,285,346 -------------- TOTAL SHORT-TERM INVESTMENTS..................................... 27,224,346 -------------- ##VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- 0.0%............... (178,025) -------------- LIABILITIES -- (0.2%) (net of other assets).......................................... (860,794) -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 664,534,207 -------------- -------------- The following abbreviations are used in portfolio descriptions: ADR American Depository Receipt +No dividend was paid on this security during the 12 months ending December 31, 1994. /Entire amount pledged as collateral for futures transactions (See Note 2). ##Open futures contracts as of December 31, 1994 are as follows: PAR VALUE COVERED BY CONTRACT TYPE EXPIRATION DATE VALUE OF CONTRACTS $24,628,425 S&P 500 Index Futures Mar 95 $25,143,575
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B30 HIGH DIVIDEND STOCK PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 67.8% SHARES VALUE ------------- -------------- AEROSPACE -- 5.1% E-Systems, Inc.................................. 78,900 $ 3,284,212 Northrop Grumman Corp........................... 379,200 15,926,400 Rockwell International Corp..................... 127,400 4,554,550 Thiokol Corp.................................... 706,600 19,696,475 -------------- 43,461,637 -------------- AUTOS - CARS & TRUCKS -- 1.1% Chrysler Corp................................... 106,100 5,198,900 General Motors Corp............................. 106,100 4,482,725 -------------- 9,681,625 -------------- BANKS AND SAVINGS & LOANS -- 0.1% First Fidelity Bancorp.......................... 12,300 551,963 -------------- COMPUTER SERVICES -- 0.7% +Intergraph Corp................................ 760,900 6,182,313 -------------- DIVERSIFIED GAS -- 2.3% British Gas, PLC, ADR........................... 225,600 10,998,000 Equitable Resources, Inc........................ 83,550 2,266,293 Sonat Offshore Drilling, Inc.................... 311,200 5,523,800 Yankee Energy Systems, Inc...................... 30,400 661,200 -------------- 19,449,293 -------------- DIVERSIFIED OFFICE EQUIPMENT -- 3.1% International Business Machines Corp............ 279,600 20,550,600 United Stationers, Inc.......................... 429,800 5,694,850 -------------- 26,245,450 -------------- DRUGS AND HOSPITAL SUPPLIES -- 0.8% Baxter International, Inc....................... 254,000 7,175,500 -------------- ELECTRICAL EQUIPMENT -- 1.6% Westinghouse Electric Corp...................... 1,105,600 13,543,600 -------------- ELECTRONICS -- 1.6% +Digital Equipment Corp......................... 62,600 2,081,450 +IMO Industries, Inc............................ 411,200 5,140,000 Kollmorgen Corp................................. 4,600 26,450 Newport Corp.................................... 316,400 2,452,100 Pacific Scientific Co........................... 101,500 4,110,750 -------------- 13,810,750 -------------- FINANCIAL SERVICES -- 5.5% A.G. Edwards, Inc............................... 425,100 7,651,800 Alex Brown, Inc................................. 118,700 3,605,513 Bear Stearns Companies, Inc..................... 560,000 8,610,000 Carr Realty Corp................................ 22,100 397,800 Legg Mason, Inc................................. 89,300 1,897,625 Lehman Brothers Holdings, Inc................... 1,124,100 16,580,475 Manufactured Home Communities, Inc.............. 137,100 2,724,863 Property Trust of America....................... 347,771 6,259,877 -------------- 47,727,953 -------------- GAS PIPELINES -- 2.1% Panhandle Eastern Corp.......................... 421,700 8,328,575 TransCanada Pipelines, Ltd...................... 442,700 5,367,738 Transco Energy Co............................... 183,500 3,050,687 Williams Companies, Inc......................... 42,000 1,055,250 -------------- 17,802,250 -------------- HOUSING RELATED -- 0.8% Irvine Apartment Communities, Inc............... 400,000 6,550,000 -------------- INSURANCE -- 7.3% Aetna Life & Casualty Co........................ 161,600 7,615,400 Alexander & Alexander Services, Inc............. 812,000 15,022,000
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Continental Corp................................ 822,300 $ 15,623,700 Jefferson-Pilot Corp............................ 51,600 2,676,750 Lincoln National Corp........................... 168,800 5,908,000 Ohio Casualty Corp.............................. 97,600 2,757,200 SAFECO Corp..................................... 159,200 8,278,400 Selective Insurance Group, Inc.................. 208,400 5,262,100 -------------- 63,143,550 -------------- MACHINERY -- 0.7% +Esterline Technologies Corp.................... 298,800 4,108,500 +Terex Corp..................................... 278,600 1,950,200 -------------- 6,058,700 -------------- MINERAL RESOURCES -- 0.4% Potash Corp. of Saskatchewan, Inc............... 113,300 3,852,200 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 0.9% +Moog, Inc. (Class 'A' Stock)................... 7,700 71,225 Morrison Knudsen Corp........................... 546,000 6,961,500 +Tubos De Acero De Mexico, ADR.................. 59,500 278,906 -------------- 7,311,631 -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.6% Pulitzer Publishing Co.......................... 132,800 5,328,600 -------------- PETROLEUM -- 7.8% Elf Aquitaine, ADR.............................. 385,979 13,605,760 KN Energy, Inc.................................. 261,900 6,220,125 Mobil Corp...................................... 36,700 3,091,975 Occidental Petroleum Corp....................... 445,100 8,568,175 Petroleum Heat and Power Co., Inc. (Class 'A' Stock)........................................ 49,800 460,650 Quaker State Corp............................... 652,800 9,139,200 Sun Co., Inc.................................... 150,100 4,315,375 Tenneco, Inc.................................... 258,700 10,994,750 Texaco, Inc..................................... 47,200 2,826,100 USX-Marathon Group.............................. 498,600 8,164,575 -------------- 67,386,685 -------------- PETROLEUM SERVICES -- 8.3% Baker Hughes, Inc............................... 601,300 10,973,725 **+Crestar Energy, Inc.......................... 200,000 2,067,367 Dresser Industries, Inc......................... 576,400 10,879,550 Halliburton Co.................................. 480,000 15,900,000 McDermott International, Inc.................... 782,400 19,364,400 +Smith International Inc........................ 102,300 1,278,750 Sonat, Inc...................................... 144,400 4,043,200 +Varco International, Inc....................... 1,056,300 6,601,875 -------------- 71,108,867 -------------- REAL ESTATE DEVELOPMENT -- 8.7% Amli Residential Properties Trust............... 208,300 3,905,625 Avalon Properties, Inc.......................... 265,000 6,095,000 Beacon Properties Corp.......................... 184,800 3,511,200 Crescent Real Estate Equities, Inc.............. 251,000 6,808,375 Equity Residential Properties Trust............. 686,000 20,580,000 First Union Real Estate Investments............. 130,500 864,563 Gables Residential Trust........................ 345,800 7,434,700 Glimcher Realty Trust........................... 300,000 6,562,500 JP Realty, Inc.................................. 84,000 1,764,000 Kimco Realty Corp............................... 37,500 1,420,312 Malan Realty Investors, Inc..................... 140,000 1,872,500 Simon Property Group, Inc....................... 214,300 5,196,775 Vornado Realty Trust............................ 175,400 6,292,475 Weingarten Realty Investors..................... 62,500 2,367,187 -------------- 74,675,212 --------------
B31 HIGH DIVIDEND STOCK PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- RETAIL -- 0.8% Bradlees, Inc................................... 900 $ 10,463 K mart Corp..................................... 160,000 2,080,000 May Department Stores Co........................ 150,000 5,062,500 -------------- 7,152,963 -------------- STEEL -- 0.8% USX-U.S. Steel Group............................ 187,600 6,659,800 -------------- TELECOMMUNICATIONS -- 3.3% Ameritech Corp.................................. 12,800 516,800 Telefonos de Mexico (Class 'L' Stock), ADR...... 682,200 27,970,200 -------------- 28,487,000 -------------- UTILITY - COMMUNICATIONS -- 0.9% BellSouth Corp.................................. 80,000 4,330,000 NYNEX Corp...................................... 73,300 2,693,775 U S West, Inc................................... 14,800 527,250 -------------- 7,551,025 -------------- UTILITY - ELECTRIC -- 2.5% Central & South West Corp....................... 63,000 1,425,375 Central Hudson Gas & Electric Corp., Inc........ 34,400 911,600 Central Louisiana Electric Co................... 54,500 1,287,563 CINergy Corp.................................... 343,728 8,034,642 Entergy Corp.................................... 217,200 4,751,250 NIPSCO Industries, Inc.......................... 91,000 2,707,250 SCEcorp......................................... 182,000 2,661,750 -------------- 21,779,430 -------------- TOTAL COMMON STOCKS (Cost $583,122,780)............................................ 582,677,997 -------------- MARKET PREFERRED STOCKS -- 16.4% SHARES VALUE ------------- -------------- ALUMINUM -- 1.3% Kaiser Aluminum Corp. (Conv. Pfd.).............. 363,500 3,862,187 Reynolds Metals Co. (Conv. Pfd.)................ 147,700 7,144,988 -------------- 11,007,175 -------------- AUTOS - CARS & TRUCKS -- 1.4% Ford Motor Co. (Cum. Conv. Pfd.), Series A...... 127,000 11,684,000 -------------- DRUGS & HOSPITAL SUPPLIES -- 0.6% U.S. Surgical Corp. (Conv. Pfd.)................ 224,400 5,161,200 -------------- ELECTRICAL EQUIPMENT -- 2.3% **Westinghouse Electric Corp. (Conv. Pfd.)...... 1,457,000 19,487,375 -------------- ELECTRONICS -- 2.0% Advanced Micro Devices, Inc. (Conv. Ex. Pfd.)... 160,000 8,400,000 National Semiconductor Corp. (Conv. Pfd.)....... 125,000 9,062,500 -------------- 17,462,500 -------------- FINANCIAL SERVICES -- 0.8% **Parker & Parsley Capital, LLC (Conv. Pfd.).... 135,000 6,210,000 Property Trust of America (Conv. Pfd.), Series A............................................. 54,500 1,199,000 -------------- 7,409,000 --------------
DECEMBER 31, 1994
MARKET PREFERRED STOCKS (CONTINUED) SHARES VALUE ------------- -------------- FOREST PRODUCTS -- 1.1% Bowater, Inc. (Conv. Pfd.), Series B............ 161,100 $ 3,967,088 James River Corp. of Virginia (Cum. Conv. Ex. Pfd.), Series P............................... 268,300 5,433,075 -------------- 9,400,163 -------------- INSURANCE -- 0.7% **Alexander & Alexander Services, Inc. (Conv Pfd.), Series A............................... 100,000 4,000,000 **Unocal Corp. (Conv. Pfd.)..................... 35,000 1,754,375 USF&G Corp. (Conv. Ex. Pfd.), Series A.......... 10,900 493,225 -------------- 6,247,600 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 0.7% Echo Bay Finance Corp. (Conv. Pfd.), Series A... 100,000 3,287,500 Hecla Mining Co. (Conv. Pfd.), Series B......... 60,000 2,805,000 -------------- 6,092,500 -------------- PETROLEUM SERVICES -- 1.0% McDermott International, Inc. (Conv. Pfd.), Series C...................................... 100,000 4,137,500 Noble Drilling Corp. (Conv. Pfd.)............... 90,000 1,822,500 Reading & Bates Corp. (Conv. Pfd.).............. 134,800 2,780,250 -------------- 8,740,250 -------------- STEEL -- 2.3% **Bethlehem Steel Corp. (Cum. Conv. Pfd.)....... 300,000 14,700,000 USX Corp. (Cum. Conv. Pfd.)..................... 114,600 5,128,350 -------------- 19,828,350 -------------- TOBACCO -- 2.1% RJR Nabisco Holdings Corp. (Conv. Pfd.), Series C............................................. 2,955,000 17,730,000 -------------- UTILITY - ELECTRIC -- 0.1% Gulf States Utilities Co........................ 900 51,075 Gulf States Utilities Co. (Preferred Series A)............................................ 4,392 432,612 -------------- 483,687 -------------- TOTAL PREFERRED STOCKS (Cost $151,254,542)............................................ 140,733,800 -------------- MARKET RIGHTS AND WARRANTS -- 0.0% SHARES VALUE ------------- -------------- MACHINERY **++Terex Corp. (Rights)........................ 16,950 0 -------------- (Cost $0) PAR MARKET CONVERTIBLE BONDS -- 4.5% VALUE VALUE ------------- -------------- INDUSTRIAL Coeur D'Alene Mines, Corp., 7.000%, 11/30/02.............................. $ 3,000,000 $ 3,375,000 Conner Peripherals, Inc., 6.750%, 03/01/01.............................. 1,980,000 1,366,200 Cross Timbers Oil Co., 5.250%, 11/01/03.............................. 2,583,000 2,095,459 **Cypress Semiconductor Corp., 3.150%, 03/15/01.............................. 1,335,000 1,229,869
B32 HIGH DIVIDEND STOCK PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET CONVERTIBLE BONDS (CONTINUED) VALUE VALUE ------------- -------------- IMC Global, Inc., 6.250%, 12/01/01.............................. $ 4,500,000 $ 4,162,500 Malan Realty Investors, Inc., 9.500%, 07/15/04.............................. 3,000,000 2,576,250 Noble Affiliates, Inc., 4.250%, 11/01/03.............................. 11,701,000 9,945,850 Oryx Energy Co., 7.500%, 05/15/14.............................. 2,000,000 1,385,000 Quantum Corp., 6.375%, 04/01/02.............................. 5,250,000 5,118,750 Seagate Technology, **5.000%, 11/01/03............................ 4,200,000 4,326,000 6.750%, 05/01/12.............................. 3,070,000 2,548,100 VLSI Technology, Inc., 7.000%, 05/01/12.............................. 1,054,000 901,170 -------------- TOTAL CONVERTIBLE BONDS (Cost $41,994,290)............................................. 39,030,148 -------------- PAR MARKET LONG-TERM BONDS -- 2.5% VALUE VALUE ------------- -------------- INDUSTRIAL -- 0.5% **Terex Corp., 13.000%, 08/01/96............................. 4,583,000 4,376,765 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 2.0% United States Treasury Notes, 7.500%, 10/31/99, Series 1999................. 17,000,000 16,755,540 -------------- TOTAL LONG-TERM BONDS (Cost $20,818,910)............................................. 21,132,305 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 8.8% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. 75,853,000 75,853,000 -------------- OTHER ASSETS -- 0.0% (net of liabilities)........................................... 244,002 -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 859,671,252 -------------- -------------- The following abbreviations are used in portfolio descriptions: ADR American Depository Receipt PLC Public Limited Company (British Corporation) **Indicates a restricted security; the aggregate cost of the restricted securities is $63,176,231. The aggregate value, $58,151,751 is approximately 6.8% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994. ++Non-income producing.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B33 COMMON STOCK PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 87.3% SHARES VALUE ------------- -------------- AEROSPACE -- 3.4% AAR Corp........................................ 650,000 $ 8,693,750 Lockheed Corp................................... 207,900 15,098,738 Loral Corp...................................... 900,000 34,087,500 United Technologies Corp........................ 500,000 31,437,500 -------------- 89,317,488 -------------- ALUMINUM -- 1.3% +Alumax, Inc.................................... 267,500 7,590,313 Aluminum Co. of America......................... 300,000 25,987,500 -------------- 33,577,813 -------------- AUTOS - CARS & TRUCKS -- 4.0% Chrysler Corp................................... 975,000 47,775,000 Ford Motor Co................................... 800,000 22,400,000 General Motors Corp............................. 700,000 29,575,000 +Navistar International Corp.................... 395,200 5,977,400 -------------- 105,727,400 -------------- BANKS AND SAVINGS & LOANS -- 5.9% Bank of New York Company, Inc................... 900,000 26,100,000 BankAmerica Corp................................ 550,000 21,725,000 Chase Manhattan Corp............................ 600,000 20,625,000 Comerica, Inc................................... 700,000 17,062,500 First of America Bank Corp...................... 187,000 5,610,000 Great Western Financial Corp.................... 1,000,000 16,000,000 J.P. Morgan & Co., Inc.......................... 300,000 16,800,000 Mellon Bank Corp................................ 276,398 8,464,689 Mercantile Bankshares Corp...................... 279,600 5,487,150 NationsBank Corp................................ 350,000 15,793,750 -------------- 153,668,089 -------------- CHEMICALS -- 0.9% Eastman Chemical Co............................. 466,550 23,560,774 -------------- CHEMICALS - SPECIALTY -- 1.5% +ESSEF Corp..................................... 110,000 1,677,500 IMC Global, Inc................................. 705,500 30,512,875 Witco Corp...................................... 268,800 6,619,200 -------------- 38,809,575 -------------- COMMERCIAL SERVICES -- 0.6% Wellman, Inc.................................... 550,000 15,537,500 -------------- COMPUTER SERVICES -- 1.0% Comdisco, Inc................................... 900,000 20,812,500 Gerber Scientific, Inc.......................... 419,800 5,457,400 +Harris Computer Systems Corp................... 15,000 183,750 -------------- 26,453,650 -------------- CONSTRUCTION -- 0.0% +Willcox & Gibbs, Inc........................... 107,199 629,793 -------------- DIVERSIFIED OFFICE EQUIPMENT -- 0.8% International Business Machines Corp............ 300,000 22,050,000 -------------- DRUGS AND HOSPITAL SUPPLIES -- 2.8% Baxter International, Inc....................... 2,100,000 59,325,000 Upjohn Co....................................... 450,000 13,837,500 -------------- 73,162,500 -------------- ELECTRONICS -- 7.7% Amdahl Corp..................................... 850,000 9,350,000 +Digital Equipment Corp......................... 2,500,000 83,125,000 Harris Corp..................................... 300,000 12,750,000 Hewlett-Packard Co.............................. 175,000 17,478,125 Tandy Corp...................................... 1,418,000 71,077,250
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Varian Associates, Inc.......................... 145,000 $ 5,075,000 Zero Corp....................................... 120,500 1,687,000 -------------- 200,542,375 -------------- FINANCIAL SERVICES -- 6.8% American Express Co............................. 2,100,000 61,950,000 Dean Witter, Discover & Co...................... 1,200,000 40,650,000 Lehman Brothers Holdings, Inc................... 900,000 13,275,000 Republic New York Corp.......................... 225,000 10,181,250 Salomon, Inc.................................... 700,000 26,250,000 Travelers, Inc.................................. 800,000 26,000,000 -------------- 178,306,250 -------------- FOREST PRODUCTS -- 6.1% International Paper Co.......................... 415,000 31,280,625 James River Corp. of Virginia................... 560,000 11,340,000 Rayonier, Inc................................... 125,000 3,812,500 Scott Paper Co.................................. 1,650,000 114,056,250 -------------- 160,489,375 -------------- GAS PIPELINES -- 0.3% NorAm Energy Corp............................... 1,300,000 6,987,500 -------------- HEALTHCARE -- 1.1% +Foundation Health Corp......................... 950,000 29,450,000 -------------- HOSPITAL MANAGEMENT -- 3.2% +American Medical Holdings, Inc................. 649,600 15,671,600 +Beverly Enterprises, Inc....................... 39,300 564,938 Columbia / HCA Healthcare Corp.................. 400,000 14,600,000 +Hillhaven Corp................................. 459,400 9,762,250 National Medical Enterprises, Inc............... 2,965,000 41,880,625 -------------- 82,479,413 -------------- HOUSING RELATED -- 0.5% Centex Corp..................................... 600,000 13,650,000 -------------- INSURANCE -- 13.0% Alexander & Alexander Services, Inc............. 1,050,000 19,425,000 American General Corp........................... 1,000,000 28,250,000 Chubb Corp...................................... 700,000 54,162,500 Citizens Corp................................... 500,000 8,500,000 Continental Corp................................ 2,300,000 43,700,000 Emphesys Financial Group, Inc................... 441,400 14,014,450 Equitable Companies, Inc........................ 1,518,700 27,526,438 First Colony Corp............................... 1,253,600 28,049,300 John Alden Financial Corp....................... 141,000 4,053,750 Old Republic International Corp................. 1,000,590 21,262,538 Providian Corp.................................. 340,500 10,512,937 SAFECO Corp..................................... 800,000 41,600,000 SCOR U.S. Corp.................................. 195,600 1,638,150 St. Paul Companies, Inc......................... 400,000 17,900,000 Western National Corp........................... 1,528,200 19,675,575 -------------- 340,270,638 -------------- LODGING -- 2.0% Loews Corp...................................... 600,000 52,125,000 -------------- MINERAL RESOURCES -- 1.6% Amax Gold, Inc.................................. 131,342 788,052 Cyprus Amax Minerals Co......................... 1,533,200 40,054,850 +Nord Resources Corp............................ 130,500 831,938 -------------- 41,674,840 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 1.8% American Water Works Co., Inc................... 135,000 3,645,000 ITT Corp........................................ 500,000 44,312,500 +Worldtex, Inc.................................. 107,199 388,596 -------------- 48,346,096 --------------
B34 COMMON STOCK PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.8% Avnet, Inc...................................... 310,000 $ 11,470,000 Eastman Kodak Co................................ 500,000 23,875,000 Gibson Greetings, Inc........................... 750,000 11,062,500 -------------- 46,407,500 -------------- PETROLEUM -- 4.8% Amerada Hess Corp............................... 325,000 14,828,125 Atlantic Richfield Co........................... 250,000 25,437,500 Elf Aquitaine, ADR.............................. 1,836,033 64,720,163 Occidental Petroleum Corp....................... 1,100,000 21,175,000 -------------- 126,160,788 -------------- PETROLEUM SERVICES -- 2.3% +B.J. Services Co............................... 500,000 8,437,500 Oryx Energy Co.................................. 1,600,000 19,000,000 Total SA, ADR................................... 717,640 21,170,380 Union Texas Petroleum Holdings, Inc............. 504,500 10,468,375 -------------- 59,076,255 -------------- RAILROADS -- 0.9% +Southern Pacific Rail Corp..................... 1,300,000 23,562,500 -------------- RETAIL -- 5.7% Dayton-Hudson Corp.............................. 119,600 8,461,700 Dillard Department Stores, Inc. (Class 'A' Stock)........................................ 1,300,000 34,775,000 +Federated Department Stores, Inc............... 700,000 13,475,000 K mart Corp..................................... 2,300,000 29,900,000 Petrie Stores Corp.............................. 540,000 12,082,500 U.S. Shoe Corp.................................. 1,491,600 27,967,500 +Waban, Inc..................................... 1,300,000 23,075,000 -------------- 149,736,700 -------------- STEEL -- 0.5% +Bethlehem Steel................................ 500,000 9,000,000 Carpenter Technology Corp....................... 50,000 2,800,000 -------------- 11,800,000 -------------- TELECOMMUNICATIONS -- 3.5% Sprint Corp..................................... 1,700,000 46,962,500 Telefonica de Espana, SA, ADR................... 1,300,000 45,662,500 -------------- 92,625,000 -------------- TRUCKING/SHIPPING -- 0.8% OMI Corp........................................ 1,000,000 6,625,000 Overseas Shipholding Group, Inc................. 600,000 13,800,000 -------------- 20,425,000 -------------- UTILITY - ELECTRIC -- 0.7% American Electric Power Co., Inc................ 180,000 5,917,500 General Public Utilities Corp................... 500,000 13,125,000 -------------- 19,042,500 -------------- TOTAL COMMON STOCKS (Cost $2,039,308,682).......................................... 2,285,652,312 -------------- MARKET PREFERRED STOCKS -- 1.4% SHARES VALUE ------------- -------------- AUTOS - CARS & TRUCKS -- 0.5% **Chrysler Corp. (Conv. Pfd.)................... 95,000 13,050,625 --------------
DECEMBER 31, 1994
MARKET PREFERRED STOCKS (CONTINUED) SHARES VALUE ------------- -------------- TOBACCO -- 0.9% RJR Nabisco Holdings Corp. (Conv. Pfd.)......... 4,000,000 $ 24,000,000 -------------- TOTAL PREFERRED STOCKS (Cost $36,922,710)............................................. 37,050,625 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 13.1% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. $ 343,262,000 $ 343,262,000 -------------- LIABILITIES -- (1.8%) (net of other assets).......................................... (48,192,920) -------------- TOTAL NET ASSETS -- 100.0%....................................... $2,617,772,017 -------------- -------------- The following abbreviations are used in portfolio descriptions: ADR American Depository Receipt SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) **Indicates a restricted security; the aggregate cost of the restricted securities is $10,923,100. The aggregate value, $13,050,625 is approximately 0.5% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B35 GLOBAL EQUITY PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 87.0% SHARES VALUE ------------- -------------- AUSTRALIA -- 6.7% Brambles Industries, Ltd. (Miscellaneous - Basic Industry).............. 314,800 $ 3,006,681 Broken Hill Proprietary Co., Ltd. (Metals - Diversified)........................ 303,900 4,617,732 BTR Nylex, Ltd. (Miscellaneous - Basic Industry).............. 1,391,344 2,588,736 Coca-Cola Amatil, Ltd. (Foods)....................................... 817,705 5,198,194 Publishing and Broadcasting, Ltd. (Media)....................................... 50,000 139,933 Western Mining Corp. Holdings, Ltd. (Metals - Diversified)........................ 1,336,312 7,728,382 -------------- 23,279,658 -------------- BELGIUM -- 0.9% Bekaert, NPV (Miscellaneous - Basic Industry).............. 4,500 3,194,107 -------------- FEDERAL REPUBLIC OF GERMANY -- 2.5% BASF, AG (Chemicals)................................... 18,900 3,896,719 Bilfinger & Berger Bau, AG (Construction)................................ 3,744 1,908,663 Preussag, AG (Miscellaneous - Basic Industry).............. 9,270 2,691,898 -------------- 8,497,280 -------------- FINLAND -- 0.7% Kymmene Corp. (Forest Products)............................. 85,200 2,320,066 -------------- FRANCE -- 4.6% Guyenne et Gascogne (Retail)...................................... 3,100 783,561 Imetal (Mineral Resources)........................... 32,880 3,176,574 Lafarge Coppee (Construction)................................ 47,510 3,380,228 **Lafarge Coppee (Construction)................................ 1,100 78,263 Legrand (Electrical Equipment)........................ 2,700 3,275,791 Plastic Omnium (Autos - Cars & Trucks)....................... 6,765 729,571 Valeo, SA (Autos - Cars & Trucks)....................... 88,885 4,425,112 -------------- 15,849,100 -------------- HONG KONG -- 4.4% Cdl Hotels International, Ltd. (Real Estate Development)..................... 3,908,174 1,540,540 Citic Pacific, Ltd. (Miscellaneous - Basic Industry).............. 1,387,000 3,343,141 Guoco Group, Ltd. (Financial Services).......................... 1,243,000 5,317,389 Hung Hing Printing Group, Ltd. (Miscellaneous - Basic Industry).............. 3,452,000 709,361 Hutchison Whampoa, Ltd. (Miscellaneous - Basic Industry).............. 1,097,000 4,480,155 -------------- 15,390,586 -------------- INDONESIA -- 0.4% PT Kabelmetal Indonesia (Foreign) (Telecommunications).......................... 1,047,400 1,429,572 --------------
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- JAPAN -- 17.0% Aiwa (Electronics)................................. 122,000 $ 2,999,498 Autobacs Seven (Retail)...................................... 41,700 4,979,729 DDI Corp. (Telecommunications).......................... 370 3,193,176 Japan Associated Finance (Financial Services).......................... 26,000 4,044,155 Kamigumi Co. (Trucking/Shipping)........................... 302,000 3,212,444 Keyence Corp. (Electrical Equipment)........................ 37,000 4,195,685 Kyocera Corp. (Electrical Equipment)........................ 59,000 4,375,414 Minebea Co., Ltd. (Miscellaneous - Basic Industry).............. 434,000 3,658,404 Murata Manufacturing Co., Ltd. (Electronics)................................. 55,500 2,144,255 Nichiei Co., Ltd. (Financial Services).......................... 77,300 4,964,576 Nissen Co., Ltd. (Retail)...................................... 68,520 2,117,828 Nisshin Steel Co., Ltd. (Steel)....................................... 578,000 2,911,751 Rohm Co. (Electronics)................................. 102,000 4,319,518 Shin-Etsu Chemical Co. (Chemicals)................................... 176,000 3,497,040 Sony Music Entertainment (Leisure)..................................... 65,600 3,686,503 Tokyo Electron, Ltd. (Electrical Equipment)........................ 141,000 4,386,352 -------------- 58,686,328 -------------- MALAYSIA -- 3.9% Hong Leong Industries Berhad (Construction)................................ 3,000 15,508 I.J.M. Corp. Berhad (Loan Stock) (Construction)................................ 810,000 1,887,409 Malaysian Airline Systems Berhad (Airlines).................................... 421,000 1,261,269 Renong Berhad (Miscellaneous - Basic Industry).............. 2,181,000 2,699,025 Resorts World Berhad (Leisure)..................................... 804,000 4,722,929 Technology Resources Industries Berhad (Miscellaneous - Basic Industry).............. 904,000 2,885,295 United Merchant Group Berhad (Financial Services).......................... 666 1,226 -------------- 13,472,661 -------------- MEXICO -- 2.2% Cementos Apasco, SA (Class 'A' Stock) (Housing Related)............................. 426,400 2,125,573 Cifra, SA (Class 'B' Stock) (Retail)...................................... 1,259,800 2,562,648 Femsa (Class 'B' Stock) (Miscellaneous - Basic Industry).............. 604,900 1,549,030 Grupo Financiero Banamex (Class 'L' Stock) (Banks and Savings & Loans)................... 5,720 16,556
B36 GLOBAL EQUITY PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Grupo Financiero Banamex Accival, SA (Class 'C' Stock) (Banks and Savings & Loans)................... 414,100 $ 1,223,572 -------------- 7,477,379 -------------- NETHERLANDS -- 0.5% Boskalis Westminster, CVA (Construction)................................ 91,050 1,857,002 -------------- NEW ZEALAND -- 1.1% Fletcher Challenge, Ltd. (Forest Products)............................. 1,574,000 3,697,877 -------------- REPUBLIC OF KOREA -- 1.4% Pohang Iron & Steel Co., Ltd. (Steel)....................................... 3,800 306,988 Samsung Electronics Co. (Electronics)................................. 27,390 3,786,316 Samsung Electronics Co. (New) (Electronics)................................. 1,309 178,462 Shinsegae Department Store (Retail)...................................... 4,200 434,115 -------------- 4,705,881 -------------- SINGAPORE -- 6.5% Fraser & Neave, Ltd. (Beverages)................................... 303,000 3,139,142 Overseas Union Bank, Ltd. (Foreign) (Banks and Savings & Loans)................... 740,000 4,315,609 Sembawang Maritime, Ltd. (Trucking/Shipping)........................... 706,500 3,417,376 Singapore Airlines, Ltd. (Foreign) (Airlines).................................... 508,000 4,670,463 United Overseas Bank, Ltd. (Foreign) (Banks and Savings & Loans)................... 527,000 5,568,302 Wing Tai Holdings, Ltd. (Miscellaneous - Basic Industry).............. 856,250 1,515,695 -------------- 22,626,587 -------------- SPAIN -- 2.7% Acerinox, SA (Steel)....................................... 30,760 3,212,862 Centros Commerciales Pryca, SA (Retail)...................................... 93,362 1,407,776 Dragados Y Construcciones, SA (Construction)................................ 118,900 1,670,924 Vallehermoso, SA (Real Estate Development)..................... 167,233 2,902,760 -------------- 9,194,322 -------------- SWEDEN -- 4.2% Astra, AB (Series 'B' Free) (Drugs and Hospital Supplies)................. 145,150 3,701,724 Hennes & Mauritz (Series 'B' Free) (Retail)...................................... 90,200 4,624,974 Mo Och Domsjo, AB (Series 'B' Free) (Forest Products)............................. 57,000 2,654,170 Volvo, AB (Series 'B' Free) (Autos - Cars & Trucks)....................... 190,200 3,583,573 -------------- 14,564,441 --------------
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- THAILAND -- 0.9% Land & House Public Co., Ltd. (Foreign) (Construction)................................ 25,700 $ 458,618 Sahaviriya Steel Industry (Metals - Diversified)........................ 764,800 1,949,699 Sahaviriya Steel Industry (Foreign) (Metals - Diversified)........................ 322,000 820,872 -------------- 3,229,189 -------------- UNITED KINGDOM -- 8.9% Barclays, PLC (Banks and Savings & Loans)................... 246,900 2,360,517 British Sky Broadcasting Group, PLC (Media)....................................... 620,600 2,490,829 Carlton Communications (Communications).............................. 192,600 2,703,295 Guest Kean & Nettlefolds, PLC (Autos - Cars & Trucks)....................... 446,570 4,105,274 **Guest Kean & Nettlefolds, PLC (Autos - Cars & Trucks)....................... 22,870 210,242 J. Sainsbury, PLC (Retail)...................................... 299,500 1,928,464 Powergen, PLC (Utility - Electric).......................... 294,000 2,465,795 S.G. Warburg Group, PLC (Financial Services).......................... 171,900 1,861,344 Siebe, PLC (Machinery)................................... 500,840 4,369,066 TeleWest Communications, PLC (Media)....................................... 1,200,000 3,192,089 Vodafone Group, PLC (Telecommunications).......................... 1,503,900 4,988,840 -------------- 30,675,755 -------------- UNITED STATES -- 17.5% +Adaptec, Inc. (Computer Services)........................... 206,600 4,880,925 +Applied Materials, Inc. (Electrical Equipment)........................ 81,000 3,422,250 +Cirrus Logic, Inc. (Electronics)................................. 106,500 2,396,250 +Electronic Arts, Inc. (Computer Services)........................... 139,700 2,689,225 Exide Corp. (Autos - Cars & Trucks)....................... 61,000 3,431,250 Mattel, Inc. (Leisure)..................................... 171,050 4,297,631 MCI Communications Corp. (Telecommunications).......................... 162,300 2,982,263 +Microsoft Corp. (Computer Services)........................... 72,800 4,449,900 Mobil Corp. (Petroleum)................................... 48,500 4,086,125 Motorola, Inc. (Electronics)................................. 105,900 6,128,962 +Nextel Communications, Inc. (Class 'A' Stock) (Telecommunications).......................... 186,600 2,682,375 Norwest Corp. (Banks and Savings & Loans)................... 155,000 3,623,125 +Oracle Systems Corp. (Computer Services)........................... 115,900 5,114,087 Pohang Iron & Steel Co., Ltd., ADR (Steel)....................................... 60,800 1,778,400
B37 GLOBAL EQUITY PORTFOLIO (CONTINUED) DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- +Silicon Graphics, Inc. (Computer Services)........................... 157,800 $ 4,891,800 Time Warner, Inc. (Media)....................................... 103,300 3,628,413 -------------- 60,482,981 -------------- TOTAL COMMON STOCKS (Cost $296,456,732)............................................ 300,630,772 -------------- MARKET PREFERRED STOCKS -- 3.2% SHARES VALUE ------------- -------------- FEDERAL REPUBLIC OF GERMANY -- 0.7% Krones, AG (Machinery)................................... 4,368 2,452,270 -------------- FINLAND -- 2.4% Nokia, AB (Miscellaneous - Basic Industry).............. 55,900 8,236,414 -------------- REPUBLIC OF KOREA -- 0.1% Samsung Electronics Co. (Electronics)................................. 5,213 394,033 -------------- TOTAL PREFERRED STOCKS (Cost $7,891,492).............................................. 11,082,717 -------------- MARKET RIGHTS AND WARRANTS -- 0.4% SHARES VALUE ------------- -------------- FEDERAL REPUBLIC OF GERMANY -- 0.2% )Kamigumi Co. (Warrants), (Trucking/Shipping)........................... 1,000 164,553 )Nissen Co., Ltd. (Warrants), (Retail)...................................... 316 397,638 -------------- 562,191 -------------- FRANCE -- 0.0% **Lafarge Coppee (Warrants), (Construction)................................ 1,000 5,074 -------------- SWITZERLAND -- 0.1% \Nitori Co., Ltd. (Warrants), (Furniture)................................... 2,950 507,066 -------------- UNITED STATES -- 0.1% #Autobacs Seven Warrants 95 #1, (Retail)...................................... 35 130,813 #Autobacs Seven Warrants 96 #2, (Retail)...................................... 35 127,313 -------------- 258,126 -------------- TOTAL RIGHTS AND WARRANTS (Cost $1,517,852).............................................. 1,332,457 -------------- PAR MARKET CONVERTIBLE BONDS -- 0.3% VALUE VALUE ------------- -------------- SINGAPORE -- 0.1% Sembawang Maritime, Ltd., (1.500%, 10/25/98 (Trucking/Shipping)........................... $ 154,000 $ 240,906 --------------
DECEMBER 31, 1994
PAR MARKET CONVERTIBLE BONDS (CONTINUED) VALUE VALUE ------------- -------------- UNITED STATES -- 0.2% MDX Public Co., Ltd., (4.750%, 9/17/03 (Real Estate Development)..................... $ 1,227,000 $ 779,145 -------------- TOTAL CONVERTIBLE BONDS (Cost $1,393,348).............................................. 1,020,051 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 7.5% AMOUNT VALUE ------------- -------------- UNITED STATES REPURCHASE AGREEMENTS (Sanawa, 5.750%, entered 12/30/94; maturing 01/03/95 in the amount of $26,000,000 (collateralized by $25,575,000 United States Treasury Notes, 7.875%, 01/15/98)........... $ 26,000,000 $ 26,000,000 -------------- - -C-UNREALIZED APPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS - 0.0%......................................................... 17,247 -------------- OTHER ASSETS -- 1.6% (net of liabilities)........................................... 5,650,734 -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 345,733,978 -------------- -------------- The following abbreviations are used in portfolio descriptions: AB Aktiebolag (Swedish Stock Company) ADR American Depository Receipt AG Aktiengesellschaft (West German Stock Company) CVA Certificaten Van Affecton (Guaranteed) NPV Net Present Value PLC Public Limited Company (British Corporation) SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) #These are American warrants with an underlying Japanese security. )These are German warrants with an underlying Japanese security. \These are Swiss warrants with an underlying Japanese security. **Indicates a restricted security; the aggregate cost of the restricted securities is $216,115. The aggregate value, $293,578 is approximately .1% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994. - -C- Forward Foreign Exchange Contracts as of December 31, 1994: FOREIGN CURRENCY SOLD EXPIRATION DATE UNREALIZED APPRECIATION Australian Dollar 171,259 January 1995 $17,247
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B38 NATURAL RESOURCES PORTFOLIO DECEMBER 31, 1994
MARKET COMMON STOCKS -- 88.3% SHARES VALUE ------------- -------------- ALUMINUM -- 6.0% +Alumax, Inc.................................... 100,000 $ 2,837,500 Aluminum Co. of America......................... 40,000 3,465,000 Comalco, Ltd., ADR.............................. 142,000 2,753,579 +Kaiser Aluminum Corp........................... 91,000 989,625 Reynolds Metals Co.............................. 75,050 3,677,450 -------------- 13,723,154 -------------- CHEMICALS -- 0.8% Calgon Carbon Corp.............................. 180,000 1,867,499 -------------- CHEMICALS - SPECIALTY -- 3.0% IMC Global, Inc................................. 154,800 6,695,099 -------------- DIVERSIFIED GAS -- 7.1% +Basin Exploration, Inc......................... 130,000 1,413,750 Cross Timbers Oil Co............................ 224,900 3,373,500 +Rigel Energy Corp.............................. 294,500 2,945,000 Sonat Offshore Drilling, Inc.................... 127,000 2,254,250 USX-Delhi Group................................. 106,500 1,065,000 Western Gas Resources, Inc...................... 257,600 4,958,800 -------------- 16,010,300 -------------- FOREST PRODUCTS -- 4.7% Champion International Corp..................... 99,500 3,631,750 Fletcher Challenge, Ltd., ADR................... 312,900 3,559,238 Rayonier, Inc................................... 116,100 3,541,050 -------------- 10,732,038 -------------- GAS PIPELINES -- 4.3% Aquila Gas Pipeline Corp........................ 113,700 895,388 +Global Marine, Inc............................. 206,500 748,563 +Reading & Bates Offshore Drilling Co........... 232,600 1,395,600 +Seagull Energy Corp............................ 170,400 3,258,900 +Tejas Gas Corp................................. 70,450 3,355,180 -------------- 9,653,631 -------------- METALS - DIVERSIFIED -- 1.4% +Stillwater Mining Co........................... 242,900 3,263,969 -------------- MINERAL RESOURCES -- 30.9% Agnico-Eagle Mines, Ltd......................... 425,000 4,515,625 American Barrick Resources Corp................. 254,653 5,666,029 Battle Mountain Gold Co......................... 162,300 1,785,300 +Cominco, Ltd................................... 144,000 2,556,000 CRA, Ltd., ADR.................................. 69,200 3,821,688 Freeport-McMoRan Copper & Gold, Inc. (Class 'A' Stock)........................................ 162,300 3,448,875 Inco, Ltd....................................... 168,600 4,826,175 M.I.M. Holdings, Ltd., ADR...................... 840,000 2,801,652 Newmont Mining Corp............................. 126,307 4,547,052 Pegasus Gold, Inc............................... 172,000 1,956,500 Placer Dome, Inc................................ 199,700 4,343,475 Potash Corp. of Saskatchewan, Inc............... 320,400 10,893,600 +Sante Fe Pacific Gold Corp..................... 437,700 5,635,388 +TVX Gold, Inc.................................. 600,000 4,050,000 Vigoro Corp..................................... 169,000 5,070,000 Western Mining Corp. Holdings, Ltd., ADR........ 187,500 4,382,812 -------------- 70,300,171 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 0.8% +Enterra Corp................................... 98,500 1,871,500 -------------- PETROLEUM -- 6.9% Amerada Hess Corp............................... 47,900 2,185,438 Cabot Oil & Gas Corp. (Class 'A' Stock)......... 129,900 1,883,550
DECEMBER 31, 1994
MARKET COMMON STOCKS (CONTINUED) SHARES VALUE ------------- -------------- Elf Aquitaine, ADR.............................. 189,783 $ 6,689,850 Parker & Parsley Petroleum Co................... 145,000 2,972,500 USX-Marathon Group.............................. 117,100 1,917,513 -------------- 15,648,851 -------------- PETROLEUM CANADIAN -- 2.7% Beau Canada Exploration, Ltd. (Class 'A' Stock)........................................ 831,900 1,186,099 +Talisman Energy, Inc........................... 290,000 4,858,314 -------------- 6,044,413 -------------- PETROLEUM SERVICES -- 19.7% +American Oilfield Divers, Inc.................. 59,900 374,375 Baker Hughes, Inc............................... 126,700 2,312,275 +Cairn Energy USA, Inc.......................... 250,000 1,968,750 Camco International, Inc........................ 100,000 1,887,500 +Coflexip, ADR.................................. 172,000 3,999,000 **+Crestar Energy, Inc.......................... 240,000 2,480,841 +Dreco Energy Services, Ltd. (Class 'A' Stock)........................................ 88,100 644,231 +Hornbeck Offshore Services, Inc................ 127,200 1,605,900 +ICO, Inc....................................... 192,300 769,200 +Marine Drilling Co., Inc....................... 820,400 2,307,375 +Mesa, Inc...................................... 440,900 2,149,388 +Newfield Exploration Co........................ 204,000 4,029,000 Noble Affiliates, Inc........................... 156,700 3,878,325 +Noble Drilling Corp............................ 140,600 826,025 +Offshore Pipelines, Inc........................ 150,000 3,393,750 Oryx Energy Co.................................. 117,100 1,390,563 +PetroCorp, Inc................................. 217,500 2,324,531 +Pride Petroleum Services, Inc.................. 260,000 1,348,750 +Stolt Comex Seaway, SA......................... 220,000 1,567,500 Trident NGL Holding, Inc........................ 200,000 2,100,000 +Varco International, Inc....................... 115,800 723,750 +Western Co. of North America................... 162,200 2,737,125 -------------- 44,818,154 -------------- TOTAL COMMON STOCKS (Cost $195,869,708)............................................ 200,628,779 -------------- MARKET PREFERRED STOCKS -- 5.5% SHARES VALUE ------------- -------------- ALUMINUM -- 0.7% Kaiser Aluminum Corp. (Conv. Pfd.).............. 150,000 1,593,750 -------------- MINERAL RESOURCES -- 1.3% Amax Gold, Inc. (Conv. Pfd), Series B........... 22,400 1,086,400 Battle Mountain Gold Co. (Conv. Pfd.)........... 12,000 732,000 Freeport - McMoRan Copper & Gold, Inc........... 60,000 1,177,500 -------------- 2,995,900 -------------- MISCELLANEOUS - BASIC INDUSTRY -- 1.8% Hecla Mining Co. (Conv. Pfd.), Series B......... 87,000 4,067,250 -------------- PETROLEUM SERVICES -- 1.7% Noble Drilling Corp. (Conv. Pfd.)............... 150,000 3,037,500 Reading & Bates Corp. (Cum. Conv. Pfd.)......... 39,900 822,938 -------------- 3,860,438 -------------- TOTAL PREFERRED STOCKS (Cost $13,791,225)............................................. 12,517,338 --------------
B39 NATURAL RESOURCES PORTFOLIO (CONTINUED) DECEMBER 31, 1994
PAR MARKET CONVERTIBLE BONDS -- 3.0% VALUE VALUE ------------- -------------- INDUSTRIAL Coeur d'Alene Mines Corp., 6.375%, 01/31/04.............................. $ 4,319,000 $ 3,584,770 7.000%, 11/30/02.............................. 1,465,000 1,648,125 **Homestake Mining Co., 5.500%, 06/23/00.............................. 1,519,000 1,486,722 -------------- TOTAL CONVERTIBLE BONDS (Cost $7,130,853).............................................. 6,719,617 -------------- PRINCIPAL SHORT-TERM INVESTMENTS -- 4.5% AMOUNT VALUE ------------- -------------- REPURCHASE AGREEMENTS Joint Repurchase Agreement Account, 5.720%, 01/03/95 (see Note 4)................. 10,291,000 10,291,000 -------------- LIABILITIES -- (1.3%) (net of other assets).......................................... (2,882,805) -------------- TOTAL NET ASSETS -- 100.0%....................................... $ 227,273,929 -------------- -------------- The following abbreviations are used in portfolio descriptions: ADR American Depository Receipt SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation) **Indicates a restricted security; the aggregate cost of the restricted securities is $4,570,797. The aggregate value, $3,967,563 is approximately 1.7% of net assets. (See Note 2) +No dividend was paid on this security during the 12 months ending December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46. B40 NOTES TO THE FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993 (AS RESTATED) NOTE 1: GENERAL The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation, organized on November 15, 1982, is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended. The Series Fund is composed of sixteen Portfolios, each with a separate series of capital stock. Shares in the Series Fund are currently sold only to certain separate accounts of The Prudential Insurance Company of America ("The Prudential"), Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (together referred to as the "Companies") to fund benefits under certain variable life insurance and variable annuity contracts issued by the Companies. The shareholders of Pruco Life Series Fund, Inc. ("Pruco Fund") and the Series Fund approved the merger of the Pruco Fund into the Series Fund as of November 1, 1986. The merger combined five portfolios with identical investment strategies (Money Market, Bond, Common Stock, Aggressively Managed Flexible and Conservatively Managed Flexible) of the Pruco Fund with their counterpart in the Series Fund. The merger was effected by converting the net assets of the Pruco Fund at the merger date into shares of the Series Fund at the share price of that day and was accounted for as a pooling of interest. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SECURITIES VALUATION: Equity securities are valued at market. Securities traded on a national securities exchange are valued at the last sales price on such exchange as of the close of the New York Stock Exchange or, in the absence of recorded sales, at the mean between the most recently quoted bid and asked prices. For any securities not traded on a national securities exchange but traded in the over-the-counter market, the securities are valued at the mean between the most recently quoted bid and asked prices, 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 last sales price or if there was no sale on such day, at the mean between the most recently quoted bid and asked prices. Convertible debt securities are valued at the mean between the most recently quoted bid and asked prices provided by principal market makers. High yield bonds are valued either by quotes received from principal market makers or by an independent pricing service which determines prices by analysis of quality, coupon, maturity and other adjustment factors. Long-term bonds are valued at market, based on valuation prices by an independent pricing service which determines prices by analysis of quality, coupon, maturity and other adjustment factors. 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. The interest rates shown for Commercial Paper, Promissory Notes, and certain U.S. Government Agency Obligations on the Schedules of Investments are the discount rates paid at the time of purchase. Any security for which a quotation is unavailable is valued at fair value as determined in good faith by or under the direction of the Series Fund's Board of Directors. The ability of issuers of debt securities held by specific Portfolios of the Series Fund to meet their obligations may be affected by economic developments in a specific country or industry. Each portfolio, other than the Money Market Portfolio, may invest up to 15% of its net assets in securities which are subject to legal or contractual restrictions on resale or for which no readily available market exists ("restricted securities"). The Money Market Portfolio may invest up to 10% of its net assets in restricted securities. Restricted securities are valued pursuant to the valuation procedures noted above. DERIVATIVE FINANCIAL INSTRUMENTS: The Series Fund may engage in various portfolio strategies to seek increased returns by hedging the portfolios against adverse movements in the equity, debt, and currency markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. OPTION WRITING: When the Series Fund sells an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options which expire unexercised are treated on the expiration date as gains from the sale of securities. As to options which are closed, the difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a gain, or if the B41 premium received is less than the amount paid for the closing purchase transaction, as a loss. If a call option is exercised, the premium is added to the proceeds from the sale in determining whether a gain or loss has been realized. The Series Fund's use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the statement of assets and liabilities. The contract or notional amounts reflect the extent of the Series Fund's involvement in these financial instruments. Risks arise from the possible movements in foreign exchange rates and securities values underlying these instruments. STOCK INDEX FUTURES: Portfolios of the Fund may attempt to reduce the risk of investment in equity securities by hedging a portion of their equity portfolios through the use of stock index futures traded on a commodities exchange or board of trade. A stock index futures contract is an agreement in which the seller of the contract agrees to deliver to the buyer an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement was made. Upon entering into a futures contract, a Portfolio is required to pledge to the broker liquid assets equal to the minimum "initial margin," approximately 5% of the contract amount. The Portfolio further agrees to receive or pay to the broker an amount of cash equal to the futures contract's daily fluctuation in value. These receipts or payments are known as the "variation margin" and are recorded as unrealized gains or losses. When a futures contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. FOREIGN CURRENCY TRANSACTIONS: The books and records of the Series Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities at the mid daily rate of exchange as reported by a major New York City bank; (ii) purchases and sales of investment securities, income and expenses at the rate of exchange prevailing on the respective dates of such transactions. Since the net assets of the Series Fund are presented at the foreign exchange rates and market values at the close of the fiscal period, it is not practical to isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from change in the market prices of securities held at the end of the fiscal period. Similarly, it is not practical to isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of equities sold during the fiscal year. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, the possibility of political and economic instability and the level of government supervision and regulation of foreign security markets. The Global Equity Portfolio may invest up to 100% of its total assets in common stock and convertible securities denominated in a foreign currency and issued by foreign or domestic issuers. The Bond and High Yield Bond Portfolios may each invest up to 20% of their assets in United States currency denominated debt securities issued outside the United States by foreign or domestic issuers. In addition, the bond components of the Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios may each invest up to 20% of their assets in such securities. Further, the High Dividend Stock and Aggressively Managed Flexible Portfolios may invest up to 30% of their total assets in debt and equity securities denominated in a foreign currency and issued by foreign or domestic issuers. In addition, Common Stock and Natural Resources Portfolios may invest up to 30% of their total assets in non-United States currency denominated common stock and fixed-income securities convertible into common stock of foreign and U.S. issuers. Net realized gains and losses on foreign currency transactions represent net foreign exchange gains and losses from holding of foreign currencies; currency gains or losses realized between the trade and settlement dates on security transactions; and the difference between the amounts of the dividends and foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net currency gains and losses from valuing foreign currency denominated assets and liabilities at fiscal period end exchange rates are reflected as a component of unrealized loss on foreign currencies. FORWARD FOREIGN EXCHANGE CONTRACTS: The Series Fund is authorized to enter into forward foreign exchange contracts as a hedge against either specific transactions or portfolio positions. Such contracts are not entered on the Series Fund's records. However, the effect on operations is recorded from the date the Series Fund enters into such contracts. Premium or discount is amortized over the life of the contracts. B42 SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date. Interest income is accrued daily on both long-term bonds and short-term investments. Interest income also includes net amortization from the purchase of fixed-income securities. Long-term security and option 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 date. Short-term security and futures transactions are recorded on trade date. Realized gains and losses from security transactions are determined and accounted for on the basis of identified cost. DISTRIBUTIONS AND TAXES: The Portfolios of the Series Fund intend to continue to qualify for and elect the special tax treatment afforded regulated investment companies under Subchapter M of the Internal Revenue Code, thereby relieving the Series Fund of Federal income taxes. To so qualify, the Series Fund intends to distribute substantially all of its net investment income and net realized capital gains, if any, less any available capital loss carry forward. As of December 31, 1994, (based on an October 31 measurement period) the Bond Portfolio had a net capital loss carry forward of $643,550 (expiring in 2002). The High Yield Bond Portfolio had a net capital loss carry forward of $5,141,222 ($3,756,791 expiring in 1999 and $1,384,431 expiring in 2002). The Global Equity Portfolio had a net capital loss carry forward of $6,265,350 (expiring in 2002). Finally, the Zero Coupon Bond 2005 Portfolio had a net capital loss carry forward of $123,179 (expiring in 2002). These amounts will be available to offset any future taxable gains. The Money Market Portfolio declares dividends of net investment income (including realized and unrealized gains and losses on Portfolio securities) on each business day. These dividends are reinvested in additional full and fractional shares of the Portfolio. This policy enables the Money Market Portfolio to maintain a net asset value of $10.00 per share. Dividends from investment income of the other Portfolios will normally be declared and reinvested in additional full and fractional shares four times annually. Dividends from net realized capital gains are declared and reinvested in additional full and fractional shares twice a year. EXPENSES: Each Portfolio pays for certain expenses incurred in its individual operation, and also pays a portion of the Series Fund's general administrative expenses allocated on the basis of the asset size of the respective Portfolios. The Series Fund has an arrangement with Chemical Banking Corporation, a custodian bank. On a daily basis, cash funds which are not invested earn a credit which is used to offset custody charges on a Portfolio basis, exclusive of the Global Equity Portfolio, for which Brown Brothers Harriman & Co. is the custodian bank. For the year ended December 31, 1994, the total of the credits used was: Conservatively Managed Flexible Portfolio..................... $ 91,232 Aggressively Managed Flexible Portfolio....................... 41,492 Government Securities Portfolio............................... 15,374 Money Market Portfolio........................................ 14,851 High Yield Bond Portfolio..................................... 7,469 Bond Portfolio................................................ 4,838 Zero Coupon Bond 2005 Portfolio............................... 2,531 Zero Coupon Bond 2000 Portfolio............................... 1,447 Zero Coupon Bond 1995 Portfolio............................... 517
NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT MANAGEMENT AND ACCOUNTING FEES: Pursuant to an investment advisory agreement (the "Agreement"), The Prudential receives an investment management fee, calculated daily, at an effective annual rate of 0.35% of the average daily net assets of the Stock Index Portfolio: 0.40% of the average daily net assets of the Money Market, Bond, Zero Coupon Bond 1995, Zero Coupon Bond 2000, Zero Coupon Bond 2005, High Dividend Stock and Government Securities Portfolios; 0.45% of average daily net assets of the Common Stock and Natural Resources Portfolios; 0.55% of the average daily net assets of the Conservatively Managed Flexible and the High Yield Bond Portfolios; 0.60% of the average daily net assets of the Aggressively Managed Flexible Portfolio; and 0.75% of the average daily net assets of the Global Equity Portfolio. Under the Agreement, The Prudential has agreed to refund to a portfolio (other than the Global Equity Portfolio), the portion of the management fee for that Portfolio equal to the amount that the aggregate annual ordinary operating expenses (excluding interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's B43 average daily net assets. The Agreement also requires the Series Fund to reimburse The Prudential for the cost of maintaining staff and personnel who provide daily accounting services for the operation of the Series Fund with the exception of the Global Equity Portfolio. DIRECTORS' EXPENSES: The Series Fund pays for the fees and expenses of those members of the Series Fund's Board of Directors who are not officers or employees of The Prudential or its affiliates. BROKERAGE COMMISSIONS: For the year ended December 31, 1994, Prudential Securities Inc., an indirect, wholly-owned subsidiary of The Prudential, earned $560,155 in brokerage commissions from Portfolio transactions executed on behalf of the Series Fund. OTHER TRANSACTIONS WITH AFFILIATES: As of December 31, 1994, The Prudential had investments of $7,208,297 in the Zero Coupon Bond 1995 Portfolio; $105,934 in the Zero Coupon Bond 2000 Portfolio; and $1,158,347 in the Global Equity Portfolio. NOTE 4: JOINT REPURCHASE AGREEMENT ACCOUNT The Portfolios of the Series Fund transfer uninvested cash balances into a single joint account, the daily aggregate balance of which is invested in one or more repurchase agreements collateralized by U.S. Government obligations. The Series Fund's undivided investment in the joint repurchase agreement account represented, in principal, $974,388,000 as of December 31, 1994. The Portfolios of the Series Fund with cash invested in the joint account had the following percentage participation in the account: Common Stock Portfolio........................................ 35.23% Aggressively Managed Flexible Portfolio....................... 33.94% Conservatively Managed Flexible Portfolio..................... 12.45% High Dividend Stock Portfolio................................. 7.78% Government Securities Portfolio............................... 3.78% Stock Index Portfolio......................................... 2.66% Bond Portfolio................................................ 1.56% High Yield Bond Portfolio..................................... 1.47% Natural Resources Portfolio................................... 1.06% Zero Coupon Bond 2005 Portfolio............................... .07% ---------- 100.00%
Banker's Trust Securities Repurchase Agreement, dated 12/30/94, in the principal amount of $225,000,000, repurchase price $225,143,746, due 1/3/95; collateralized by $225,555,000 U.S. Treasury Notes, 8%, due 5/15/01. Goldman Sachs Repurchase Agreement, dated 12/30/94, in the principal amount of $67,388,000, repurchase price $67,427,309, due 1/3/95; collateralized by $61,265,000 U.S. Treasury Bonds, 8.875%, due 2/15/19. Morgan Stanley Repurchase Agreement, dated 12/30/94, in the principal amount of $278,000,000, repurchase price $278,171,508, due 1/3/95; collateralized by $143,865,000 U.S. Treasury Notes, 5.125%, due 3/31/98; $142,980,000 U.S. Treasury Notes, 8.75%, due 10/15/97. Nomura Securities Repurchase Agreement, dated 12/30/94, in the principal amount of $179,000,000, repurchase price $179,119,333, due 1/3/95; collateralized by $26,435,000 U.S. Treasury Bonds, 7.125%, due 2/15/23; $33,240,000 U.S. Treasury Bonds, 7.875%, due 2/15/21; $118,360,000 U.S. Treasury Bonds, 8.125%, due 8/15/19. Smith Barney Repurchase Agreement, dated 12/30/94, in the principal amount of $100,000,000, repurchase price $100,065,552, due 1/3/95; collateralized by $4,805,000 U.S. Treasury Bonds, 12.0%, due 8/15/13; $17,000,000 U.S. Treasury Bonds, 7.125%, due 2/15/23; $15,000,000 U.S. Treasury Bonds, 8.875%, due 2/15/19; $17,000,000 U.S. Treasury Bonds, 11.875%, due 11/15/03; $33,000,000 U.S. Treasury Bonds, 11.125%, due 8/15/03. UBS Securities Repurchase Agreement, dated 12/30/94, in the principal amount of $125,000,000, repurchase price $125,079,860, due 1/3/95; collateralized by $45,000,000 U.S. Treasury Bonds, 14.0%, due 11/15/11; $62,000,000 U.S. Treasury Notes, 5.125%, due 3/31/96. B44 NOTE 5: PURCHASE AND SALE OF SECURITIES The aggregate cost of purchase and the proceeds from the sales of securities (excluding short-term issues) for the year ended December 31, 1994 were as follows: Cost of Purchases:
ZERO ZERO ZERO CONSERVATIVELY AGGRESSIVELY GOVERNMENT COUPON COUPON COUPON MANAGED MANAGED BOND SECURITIES 1995 2000 2005 FLEXIBLE FLEXIBLE ------------ ------------ ------------ ------------ -------------- -------------- -------------- Debt Securities.......... $230,427,085 $170,067,390 $ 3,088,318 $ 2,167,569 $ 3,833,265 $2,264,216,698 $2,110,107,294 Equity Securities........ $ 0 $ 0 $ 0 $ 0 $ 0 $ 587,491,444 $1,463,207,489
HIGH HIGH YIELD STOCK DIVIDEND COMMON GLOBAL NATURAL BOND INDEX STOCK STOCK EQUITY RESOURCES ------------ ------------ -------------- -------------- ------------ ------------ Debt Securities.......... $245,231,365 $ 0 $ 59,651,560 $ 0 $ 2,014,070 $ 4,138,265 Equity Securities........ $ 15,834,213 $ 59,347,016 $ 672,161,860 $ 798,167,933 $298,502,390 $115,627,163
Proceeds From Sales:
ZERO ZERO ZERO CONSERVATIVELY AGGRESSIVELY GOVERNMENT COUPON COUPON COUPON MANAGED MANAGED BOND SECURITIES 1995 2000 2005 FLEXIBLE FLEXIBLE ------------ ------------ ------------ ------------ ------------ -------------- -------------- Debt Securities.......... $161,141,232 $192,629,378 $ 670,613 $ 1,988,360 $ 854,514 $2,265,817,380 $1,985,428,664 Equity Securities........ $ 0 $ 0 $ 0 $ 0 $ 0 $ 430,107,759 $1,492,407,199
HIGH HIGH YIELD STOCK DIVIDEND COMMON GLOBAL NATURAL BOND INDEX STOCK STOCK EQUITY RESOURCES ------------ ------------ ------------ ------------ -------------- -------------- Debt Securities.......... $184,820,098 $ 0 $ 14,057,405 $ 0 $ 3,180,314 $ 2,019,170 Equity Securities........ $ 13,401,205 $ 10,703,691 $440,060,612 $133,822,827 $ 80,485,320 $ 34,073,194
Transactions in call options written during the year ended December 31, 1994 were as follows:
NATURAL RESOURCES ---------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ----------- Options outstanding at December 31, 1993....... 0 $ 0 Options written........... 300 66,832 Options terminated in closing purchase transactions............ (300) (66,832) Options expired........... 0 0 Options exercised......... 0 0 --------- ----------- Options outstanding at December 31, 1994....... 0 $ 0 --------- ----------- --------- -----------
The federal income tax basis and unrealized appreciation/depreciation of the Fund's investments as of December 31, 1994 were as follows:
ZERO ZERO ZERO CONSERVATIVELY MONEY GOVERNMENT COUPON COUPON COUPON MANAGED MARKET BOND SECURITIES 1995 2000 2005 FLEXIBLE ------------ ----------- ----------- ----------- ------------- ----------- ------------- Gross Unrealized Appreciation... $ 0 1,403,760 947,221 147,086 839,286 381,531 147,865,296 Gross Unrealized Depreciation... 0 33,335,908 29,890,790 110,193 174,236 568,432 122,789,171 Total Net Unrealized............ 0 (31,932,148) (28,943,569) 36,893 665,050 (186,901) 25,076,125 Tax Basis....................... 581,582,129 563,227,825 507,031,047 17,721,753 20,000,846 16,718,218 3,443,877,594 AGGRESSIVELY HIGH HIGH MANAGED YIELD STOCK DIVIDEND COMMON GLOBAL NATURAL FLEXIBLE BOND INDEX STOCK STOCK EQUITY RESOURCES ------------ ----------- ----------- ----------- ------------- ----------- ------------- Gross Unrealized Appreciation... 224,521,828 3,272,256 $105,889,895 41,940,476 376,581,396 29,685,605 23,326,212 Gross Unrealized Depreciation... 93,827,948 32,262,000 24,917,605 55,556,748 130,109,851 22,797,770 20,252,264 Total Net Unrealized............ 130,693,880 (28,989,744) 80,972,290 (13,616,272) 246,471,545 6,887,835 3,073,948 Tax Basis....................... 3,347,362,272 328,072,741 584,600,736 873,043,522 2,419,493,392 340,366,881 227,082,786
B45 NOTE 6: RESTATEMENT Subsequent to the issuance of the 1993 financial statements of the High Yield Bond Portfolio ("the Portfolio"), Prudential management learned that distributions of $1,366,447 received by the Portfolio had been erroneously reported to the Series Fund and reflected in the Portfolio's 1993 financial statements as interest income. These distributions, in fact, represented payments for partial redemptions of the underlying security. This error resulted in the following overstatements in the originally issued 1993 financial statements: Investments $1,708,058 ---------- ---------- Interest Income $1,366,447 Net Unrealized Gain on Investments 341,611 ---------- Net Assets $1,708,058 ---------- ---------- Net Asset Value Per Share $.051 ---------- ----------
The comparative 1993 financial information included in the statements of changes in net assets of the Portfolio has been restated to correct for this error. B46 INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors of The Prudential Series Fund, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Money Market, Bond, Common Stock, Aggressively Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond 1995, Zero Coupon Bond 2000, Zero Coupon Bond 2005, High Yield Bond, Stock Index, High Dividend Stock, Natural Resources, Government Securities and Global Equity Portfolios of The Prudential Series Fund, Inc. as of December 31, 1994, the related statements 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 periods presented. 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 custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 each of the respective portfolios of The Prudential Series Fund, Inc. as of December 31, 1994, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and financial highlights for each of the periods presented in conformity with generally accepted accounting principles. As discussed in Note 6, the 1993 financial statements of the High Yield Bond Portfolio have been restated. Deloitte & Touche LLP Parsippany, New Jersey February 10, 1995 B47 FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.
GROWTH STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES April 3, 1995 ASSETS Cash.................................................. $ 100,000 --------- NET ASSETS Net assets were comprised of: Common stock, at $0.01 par value.................... $ 100 Paid-in capital, in excess of par................... 99,900 --------- Net assets............................................ $ 100,000 --------- --------- Net asset value per share of 10,000 outstanding shares of common stock (authorized 50,000,000 shares)....... $ 10.0000 --------- --------- SMALL CAPITALIZATION STOCK PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES April 3, 1995 ASSETS Cash.................................................. $ 100,000 --------- NET ASSETS Net assets were comprised of: Common stock, at $0.01 par value.................... $ 100 Paid-in capital, in excess of par................... 99,900 --------- Net assets............................................ $ 100,000 --------- --------- Net asset value per share of 10,000 outstanding shares of common stock (authorized 50,000,000 shares)....... $ 10.0000 --------- ---------
SEE NOTES TO THE STATEMENTS OF ASSETS AND LIABILITIES ON PAGE C2. C1 NOTES TO THE STATEMENTS OF ASSETS AND LIABILITIES OF THE GROWTH STOCK AND SMALL CAPITALIZATION STOCK PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC. AS OF APRIL 3, 1995 NOTE 1: GENERAL The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation, organized on November 15, 1982, is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended. The Series Fund is composed of sixteen Portfolios, each with a separate series of capital stock. Shares in the Series Fund are currently sold only to certain separate accounts of The Prudential Insurance Company of America ("The Prudential"), Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (together referred to as the "Companies") to fund benefits under certain variable life insurance and variable annuity contracts issued by the Companies. The Growth Stock and Small Capitalization Stock Portfolios had no operations other than the sale to The Prudential of 10,000 shares of common stock on April 3, 1995. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DISTRIBUTIONS AND TAXES: The Portfolios of the Series Fund intend to continue to qualify for and elect the special tax treatment afforded regulated investment companies under Subchapter M of the Internal Revenue Code, thereby relieving the Series Fund of Federal income taxes. To so qualify, the Series Fund intends to distribute substantially all of its net investment income and net realized capital gains, if any, less any available capital loss carry forward. NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT MANAGEMENT AND ACCOUNTING FEES: Pursuant to an investment advisory agreement (the "Agreement"), The Prudential will receive an investment management fee, calculated daily, at an effective annual rate of 0.60% of the average daily net assets of the Growth Stock Portfolio and 0.40% of the average daily net assets of the Small Capitalization Stock Portfolio. C2 INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors of The Prudential Series Fund, Inc.: We have audited the accompanying statements of assets and liabilities of the Growth Stock and Small Capitalization Stock Portfolios (two of the portfolios comprising The Prudential Series Fund, Inc.) as of April 3, 1995. These financial statements are the responsibility of the Fund'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 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 statements of assets and liabilities present fairly, in all material respects, the financial position of each of the respective portfolios of The Prudential Series Fund, Inc. as of April 3, 1995 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Parsippany, New Jersey April 3, 1995 C3 PART II OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING WITH RESPECT TO INDEMNIFICATION The Prudential Directors' and Officers' Liability and Corporation Reimbursement Program, purchased by The Prudential from Aetna Casualty & Surety Company, CNA Insurance Company, Lloyds of London, Great American Insurance Company, Reliance Insurance Company, Corporate Officers & Directors Assurance Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American Insurance Company, provides coverage for "Loss" (as defined in the policies) arising from any claim or claims by reason of any actual or alleged act, error, misstatement, misleading statement, omission, or breach of duty by persons in the discharge of their duties solely in their capacities as directors or officers of The Prudential, any of its subsidiaries, or certain investment companies affiliated with The Prudential. Coverage is also provided to the individual directors or officers for such Loss, for which they shall not be indemnified. Loss essentially is the legal liability on claims against a director or officer, including adjudicated damages, settlements and reasonable and necessary legal fees and expenses incurred in defense of adjudicatory proceedings and appeals therefrom. Loss does not include punitive or exemplary damages or the multiplied portion of any multiplied damage award, criminal or civil fines or penalties imposed by law, taxes or wages, or matters which are insurable under the law pursuant to which the policies are construed. There are a number of exclusions from coverage. Among the matters excluded are Losses arising as the result of (1) claims brought about or contributed to by the criminal or deliberate fraudulent acts of a director or officer, and (2) claims arising from actual or alleged performance of, or failure to perform, services as, or in any capacity similar to, an investment adviser, investment banker, underwriter, broker or dealer, as those terms are defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules or regulations thereunder, or any similar federal, state or local statute, rule or regulation. The limit of coverage under the Program for both individual and corporate reimbursement coverage is $150,000,000. The retention for corporate reimbursement coverage is $10,000,000 per loss. The relevant provisions of New Jersey law permitting or requiring indemnification, New Jersey being the state of organization of The Prudential, can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of The Prudential's by-law 27, which relates to indemnification of officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) 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. II-1 CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-reference to items required by Form N-8B-2. The prospectus consisting of 81 pages. The statement of additional information consisting of 101 pages. The undertaking to file reports. The undertaking with respect to indemnification. The signatures. Written consents of the following persons: 1. Deloitte & Touche LLP 2. Clifford E. Kirsch, Esq. 3. Nancy D. Davis, FSA, MAAA The following exhibits: 1. The following exhibits correspond to those required by paragraph A of the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of Board of Directors of The Prudential Insurance Company of America establishing The Prudential Variable Appreciable Account. (Note 1) (2) Not Applicable. (3) Distributing Contracts: (a) Distribution Agreement between Pruco Securities Corporation and The Prudential Insurance Company of America. (Note 9) (b) Proposed form of Agreement between Pruco Securities Corporation and independent brokers with respect to the Sale of the Contracts. (Note 1) (c) Schedules of Sales Commissions. (Note 3) (4) Not Applicable. (5) Variable Appreciable Life Insurance Contracts: (Note 2) (a) With fixed death benefit for use in New Jersey and domicile approval states. (b) With variable death benefit for use in New Jersey and domicile approval states. (c) With fixed death benefit for use in non-domicile approval states. (d) With variable death benefit for use in non-domicile approval states. (6) (a) Charter of The Prudential Insurance Company of America, as amended February 26, 1988. (Note 7) (b) By-laws of The Prudential Insurance Company of America, as amended January 10, 1995. (Note 18) (7) Not Applicable. (8) Not Applicable. (9) Not Applicable. (10) (a) Application Form for Variable Appreciable Life Insurance Contract. (Note 3) (b) Supplement to the Application for Variable Appreciable Life Insurance Contract. (Note 3) (11) Form of Notice of Withdrawal Right. (Note 2) (12) Memorandum describing The Prudential's issuance, transfer, and redemption procedures for the Contracts pursuant to Rule 6e-3(T)(b)(12)(iii) and method of computing adjustments in payments and cash surrender values upon conversion to fixed-benefit policies pursuant to Rule 6e-3(T)(b)(13)(v)(B). (Note 1) (13) Available Contract Riders and Endorsements: (a) Rider for Insured's Waiver of Premium Benefit. (Note 3) (b) Rider for Applicant's Waiver of Premium Benefit. (Note 3) II-2 (c) Rider for Insured's Accidental Death Benefit. (Note 3) (d) Rider for Level Term Insurance Benefit on Life of Insured. (Note 3) (e) Rider for Decreasing Term Insurance Benefit on Life of Insured. (Note 3) (f) Rider for Interim Term Insurance Benefit. (Note 3) (g) Rider for Option to Purchase Additional Insurance on Life of Insured. (Note 3) (h) Rider for Decreasing Term Insurance Benefit on Life of Insured Spouse. (Note 3) (i) Rider for Level Term Insurance Benefit on Dependent Children. (Note 3) (j) Rider for Level Term Insurance Benefit on Dependent Children--from Term Conversions. (Note 3) (k) Rider for Level Term Insurance Benefit on Dependent Children--from Term Conversions or Attained Age Change. (Note 3) (l) Endorsement defining Insured Spouse. (Note 3) (m) Rider covering lack of Evidence of Insurability on a Child. (Note 3) (n) Rider modifying Waiver of Premium Benefit. (Note 3) (o) Rider to terminate a Supplementary Benefit. (Note 3) (p) Rider providing for election of Variable Reduced Paid-up Insurance. (Note 3) (q) Rider to provide for exclusion of Aviation Risk. (Note 3) (r) Rider to provide for exclusion of Military Aviation Risk. (Note 3) (s) Rider to provide for exclusion for War Risk. (Note 3) (t) Rider to provide for Reduced Paid-up Insurance. (Note 3) (u) Rider providing for Option to Exchange Policy. (Note 3) (v) Endorsement defining Ownership and Control of the Contract. (Note 3) (w) Rider providing for Modification of Incontestability and Suicide Provisions. (Note 3) (x) Endorsement issued in connection with Non-Smoker Qualified Contracts. (Note 3) (y) Endorsement issued in connection with Smoker Qualified Contracts. (Note 3) (z) Home Office Endorsement. (Note 3) (aa) Endorsement showing Basis of Computation for Non-Smoker Contracts. (Note 3) (bb) Endorsement showing Basis of Computation for Smoker Contracts. (Note 3) (cc) Rider for Term Insurance Benefit on Life of Insured--Decreasing Amount After Three Years. (Note 3) (dd) Rider for Renewable Term Insurance Benefit on Life of Insured. (Note 3) (ee) Rider for Level Term Insurance Benefit on Life of Insured Spouse. (Note 2) (ff) Living Needs Benefit Rider (i) for use in Florida. (Note 10) (ii) for use in all approved jurisdictions except Florida and New York. (Note 10) (iii) for use in New York. (Note 15) (gg) Rider for Renewable Term Insurance Benefit on Life of Insured Spouse. (Note 12) (hh) Rider for Level Term Insurance Benefit on Life of Insured--Premium Increases Annually. (Note 12) (ii) Rider for Term Insurance Benefit on Life of Insured--Decreasing Amount. (Note 14) (jj) Rider for a Level Premium Option. (Note 15) (kk) Payment of Unscheduled Premium Benefit (Note 16) (ll) Rider for Scheduled Term Insurance Benefit on Life of Insured. (Note 16) (mm) Endorsement altering the Assignment provision. (Note 4) 2. See Exhibit 1.A.(5). 3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the securities being registered. (Note 1) 4. None. 5. Not Applicable. 6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial matters pertaining to the securities being registered. (Note 1) 7. The Prudential's representations regarding mortality and expense risks and sales loads. (Note 2) 8. Indemnification Agreement. (Note 15) II-3 9. Powers of Attorney. (Note 1) 27. Financial Data Schedule. (Note 1) (Note 1) Filed herewith. (Note 2) Incorporated by reference to Pre-Effective Amendment No. 1 to this Registration Statement, filed June 15, 1988. (Note 3) Incorporated by reference to Registrant's Form S-6, filed February 4, 1988. (Note 4) Incorporated by reference to Post-Effective Amendment No. 14 to this Registration Statement, filed February 15, 1995. (Note 5) Incorporated by reference to Form N-8B-2, File Number 2-80897, filed December 15, 1982, on behalf of The Prudential Individual Variable Contract Account. (Note 6) Incorporated by reference to Post-Effective Amendment No. 1 to this Registration Statement, filed September 1, 1988. (Note 7) Incorporated by reference to Post-Effective Amendment No. 2 to this Registration Statement, filed March 2, 1989. (Note 8) Incorporated by reference to Post-Effective Amendment No. 3 to this Registration Statement, filed April 28, 1989. (Note 9) Incorporated by reference to Post-Effective Amendment No. 4 to this Registration Statement, filed March 2, 1990. (Note 10) Incorporated by reference to Post-Effective Amendment No. 5 to this Registration Statement, filed March 30, 1990. (Note 11) Incorporated by reference to Post-Effective Amendment No. 22 to Form S-1, Registration No. 2-56179, filed April 27, 1989, on behalf of The Prudential Insurance Company of America Variable Contract Account--Investment Fund. (Note 12) Incorporated by reference to Post-Effective Amendment No. 6 to this Registration Statement, filed March 1, 1991. (Note 13) Incorporated by reference to Post-Effective Amendment No. 8 to this Registration Statement, filed December 30, 1991. (Note 14) Incorporated by reference to Post-Effective Amendment No. 9 to this Registration Statement, filed March 12, 1992. (Note 15) Incorporated by reference to Post-Effective Amendment No. 11 to this Registration Statement, filed April 8, 1993. (Note 16) Incorporated by reference to Post-Effective Amendment No. 12 to this Registration Statement, filed March 2, 1994. (Note 17) Incorporated by reference to Post-Effective Amendment No. 13 to this Registration Statement, filed April 26, 1994. (Note 18) Incorporated by reference to Post-Effective Amendment No. 26 to Form N-3, Registration No. 2-76580, filed April __, 1995 on behalf of The Prudential Variable Contract Account--10. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that this Amendment is filed solely for one or more of the purposes specified in Rule 485(b)(1) under the Securities Act of 1933 and that no material event requiring disclosure in the prospectus, other than one listed in Rule 485(b)(1), has occurred since the filing date of a Post-Effective Amendment filed under Rule 485(a) which has not become effective, and has caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal hereunto affixed and attested, all in the city of Newark and the State of New Jersey, on this 27th day of April, 1995. (Seal) The Prudential Variable Appreciable Account (Registrant) By: The Prudential Insurance Company of America (Depositor) Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES ------------------------ ----------------------- Thomas C. Castano Esther H. Milnes Assistant Secretary Vice President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 15 to the Registration Statement has been signed below by the following persons in the capacities indicated on this 27th day of April, 1995. Signature and Title ------------------- /s/ * - ------------------------------------- Arthur F. 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 and Comptroller (Attorney-in-Fact) and Chief Financial Officer /s/ * - ------------------------------------- Franklin A. Agnew Director /s/ * - ------------------------------------- Frederic K. Becker Director /s/ * - ------------------------------------- William W. Boeschenstein Director /s/ * - ------------------------------------- Lisle C. Carter, Jr. Director /s/ * - ------------------------------------- James G. Cullen Director II-5 /s/ * - ------------------------------------- Carolyne K. Davis Director /s/ * - ------------------------------------- Roger A. Enrico Director /s/ * - ------------------------------------- Allan D. Gilmour Director /s/ * - ------------------------------------- William H. Gray, III Director /s/ * - ------------------------------------- Jon F. Hanson Director /s/ * - ------------------------------------- Constance J. Horner Director /s/ * - ------------------------------------- Allen F. Jacobson Director /s/ * *By: /s/ THOMAS C. CASTANO - ------------------------------------- ------------------------- Burton G. Malkiel Thomas C. Castano Director (Attorney-in-Fact) /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/ * - ------------------------------------- Stanley C. Van Ness Director /s/ * - ------------------------------------- Paul A. Volcker Director /s/ * - ------------------------------------- Joseph H. Williams Director II-6 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 15 to Registration Statement No. 33-20000 on Form S-6 of The Prudential Variable Appreciable Account of The Prudential Insurance Company of America (1) of our report dated February 10, 1995, relating to the financial statements of The Prudential Variable Appreciable Account, and 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 a part of such Registration Statement; (2) of our report dated February 10, 1995, relating to the financial statements of The Prudential Series Fund, Inc. Money Market, Bond, Common Stock, Aggressively Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond 1995, Zero Coupon Bond 2000, High Yield Bond, Stock Index, High Dividend Stock, Natural Resources, Global Equity, Government Securities and Zero Coupon Bond 2005 portfolios (fourteen of the portfolios comprising The Prudential Series Fund, Inc.) appearing in the Statement of Additional Information, which is a part of such Registration Statement; and (3) of our report dated April 3, 1995 relating to the statements of assets and liabilities of the Growth Stock and Small Capitalization Stock portfolios (two of the portfolios comprising The Prudential Series Fund, Inc.) appearing in the Statement of Additional Information, which is a part of such Registration Statement, and to the reference to us under the heading of "Experts" in such Registration Statement. /s/ Deloitte & Touche LLP Parsippany, New Jersey April 27, 1995 II-7 EXHIBIT INDEX Consent of Deloitte & Touche LLP, independent auditors. Page II-7 1.A.(1) Resolution of Board of Directors of The Prudential Page II-9 Insurance Company of America establishing The Prudential Variable Appreciable Account. 1.A.(3)(b) Proposed Form of Agreement between Pruco Securities Page II-17 Corporation and The Prudential Insurance Company of America. 1.A.(12) Memorandum describing The Prudential's issuance, Page II-24 transfer, and redemption procedures for the Contracts pursuant to Rule 6e-3(T)(b)(12)(iii) and method of computing adjustments in payments and cash surrender values upon conversion to fixed-benefit policies pursuant to Rule 6e-3(T)(b)(13)(v)(B). 3. Opinion and Consent of Clifford E. Kirsch, Esq. as to Page II-51 the legality of the securities being registered. 6. Opinion and Consent of Nancy D. Davis, FSA, MAAA as to Page II-52 actuarial matters pertaining to the securities being registered. 9. Powers of Attorney. Page II-54 27. Financial Data Schedule. Page II-102 II-8 EX-1.A 2 RESOLUTION Exhibit 1.A.(1) The Prudential Insurance Company of America Isabelle L. Kirchner Vice President and Secretary October 29, 1987 I hereby certify that the following is a true copy of an extract from the minutes of a meeting of the Finance Committee of the Board of Directors of The Prudential Insurance Company of America held on August 11, 1987, at which meeting a quorum was present and that said minute has not since been altered or rescinded: Senior Vice President Hill reviewed with the Committee the desirability of establishing two new separate accounts: a. The Prudential Variable Life Insurance Account, and b. The Prudential Variable Appreciable Account After discussion, the Committee, on motion, duly made and seconded, adopted the following resolutions: II-9 (a) RESOLVED, subject to the approval of the Commissioner of Insurance in the State of New Jersey and to such conditions as said Commissioner may impose, pursuant to Section 17B:28-7 of the Revised Statutes of New Jersey, the Company hereby establishes a new commingled Variable Contract Account, to be designated initially as "The Prudential Variable Life Insurance Account" (hereinafter referred to as the "Account") and to be used for contracts under which values or payments, or portions thereof, vary to reflect the investment results of said Account; and FURTHER RESOLVED, that the Company shall receive and hold in the Account amounts arising from (i) purchase payments received pursuant to certain variable life insurance contracts ("Variable Contracts") of the Company sold as part of its Variable Life Insurance Program ("Program") and (ii) such other assets of the Company as the proper officers of the Company may deem prudent and appropriate to have invested in the same manner as the assets applicable to its reserve liability under Variable Contracts funded in the Account, and such amounts, together with the dividends, interest and gains produced thereby shall be invested and reinvested, subject to the rights of the holders of such Variable Contracts, in shares of The Prudential Series Fund, Inc., and open-end diversified management investment company of the series type, at the net asset value of such shares at the time of acquisition; and II-10 -2- FURTHER RESOLVED, that the Account shall be registered as an investment company under the Investment Company Act of 1940, and that proper officers of the Company be and they hereby are authorized to sign and file, or cause to be filed with the Securities and Exchange Commission, a registration statement, on behalf of the Account, as registrant, under the Investment Company Act of 1940 ("Investment Company Act Registration") and to sign and file, or cause to filed, an exemption application, including any amendments thereto, seeking an order under Section 6(c) of the Investment Company Act of 1940, which shall grant such exemptions from the provisions of that Act as may be necessary or desirable ("Exemption Application"); and FURTHER RESOLVED, that the proper officers of the Company be and they hereby are authorized to sign and file, or cause to be filed, with the Securities and Exchange Commission on behalf of the Company as issuer, a registration statement, including the financial statements and schedules, exhibits and form of prospectus required as a part thereof, for the registration under the Securities Act of 1933 of the offering and sale of the Variable Contracts, to the extent they represent participating interests in the Account ("Securities Act Registration"), and to pay the registration fees required in connection therewith; and II-11 -3- FURTHER RESOLVED, that the proper officers of the Company are authorized and directed to sign and file, or cause to be filed, such amendment or amendments of such Invest Company Act Registration, Exemption Application and Securities Act Registration as they may find necessary or desirable from time to time; and FURTHER RESOLVED, that the signature of any director or officer required by law to affix his signature to any such Investment Company Act Registration, Exemption Application and Securities Act Registration, or to any amendment thereof, may be affixed by said director or officer personally, or by an attorney in fact duly constituted in writing by said director or officer to sign his name thereto; and FURTHER RESOLVED, that the Secretary of the Company is appointed agent of the Company to receive any and all notices and communications from the Securities and Exchange Commission relating to such Investment Company Act Registration, Exemption Application, and Securities Act Registration and any and all amendments thereof; and FURTHER RESOLVED, that the proper officers of the Company be and they hereby are authorized, in the name and on behalf of the Company, to execute and deliver such corporate documents and certificates and to take II-12 -4- such further action as may be necessary or desirable, including but not limited to the payment of applicable fees and compliance with such laws and regulations of the several states as may be applicable to the Company's Program, in order to effectuate the purposes of the foregoing resolutions or any of them. (b) RESOLVED, subject to the approval of the Commissioner of Insurance in the State of New Jersey and to such conditions as said Commissioner may impose, pursuant to Section 17B:28-7 of the Revised Statutes of New Jersey, the Company hereby establishes a new commingled Variable Contract Account, to be designated initially as "The Prudential Variable Appreciable Account" (hereinafter referred to as the "Account") and to be used for contracts under which values or payments, or portions thereof, vary to reflect the investment results of said Account; and FURTHER RESOLVED, that the Company shall receive and hold in the Account amounts arising from (i) purchase payments received pursuant to certain Variable Appreciable Life Insurance Contracts ("Variable Contracts") of the Company sold as part of its Variable Appreciable Life Insurance Program ("Program") and (ii) such other assets of the Company as the proper officers of the Company may deem prudent and appropriate to II-13 -5- have invested in the same manner as the assets applicable to its reserve liability under Variable Contracts funded in the Account, and such amounts, together with the dividends, interest and gains produced thereby shall be invested and reinvested, subject to the rights of the holders of such Variable Contracts, in shares of The Prudential Series Fund, Inc., and open-end diversified management investment company of the series type, at the net asset value of such shares at the time of acquisition; and FURTHER RESOLVED, that the Account shall be registered as an investment company under the Investment Company Act of 1940, and that the proper officers of the Company be and they hereby are authorized to sign and file, or cause to be filed with the Securities and Exchange Commission, a registration statement, on behalf of the Account, as registrant, under the Investment Company Act of 1940 ("Investment Company Act Registration") and to sign and file, or cause to be filed, an exemption application, including any amendments thereto, seeking an order under Section 6(c) of the Investment Company Act of 1940, which shall grant such exemption from the provisions of that Act as may be necessary or desirable ("Exemption Application"); and FURTHER RESOLVED, that the proper officers of the Company be and they hereby are authorized to sign and file, or cause to be filed, with the II-14 -6- Securities and Exchange Commission on behalf of the Company as issuer, a registration statement, including the financial statements and schedules, exhibits and form of prospectus required as a part thereof, for the registration under the Securities Act of 1933 of the offering and sale of the Variable Contracts, to the extent they represent participating interests in the Account ("Securities Act Registration"), and to pay the registration fees required in connection therewith; and FURTHER RESOLVED, that the proper officers of the Company are authorized and directed to sign and file, or cause to be filed, such amendment or amendments of such Investment Company Act Registration, Exemption Application and Securities Act Registration as they may find necessary or desirable from time to time; and FURTHER RESOLVED, that the signature of any director or officer required by law to affix his signature to any such Investment Company Act Registration, Exemption Application and Securities Act Registration, or to any amendment thereof, may be affixed by said director or officer personally, or by an attorney in fact duly constituted in writing by said director or officer to sign his name thereto; and II-15 -7- FURTHER RESOLVED, that the Secretary of the Company is appointed agent of the Company to receive any and all notices and communications from the Securities and Exchange Commission relating to such Investment Company Act Registration, Exemption Application, and Securities Act Registration and any and all amendments thereof; and FURTHER RESOLVED, that the proper officers of the Company be and they hereby are authorized, in the name and on behalf of the Company, to execute and deliver such corporate documents and certificates and to take such further action as may be necessary or desirable, including but not limited to the payment of applicable fees and compliance with such laws and regulations of the several states as may be applicable to the Company's Program, in order to effectuate the purposes of the forgoing resolutions or any of them. Secretary The Prudential Insurance Company of America October 29, 1987 II-16 EX-1.A.(3)(B) 3 SELECTED BROKER AGREEMENT Exhibit 1.A.(3)(b) SELECTED BROKER AGREEMENT AGREEMENT dated __________________________, by and between Pruco Securities Corporation (Distributor), a New Jersey corporation and _______________________ (Broker), a _________________________ corporation. WITNESSETH: In consideration of the mutual promises contained herein, the parties hereto agree as follows: A. Definitions (1) Contracts--Variable life insurance contracts and/or variable annuity contracts described in Schedule A attached hereto which may be issued and issued by any one of Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey or The Prudential Insurance Company of America (hereinafter collectively called the "Company") and for which Distributor has been appointed the principal underwriter pursuant to Distribution Agreements, copies of which have been furnished to Broker. (2) Accounts--Separate accounts established and maintained by Company pursuant to the laws of Arizona or New Jersey, as applicable, to fund the benefits under the Contracts. (3) The Prudential Series Fund, Inc., or the Fund--An open-end management investment company registered under the 1940 Act, shares of which are sold to the Accounts in connection with the sale of the Contracts. (4) Registration Statement--The registration statements and amendments thereto relating to the Contracts, the Accounts, and the Fund, including financial statements and all exhibits. (5) Prospectus--The prospectuses included within the registration Statements referred to herein. (6) 1933 Act--The Securities Act of 1933, as amended. (7) 1934 Act--The Securities Exchange Act of 1934, as amended. (8) SEC--The Securities and Exchange Commission. B. Agreements of Distributor (1) Pursuant to the authority delegated to it by Company, Distributor hereby authorizes Broker during the term of this Agreement to solicit applications for Contracts from eligible persons provided that there is an effective Registration Statement relating to such Contracts and provided further that Broker has been notified by Distributor that the Contracts are qualified for sale under all applicable securities and insurance laws of the state or jurisdiction in which the application will be solicited. In connection with the solicitation of applications for Contracts, Broker is hereby authorized to offer riders that are available with the Contracts in accordance with instructions furnished by Distributor or Company. (2) Distributor, during the term of this Agreement, will notify Broker of the issuance by the SEC of any stop order with respect to the Registration Statement or any amendments thereto or the initiation of any proceedings for that purpose or for any other purpose relating to the II-17 registration and/or offering of the Contracts and of any other action or circumstance that may prevent the lawful sale of the contract in any state or jurisdiction. (3) During the term of this Agreement, Distributor shall advise Broker of any amendment to the Registration Statement or any amendment or supplement to any Prospectus. C. Agreements of Broker (1) It is understood and agreed that Broker is a registered broker/dealer under the 1934 Act and a member of the National Association of Securities Dealers, Inc. and that the agents or representatives of Broker who will be soliciting applications for the Contracts also will be duly registered representatives of Broker. (2) Commencing at such time as Distributor and Broker shall agree upon, Broker agrees to use its best efforts to find purchasers for the contract acceptable to Company. In meeting its obligation to use its best efforts to solicit applications for Contracts, Broker shall, during the term of this Agreement, engage in the following activities: (a) Continuously utilize training, sales and promotional materials which have been approved by Company; (b) Establish and implement reasonable procedures for periodic inspection and supervision of sales practices of its agents or representatives and submit periodic reports to Distributor as may be requested on the results of such inspections and the compliance with such procedures. (c) Broker shall take reasonable steps to ensure that the various representatives appointed by it shall not make recommendations to an applicant to purchase a Contract in the absence of reasonable grounds to believe that the purchase of the Contract is suitable for such applicant. While not limited to the following, a determination of suitability shall be based on information furnished to a representative after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and the likelihood that the applicant will continue to make the premium payments contemplated by the Contract. (3) All payments for Contracts collected by agents or representatives of Broker shall be held at all times in a fiduciary capacity and shall be remitted promptly in full together with such applications, forms and other required documentation to an office of the company designated by Distributor. Checks or money orders in payment of initial premiums shall be drawn to the order of the applicable one of "Pruco Life Insurance Company", (for contracts issued by Pruco Life Insurance Company and/or Pruco Life Insurance Company of New Jersey) or "The Prudential Insurance Company of America". Broker acknowledges that the Company retains the ultimate right to control the sale of the Contracts and that the Distributor or Company shall have the unconditional right to reject, in whole or part, any application for the contract. In the event Company or Distributor rejects an application, Company immediately will return all payments directly to the purchaser and Broker will be notified of such action. In the event that any purchaser of a Contract elects to return such Contract pursuant to Rule 6e-2(b)(13)(viii) of the 1940 Act, the purchaser will receive a refund of any premium payments, plus or minus any change due to investment performance in the value of the invested portion of such premiums; however, if applicable state law so requires, the purchaser who exercises his short-term cancellation right will receive a refund of all payments made, unadjusted for investment experience prior to the cancellation. The Broker will be notified of any such action. II-18 (4) Broker shall act as an independent contractor, and nothing herein contained shall constitute Broker, its agents or representatives, or any employees thereof as employees of Company or Distributor in connection with the solicitation of applications for Contracts. Broker, its agents or representatives, and its employees shall not hold themselves out to be employees of Company or Distributor in this connection or in any dealings with the public. (5) Broker agrees that any material it develops, approves or uses for sales, training, explanatory or other purposes in connection with the solicitation of applications for Contracts hereunder (other than generic advertising materials which do not make specific reference to the Contracts) will not be used without the prior written consent of Distributor and, where appropriate, the endorsement of Company to be obtained by Distributor. (6) Solicitation and other activities by Broker shall be undertaken only in accordance with applicable laws and regulations. No agent or representative of Broker shall solicit applications for the Contracts until duly licensed and appointed by Company as a life insurance and variable contract broker or agent of Company in the appropriate states or other jurisdictions. Broker shall ensure that such agents or representatives fulfill any training requirements necessary to be licensed. Broker understands and acknowledges that neither it nor its agents or representatives is authorized by Distributor or Company to give any information or make any representation in connection with this Agreement or the offering of the Contracts other than those contained in the Prospectus or other solicitation material authorized in writing by Distributor or Company. (7) Broker shall not have authority on behalf of Distributor or Company to: make, alter or discharge any Contract or other form; waive any forfeiture, extend the time of paying any premium; receive any monies or premiums due, or to become due, to Company, except as set forth in Section C(3) of this Agreement. Broker shall not expend, nor contract for the expenditure of the funds of Distributor, nor shall Broker possess or exercise any authority on behalf of Broker by this Agreement. (8) Broker shall have the responsibility for maintaining the records of its representatives licensed, registered and otherwise qualified to sell the Contracts. Broker shall maintain such other records as are required of it by applicable laws and regulations. The books, accounts and records of Company, the Account, Distributor and Broker relating to the sale of the Contracts shall be maintained so as to clearly and accurately disclose the nature and details of the transactions. All records maintained by the Broker in connection with this Agreement shall be the property of the Company and shall be returned to the Company upon termination of rights by the Broker. Nothing in this Section C(8) shall be interpreted to prevent the Broker from retaining copies of any such records which the Broker, in its discretion, deems necessary or desirable to keep. The Broker shall keep confidential any information obtained pursuant to this Agreement and shall disclose such information, only if the Company has authorized such disclosure, or if such disclosure is expressly required by applicable federal or state regulatory authorities. D. Compensation (1) Pursuant to the Distribution Agreement between Distributor and Company, Distributor shall cause Company to arrange for the payment of commissions to Broker as compensation for the sale of each contract sold by an agent or representative of Broker. The amount of such compensation shall be based on a schedule to be determined by agreement of Company, Distributor and Broker. Company shall identify to Broker with each such payment the name of the agent or representative of Broker who solicited each Contract covered by the payment. II-19 (2) Neither Broker nor any of its agents or representatives shall have any right to withhold or deduct any part of any premium it shall receive for purposes of payment of commission or otherwise. Neither Broker nor any of its agents or representatives shall have an interest in any compensation paid by Company to Distributor, now or hereafter, in connection with the sale of any Contracts hereunder. E. Use of Insurance Agency Affiliate of Broker It is understood and agreed that the registered representatives of Broker engaged in the offer and sale of the Contracts may be employed by (___________), an affiliate of Broker which is licensed as an insurance agency (hereinafter referred to as "Insurance Agency Affiliate"), and whose shareholders, officers, and employees are "associated persons" of Broker within the meaning of Section 3(a)(18) of the 1934 Act. It is further understood and agreed that records relating to sales of Contracts by such employees may be maintained by Insurance Company Affiliate. It is further understood and agreed that commissions payable under this agreement shall, if broker so directs, be paid to Insurance Agency Affiliate. Broker agrees that, if the Contracts are sold through Insurance Agency affiliate: (1) Broker will retain full responsibility for compliance with the requirements of the 1933 Act and the 1934 Act, and will continue to perform all obligations set forth in Section C above. (2) Any books and records maintained by Insurance Agency Affiliate will be deemed, for purposes of the 1934 Act, to be books and records of Broker and will conform to the requirements of Section 17(a) of the 1934 Act and the rules thereunder. The manner in which the books and records of Broker and Insurance Agency Affiliate are made and maintained will permit supervisory personnel of Broker as well as authorized examiners of the SEC or of another appropriate governmental agency or self-regulatory organization to review data concerning transactions in the Contracts effected through Insurance Agency Affiliate to the same extent as if such transactions had been effected through Broker itself. This may be accomplished either through maintaining one set of books and records for Broker and Insurance Agency Affiliate or by maintaining separate sets of books and records with adequate integration, through cross-referencing or otherwise, between records maintained by Broker and those maintained by Insurance Agency Affiliate. (3) Any receipt by Insurance Agency Affiliate of commissions for the sale of the Contracts, and any payment by Insurance Agency Affiliate of commissions for the sale of the Contracts to its sales personnel, will be reflected in the FOCUS reports filed by Broker pursuant to Section 17(a) of the 1934 Act and the rules thereunder and in its fee assessment reports filed with the National Association of Securities Dealers, Inc. (4) All premiums derived from the sale of the Contract through Insurance Agency Affiliate will be sent directly to the Company by Insurance Agency Affiliate customers or will be sent by them to Broker for forwarding to the Company. Insurance Agency Affiliate will not receive or accumulate customer funds nor will it receive or maintain custody of customer securities. F. Complaints and Investigations (1) Broker and Distributor jointly agree to cooperate fully in any insurance regulatory investigation or proceeding or judicial proceeding arising in connection with the Contracts marketed under this Agreement. Broker and Distributor further agree to cooperate fully in any securities regulatory investigation or proceeding or judicial proceeding with respect to Broker, Distributor, their affiliates and their agents or representatives to the extent that such investigation or II-20 proceeding is in connection with Contract marketed under this Agreement. Broker shall furnish applicable federal and state regulatory authorities with any information or reports in connection with its services under this Agreement which such authorities may request in order to ascertain whether the Company's operations are being conducted in a manner consistent with any applicable law or regulation. G. Term of Agreement (1) This Agreement shall continue in force for one year from its effective date and thereafter shall automatically be renewed every year for a further one year period; provided that either party may unilaterally terminate this Agreement upon thirty (30) days' written notice to the other party of its intention to do so. (2) Upon termination of this Agreement, all authorizations, rights and obligations shall cease except (a) the agreements contained in Section F hereof; (b) the indemnity set forth in Section H hereof; and (c) the obligation to settle accounts hereunder, including commission payments on premiums subsequently received for Contracts in effect at the time of termination or issued pursuant to applications received by Broker prior to termination. H. Indemnity (1) Broker shall be held to the exercise of reasonable care in carrying out the provision of this Agreement. (2) Distributor agrees to indemnify and hold harmless Broker and each officer or director of Broker against any losses, claims, damages or liabilities, joint or several, to which Broker or such officer or director become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of material fact, required to be stated therein or necessary to make the statements therein not misleading, contained in any Registration Statement or any post-effective amendment thereof or in the Prospectus or any amendment or supplement to the Prospectus, or any sales literature provided by the Company or by the Distributor. (3) Broker agrees to indemnify and hold harmless Company and Distributor and each of their current and former directors and officers and each person, if any, who controls or has controlled Company or Distributor within the meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages or liabilities to which Company or Distributor and any such director or officer or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (a) Any unauthorized use of sales materials or any verbal or written misrepresentations or any unlawful sales practices concerning the Contracts by Brokers; or (b) Claims by agents or representatives or employees of Broker for commissions, service fees, development allowances or other compensation or renumeration of any type; (c) The failure of Broker, its officers, employees, or agents to comply with the provisions of this Agreement; and Broker will reimburse Company and Distributor and any director or officer or controlling person of either for any legal or other expenses reasonably incurred by Company, Distributor, or such director, officer of controlling II-21 person in connection with investigating or defending any such loss, claims, damage, liability or action. This indemnity agreement will be in addition to any liability which Broker may otherwise have. I. Assignability This Agreement shall not be assigned by either party without the written consent of the other. J. Governing Law This Agreement shall be governed by and Construed in accordance with the laws of the State of New Jersey. In Witness Whereof, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PRUCO SECURITIES CORPORATION (Distributor) By:___________________________ President ______________________________ (Broker) By:____________________________ II-22 SELECTED BROKER AGREEMENT SCHEDULE A The following policies are the Contracts as defined in the Agreement made and effective ________________, 19__, between Pruco Securities Corporation and _____________________. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA VARIABLE APPRECIABLE LIFE (Flexible Premium Variable Life Policy) VARIABLE LIFE (Scheduled Premium Variable Life Policy) II-23 EX-1.A(12) 4 ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES Exhibit 1.A.(12) Description of The Prudential's Issuance, Transfer and Redemption Procedures for Variable Appreciable Life Insurance Contracts Pursuant to Rule 6e-3(T)(b)(12)(iii) and Method of Computing Adjustments in Payments and Cash Surrender Values Upon Conversion to Fixed Benefit Policies Pursuant to Rule 6e-3(T)(b)(13)(v)(B) This document sets forth the administrative procedures that will be followed by The Prudential Insurance Company of America ("The Prudential") in connection with the issuance of its Variable Appreciable Life Insurance Contract ("Contract"), the transfer of assets held thereunder, and the redemption by contract owners of their interests in said Contracts. The document also explains the method that The Prudential will follow in making a cash adjustment when a Contract is exchanged for a fixed benefit insurance policy pursuant to Rule 6e-3(T)(b)(13)(v)(B). I. Procedures Relating to Issuance and Purchase of the Contracts A. Premiums Schedules and Underwriting Standards Premiums for the Contract will not be the same for all owners. Insurance is based on the principle of pooling and II-24 distribution of mortality risks, which assumes that each owner pays a premium commensurate with the Insured's mortality risk as actuarially determined utilizing factors such as age, sex (in most cases), smoking status, health and occupation. A uniform premium for all Insureds would discriminate unfairly in favor of those Insureds representing greater risks. However, for a given face amount of insurance, Contracts issued on insureds in a given risk classification will have the same scheduled premium. The underwriting standards and premium processing practices followed by The Prudential are similar to those followed in connection with the offer and sale of fixed-benefit life insurance, modified where necessary to meet the requirements of the federal securities laws. B. Application and Initial Premium Processing Upon receipt of a completed application form from a prospective owner, The Prudential will follow certain insurance underwriting (i.e., evaluation of risk) procedures designed to determine whether the proposed Insured is insurable. In the majority of cases this will involve only evaluation of the answers to the questions on the application and will not include a medical examination. In other cases, II-25 the process may involve such verification procedures as medical examinations and may require that further information be provided by the proposed Insured before a determination can be made. A Contract cannot be issued, i.e., physically issued through The Prudential's computerized issue system, until this underwriting procedure has been completed. These processing procedures are designed to provide immediate benefits to every prospective owner who pays the initial scheduled premium at the time the application is submitted, without diluting any benefit payable to any existing owner. Although a Contract cannot be issued until after the underwriting process has been completed, such a proposed Insured will receive immediate insurance coverage for the face amount of the Contract, if he or she proves to be insurable and the owner has paid the first scheduled premium. The Contract Date marks the date on which benefits begin to vary in accordance with the investment performance of the selected investment option(s). It is also the date as of which the insurance age of the proposed Insured is determined. It represents the first day of the Contract year and therefore determines the Contract anniversary and also II-26 the Monthly Dates. It also represents the commencement of the suicide and contestable periods for purposes of the Contract. If the initial scheduled premium is paid with the application and no medical examination is required (so that Part 2 of the application is not completed) the Contract Date will ordinarily be the date of the application. If an unusual delay is encountered (for example, if a request for further information is not met promptly), the Contract Date will be 21 days prior to the date on which the Contract is physically issued. If a medical examination is required, the Contract Date will ordinarily be the date on which Part 2 of the application (the medical report) is completed, subject to the same qualification as that noted above. If the initial scheduled premium is not paid with the application, the Contract Date will be the Contract Date stated in the Contract, which will generally be the date the initial premium is received from the owner and the Contract is delivered. There are two principal variations from the foregoing procedure. First, if the owner wishes permanent insurance protection and variability of benefits to commence at a II-27 future date, he or she can designate that date and purchase term insurance in a fixed amount for the intervening period. The maximum length of initial term insurance available is eleven months. Second, if permitted by the insurance laws of the state in which the Contract is issued, the Contract may be back dated up to six months, provided that all past due scheduled premiums are paid with the application and that the backdating results in a lower insurance age for the Insured. The values under the Contract and the amount(s) deposited into the selected investment option(s) will be calculated upon the assumptions that the Contract has been issued on the Contract Date and all scheduled premiums had been received on their due dates. If the initial premium paid is in excess of the aggregate of the scheduled premiums due since the Contract Date, the excess (after the front-end deductions) will be credited to the Contract and placed in the selected investment option(s) on the date of receipt. In general, (1) the invested portion of the initial scheduled premium will be placed in the Contract Fund and allocated to the selected investment options as of the Contract Date; and (2) the invested portion of any premiums II-28 in excess of the initial scheduled premium will be placed in the Contract Fund and allocated to the selected investment options as of the later of the Contract Date and the date received. If, however, one or more premium due dates has passed before all requirements for the issuance of the Contract have been satisfied, (1) the invested portion of the initial scheduled premium will be placed in the Contract Fund as of the Contract Date, (2) scheduled premiums will be placed in the Contract Fund as of the intervening premium due dates, and (3) any premium payments in excess of the aggregate premiums due since the Contract Date will be placed in the Contract Fund as of the date of receipt. C. Premium Processing Whenever a premium after the first is received, unless the Contract is in default past its days of grace, The Prudential will subtract the front-end deductions. What is left will be invested in the selected investment option(s) on the date received (or, if that is not a business day, on the next business day). There is an exception if the Contract is in default within its days of grace. Then, to the extent II-29 necessary to end the default, premiums will be credited as of the date of the default or the Monthly Date after default, and premiums greater than this amount will be credited when received. D. Reinstatement The Contract may be reinstated within five years after default (this period will be longer if required by state law) unless the Contract has been surrendered for its cash surrender value. A Contract will be reinstated upon receipt by The Prudential of a written application for reinstatement, production of evidence of insurability satisfactory to The Prudential and payment of at least the amount required to bring the premium account up to zero on the first monthly date on which a scheduled premium is due after the date of reinstatement. Any contract debt under reduced paid-up insurance must be repaid with interest or carried over to the reinstated contract. The Prudential will treat the amount paid upon reinstatement as a premium. It will deduct the front-end charges, plus any charges in arrears, other than mortality charges, with interest. The contract fund of the reinstated Contract will, immediately upon reinstatement, be equal to II-30 this net premium payment, plus the cash surrender value of the Contract immediately before reinstatement, plus a refund of that part of the deferred sales and administrative charges which would be charged if the Contract were surrendered immediately after reinstatement. An adjustment will be made for any termination dividend paid at the time of lapse. The original Contract Date still controls for purposes of calculating any contingent deferred sales and administrative charges, and any termination dividends. The reinstatement will take effect as of the date the required proof of insurability and payment of the reinstatement amount have been received by The Prudential at its Home Office. The Prudential may agree to accept a lower amount than described above. This lower amount must be at least the amount necessary to bring the contract fund after reinstatement up to the tabular contract fund, plus the estimated monthly charges for the next three months. The contract fund after reinstatement will be calculated in the same way as described above. In this case, the premium account after reinstatement will be negative, so payment of II-31 future scheduled premiums does not guarantee that the contract will not lapse at some time in the future. There is an alternative to this reinstatement procedure that applies only if reinstatement is requested within three months after the contract went into default. In such a case evidence of insurability will not be required and the amount of the required payment will be the lesser of the unpaid scheduled premiums and the amount necessary to make the contract fund equal to the tabular contract fund on the third Monthly Date following the date on which the Contract went into default. E. Repayment of Loan A loan made under the Contract may be repaid with an amount equal to the monies borrowed plus interest which accrues daily, either at a fixed annual rate of 5-1/2% or, if a contract owner has elected to have a variable loan interest rate applicable to loans made under the Contract, at the variable loan interest rate then applicable to the loan. When a loan is made, The Prudential will transfer an amount equal to the contract loan from the investment option(s). Under the fixed-rate contract loan provision, the amount of contract fund attributable to the outstanding II-32 contract loan will be credited with interest at an annual rate of 4%, and The Prudential thus will realize the difference between that rate and the fixed loan interest rate, which will be used to cover the loan investment expenses, income taxes, if any, and processing costs. If an owner so desires, the owner may elect to have a variable loan interest rate apply to the contract loans, if any, that he or she may make. If this election is made: 1. Interest on the loan will accrue daily at an annual rate The Prudential determines at the start of each contract year (instead of at a fixed rate), as described in the prospectus. 2. While a loan is outstanding, the amount of the contract fund attributable to the outstanding contract loan will be credited with interest at a rate which is less than the loan interest rate for the contract year by 1% (instead of 4%). Upon repayment of Contract debt, the loan portion of the payment (i.e., not the interest) will be added to the investment option(s). Amounts originally borrowed from the fixed-rate option will be allocated to the fixed-rate option, and the rest will be allocated among the variable investment II-33 option(s) in proportion to the amounts in each variable investment option attributable to the Contract as of the date of repayment. II. Transfers The Prudential Variable Appreciable Account ("Account") currently has 16 subaccounts, each of which is invested in shares of a corresponding portfolio of The Prudential Series Fund, Inc. ("Fund"), which is registered under the 1940 Act as an open-end diversified management investment company. In addition, a fixed-rate option and Real Property Account are available for investment by contract owners. Provided the Contract is not in default or is in force as variable reduced paid-up insurance, the owner may, up to four times in each contract year, transfer amounts from one subaccount to another subaccount, to the fixed-rate option, or to the Real Property Account without charge. All or a portion of the amount credited to a subaccount may be transferred. In addition, the entire amount of the contract fund may be transferred to the fixed-rate option at any time during the first two contract years. A contract owner who wishes to convert his or her variable contract to a fixed-benefit II-34 contract in this manner must request a complete transfer of funds to the fixed-rate option and should also change his or her allocation instructions regarding any future premiums. Transfers among subaccounts will take effect at the end of the valuation period during which a proper written request or authorized telephone request is received at a Prudential Home Office. The request may be in terms of dollars, such as a request to transfer $10,000 from one account to another, or may be in terms of a percentage reallocation among subaccounts. In the latter case, as with premium reallocations, the percentages must be in whole numbers. Transfers from either the fixed-rate option or the Real Property Account to other investment options are currently permitted only once each contract year and only during the thirty-day period beginning on the contract anniversary. The maximum amount which may currently be transferred out of the fixed-rate option each year is the greater of: (a) 25% of the amount in the fixed-rate option, and (b) $2,000. The maximum amount which may currently be transferred out of the Real Property Account each year is the greater of: (a) 50% of the amount in the Real Property Account, and (b) $10,000. Such transfer requests received prior to the contract II-35 anniversary will be effected on the contract anniversary. Transfer requests received within the thirty-day period beginning on the contract anniversary will be effected as of the end of the valuation period during which the request is received. These limits are subject to change in the future. III. "Redemption" Procedures: Surrender and Related Transactions A. Surrender for Cash Surrender Value If the insured party under a Contract is alive, The Prudential will pay, within seven days, the Contract's cash surrender value as of the date of receipt at its Home Office of the Contract and a signed request for surrender. The Contract's cash surrender value is computed as follows: 1. If the Contract is not in default: The cash surrender value is the contract fund, minus any surrender charge, consisting of a deferred sales charge and a deferred administrative charge, minus any contract debt, plus any termination dividend. The deferred sales charge and deferred administrative charge are described in the prospectus. The deferred administrative charge is designed to recover the administrative expenses, such as underwriting expenses, II-36 incurred in connection with the issuance of a Contract. As a result, in the early months after issue, there may be no cash surrender value if only scheduled premiums are paid. 2. If the Contract is in default during its days of grace, The Prudential will compute the cash surrender value as of the date the Contract went into default. It will adjust this value for any loan the owner took out or paid back or any premium payments or withdrawals made in the days of grace. 3. If the Contract is in default beyond its days of grace, the cash surrender value as of any date will be either the value on the date of any extended insurance benefit then in force, or the value on that date of any fixed or variable reduced paid-up insurance benefit then in force, less any Contract debt. In lieu of the payment of the cash surrender value in a single sum upon surrender of a Contract, an election may be made by the owner to apply all or a portion of the proceeds under one of the fixed benefit settlement options described in the Contract or, with the approval of The Prudential, a combination of options. An option is available only if the proceeds to be applied are $1,000 or more or would result in II-37 periodic payments of at least $20.00. The fixed-benefit settlement options are subject to the restrictions and limitations set forth in the Contract. B. Partial Surrenders and Withdrawal of Excess Cash Surrender Value An owner may surrender a Contract in part. Partial surrender involves splitting the Contract into two Contracts. One is surrendered for its cash surrender value; the other is continued in force on the same terms as the original Contract except that future scheduled premiums are reduced based upon the continued Contract's face amount and all values under the Contract are proportionately reduced based upon the reduction in the face amount of insurance. The Contract continued must have at least the minimum face amount of insurance stated in the contract. An alternative to surrender or partial surrender of a Contract is a withdrawal of cash surrender value without splitting the Contract into two Contracts. A withdrawal may be made only if the following conditions are satisfied. First, the amount withdrawn, plus the cash surrender value after withdrawal, may not be more than the cash surrender value before withdrawal. Second, the contract fund after the II-38 withdrawal must not be less than the tabular contract fund after the withdrawal. Third, the amount withdrawn must be at least $500 under a Form B Contract and at least $2,000 under a Form A Contract. An owner may make no more than four such withdrawals in a Contract year, and there is a fee of the lesser of $15 and 2% of the amount withdrawn for each such withdrawal. An amount withdrawn may not be repaid except as a premium subject to the Contract charges. Whenever a withdrawal is made, the death benefit payable will immediately be reduced by at least the amount of the withdrawal. This will not change the guaranteed minimum amount of insurance under a Form B Contract (i.e., the face amount) nor the amount of the scheduled premium that will be payable thereafter on such a Contract. Under a Form A Contract, however, the resulting reduction in death benefit may require a reduction in the face amount. No withdrawal will be permitted under a Form A Contract if it would result in a new face amount less than the minimum face amount. Furthermore, any applicable deferred administrative and sales charges are reduced in proportion to the reduction in face amount. The contract fund is reduced by the sum of the cash withdrawn, the fee for the withdrawal and the reduction in II-39 the backload. An amount equal to the reduction in the contract fund will be withdrawn from the investment options. In addition, the amount of the scheduled premiums due thereafter under a Form A Contract will be reduced to reflect the lower face amount of insurance. C. Death Claims The Prudential will pay a death benefit to the beneficiary within seven days after receipt at its Service Office of due proof of death of the Insured and all other requirements necessary to make payment. State Insurance laws impose various requirements, such as receipt of a tax waiver, before payment of the death benefit may be made. In addition, payment of the death benefit is subject to the provisions of the Contract regarding suicide and incontestability. In the event The Prudential should contest the validity of a death claim, an amount up to the portion of the Contract fund in the variable investment options will be withdrawn, if appropriate, and held in The Prudential's general account. The following describes the death benefit if the Contract is not in default past its days of grace. The death benefit under a Form A Contract is the face amount less any contract debt. The death benefit under a Form B Contract is the face II-40 amount, plus any excess of the contract fund over the tabular contract fund, less any contract debt. There may be an additional amount payable from an extra benefit added to the Contract by rider. Tabular contract funds on Contract anniversaries are shown in the contract data pages. Tabular contract funds at intermediate times can be obtained by interpolation. If the contract fund grows to exceed the net single premium at the insured's attained age for the death benefit described above, the death benefit will be the contract fund, divided by such net single premium. The death benefit will be adjusted for any contract debt and any extra benefits in the same manner as above. The proceeds payable on death also will include interest (at a rate determined by The Prudential from time to time) from the date that the death benefit is computed (the date of death) until the date of payment. The Prudential will make payment of the death benefit out of its general account, and will transfer assets, if appropriate, from the Account and/or the Real Property Account to the general account in an amount up to the contract fund. II-41 In lieu of payment of the death benefit in a single sum, an election may be made to apply all or a portion of the proceeds under one of the fixed benefit settlement options described in the Contract or, with the approval of The Prudential, a combination of options. The election may be made by the owner during the Insured's lifetime, or, at death, by the beneficiary. An option in effect at death may not be changed to another form of benefit after death. An option is available only if the proceeds to be applied are $1,000 or more or would result in periodic payments of at least $20.00. The fixed benefit settlement options are subject to the restrictions and limitations set forth in the Contract. D. Default and Options on Lapse The Contract is in default on any Monthly Date on which the premium account is less than zero and the contract fund is less than an amount which will grow at the assumed net rate of return to the tabular contract fund applicable on the next Monthly Date. Monthly Dates occur on the Contract Date and in each later month on the same day of the month as the Contract Date. The Contract provides for a grace period commencing on the Monthly Date on which the Contract goes II-42 into default and extending at least 61 days after the mailing date of the notice of default. The insurance coverage continues in force during the grace period, but if the Insured dies during the grace period, any charges due during the grace period are deducted from the amount payable to the beneficiary. Except for Contracts issued on certain insureds in high risk rating classes, a lapsed Contract will normally provide extended term insurance at expiration of the grace period. The death benefit of the extended term insurance is equal to the death benefit of the Contract (excluding riders) as of the date of default, less any Contract debt. The extended term insurance will continue for a length of time that depends on the cash benefit of the extended term insurance is equal to the death benefit of the Contract (excluding riders) as of the due date of the premium in default, less any Contract debt. The extended term insurance will continue for a length of time that depends on the cash surrender value on the due date of first unpaid premium, the amount of insurance, and the age and sex of the insured. However, extended term insurance may be exchanged, if the contract owner so elects, for fixed or variable reduced paid-up II-43 insurance within three months of the due date of the premium in default. The face amount of the reduced paid-up insurance will depend on the cash surrender value on the due date of the premium in default, and the age and sex of the insured. Variable reduced paid-up is only available if the amount of such insurance is at least $5,000, and if the insured is not in a high risk rating class. Contracts issued on the above-mentioned high risk insureds will be converted to fixed reduced paid-up whole-life insurance at expiration of the grace period. If the amount of variable reduced paid-up (VRPU) is at least equal to the amount of extended term insurance, and VRPU is available, then VRPU will be the automatic option on lapse. E. Loans The Contract provides that an owner, if no premium is in default beyond the grace period, may take out a loan at any time a loan value is available. The Contract also provides for a loan value if the Contract is in effect under the contract value option for fixed or variable reduced paid-up insurance, but not if it is in effect as extended term insurance. The owner may borrow money on completion of a II-44 form satisfactory to The Prudential. The Contract is the only security for the loan. Disbursement of the amount of the loan will be made within seven days of receipt of the form at The Prudential's Home Office. The investment options will be debited in the amount of the loan on the date the form is received. The percentage of the loan withdrawn from each investment option will normally be equal to the percentage of the value of such assets held in the investment option. An owner may borrow up to the Contract's full loan value. The loan provision is described in the prospectus. A loan does not affect the amount of premiums due. When a loan is made, the contract fund is not reduced, but the value of the assets relating to the Contract held in the investment option(s) is reduced. Accordingly, the daily changes in the cash surrender value will be different from what they would have been had no loan been taken. Cash surrender values and the death benefit are thus permanently affected by any Contract debt, whether or not repaid. The guaranteed minimum death benefit is not affected by Contract debt if premiums are duly paid. However, on settlement the amount of any Contract debt is subtracted from the insurance proceeds. If Contract debt ever becomes equal II-45 to or more than what the cash surrender value would be if there was no Contract debt, all the Contract's benefits will end 31 days after notice is mailed to the owner and any known assignee, unless payment of an amount sufficient to end the default is made within that period. F. Key Employee Rider Many life insurance companies offer fixed-benefit "key person" insurance policies. Those policies enable an employer to purchase life insurance payable to the employer upon the death of an important or "key" employee whose death would constitute a financial disadvantage to the employer. Such policies often permit the owner the right to change the person insured under the policy, a right often exercised when the original insured terminates his or her employment with the company and is replaced by another person. If permitted by the insurance laws of the state in which the Contract is issued, a rider to the Contract is available, referred to herein as the "key person" rider, that allows the owner the option to continue the Contract in force on the life of a different insured, subject to certain conditions. This rider is primarily offered to corporate and non-corporate employers who own or may purchase a Contract issued II-46 on the life of a key employee. The rider may be included at the time the original Contract is issued or added after issue. If the Contract includes this rider, the owner will be able to continue the Contract in force on the life of a different key employee. Thus, the rider provides employers with a way to purchase the Contract on the life of a key employee that may continue in force in an appropriately modified form on the life of a new employee when the original insured leaves the owner's employment. The revised Contract will have a new scheduled premium and certain other revised specifications, which will be set forth in a new Contract document. An Owner's exercise of the option provided by the key person rider could be viewed as an exchange of the existing Contract for a new Contract. The Contract prior to the owner's exercise of the option to change insureds will be referred to as the "original Contract". The Contract in force after the exchange is effected will be referred to as the "new Contract." An Owner's exercise of the right granted by the key person rider is subject to several conditions. These conditions include but are not limited to the following: (i) the new insured must have been alive as of the original Contract Date II-47 (i.e., the date the Contract was issued) and must be less than 70 years old as of the date of the proposed change of insureds; (ii) the new insured must satisfy The Prudential's underwriting requirements; (iii) the owner of the new Contract must remain the same as the owner of the original Contract and that owner must have an insurable interest in the new insured's life; and (iv) The Prudential must not be waiving any premiums under the Contract pursuant to a rider that waives premiums in the event of disability. The specifications of the new Contract will be determined as follows: The Contract date will remain the same as that of the original Contract. The face amount of the new Contract will generally be the amount requested by the owner in the application to effect the change of insureds, except that it cannot be more than the face amount of the original Contract. The contract fund of the original Contract will become the initial contract fund of the new Contract. The premium for the new Contract will be based on The Prudential's rates in force on the date of the change for the new insured's rating class. If the original Contract has contract debt due to an outstanding loan, the contract debt may be transferred to the new Contract unless that debt would II-48 exceed the new Contract's loan value, in which case the excess contract debt must be paid off. Upon the exchange of the original Contract for the new Contract, neither the contingent deferred sales charge nor the contingent deferred administrative charge is assessed. If the new Contract is subsequently surrendered, however, the Contract's cash surrender value will be determined by using the greater of the surrender charges that would apply under the original or the new Contract. Thus, with respect to the contingent deferred administrative charge, the amount of this charge upon surrender of the new Contract will be determined on the basis of the face amount of the original Contract since the face amount cannot be increased upon exercise of the right to change insureds. The original Contract Date, however, will govern for purposes of determining whether this charge will be reduced or eliminated for persistency. With respect to the contingent deferred sales load, the amount of this charge can be increased following exercise of the option granted by the key person rider because the scheduled premiums on the new Contract can be higher than the scheduled premiums on the original Contract due to the replacement of the original insured with an insured of an II-49 older issue age. If this is so, the contingent deferred sales load will be calculated as if the Contract had originally been issued on the life of the new insured. The original Contract Date will control for purposes of calculating the reduction in the contingent deferred sales charge for persistency. IV. Cash Adjustment Upon Exchange of Contract As described previously, at any time during the first 24 months after a Contract is issued, so long as the Contract is not in default, the Owner may transfer all amounts in the variable investment options into the fixed-rate option. This option is provided in lieu of the option to exchange to a comparable fixed-benefit life insurance combined. II-50 EX-3 5 OPINION LETTER Exhibit 3 April 24, 1995 The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 Gentlemen: In my capacity as Chief Counsel, Variable Products of The Prudential Insurance Company of America, I have reviewed the establishment on August 11, 1987 of The Prudential Variable Appreciable Account (the "Account") by the Finance Committee of the Board of Directors of The Prudential Insurance Company of America ("The Prudential") as a separate account for assets applicable to certain variable life insurance contracts, pursuant to the provisions of Section 17B:28-7 of the Revised Statutes of New Jersey. I am responsible for oversight of the preparation and review of Registration Statements on Form S-6, as amended, filed by The Prudential with the Securities and Exchange Commission (Registration No. 33-20000 and Registration No. 33-25372) under the Securities Act of 1933 for the registration of certain variable appreciable life insurance contracts issued with respect to the Account. I am of the following opinion: 1. The Prudential is a corporation duly organized under the laws of the State of New Jersey and is a validly existing corporation. 2. The Account has been duly created and is validly existing as a separate account pursuant to the aforesaid provisions of New Jersey law. 3. The portion of the assets held in the Account equal to the reserve and other liabilities for variable benefits under the variable appreciable life insurance contracts is not chargeable with liabilities arising out of any other business The Prudential may conduct. 4. The variable appreciable life insurance contracts are legal and binding obligations of The Prudential, in accordance with their terms. In arriving at the foregoing opinion, I have made such examination of law and examined such records and other documents as I judged to be necessary or appropriate. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, Clifford E. Kirsch II-51 EX-6 6 OPINION LETTER Exhibit 6 April 24, 1995 The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 To The Prudential: This opinion is furnished in connection with the registration by The Prudential Insurance Company of America of variable appreciable life insurance contracts ("Contracts") under the Securities Act of 1933. The prospectus included in Post-Effective Amendment No. 15 to Registration Statement No. 33-20000 on Form S-6 describes the Contracts. I have reviewed the two Contract forms and I have participated in the preparation and review of the Registration Statement and Exhibits thereto. In my opinion: (1) The illustrations of cash surrender values and death benefits included in the section of the prospectus entitled "Hypothetical Illustration of Death Benefits and Cash Surrender Values", based on the assumptions stated in the illustrations, are consistent with the provisions of the respective forms of the Contracts. The rate structure of the Contracts has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear more favorable to a prospective purchaser of a Contract issued on a male age 35, than to prospective purchasers of Contracts on males of other ages or on females. (2) The illustration of the effect of a Contract loan on the cash surrender value included in the section of the prospectus entitled "Contract Loans", based on the assumptions stated in the illustration, is consistent with the provisions of the Form A Contract. II-52 (3) The deduction in an amount equal to 1.25% of each premium is a reasonable charge in relation to the additional income tax burden imposed upon The Prudential Insurance Company of America as the result of the enactment of Section 848 of the Internal Revenue Code. In reaching that conclusion a number of factors were taken into account that, in my opinion, were appropriate and which resulted in a projected after-tax rate of return that is a reasonable rate to use in discounting the tax benefit of the deductions allowed in Section 828 in taxable years subsequent to the year in which the premiums are received. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the prospectus. Very truly yours, Nancy D. Davis, FSA, MAAA Vice President and Assistant Actuary The Prudential Insurance Company of America II-53 EX-9 7 POWER OF ATTORNEY Exhibit 9 POWER OF ATTORNEY Know all men by these presents: That I, Franklin E. Agnew, of Pittsburgh, Pennsylvania, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-54 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of March, 1995. FRANKLIN AGNEW ------------------ Signature State of Pennsylvania ) ) SS County of Allegheny ) On this 20th day of March, 1995, before me personally appeared Franklin E. Agnew, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: 7/19/97 KAREN M. JENKINS ------------------ Notary Public II-55 POWER OF ATTORNEY Know all men by these presents: That I, Frederic K. Becker, of Short Hills, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-56 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March, 1995. FREDERIC K. BECKER ------------------ Signature State of New Jersey ) ) SS County of Middlesex ) On this 9th day of March, 1995, before me personally appeared Frederic K. Becker, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: June 27, 1999 ELIZABETH R. HOWLEY ------------------- Notary Public II-57 POWER OF ATTORNEY Know all men by these presents: That I, William W. Boeschenstein, of Perrysburg, Ohio, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-58 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. W. W. BOESCHENSTEIN ------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared William W. Boeschenstein, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE ------------------- Notary Public II-59 POWER OF ATTORNEY Know all men by these presents: That I, Lisle C. Carter, Jr., of Flint Hill, Virginia, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-60 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. LISLE C. CARTER, JR. -------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared Lisle C. Carter, Jr., to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE ------------------- Notary Public II-61 POWER OF ATTORNEY Know all men by these presents: That I, James G. Cullen, of Alexandria, Virginia, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-62 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. JAMES G. CULLEN ------------------ Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared James G. Cullen, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE --------------------- Notary Public II-63 POWER OF ATTORNEY Know all men by these presents: That I, Carolyn K. Davis, of Washington, D.C., a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-64 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. CAROLYN K. DAVIS --------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared Carolyn K. Davis, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE ------------------------ Notary Public II-65 POWER OF ATTORNEY Know all men by these presents: That I, Roger A. Enrico, of Dallas, Texas, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-66 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. ROGER A. ENRICO ------------------ Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared Roger A. Enrico, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE -------------------------- Notary Public II-67 POWER OF ATTORNEY Know all men by these presents: That I, Allan D. Gilmour, of Dearborn, Michigan, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-68 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of April, 1995. ALLAN D. GILMOUR ------------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 11th day of April, 1995, before me personally appeared Allan D. Gilmour, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: December 24, 1995 MARGARET D. MCQUADE ------------------------ Notary Public II-69 POWER OF ATTORNEY Know all men by these presents: That I, William H. Gray III, of Vienna, Virginia, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-70 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. WILLIAM H. GRAY III --------------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 199_, before me personally appeared William H. Gray III, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE ------------------------- Notary Public II-71 POWER OF ATTORNEY Know all men by these presents: That I, Jon F. Hanson, of Far Hills, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-72 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March, 1995. JON F. HANSON ------------------- Signature State of New Jersey ) ) SS County of Bergen ) On this 7th day of March, 1995, before me personally appeared Jon F. Hanson, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: May 2, 1996 ANNE R. OMMUNDSEN ------------------------ Notary Public II-73 POWER OF ATTORNEY Know all men by these presents: That I, Constance J. Horner, of Washington, D.C., a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-74 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of April, 1995. CONSTANCE HORNER ------------------------ Signature District of Columbia ) ) SS ) On this 13th day of April, 1995, before me personally appeared Constance Horner, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: CAROL P. HALLORAN ------------------------- Notary Public II-75 POWER OF ATTORNEY Know all men by these presents: That I, Allen F. Jacobson, of St. Paul, Minnesota, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-76 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March, 1995. ALLEN F. JACOBSON ------------------ Signature State of Minnesota ) ) SS County of Ramsey ) On this 23rd day of March, 1995, before me personally appeared _________________________________, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: January 31, 2000 CHARLENE L. REUTER ------------------ Notary Public II-77 POWER OF ATTORNEY Know all men by these presents: That I, Garnett L. Keith, Jr., of Chatham, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-78 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of March, 1995. GARNETT L. KEITH ------------------ Signature State of New Jersey ) ) SS County of Essex ) On this 15th day of March, 1995, before me personally appeared Garnett L. Keith, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: April 7, 1999 MARGA CONN ------------------ Notary Public II-79 POWER OF ATTORNEY Know all men by these presents: That I, Burton G. Malkiel, of Princeton, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-80 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account-- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. BURTON G. MALKIEL ------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared Burton G. Malkiel, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE ------------------- Notary Public II-81 POWER OF ATTORNEY Know all men by these presents: That I, Eugene M. O'Hara, of Rumson, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-82 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of January, 1995. EUGENE M. O'HARA ------------------ Signature State of New Jersey ) ) SS County of Essex ) On this 27 day of January, 1995, before me personally appeared Eugene O'Hara, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: 7/29/99 JULIE A. AMADOR ------------------ Notary Public II-83 POWER OF ATTORNEY Know all men by these presents: That I, John R. Opel, of Sanibel, Florida, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-84 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. JOHN R. OPEL ------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared John R. Opel, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE --------------------- Notary Public II-85 POWER OF ATTORNEY Know all men by these presents: That I, Arthur F. Ryan, of New York, New York, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-86 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. ARTHUR F. RYAN --------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared Arthur F. Ryan, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 Margaret D. McQuade ------------------------ Notary Public II-87 POWER OF ATTORNEY Know all men by these presents: That I, Charles R. Sitter, of Dallas, Texas, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-88 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March, 1995. CHARLES R. SITTER ---------------------- Signature State of Texas ) ) SS County of Dallas ) On this 3rd day of April, 1995, before me personally appeared Charles R. Sitter, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: 6-15-97 CYNTHIA L. BIRDSALL -------------------------- Notary Public II-89 POWER OF ATTORNEY Know all men by these presents: That I, Donald L. Staheli, of New Canaan, Connecticut, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-90 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of April, 1995. DONALD L. STAHELI ------------------------- Signature State of New York ) ) SS County of New York ) On this 6th day of April, 1995, before me personally appeared Donald L. Staheli, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: January 31, 1997 JOSEPHINE N. KING ---------------------- Notary Public II-91 POWER OF ATTORNEY Know all men by these presents: That I, Richard M. Thomson, of Toronto, Ontario, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-92 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March, 1995. RICHARD M. THOMSON ---------------------------- Signature State of New Jersey ) ) SS County of Essex ) On this 14th day of March, 1995, before me personally appeared Richard M. Thomson, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE ---------------------------- Notary Public II-93 POWER OF ATTORNEY Know all men by these presents: That I, P. Roy Vagelos, of Far Hills, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-94 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March, 1995. ROY VAGELOS --------------------- Signature State of New Jersey ) ) SS County of Somerset ) On this 7th day of March, 1995, before me personally appeared P. Roy Vagelos, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Nov. 9, 1998 DIANE TAYLOR ---------------------- Notary Public II-95 POWER OF ATTORNEY Know all men by these presents: That I, Stanley C. Van Ness, of Brielle, New Jersey, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-96 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of April, 1995. STANLEY C. VAN NESS ------------------------ Signature State of New Jersey ) ) SS County of Essex ) On this 11th day of April, 1995, before me personally appeared Stanley C. Van Ness, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: Dec. 24, 1995 MARGARET D. MCQUADE -------------------------- Notary Public II-97 POWER OF ATTORNEY Know all men by these presents: That I, Paul A. Volcker, of New York, New York, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-98 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March, 1995. PAUL A. VOLCKER ------------------------- Signature State of New York ) ) SS County of New York ) On this 8th day of March, 1995, before me personally appeared Paul A. Volcker, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: 3/31/95 ANDREA SMALLWOOD ----------------------- Notary Public II-99 POWER OF ATTORNEY Know all men by these presents: That I, Joseph H. Williams, of Tulsa, Oklahoma, a member of the Board of Directors of The Prudential Insurance Company of America, do hereby make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C. SPRAGUE or any of them severally for me and in my name, place and stead to sign, where applicable: Annual Reports on Form 10-K, registration statements on the appropriate forms prescribed by the Securities and Exchange Commission, and any other periodic documents and reports required under the Investment Company Act of 1940, the Securities Act of 1933 and all amendments thereto executed on behalf of The Prudential Insurance Company of America and filed with the Securities and Exchange Commission for the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-10 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Account-24 and group annuity contracts, to extent they represent participating interests in said Account; The Prudential Variable Contract Real Property Account and individual variable life insurance and annuity contracts, to the extent they represent participating interests in said Account; Prudential's Investment Plan Account and Systematic Investment Plan Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; II-100 Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the extent they represent participating interests in said Account, and shares of the Common Stock of Prudential's Gibraltar Fund; Group variable retirement annuity contracts, to the extent they represent participating interests in Prudential's Variable Contract Account -- Investment Fund; The Prudential Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Qualified Individual Variable Contract Account and Individual Variable Annuity Contracts, to the extent they represent participating interests in said Account; The Prudential Variable Appreciable Account and Variable Appreciable Life Insurance Contracts, to the extent they represent participating interests in said Account; and The Prudential Variable Life Insurance Account and Variable Life Insurance Contracts, to the extent they represent participating interests in said Account. IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of March, 1995. JOSEPH H. WILLIAMS ------------------------- Signature State of Oklahoma ) ) SS County of Tulsa ) On this 15th day of March, 1995, before me personally appeared Joseph H. Williams, to me known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that (s)he executed the same. My commission expires: August 30, 1997 MOLLY M. GEORGE ----------------------- Notary Public II-101 EX-27 8 FDS, PRUDENTIAL VAR APP ACCT.
6 1 YEAR DEC-31-1994 DEC-31-1994 $2,600,908 $2,587,138 $0 $0 $0 $2,587,138 $0 $0 $0 $0 $0 $0 176,778 $0 $0 $0 $0 $0 $0 $2,587,138 $79,801 $0 $54,710 $16,714 $63,087 $167 $(155,373) $(37,409) $0 $0 $0 $0 $0 $0 $0 $521,651 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
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