-----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, RaVxPDvtTsj/HsI2j0c5C/M/wpL+9SbtmSd6HsbzgDwPJUqaZxC2Zd9InQEpNBbw o0H5hEGpODY8DKVlRKQLjw== 0000912057-95-002893.txt : 19950501 0000912057-95-002893.hdr.sgml : 19950501 ACCESSION NUMBER: 0000912057-95-002893 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19950428 EFFECTIVENESS DATE: 19950428 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL VARIABLE CONTRACT ACCOUNT 11 CENTRAL INDEX KEY: 0000701275 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 221211670 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-76581 FILM NUMBER: 95532741 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03422 FILM NUMBER: 95532742 BUSINESS ADDRESS: STREET 1: 751 BROAD ST 21 PRUDENTIAL PLZ STREET 2: C/O PRUDENTIAL INSURANCE CO OF AMERICA CITY: NEWARK STATE: NJ ZIP: 07102-3777 BUSINESS PHONE: 2018028781 MAIL ADDRESS: STREET 1: 30 E D PREATE DR STREET 2: C/O PRUDENTIAL ASSET MANAGEMENT CO INC CITY: MOOSIC STATE: PA ZIP: 18507-1796 485BPOS 1 485BPOS Registration No. 2-76581 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- Form N-3 REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 26 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 28 ------------------- THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-11 (Exact Name of Registrant) THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Name of Insurance Company) Prudential Plaza Newark, New Jersey 07102-3777 (201) 802-8781 (Address and telephone number of Insurance Company's principal executive offices) -------------------------------------- C. CHRISTOPHER SPRAGUE Assistant General Counsel The Prudential Insurance Company of America c/o Prudential Defined Contribution Services 30 Scranton Office Park Moosic, Pennsylvania 18507-1789 (Name and address of agent for service) Copy to: Lawrence J. Latto Jeffrey C. Martin Shea & Gardner 1800 Massachusetts Avenue, N.W. Washington, DC 20036 ------------------------- Registrant has registered an indefinite amount of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940. The 24f-2 notice for fiscal year 1994 was filed on February 27, 1995. For the purpose of Amending the Registration Statement. Fiscal year ending December 31, 1994 It is proposed that this filing will become effective (Check appropriate space): ___ immediately upon filing pursuant to paragraph (b) of Rule 485 _X_ on May 1, 1995 pursuant to paragraph (b) of Rule 485 (date) ___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485 ___ on ___________ pursuant to paragraph (a)(i) of the Rule 485 (date) ___ 75 days after filing pursuant to paragraph (a)(ii) of Rule 485 ___ on ___________ pursuant to paragraph (a)(ii) of Rule 485 (date) CROSS REFERENCE SHEET Pursuant to Rule 495(a) under the Securities Act of 1933 indicating the location in the Prospectus and Statement of Additional Information called for by the Items of Parts A and B of Form N-3. Item Number and Caption Heading in Prospectus or Statement of Additional Information 1. Cover Page......................................... Cover Page 2. Definitions........................................ Definition of Special Terms Used in this Prospectus 3. Synopsis or Highlights............................. Summary 4. Condensed Financial Information.................... Condensed Financial Information 5. General Description of Registrant The Prudential; The Accounts; and Insurance Company.............................. Investment Practices 6. Management......................................... Management 7. Deductions and Expenses............................ Fee Tables; Charges; The Contracts, Exchange Offer 8. General Description of Variable Annuity Summary; Contacting Prudential; The Contracts.......................................... Contracts, The Accumulation Period; Changes in the Contracts; Voting Rights 9. Annuity Period..................................... The Contracts, The Annuity Period 10. Death Benefit...................................... The Contracts, Death Benefits 11. Purchases and Contract Value....................... The Prudential; Investment Practices, Determination of Asset Value; The Contracts, The Accumulation Period 12. Redemptions........................................ The Contracts, Withdrawal (Redemption) of Contributions, Systematic Withdrawal Plan, Texas Optional Retirement Program 13. Taxes.............................................. Federal Tax Status 14. Legal Proceedings.................................. Legal Proceedings 15. Table of Contents of the Table of Contents-Statement of Statement of Additional Information................ Additional Information 16. Cover Page......................................... Cover Page 17. Table of Contents.................................. Table of Contents 18. General Information and History.................... Not Applicable 19. Investment Objectives and Policies................. Investment Management and Administration of VCA-10, VCA-11 and VCA-24 20. Management......................................... The VCA-10 and VCA-11 Committees 21. Investment Advisory and Other Services............. Investment Management and Administration of VCA-10, VCA-11 and VCA-24 22. Brokerage Allocation............................... Investment Management and Administration of the Accounts, Portfolio Brokerage and Related Practices 23. Purchase and Pricing of Securities Being Offered... Not Applicable 24. Underwriters....................................... Investment Management and Administration of the Accounts; Sale of the Contracts 25. Calculation of Performance Data.................... Performance Information 26. Annuity Payments................................... Not Applicable 27. Financial Statements............................... Financial Statements of VCA-10; Financial Statements of VCA-11; Financial Statements of VCA-24; Financial Statements of Prudential
PROSPECTUS May 1, 1995 THE MEDLEY (SM) PROGRAM GROUP VARIABLE ANNUITY CONTRACTS issued through THE PRUDENTIAL THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10 VARIABLE CONTRACT ACCOUNT-11 THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-24 - -------------------------------------------------------------------------------- These Contracts are designed for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of 1986 and with non-qualified annuity arrangements. Contributions made on behalf of Participants may be invested in The Prudential Variable Contract Account-10, The Prudential Variable Contract Account-11 or one or more of the seven Subaccounts of The Prudential Variable Contract Account-24. The Prudential Variable Contract Account-10 will invest primarily in common stocks selected with the objective of long-term growth, taking into account both income and capital appreciation. The Prudential Variable Contract Account-11 will invest in money market instruments selected with the objective of obtaining as high a level of current income as is consistent with the preservation of capital and liquidity. An investment in The Prudential Variable Contract Account-11 is neither insured nor guaranteed by the U.S. Government. Each of the Subaccounts of The Prudential Variable Contract Account-24 will invest in the corresponding Portfolio of The Prudential Series Fund, Inc. (the "Fund"). The accompanying Prospectus for the Fund describes the investment objectives of the seven Portfolios currently available to Participants: the Bond Portfolio, the Government Securities Portfolio, the Conservatively Managed Flexible Portfolio, the Aggressively Managed Flexible Portfolio, the Stock Index Portfolio, the Common Stock Portfolio and the Global Equity Portfolio. This Prospectus provides information a prospective investor should know before investing. Additional information about the Contracts has been filed with the Securities and Exchange Commission in a Statement of Additional Information, dated May 1, 1995, which information is incorporated herein by reference and is available without charge upon written or oral request directed to the address or telephone number shown below. The Table of Contents of the Statement of Additional Information appears on page 35 of this Prospectus. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- The Prudential Insurance Company of America c/o Prudential Defined Contribution Services 30 Scranton Office Park Moosic, PA 18507-1789 Telephone 1-800-458-6333 The Prudential Rock Logo - --------------------- - -------------------------------------------------------------------------------- CONTENTS PAGE DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS....................................................... 2 FEE TABLES................................................................................................ 3 SUMMARY................................................................................................... 5 CONDENSED FINANCIAL INFORMATION-VCA-10.................................................................... 8 CONDENSED FINANCIAL INFORMATION-VCA-11.................................................................... 9 CONDENSED FINANCIAL INFORMATION-VCA-24.................................................................... 10 INTRODUCTION.............................................................................................. 11 THE PRUDENTIAL............................................................................................ 11 THE ACCOUNTS.............................................................................................. 11 THE FUND.................................................................................................. 11 INVESTMENT PRACTICES...................................................................................... 12 VCA-10's investment objective.................................................................. 12 VCA-10's investment policy..................................................................... 12 Options on Equity Securities................................................................... 12 Options on Stock Indices....................................................................... 13 Stock Index Futures Contracts and Options on Futures Contracts................................. 13 When-Issued and Delayed Delivery Securities.................................................... 13 Short Sales Against the Box.................................................................... 13 VCA-11's investment objective.................................................................. 13 VCA-11's investment policy..................................................................... 13 The investment objectives of the Fund Portfolios............................................... 16 Determination of asset value................................................................... 16 MANAGEMENT................................................................................................ 17 CHARGES................................................................................................... 18 Deferred Sales Charge.......................................................................... 18 Limitations on Sales Charges................................................................... 18 Annual Account Charge.......................................................................... 19 Charge for Administrative Expenses and Investment Management Services.......................... 19 Modification of Charges........................................................................ 19 THE CONTRACTS............................................................................................. 20 The Accumulation Period........................................................................ 20 1. Contributions; Crediting Units; Enrollment Forms; Deduction for Administrative Expenses........................................... 20 2. Valuation of a Participant's Account............................................ 21 3. The Unit Value.................................................................. 21 4. The Unit Change Factor for Any Business Day..................................... 21 5. Withdrawal (Redemption) of Contributions........................................ 21 6. Systematic Withdrawal Plan...................................................... 22 7. Texas Optional Retirement Program............................................... 23 8. Death Benefits.................................................................. 24 9. Discontinuance of Contributions................................................. 25 10. Transfer Payments............................................................... 25 11. Exchange Offer into MEDLEY...................................................... 26 12. Exchange Offer out of MEDLEY.................................................... 26 13. Loans........................................................................... 27 14. Modified Procedures............................................................. 28 The Annuity Period............................................................................. 28 1. Electing the Annuity Date and the Form of Annuity............................... 28 2. Available Forms of Annuity...................................................... 29 3. Purchasing the Annuity.......................................................... 29 Assignment..................................................................................... 29 Changes in the Contracts....................................................................... 30 Reports........................................................................................ 30 Performance Information........................................................................ 30 Participation in divisible surplus............................................................. 30 FEDERAL TAX STATUS........................................................................................ 31 VOTING RIGHTS............................................................................................. 33 OTHER CONTRACTS ON A VARIABLE BASIS....................................................................... 34 STATE REGULATION.......................................................................................... 34 LEGAL PROCEEDINGS......................................................................................... 34 ADDITIONAL INFORMATION.................................................................................... 35 TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION.................................................... 35 APPENDIX.................................................................................................. 36 NOTE: ALL MASCULINE REFERENCES IN THIS PROSPECTUS ARE INTENDED TO INCLUDE THE FEMININE GENDER. THE SINGULAR CONTEXT ALSO INCLUDES THE PLURAL AND VICE VERSA WHERE NECESSARY.
DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS ACCUMULATION ACCOUNT--An account established for each Participant to record the amount credited to the Participant under a Contract. Separate accounts are maintained for each investment option. ACCUMULATION PERIOD--The period, prior to the effecting of an annuity, during which the amount credited to a Participant may vary with the investment performance of VCA-10, VCA-11, any Subaccount of VCA-24, or the rate credited under the companion contract, as selected. COMPANION CONTRACT--A fixed-dollar group annuity contract issued by Prudential under which contributions may be made for Participants in the MEDLEY Program. CONTRACT-HOLDER--The employer, association or trust to which Prudential has issued a Contract. CONTRACTS--The group variable annuity contracts described in this Prospectus and offered for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code and with non-qualified annuity arrangements. FUND--The Prudential Series Fund, Inc., a mutual fund with separate Portfolios, seven of which correspond to the seven Subaccounts of VCA-24. MEDLEY PROGRAM--The contracts chosen by a Contract-holder from those described in this Prospectus and any Companion Contract(s) comprise the Contract-holder's MEDLEY Program. It is sometimes referred to in this Prospectus as the "Program." MEDLEY is a registered service mark of The Prudential Insurance Company of America. NON-QUALIFIED COMBINATION CONTRACT--A group variable annuity contract issued in connection with non-qualified arrangements that permits Participants within a single Contract to direct contributions to VCA-10, VCA-11, VCA-24 or a general account fixed rate option of Prudential. Separate Accumulation Accounts are maintained for amounts credited to the Participant under each investment option in this Contract. PARTICIPANT--A person for whom contributions have been made and to whom amounts invested under a Contract or Companion Contract remain credited. SUBACCOUNT--A division of VCA-24, the assets of which are invested in shares of the corresponding Portfolio of the Fund. VCA-24 currently has seven Subaccounts: the Bond Subaccount, the Government Securities Subaccount, the Conservatively Managed Flexible Subaccount, the Aggressively Managed Flexible Subaccount, the Stock Index Subaccount, the Common Stock Subaccount and the Global Equity Subaccount. UNIT AND UNIT VALUE--A Participant is credited with Units in each of VCA-10, VCA-11, and the Subaccounts of VCA-24 in which he invests. The value of these Units changes each day to reflect the investment results of, and deductions of charges from, VCA-10, VCA-11 and the Subaccounts of VCA-24, and the expenses of the Fund Portfolios in which the assets of the Subaccounts are invested. The number of Units credited to a Participant in VCA-10, VCA-11 or any Subaccount of VCA-24 is determined by dividing the amount of the contribution made on his behalf to that Account or Subaccount by the applicable Unit Value for the business day on which the contribution is received at the address shown on the cover of this Prospectus. VARIABLE CONTRACT ACCOUNT-10--A separate account of Prudential registered under the Investment Company Act of 1940 as an open-end, diversified, management investment company, invested primarily in common stocks selected with the objective of long-term growth. VARIABLE CONTRACT ACCOUNT-11--A separate account of Prudential registered under the Investment Company Act of 1940 as an open-end, diversified, management investment company, invested in money market instruments selected with the objective of realizing as high a level of current income as is consistent with the preservation of capital and liquidity. VARIABLE CONTRACT ACCOUNT-24--A separate account of Prudential registered under the Investment Company Act of 1940 as a unit investment trust, invested through its Subaccounts in shares of the corresponding Fund Portfolios. 2 The purpose of the tables on this page and on the following page is to assist the Participant in understanding the various charges that a Participant in an Account will bear, whether directly or indirectly. For more complete descriptions of the various charges, see "Charges" page 18 of this Prospectus. FEE TABLES--VCA-10 AND VCA-11 PARTICIPANT TRANSACTION EXPENSES Sales Load Imposed on Purchases.............................................None Deferred Sales Load (as a percentage of contributions withdrawn):
MAXIMUM DEFERRED SALES CHARGE AS A YEARS OF PROGRAM PARTICIPATION PERCENTAGE OF CONTRIBUTIONS WITHDRAWN - ----------------------------------------------- -------------------------------------- 0-2 years..................... 7% 3-5 years..................... 6% 6-10 years.................... 4% 11-15 years................... 3% after 15 years................ 0%
Maximum Annual Contract Fee.................................................$20* ANNUAL ACCOUNT EXPENSES (as a percentage of average net assets)
VCA-10 VCA-11 --------- --------- Investment Management Fee .25% .25% Administrative Fee .75% .75% --------- --------- Total Annual Expenses 1.00% 1.00%
EXAMPLES - ------------------------------------------------------------------------------------------------ A. You would pay the following expenses on each $1000 invested assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year 3 Years 5 Years 10 Years ----------- ------------- ----------- ------------- VCA-10 $ 80 $ 93 $ 117 $ 166 VCA-11 81 93 118 168 B. You would pay the following expenses on the same investment assuming (1) a 5% annual return and (2) no redemp- tion or you annuitize at the end of the period: VCA-10 $ 10 $ 33 $ 57 $ 126 VCA-11 11 33 58 128 The above examples are based on data for each Account's fiscal year ended December 31, 1994. The examples should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. *The annual contract fee is reflected in the above example upon the assumption that it is deducted from each of the available investment options, including the Companion Contract and fixed rate option, in the same proportions as the aggregate annual contract fees are deducted from each option. The actual expenses paid by each Participant will vary depending upon the total amount credited to that Participant and how that amount is allocated. For the way in which this fee is deducted, see Annual Account Charge on page 19.
3 FEE TABLE--VCA-24 PARTICIPANT TRANSACTION EXPENSES Sales Load Imposed on Purchases.............................................None Deferred Sales Load (as a percentage of contributions withdrawn):
MAXIMUM DEFERRED SALES CHARGE AS A YEARS OF PROGRAM PARTICIPATION PERCENTAGE OF CONTRIBUTIONS WITHDRAWN - ----------------------------------------------- -------------------------------------- 0-2 years..................... 7% 3-5 years..................... 6% 6-10 years.................... 4% 11-15 years................... 3% after 15 years................ 0%
Maximum Annual Contract Fee.................................................$20* ANNUAL SEPARATE ACCOUNT EXPENSES (as a percentage of average account value) Administrative Fee.........................................................0.75% ANNUAL PRUDENTIAL SERIES FUND PORTFOLIO EXPENSES (as a percentage of each Portfolio's average net assets)
CONSERVATIVELY AGGRESSIVELY GOVERNMENT MANAGED MANAGED STOCK COMMON GLOBAL BOND SECURITIES FLEXIBLE FLEXIBLE INDEX STOCK EQUITY --------- ------------ --------------- ------------- --------- --------- --------- Investment Management Fee .40% .40% .55% .60% .35% .45% .75% Other Expenses .05% .05% .06% .06% .07% .10% .48% --------- ------------ --------------- ------------- --------- --------- --------- Total Annual Prudential Series Fund Portfolio Expenses .45% .45% .61% .66% .42% .55% 1.23%
EXAMPLES - ------------------------------------------------------------------------------------------------------------ A. You would pay the following expenses on each $1000 invested assuming (1) 5% annual return and (2) redemption at the end of each time period: 1 Year 3 Years 5 Years 10 Years ----------- ----------- ----------- ------------- Bond $ 83 $ 99 $ 128 $ 189 Government Securities 82 98 127 187 Conservatively Managed Flexible 84 104 136 207 Aggressively Managed Flexible 85 106 139 213 Stock Index 82 98 125 184 Common Stock 84 102 133 201 Global Equity 90 122 167 272 B. You would pay the following expenses on the same investment, assuming (1) a 5% annual return and (2) no redemption or you annuitize at the end of the period: Bond 13 39 68 149 Government Securities 12 38 67 147 Conservatively Managed Flexible 14 44 76 167 Aggressively Managed Flexible 15 46 79 173 Stock Index 12 38 65 144 Common Stock 14 42 73 161 Global Equity 20 62 107 232 The above examples are based on data for the fiscal year ended December 31, 1994. The examples should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. *The annual contract fee is reflected in the above example upon the assumption that it is deducted from each of the available investment options, including the Companion Contract and fixed rate option, in the same proportions as the aggregate annual contract fees are deducted from each option. The actual expenses paid by each Participant will vary depending upon the total amount credited to that Participant and how that amount is allocated. For the way in which this fee is deducted, see Annual Account Charge on page 19.
4 SUMMARY Four Group Variable Annuity Contracts (the "Contracts") are described in this Prospectus. They are offered by The Prudential Insurance Company of America ("Prudential") for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of 1986 (the "Code" or "Internal Revenue Code") and with non-qualified annuity arrangements. One of the Contracts provides for the investment of contributions in The Prudential Variable Contract Account-10 ("VCA-10"). Another provides for the investment of contributions in The Prudential Variable Contract Account-11 ("VCA-11"). The third provides for the investment of contributions in one or more Subaccounts of The Prudential Variable Contract Account-24 ("VCA-24"). VCA-10, VCA-11 and VCA-24 (the "Accounts") are separate accounts of Prudential. VCA-10 and VCA-11 are registered as open-end, diversified, management investment companies, and VCA-24 is registered as a unit investment trust, under the Investment Company Act of 1940, as amended. The fourth is a non-qualified Contract that provides for investment of contributions in the Accounts and a fixed rate option provided by Prudential (the "Non-Qualified Combination Contract"). The Contracts generally are issued to employers ("Contract-holders") who make contributions under them on behalf of their employees. A person for whom contributions have been made and to whom they remain credited under a Contract is a "Participant." Contributions also may be made for Participants under a companion fixed-dollar contract ("Companion Contract"). Those contracts that a Contract-holder chooses from among the Contracts described in this Prospectus, along with the Companion Contract, if any, make up the Contract-holder's MEDLEY Program ("Program"). What follows is a summary of information about the Contracts and about VCA-10, VCA-11 and VCA-24. More detailed information may be found in the referenced portions of this Prospectus, as well as in the Statement of Additional Information. INTERESTS OF PARTICIPANTS IN VCA-10, VCA-11 AND THE SUBACCOUNTS OF VCA-24 If the Program made available to a Participant includes all the variable investment options described in this Prospectus, the Participant may choose to have contributions made on his behalf invested in any one or more of VCA-10, VCA-11 and the Subaccounts of VCA-24. The Participant may from time to time change how those contributions are allocated, usually by notifying Prudential at the address shown on the cover of this Prospectus. An Accumulation Account will be established in the name of the Participant in each of VCA-10, VCA-11 and the Subaccounts of VCA-24 in which the Participant invests. The value of a Participant's Accumulation Account, expressed in Units of the Account or Subaccount in which the investment is made, will vary with the investment results of that Account or Subaccount. See "The Accumulation Period," pages 20-28. INVESTMENT OBJECTIVES OF THE ACCOUNTS VCA-10 will invest primarily in common stocks selected with the objective of long-term growth, taking into account both income and capital appreciation. Investments will be made according to the standards of a prudent investor concerned primarily with preserving the real value of his capital by achieving a rate of growth in the value of his investments commensurate with the rate of growth in the economy and the prevailing rate of inflation. See "VCA-10's investment objective and investment policy," pages 12-13. VCA-11 will invest in money market instruments payable in U.S. dollars selected with the objective of realizing as high a level of current income as is consistent with the preservation of capital and liquidity. See "VCA-11's investment objective and investment policy," pages 13-16. Each Subaccount of VCA-24 will invest in the corresponding Portfolio of the Fund. The Bond Subaccount invests in the Bond Portfolio, the Government Securities Subaccount in the Government Securities Portfolio, the Conservatively Managed Flexible Subaccount in the Conservatively Managed Flexible Portfolio, the Aggressively Managed Flexible Subaccount in the Aggressively Managed Flexible Portfolio, the Stock Index Subaccount in the Stock Index Portfolio, the Common Stock Subaccount in the Common Stock Portfolio and the Global Equity Subaccount in the Global Equity Portfolio. Additional Subaccounts and Fund Portfolios may be available in the future. The investment objectives of each of these seven Fund Portfolios (see "The Investment Objectives of the Fund Portfolios," page 16) and other information concerning the management and operation of the Fund are contained in the accompanying Fund Prospectus and the Fund's Statement of Additional Information. There is no assurance that the investment objective of VCA-10, VCA-11 or any Fund Portfolio will be attained. Nor is there any guarantee that the amount available to a Participant will equal or exceed the total contributions made on his behalf. The value of the investments held in VCA-10, VCA-11 and in each Fund Portfolio fluctuates daily and is subject to the risks of both changing economic conditions and the selection of investments necessary to meet the Account's or Portfolio's investment objective. 5 INVESTMENT MANAGER AND PRINCIPAL UNDERWRITER Prudential is the investment manager of VCA-10, VCA-11 and the Fund, and Prudential Retirement Services, Inc. (PRSI), a wholly-owned indirect subsidiary of Prudential, is the principal underwriter of the Contracts pursuant to agreements between PRSI and each of VCA-10 and VCA-11 (collectively, the "Distribution Agreements"). See "The Prudential," page 11, "Management," page 17, "The Fund," pages 11-12, and the accompanying Fund prospectus. INVESTMENT REQUIREMENTS Contributions to the Program made on behalf of a Participant through payroll deduction arrangements or similar agreements with the Contract-holder must be made at a rate of at least $200 during any 12-month period. Any other contribution to the Program must be at least $500, except for contributions to an Individual Retirement Annuity for a non-working spouse under Section 408 of the Code (or working spouse who elects to be treated as a non-working spouse), which must be at least $250. All contributions may be divided among the Contracts and Companion Contract(s) that comprise the Contract-holder's Program. See "The Accumulation Period," pages 20-28. Checks should be made payable to Prudential. CHARGES No sales charge is deducted from any contribution when made. However, a deferred sales charge to cover sales expenses may be assessed when a contribution is withdrawn from VCA-10, VCA-11 or any Subaccount of VCA-24. The deferred sales charge is imposed only upon contributions withdrawn by a Participant during the first 15 years of his participation in a Program. The maximum deferred sales charge of seven percent (7%) applies to contributions withdrawn during the first two years that a Participant is in a Program. The charge is lower for contributions withdrawn in subsequent years. Withdrawals are deemed to be made up of contributions until all of a Participant's contributions to the Account have been withdrawn. No deferred sales charge is imposed upon contributions withdrawn to purchase an annuity under a Contract, to provide a death benefit, pursuant to a systematic withdrawal plan, to provide a minimum distribution payment, or in cases of financial hardship or disability retirement as determined pursuant to provisions of the employer's retirement arrangement. Further, for all plans other than IRAs, no deferred sales charge is imposed upon contributions withdrawn due to resignation or retirement by the Participant or termination of the Participant by the Contract-holder. Transfers of contributions among the Accounts, the Subaccounts, the fixed rate option and the Companion Contract(s) are treated as withdrawals of contributions from the Account, Subaccount, fixed rate option or Companion Contract from which the transfer is made, but no deferred sales charge is imposed upon them. They are, however, treated as contributions to the Account, Subaccount, fixed rate option or Companion Contract to which the transfer is made for the purpose of determining the sales charge, if any, upon subsequent withdrawals from that Account, Subaccount, fixed rate option or Companion Contract. See "Deferred Sales Charge," page 18, for further explanation and illustration. An annual account charge may be made against each Participant's Accumulation Accounts under a Program. This charge will not exceed $20 for any calendar year and may be divided among the Participant's Accumulation Accounts. See "Annual Account Charge," page 19. Prudential intends to decrease the deferred sales or annual account charges, or both, applicable to a particular Contract if sales and administrative expenses associated with that Contract are expected to be lower, or if fewer sales or administrative services are expected to be required in connection with the Contract. See "Modification of Charges," page 19. Prudential makes a daily charge equal to an effective annual rate of 1.00% of the net value of the assets in VCA-10 and VCA-11. This charge is made up of 0.25% ( 1/4 of 1%) for investment management and 0.75% ( 3/4 of 1%) for administrative expenses. Prudential makes a daily charge for administrative expenses equal to an effective annual rate of 0.75% of the net asset value of each Subaccount of VCA-24. See "Charge for Administrative Expenses and Investment Management Services," page 19. A daily charge against assets for investment management with respect to each Fund Portfolio in which a Subaccount invests is made separately at an effective annual rate of 0.35% (35/100 of 1%) of the net asset value of the Fund's Stock Index Portfolio, 0.40% (40/100 of 1%) of the net asset value of the Fund's Bond Portfolio and Government Securities Portfolio, 0.45% (45/100 of 1%) of the net asset value of the Fund's Common Stock Portfolio, 0.55% (55/100 of 1%) of the net asset value of the Conservatively Managed Flexible Portfolio, 0.60% (60/100 of 1%) of the net asset value of the Aggressively Managed Flexible Portfolio, and 0.75% (75/100 of 1%) of the net asset value of the Global Equity Portfolio. The Fund's Portfolios also bear the costs of Portfolio transactions, legal and accounting expenses, shareholder services, and custodial and transfer agency fees. Further detail is provided in the accompanying prospectus for the Fund and in its Statement of Additional Information. The deferred sales charge, the annual account charge, and the charges against assets for administrative expenses may be changed by Prudential. See "Changes in the Contracts," page 30. 6 WITHDRAWALS AND TRANSFERS Unless restricted by the retirement arrangement under which he is covered, or by the withdrawal restrictions imposed by federal tax law on tax-deferred annuity contracts subject to Section 403(b) of the Code and on interests in deferred compensation plans under Section 457 of the Code, a Participant may withdraw, at any time, all or a part of his Accumulation Account in VCA-10, or VCA-11 or any Subaccount of VCA-24. See "Withdrawal (Redemption) of Contributions," page 21. Withdrawals may be subject to tax under the Internal Revenue Code, including, under certain circumstances, a 10% penalty tax on premature withdrawals. See "Federal Tax Status," page 31. In addition, all or a part of a Participant's Accumulation Account may be transferred among Accounts, Subaccounts, fixed rate option and Companion Contract without charge or tax liability. Prudential may limit the frequency of transfers and may under certain Contracts prohibit or restrict transfers from the Companion Contract or fixed rate option into non-equity investment options that are defined in the Contract(s) as "competing" with the Companion Contract or the fixed rate option with respect to investment characteristics. See "Transfer Payments," page 25. CONTACTING PRUDENTIAL All written requests, notices, and transfer requests required by the Contracts (other than withdrawal requests and death benefit claims), should be sent to Prudential at the address shown on the cover of this Prospectus. Any questions or inquiries may be sent to Prudential at that address or may be communicated by telephone at 1-800-458-6333. All withdrawal requests or death benefit claims relating to a Participant's interest in VCA-10, VCA-11 and VCA-24 must be sent to Prudential by one of the following three means: 1) By U.S. mail to: Prudential Defined Contribution Services, P.O. Box 5410, Scranton, Pennsylvania 18505-5410; 2) Delivery service other than the U.S. mail (e.g., Federal Express, etc.) sent to our office at the following address: Prudential Defined Contribution Services, 30 Scranton Office Park, Moosic, Pennsylvania 18507-1789; or 3) Fax to Prudential Defined Contribution Services, Attention: Client Payments at: (717) 340-4328. A withdrawal request or death benefit claim will be deemed received in good order by Prudential as of the end of the valuation period within which all the properly completed forms and other information required by Prudential to pay such a request or claim (e.g., due proof of death) are received as specified above. Receipt of a withdrawal request or death benefit claim in good order is required by Prudential to process the transaction in the manner explained on pages 21-25 of this prospectus. Under certain Contracts, the Contract-holder or a third party acting on their behalf provides record-keeping services that would otherwise be performed by Prudential. See "Modified Procedures," page 28. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. 7 CONDENSED FINANCIAL INFORMATION INCOME AND CAPITAL CHANGES PER VCA-10 UNIT (For a Unit outstanding throughout the year) (Audited year-end information is covered by the Independent Auditors' Report in the Statement of Additional Information.)
YEAR ENDED ------------------------------------------------------------------------------------------------------------ 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 - --------------------------------------------------------------------------------------------------------------------------------- Investment Income... $ .0563 $ .0855 $ .0551 $ 0.538 $ .0718 $ .0650 $ .0593 $ .0408 $ .0464 $ .0439 - --------------------------------------------------------------------------------------------------------------------------------- Expenses For investment management fee.... .0083 .0077 .0064 .0056 .0048 .0047 .0038 .0043 .0039 .0032 For administrative expenses not covered by the annual account charge.......... .0251 .0230 .0192 .0169 .0144 .0141 .0115 .0129 .0116 .0097 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income............ .0229 .0548 .0295 .0313 .0526 .0462 .0440 .0236 .0309 .0310 - --------------------------------------------------------------------------------------------------------------------------------- Capital Changes Net realized gain (loss) on investments....... .1947 .2763 .2884 .1096 .0791 .1451 (.3251) .2121 .2130 .2288 Net unrealized appreciation (depreciation) of investments..... (.2148) .2599 (.0823) .4478 (.2054) .2167 .5511 (.3913) (.2189) .0553 - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Unit Value............. .0028 .5910 .2356 .5887 (.0737) .4080 .2700 (.1556) .0250 .3151 - --------------------------------------------------------------------------------------------------------------------------------- Unit Value Beginning of year.............. 3.3576 2.7666 2.5310 1.9423 2.0160 1.6080 1.3380 1.4936 1.4686 1.1535 End of year....... $ 3.3604 $ 3.3576 $ 2.7666 $ 2.5310 $ 1.9423 $ 2.0160 $ 1.6080 $ 1.3380 $ 1.4936 $ 1.4686 - --------------------------------------------------------------------------------------------------------------------------------- Sum of average ratios for the year of (a) charge for investment management fee to net assets* and (b) charge for administrative expenses not covered by the annual account charge to net assets*........... .9965% .9955% .9936% .9929% .9977% 1.0068% 1.0009% 1.0145% .9977% .9949% - --------------------------------------------------------------------------------------------------------------------------------- Average ratio for the year of net investment income to net assets..... .6791% 1.7775% 1.1431% 1.3779% 2.7403% 2.4684% 2.8773% 1.3851% 2.0022% 2.3754% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate.............. 31.50% 45.45% 65.20% 71.91% 105.69% 64.11% 97.29% 96.39% 102.72% 96.45% - --------------------------------------------------------------------------------------------------------------------------------- Number of Units outstanding for Participants at end of year (000 omitted).......... 79,189 73.569 62.592 58,699 55,621 53,748 52,894 52,350 43,598 30,744 - --------------------------------------------------------------------------------------------------------------------------------- *These calculations exclude The Prudential's equity in VCA-10.
The above table does not reflect the annual account charge, which does not affect the Unit Value of VCA-10. This charge is made by reducing Participants' accounts by a number of Units equal in value to the charge. While both income and capital changes are shown above, the distinction between these sources of change in VCA-10 is not particularly significant to Participants. There is no distinction between income and realized and unrealized gains and losses on investments in determining the amount of the Participant's benefits and the taxes payable by the Participant on them. 8 CONDENSED FINANCIAL INFORMATION INCOME AND CAPITAL CHANGES PER VCA-11 UNIT (For a Unit outstanding throughout the year) (Audited year-end information is covered by the Independent Auditors' Report in the Statement of Additional Information)
YEAR ENDED ------------------------------------------------------------------------------------------------------------ 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 - --------------------------------------------------------------------------------------------------------------------------------- Investment Income... $ .0912 $ .0682 $ .0812 $ .1215 $ .1464 $ .1536 $ .1158 $ .0967 $ .0909 $ .1026 - --------------------------------------------------------------------------------------------------------------------------------- Expenses For investment management fee.... .0052 .0050 .0049 .0047 .0044 .0040 .0038 .0035 .0033 .0031 For administrative expenses not covered by the annual account charge.......... .0154 .0150 .0147 .0142 .0131 .0122 .0113 .0106 .0100 .0093 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income............ .0706 .0482 .0616 .1026 .1289 .1374 .1007 .0826 .0776 .0902 - --------------------------------------------------------------------------------------------------------------------------------- Capital Changes Net realized gain (loss) on investments....... -- -- -- -- -- -- -- -- -- -- Net unrealized appreciation (depreciation) of investments..... -- -- -- -- -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Unit Value............. .0482 .0616 .1026 .1289 .1374 .1007 .0826 .0776 .0902 - --------------------------------------------------------------------------------------------------------------------------------- Unit Value Beginning of period............ 2.0350 1.9868 1.9252 1.8226 1.6937 1.5563 1.4556 1.3730 1.2954 1.2052 End of period..... $ 2.1056 $ 2.0350 $ 1.9868 $ 1.9252 $ 1.8226 $ 1.6937 $ 1.5563 $ 1.4556 $ 1.3730 $ 1.2954 - --------------------------------------------------------------------------------------------------------------------------------- Sum of average ratios for the year of (a) charge for investment management fee to net assets* and (b) charge for administrative expenses not covered by the annual account charge to net assets*........... .9966% .9942% .9999% 1.0048% .9972% .9988% .9996% .9970% .9973% .9972% - --------------------------------------------------------------------------------------------------------------------------------- Average ratio for the year of net investment income to net assets..... 3.4176% 2.3997% 3.1433% 5.4667% 7.3333% 8.4557% 6.6989% 5.8503% 5.8068% 7.2093% - --------------------------------------------------------------------------------------------------------------------------------- Number of Units outstanding for Participants at end of year (000 omitted).......... 35,448 29,421 27,518 26,400 25,174 23,777 21,278 17,341 14,788 11,634 - --------------------------------------------------------------------------------------------------------------------------------- *These calculations exclude The Prudential's equity in VCA-11.
The above table does not reflect the annual account charge, which does not affect the Unit Value of VCA-11. This charge is made by reducing Participants' accounts by a number of Units equal in value to the charge. 9 CONDENSED FINANCIAL INFORMATION ACCUMULATION UNIT VALUE INFORMATION PER VCA-24 UNIT
SUBACCOUNTS ------------------------------------------------------------------------------ COMMON STOCK ------------------------------------------------------------------------------ 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 06/01/87* 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 -------- -------- -------- -------- -------- -------- -------- -------- Beginning of period (rounded)............... $2.0136 $1.6646 $1.4690 $1.1745 $1.2484 $0.9697 $0.8344 $1.0000 End of period (rounded)... $2.0541 $2.0136 $1.6646 $1.4690 $1.1745 $1.2484 $0.9697 $0.8344 Accumulation Units Outstanding at end of period (000 omitted).... 99,323 79,985 51,639 35,657 21,964 17,703 14,576 12,137 BOND ------------------------------------------------------------------------------ 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 06/01/87* 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 -------- -------- -------- -------- -------- -------- -------- -------- Beginning of period (rounded)............... $1.7435 $1.5950 $1.4992 $1.2973 $1.2075 $1.0720 $0.9977 $1.0000 End of period (rounded)... $1.6746 $1.7435 $1.5950 $1.4992 $1.2973 $1.2075 $1.0720 $0.9977 Accumulation Units Outstanding at end of period (000 omitted).... 14,575 14,481 10,103 7,928 5,824 4,122 2,344 1,488
AGGRESSIVELY MANAGED FLEXIBLE ------------------------------------------------------------------------------ 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 06/01/87* 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 -------- -------- -------- -------- -------- -------- -------- -------- Beginning of period (rounded)............... $1.8609 $1.6223 $1.5189 $1.2201 $1.2056 $0.9976 $0.8909 $1.0000 End of period (rounded)... $1.7886 $1.8609 $1.6223 $1.5189 $1.2201 $1.2056 $0.9976 $0.8909 Accumulation Units Outstanding at end of period (000 omitted).... 44,729 36,035 23,410 16,859 12,229 10,015 7,850 5,568 CONSERVATIVELY MANAGED FLEXIBLE ------------------------------------------------------------------------------ 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 06/01/87* 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 -------- -------- -------- -------- -------- -------- -------- -------- Beginning of period (rounded)............... $1.7473 $1.5691 $1.4781 $1.2508 $1.1971 $1.0310 $0.9387 $1.0000 End of period (rounded)... $1.7175 $1.7473 $1.5691 $1.4781 $1.2508 $1.1971 $1.0310 $0.9387 Accumulation Units Outstanding at end of period (000 omitted).... 43,594 36,932 24,223 16,385 11,857 10,273 8,444 7,436
STOCK INDEX -------------------------------------------------------------------- 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 05/02/88* 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 -------- -------- -------- -------- -------- -------- -------- Beginning of period (rounded)............... $2.0072 $1.8440 $1.7342 $1.3469 $1.4086 $1.0843 $1.0000 End of period (rounded)... $2.0123 $2.0072 $1.8440 $1.7342 $1.3469 $1.4086 $1.0843 Accumulation Units Outstanding at end of period (000 omitted).... 40,522 32,178 20,554 10,724 4,232 1,285 189 GLOBAL GOVERNMENT EQUITY SECURITIES -------------------------------------- -------------------------------------- 01/01/94 01/01/93 01/01/92 05/01/91* 01/01/94 01/01/93 01/01/92 05/01/91* TO TO TO TO TO TO TO TO 12/31/94 12/31/93 12/31/92 12/31/91 12/31/94 12/31/93 12/31/92 12/31/91 -------- -------- -------- -------- -------- -------- -------- -------- Beginning of period (rounded)............... $1.3791 $0.9707 $1.0127 $1.0000 $1.3196 $1.1811 $1.1242 $1.0000 End of period (rounded)... $1.3020 $1.3791 $0.9707 $1.0127 $1.2421 $1.3196 $1.1811 $1.1242 Accumulation Units Outstanding at end of period (000 omitted).... 21,739 12,368 3,180 1,300 16,140 15,556 9,269 6,641 *Commencement of operations.
Additional financial information concerning VCA-24 can be found on pages 35-41 of the Statement of Additional Information. 10 INTRODUCTION The Contracts described in this Prospectus are offered for use in connection with various retirement arrangements entitled to federal income tax benefits. These are (a) individual retirement annuities ("IRAs") subject to Section 408 of the Code, (b) tax-deferred annuities subject to Section 403(b) of the Code, for use by public schools and certain tax-exempt organizations, (c) eligible deferred compensation plans subject to Section 457 of the Code and (d) pension and profit sharing plans qualified under Section 401 of the Code including those plans that are established by self-employed individuals for themselves and their employees. A summary of the tax benefits available to persons participating in these arrangements and their beneficiaries is provided under "Federal Tax Status," page 31. The Contracts described in this Prospectus are also offered for use in connection with non-qualified annuity arrangements. When the Program made available to a Participant includes all variable investment options, the Participant may have contributions made on his behalf invested in one or more of VCA-10, VCA-11, and the Subaccounts of VCA-24. Some Programs, however, may offer only some of the variable investment options, and accordingly a Participant in those Programs may only have contributions made on their behalf to the available Accounts and Subaccounts. An Accumulation Account will be established for a Participant in each Account or Subaccount in which he invests. The value of a Participant's Accumulation Account in VCA-10, VCA-11 or any particular Subaccount of VCA-24 will vary with the investment results in VCA-10, VCA-11 or any particular Subaccount of VCA-24, respectively. A Participant may elect to have the value of his Accumulation Accounts distributed to him in one sum, applied to the purchase of a fixed-dollar annuity, or both. The Contracts do not provide for annuity payments that vary with the investment results of VCA-10, VCA-11 or any Subaccount of VCA-24. THE PRUDENTIAL Prudential is a mutual life insurance company incorporated in 1873 under the laws of the State of New Jersey. Its corporate office is located at Prudential Plaza, Newark, New Jersey. It has been investing for pension funds since 1928. At December 31, 1994, it managed over $105 billion of group pension fund assets. Prudential serves as the investment manager for VCA-10, VCA-11 and the Fund and is registered as an investment adviser under the Investment Advisers Act of 1940. PRSI performs certain sales and distribution functions regarding the Contracts pursuant to agreements between PRSI and each of VCA-10 and VCA-11 (collectively, the "Distribution Agreements") and may be deemed to be the Contracts' "principal underwriter" under the Investment Company Act of 1940, as amended (the "1940 Act"). PRSI is registered as a broker-dealer under the Securities Exchange Act of 1934. Prudential is responsible for the administrative and recordkeeping functions of VCA-10, VCA-11, VCA-24 and the Fund. Prudential's financial statements appear in the Statement of Additional Information and should be considered only as bearing upon Prudential's ability to meet its obligations under the Contracts. THE ACCOUNTS Prudential established VCA-10 and VCA-11 on March 1, 1982, and VCA-24 on April 29, 1987, under the insurance laws of the State of New Jersey. Each Account meets the definition of a "separate account" under the federal securities laws. The assets in the Accounts are the property of Prudential, but are legally segregated from all other assets of Prudential and may not be charged with liabilities arising out of any of Prudential's other business. All income, gains and losses, whether or not realized, from assets allocated to the Accounts are credited to or charged against the Accounts without regard to other income, gains, or losses of Prudential. The assets in the Accounts will always be equal or greater in value than Prudential's liabilities under the Contracts. The fixed-dollar annuities available under the Contracts are not funded through the Accounts. The obligations arising under the Contracts are general corporate obligations of Prudential. VCA-10, VCA-11 and the Fund are registered as open-end, diversified, management investment companies, and VCA-24 as a unit investment trust, with the Securities and Exchange Commission (the "Commission") under the 1940 Act. This registration does not involve supervision by the Commission of Prudential or of the management or investment practices of the Accounts or the Fund. THE FUND The Fund is registered under the 1940 Act as an open-end, diversified, management investment company. Seven of the Portfolios of the Fund are available for the investment of contributions made under the Contracts funded through VCA-24. Investments in a Portfolio are made by purchasing shares of the series of Fund capital stock representing interests in that Portfolio. Shares in the Fund are currently sold at their net asset value to separate accounts established by Prudential and certain other insurers that offer variable life insurance contracts and variable annuity contracts. As noted, shares of the Fund are sold to both variable life and variable annuity separate accounts. It is conceivable that in the future it may become disadvantageous for both variable life and variable annuity contract separate accounts to invest in the same underlying fund. Although Prudential, Pruco Life, Pruco Life Insurance Company of New Jersey, and the Fund do not currently foresee any such disadvantage, the Fund's Board of 11 Directors intends to monitor events in order to identify any material conflict between variable annuity contract owners and variable life 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 Fund; or (4) differences between voting instructions given by variable annuity contract owners and Participants and those given by variable life insurance contract owners. INVESTMENT PRACTICES A Participant should review the investment objectives and policies described below for VCA-10, VCA-11 and each Fund Portfolio corresponding to each Subaccount of VCA-24 before deciding how to have his contributions invested. VCA-10, VCA-11 and the Fund Portfolios have for the most part different investment objectives and policies. These differences will affect the return on a Participant's investment and the market and financial risks to which that investment will be exposed. There is no guarantee that the objectives of VCA-10, VCA-11 or any Fund Portfolio will be met. VCA-10'S INVESTMENT OBJECTIVE The investment objective of VCA-10 is the long-term appreciation of the assets held in the Account. Since no federal income tax will be payable upon dividend income or realized capital gains, consideration will be given to both potential income and capital gains opportunities in selecting investments. Investments will be made primarily in established corporations according to the standards of a prudent investor concerned primarily with preserving the real value of his capital by achieving a rate of growth in the value of his investments commensurate with the rate of growth in the economy and the prevailing rate of inflation. This objective is a fundamental investment policy and may not be changed without the approval of a majority vote of persons having voting rights in respect of the Account. Certain investment restrictions are applicable; they are set forth in the Statement of Additional Information. VCA-10'S INVESTMENT POLICY The investment policies of VCA-10 set forth below are adopted in an effort to achieve the investment objective and are not fundamental. Therefore, the investment policies of VCA-10 may be changed by the Account's Committee without participant approval. The assets held in VCA-10 will be invested in a portfolio consisting primarily (that is, at least 85%) of common stocks of established corporations and related options and futures. Not more than 15% of such assets may be invested in preferred stocks, bonds, debentures, notes, and other evidences of indebtedness of established corporations or of governmental entities which are of a character customarily acquired by institutional investors, whether or not publicly distributed. These may or may not be convertible into stock or accompanied by warrants or rights to acquire stock. There may be times, however, when economic conditions or general levels of common stock prices are such that continued investment primarily in common stocks will be deemed not to be the best method of attaining the investment objective of the Account. At such times, a larger than usual portion of the assets held in VCA-10 may be invested in cash, cash equivalents, preferred stocks and evidences of indebtedness. In addition, cash and high grade, short-term debt securities (including securities acquired through short-term repurchase transactions) of the kind held in VCA-11 as described below may be held at times in order to make possible the orderly and flexible programming of investments. OPTIONS ON EQUITY SECURITIES. VCA-10 may purchase and write (i.e., sell) put and call options on equity securities that are traded on national securities exchanges or that are listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). 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 (the strike 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 strike 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 exercise price (the strike price) during the term of the option. The writer of the put, who receives the premium, has the obligation to buy the underlying equity security at the strike price upon exercise by the holder of the put. VCA-10 will write options on stocks only if they are covered. In general, an option is covered if the writer has segregated assets sufficient to meet the writer's obligation should the purchaser exercise the option. VCA-10 may purchase "protective puts," I.E., put options acquired for the purpose of protecting a portfolio security from a decline in market value, and may purchase call options for hedging and investment purposes. VCA-10 may terminate its obligation as the writer of an option by effecting a "closing purchase transaction," I.E., buying an option of the same series as the option previously written. Similarly, VCA-10 may liquidate its position as a holder of an option by exercising the option or by effecting a "closing sale transaction," I.E., selling an option of the same series as the option previously purchased. VCA-10'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 12 VCA-10's option position. Further information about options on equity securities and the risks associated with their use is provided in the Statement of Additional Information. OPTIONS ON STOCK INDICES. VCA-10 may purchase and sell (I.E. write) put and call options on stock indices traded on national securities exchanges or listed on NASDAQ. 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 strike price of the option. This amount of cash is equal to such difference between the closing price of the index and the strike price of the option times a specified multiple (the "multiplier"). If the option is exercised, the writer 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. VCA-10 will write options on stock indices only if they are covered. VCA-10 may purchase put and call options for hedging and investment purposes, and may effect closing sale and purchase transactions. Further detail about options on stock indices is set forth in the Statement of Additional Information. STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. VCA-10 may, to the extent permitted by applicable insurance law and federal regulations, attempt to reduce the risk of investment in equity securities by hedging a portion of its equity portfolio through the use of stock index futures traded on a commodities exchange or board of trade or options on such futures contracts. A stock index futures contract is an agreement in which the seller (I.E. writer) 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. 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 exercise to assume an offsetting futures position. Further detail about stock index futures contracts and options thereon is contained in the Statement of Additional Information. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. VCA-10 may, from time to time and in the ordinary course of business, 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. VCA-10 will limit such purchases to those in which the date for delivery and payment falls within 120 days of the date of the commitment. VCA-10 will make commitments for such when-issued transactions only with the intention of actually acquiring the securities. VCA-10's custodian will maintain, in a separate account, cash, U.S. Government securities or other liquid high-grade debt obligations having a value equal to or greater than such commitments. If VCA-10 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. SHORT SALES AGAINST THE BOX. VCA-10 may make short sales of securities or maintain a short position, provided that at all times when a short position is open VCA-10 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. VCA-11'S INVESTMENT OBJECTIVE The investment objective of VCA-11 is to seek as high a level of current income as is consistent with the preservation of capital and liquidity. This objective is a fundamental investment policy and may not be changed without the approval of a majority vote of persons having voting rights in respect of the Account. Certain investment restrictions are applicable; they are set forth in the Statement of Additional Information. VCA-11'S INVESTMENT POLICY The investment policies of VCA-11 set forth below are adopted in an effort to achieve the investment objectives and are not fundamental. Therefore, the investment policies of VCA-11 may be changed by the Account's Committee without participant approval. The Account seeks to achieve its objective by investing in the following money market instruments payable in U.S. dollars: 1. U.S. Treasury Bills and other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. See "Appendix." 2. Obligations (including certificates of deposit and bankers' acceptances) of any commercial bank, savings bank and savings and loan association organized under the laws of the United States or any state thereof and any commercial bank organized under the laws of any foreign nation, provided that such bank or association 13 has, at the time of the Account's investment, total assets of at least $1 billion or the equivalent. The term "certificates of deposit" includes both Eurodollar certificates of deposit, for which there is generally a market, and Eurodollar time deposits, for which there is generally not a market. "Eurodollars" are dollars deposited in foreign banks and foreign branches of United States banks outside the United States. An investment in Eurodollar instruments and in instruments of foreign issuers generally involves risks that are different in some respects from an investment in debt obligations of domestic issuers, including future political and economic developments that might adversely affect the payment of principal and interest on such instruments. In addition, there may be less publicly available information about a foreign issuer than about a domestic issuer, and such foreign issuers may not be subject to the same accounting, auditing and financial standards and requirements as domestic issuers. Finally, in the event of default, judgments against a foreign issuer might be difficult to obtain or enforce. See "Appendix." 3. Commercial paper, variable amount demand master notes, bills, notes and other obligations issued by a U.S. or foreign company, a foreign government, its political subdivisions, agencies or instrumentalities, maturing in 397 days or less, denominated in U.S. dollars, and, at the date of investment present minimal credit risk and which are of "eligible quality", as determined by VCA-11's investment manager under the supervision of the Committee members. "Eligible quality," means (i) a security (or issuer) rated in one of the two highest rating categories by at least two nationally recognized statistical rating organizations assigning a rating to the security or issuer (or, if only one such rating organization assigned a rating, that rating organization) or (ii) an unrated security deemed of comparable quality by VCA-11's investment manager under the supervision of the Committee members. See "Appendix." VCA-11 also may purchase instruments of the types described above together with the right to resell the instruments at an agreed-upon price or yield within a specified period prior to the maturity date of the instruments. Such a right to resell is commonly known as a "put" and the aggregate price that VCA-11 pays for instruments with a put may be higher than the price that otherwise would be paid for the instruments. 4. Commercial paper, variable amount demand master notes or other obligations which are guaranteed or supported by a letter of credit issued by a bank, provided such bank (including a foreign bank) meets the requirements set forth in paragraph (2) above. Commercial paper, variable amount demand master notes or other fixed income obligations which are guaranteed or insured by an insurance company or other non-bank entity, provided such insurance company or other non-bank entity represents a credit of high quality, as determined by the Account's Portfolio Manager under the supervision of the VCA-11 Committee. Although the commercial paper issuer may have a record of less than three years of continuous operation, the investment along with the letter of credit will not be considered as one of an issuer with a record of less than three years of continuous operation unless the supporting bank or financial institution has a record of less than three years of continuous operation. 5. "Floating rate" and "variable rate" obligations, the interest rates on which fluctuate generally with changes in market interest rates. Investments in floating rate or variable rate securities normally will involve securities which provide that the rate of interest is set as a spread to a designated base rate, such as rates on Treasury bills, and, in some cases, that the purchaser can demand payment of the obligation at specified intervals or after a specified notice period (in each case of less than one year) at par plus accrued interest, which amount may be more or less than the amount paid for them. Variable rate securities provide for a specified periodic adjustment in the interest rate, while floating rate securities have an interest rate which changes whenever there is a change in the designated base interest rate. REPURCHASE AGREEMENTS. When VCA-11 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 VCA-11 agree at the time of sale to a 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 of interest effective for the period of time the Account'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. VCA-11 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 14 remains, at least equal to the amount of the 'loan' including accrued interest. VCA-11 will take possession of the securities underlying the agreement and will value them daily to assure that this condition is met. The VCA-11 Committee 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 or insolvency proceedings within the time frame contemplated by the repurchase agreement. In the event that a seller defaults on a repurchase agreement, VCA-11 may incur a loss in the market value of the collateral as well as disposition costs; and, if a party with whom VCA-11 had entered into a repurchase agreement becomes insolvent, VCA-11'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 insolvency proceedings. VCA-11 will not enter into repurchase agreements with Prudential or its affiliates, including Prudential Securities Incorporated. This will not affect the Account's ability to maximize its opportunities to engage in repurchase agreements. VCA-11 may not invest more than 10% of its net assets in illiquid securities, including securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale and repurchase agreements which have a maturity of longer than seven days. Securities that have legal or contractual restrictions on resale but have a readily available market are not deemed illiquid for purposes of this limitation. The investment manager will monitor the liquidity of such restricted securities subject to the supervision of the committee members. In reaching liquidity decisions, the investment manager will consider, INTER ALIA, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing 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 (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfers). Repurchase agreements subject to demand are deemed to have a maturity equal to the notice period. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time, in the ordinary course of business, VCA-11 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 Account until delivery and payment take place. At the time the Account 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. VCA-11 will make commitments for such when-issued transactions only with the intention of actually acquiring the securities and, to facilitate such acquisitions, the Account's custodian bank will maintain, in a separate account of VCA-11, portfolio securities having a value equal to or greater than such commitments. On the delivery dates for such transactions, VCA-11 will meet its obligations from maturities or sales of the securities held in the separate account and/or from then-available cash flow. If VCA-11 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 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 Account's net assets would be committed. Generally, VCA-11 will not engage in portfolio trading but may do so from time to time to enhance current return. In any event, because of the short-term character of the investments held in the Account, the portfolio turnover is expected to be high. The VCA-11 Committee has adopted the following additional policies for the Account to conform to recent amendments to an SEC rule applicable to money market funds, like VCA-11: (1) VCA-11 will only purchase securities that are United States dollar-denominated "eligible securities" (see "Appendix") that the VCA-11 Committee has determined present minimal credit risks; (2) VCA-11 will not invest more than 5% of its assets in the securities of any one issuer (except U.S. Government obligations); however, the Account may exceed the 5% limit with respect to the "first tier" securities (see "Appendix"), of one issuer at a time, for up to three business days after the purchase is made; (3) VCA-11 will not invest more than 5% of its total assets in "second tier" securities (see "Appendix") nor more than the greater of one million dollars and 1% of its assets in the "second tier" securities of any one issuer; (4) If a "first tier" security held by VCA-11 ceases to be so classified, or if Prudential becomes aware that any "NRSRO" (see "Appendix") has rated any security in the Account below the NRSRO's second highest rating, the Committee will reassess promptly whether the security presents minimal credit risks and shall cause the Account to take such action as the Committee determines is in the best interests of VCA-11 and its Participants; (5) In the event of a default with respect to a security held by VCA-11, or if a security held in the Account ceases to be an "eligible security," or if it has been determined that a security owned by VCA-11 no longer presents minimal credit risks, VCA-11 will sell the security as soon as practicable unless the Committee makes a specific finding that such action would not be in the best interest of the Account; and (6) VCA-11's dollar-weighted average portfolio maturity will be no more than 90 days, and the Account will not acquire any instrument with a remaining maturity 15 greater than 397 calendar days. The VCA-11 Committee has adopted written procedures delegating to the investment manager under certain guidelines the responsibility to make several of the above-described determinations, including certain credit quality determinations. THE INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS The investment objectives of the seven Fund Portfolios currently available for investment through VCA-24 under the Contracts are: 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. GOVERNMENT SECURITIES PORTFOLIO. 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. 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 of established companies, 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 risk of loss in an effort to achieve greater appreciation. 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. 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. 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. The investment policies, restrictions and risks associated with each of these seven Fund Portfolios are described in the accompanying Prospectus for the Fund. Certain restrictions are set forth in the Fund's Statement of Additional Information. DETERMINATION OF ASSET VALUE The value of the securities (except options and fixed income securities including convertible bonds) held in VCA-10 will be determined once daily as of 5:00 P.M., New York time ("Valuation Time") using composite pricing which reflects prices as of the close of business on all major exchanges, on each day on which the New York Stock Exchange ("NYSE") is open for trading and, as provided below, on any other day in which there is sufficient trading in VCA-10's portfolio securities to result in a material change in the value of the Account. A security that is traded on a national securities exchange will be valued at the last sale price for such security on any major exchange on which such security is traded as of Valuation Time, or, in the absence of recorded sales on such exchange on the valuation date, at the average of readily available bid and asked prices on such exchange at the Valuation Time. Any security not traded on a national securities exchange but traded in the over- the-counter market for which quotations are furnished through the nationwide automated quotation system approved by the National Association of Securities Dealers, Inc. ("NASDAQ") will be valued based on the last sale price as of the Valuation Time on each day on which the NYSE is open for trading, or, in the absence of recorded sales on such day, at the average of readily available bid and asked prices, as established by NASDAQ at the Valuation Time. Unlisted securities not quoted on NASDAQ are valued at the average of the quoted bid and asked prices in the over-the-counter market at the Valuation Time. Fixed income securities including convertible bonds are valued based on prices provided by an industry-recognized pricing service when such prices are believed to reflect the fair market value of such securities. Fixed income securities including convertible bonds not priced in this manner are valued at the mean of the last reported bid and asked prices provided by principal market makers and recognized securities dealers in such securities. Options on stocks and stock indices traded on national securities exchanges are valued as of the close of options trading on such exchanges (which is currently 4:10 P.M., New York time) on the valuation date. Stock index futures and options thereon which are traded on commodities exchanges are valued as of the 16 close of such commodity exchanges (which is currently 4:15 P.M., New York time) on the valuation date. The value of the option or future is based upon the last sale price on the exchange on which the contract is traded or as provided by NASDAQ or at the mean between the last bid and asked price if such bid and asked price are of a more recent day than the last trade price. Portfolio securities for which market quotations are not readily available will be valued at fair value as determined in good faith under the direction of the Committee. Short-term investments having maturities of sixty days or less are valued at amortized cost which, with accrued interest, approximates market value. Amortized cost is computed using the cost on the date of purchase, adjusted for constant accrual of discount or amortization of premium to maturity. The value of securities in VCA-11 is determined daily at 12:00 noon, New York City time, on each business day and on any other day in which there is sufficient trading in VCA-11's portfolio securities to result in a material change in the value of the Account. With the exception of U.S. Government securities held subject to repurchase agreements that may have maturity dates in excess of one year from the date of delivery of the repurchase agreement, securities held in VCA-11 consist primarily of debt obligations with a remaining maturity of less than thirteen months. These securities will be valued at amortized cost. If the net asset value of VCA-11 fluctuates by as much as one-half of one percent because of the use of the amortized cost method as opposed to the mark-to-market valuation, then the Committee will be promptly notified so that corrective action may be taken to avoid the dilution of the interests of Participants in investment companies. This corrective action may entail selling portfolio instruments prior to maturity, redeeming shares in kind or using market value. In determining the market value for securities held in VCA-11, where the primary market for a security is an exchange, the market quotations are obtained from that exchange. Securities which are not listed on an exchange and for which market quotations are readily available are valued at the market price as obtained from one or more of the major market makers. Other investments and assets are valued at fair value as determined by appraisal. Prudential supervises and retains responsibility for such appraisals under the direction of the VCA-11 Committee. The proceeds from sales of VCA-11's assets generally will vary inversely to changes in interest rates. If interest rates increase after a security is purchased, the security, if sold, may return less than its cost. The procedures for computing the net asset value of Fund shares are described in the accompanying Fund Prospectus. MANAGEMENT The operations of VCA-10 and VCA-11 are conducted under the general supervision of each Account's Committee and in accordance with each Account's Rules and Regulations. The members of each Account's Committee are elected for indefinite terms by the Participants in that Account and by any other persons who may have voting rights in respect of the Account. See "Voting Rights," page 33. A majority of the Committee members are not "interested persons" of Prudential or of the Accounts, as defined in the 1940 Act. Information about the Fund's Board of Directors is provided in the accompanying Prospectus of the Fund and its Statement of Additional Information. Prudential serves as the investment manager of the Accounts and the Fund under separate investment management agreements with each of them. Subject to Prudential's supervision, all of the investment management services provided by Prudential are furnished by its wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"). Prudential continues to have responsibility for all investment advisory services under its investment management agreements with the Accounts and the Fund. Pursuant to a service agreement between Prudential and PIC, Prudential reimburses PIC for its costs and expenses. PIC is registered as an investment adviser under the Investment Advisers Act of 1940. Prudential Investment Advisors (PIA), a division of PIC, supplies the services with respect to equity securities, money market instruments and other debt securities. Under the above-described service agreement, as of December 31, 1994, PIA managed approximately $22.9 billion in common stock investments and $21.0 billion in short-term investments. An affiliated broker may be employed to execute brokerage transactions on behalf of the Accounts and the Fund, 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 Accounts and the Fund may not engage in any transactions in which Prudential or its affiliates, including Prudential Securities Incorporated, acts as principal, including over-the-counter purchases and negotiated trades in which such a party acts as a principal. Prudential is also responsible for the Accounts' administrative and recordkeeping functions and pays the expenses associated with them. Certain of these services are performed on behalf of Prudential by its indirect wholly-owned subsidiary, The Prudential Asset Management Company, Inc., pursuant to a service agreement. More information about the service agreement and the services provided may be found in the Statement of 17 Additional Information. Information about the administrative, recordkeeping and other expenses of the Fund appears in the accompanying Fund prospectus, and in the Fund's Statement of Additional Information. CHARGES No deduction is made from contributions to VCA-10, VCA-11 or any Subaccount of VCA-24 at the time they are made. Accordingly, one hundred percent (100%) of those contributions is invested in the program. Certain charges, described below, are imposed upon withdrawal of all or part of the contributions made on behalf of Participants, or upon each Participant's Accumulation Account in the Program. DEFERRED SALES CHARGE PRSI performs certain sales and distribution functions regarding the Contracts. In consideration for these services, a deferred sales charge which is designed to cover expenses relating to sales of the Contracts, including commissions, may be imposed upon contributions withdrawn by a Participant. To the extent the deferred sales charge does not repay these expenses, the difference will be made up from Prudential's surplus held in its general account. The amount of the deferred sales charge imposed upon any withdrawal depends upon the number of years of a Participant's participation in a MEDLEY Program, the year in which the withdrawal is made, and the kind of retirement arrangement that covers the Participant. Participation in a Program begins upon the date when the first contribution on behalf of the Participant under a Contract described in this Prospectus, a Companion Contract, or the fixed rate option along with enrollment information in a form satisfactory to Prudential, is received by Prudential at the address shown on the cover page of this Prospectus. Such participation ends on the date when all of the Participant's Accumulation Accounts under the Program are cancelled. In the event of such cancellation, Prudential reserves the right to consider the Participant to be participating in the Program for a limited time (currently about one year) for the purposes of calculating any deferred sales charge on the withdrawal of any future contributions. The chart below describes the maximum amount of the deferred sales charge.
Deferred Sales Charge, as a Years of Percentage of Program Contributions Participation Withdrawn - ---------------- -------------- 0-- 2 years 7% 3-- 5 years 6% 6--10 years 4% 11--15 years 3% after 15 years 0%
The proceeds received by a Participant upon any partial or full withdrawal will be reduced by the amount of any deferred sales charge. Lower deferred sales charges may be imposed under certain Contracts. See "Modification of Charges," page 19. LIMITATIONS ON SALES CHARGES No deferred sales charge is imposed upon contributions withdrawn to purchase an annuity under a Contract, to provide a death benefit, pursuant to a systematic withdrawal plan, to provide a minimum distribution payment, or in cases of financial hardship or disability retirement as determined pursuant to provisions of the employer's retirement arrangement. Further, for all plans other than IRAs, no deferred sales charge is imposed upon contributions withdrawn due to resignation or retirement by the Participant or termination of the Participant by the Contract-holder. In addition, no deferred sales charge is imposed upon contributions withdrawn for any reason after fifteen years of participation in a Program. Contributions transferred among VCA-10, VCA-11, the Subaccounts of VCA-24, the Companion Contract, and the fixed rate option of the Non-Qualified Combination Contract are considered to be withdrawals from the Account or Subaccount from which the transfer is made, but no deferred sales charge is imposed upon them. They will, however, be considered as contributions to the receiving Account or Subaccount for purposes of calculating any deferred sales charge imposed upon their subsequent withdrawal from it. Loans are considered to be withdrawals from the Account or Subaccount from which the loan amount was deducted but are not considered a withdrawal from the Program. Therefore, no deferred sales charge is imposed upon them. The principal portion of any loan repayment, however, will be treated as a contribution to the receiving Account or Subaccount for purposes of calculating any deferred sales charge imposed upon any subsequent withdrawal. If the Participant defaults on the loan by, for example, failing to make required payments, the outstanding balance of the loan will be treated as a withdrawal for purposes of the deferred sales charge. The deferred sales charge will be withdrawn from the same Accumulation Accounts, and in the same proportions, as the loan amount was withdrawn. If sufficient funds do not remain in those Accumulation Accounts, the deferred sales charge will be withdrawn from the Participant's other Accumulation Accounts as well. Withdrawals, transfers and loans from VCA-10, VCA-11 and each Subaccount of VCA-24 are considered to be withdrawals of contributions until all of the Participant's contributions to the Account or Subaccount have been 18 withdrawn, transferred or borrowed. No deferred sales charge is imposed upon withdrawals of any amount in excess of contributions. ANNUAL ACCOUNT CHARGE An annual account charge for recordkeeping and other administrative services is deducted from each Participant's Accumulation Account in the Program. This annual account charge is payable to Prudential and is made on the last business day of each calendar year as long as the Participant still has an Accumulation Account under the Program. The annual account charge will be pro rated for new Participants for the first year of their participation, based on the number of full months remaining in the calendar year after the first contribution is received. If all of the Participant's Accumulation Accounts are cancelled before the end of the year, the charge will be made on the date the last Accumulation Account is cancelled (and the charge will not be pro rated if this occurs during the year in which the first contribution is made to such Account). The annual account charge will not be made, however, upon the cancellation of a Participant's Accumulation Account to purchase an annuity under a Contract if the annuity becomes effective on January 1 of any year. After a cancellation, the Participant may again participate in the Program only as a new Participant and will be subject to a new annual account charge. Also, the annual account charge will not be made if the Participant's employer has chosen to pay the charge. The aggregate annual account charge with respect to a Participant's Accumulation Accounts will not be greater than $20. The charge will first be made against a Participant's Accumulation Account under a fixed-dollar Companion Contract or fixed rate option of the Non-Qualified Combination Contract. If the Participant has no Accumulation Account under a Companion Contract or the fixed rate option, or if that Accumulation Account is too small to pay the charge, the charge will be made against the Participant's Accumulation Account in VCA-11. If the Participant has no VCA-11 Accumulation Account, or if that Account is too small to pay the charge, the charge will then be made against the Participant's VCA-10 Accumulation Account. If the Participant has no VCA-10 Accumulation Account, or if it is too small to pay the charge, the charge will then be made against any one or more of the Participant's Accumulation Accounts in VCA-24. The cash positions of VCA-10, VCA-11 and the Subaccounts of VCA-24 are expected to be sufficient to cover such part of the charge that is collected from them. Accordingly, that collection should have no adverse financial effect on any Account or Subaccount. CHARGE FOR ADMINISTRATIVE EXPENSES AND INVESTMENT MANAGEMENT SERVICES A daily charge is made which is equal to an effective annual rate of 1.00% of the net value of the assets in VCA-10 and VCA-11. Three quarters of this charge (0.75%) is for administrative expenses not covered by the annual account charge, and one quarter (0.25%) is for investment management. A daily charge is also made which is equal to an effective annual rate of 0.75% of the net value of the assets in each Subaccount of VCA-24. All of this charge is for administrative expenses not covered by the annual account charge. These charges are payable to Prudential and are reflected in the computation of the value of the Units in each Account and Subaccount. See "The Unit Value," page 21 and "The Unit Change Factor for Any Business Day," page 21. It should be noted that because the administrative charge of 0.75% is a charge based on a percentage of assets in an Account, there is no necessary relationship between this administrative charge and the amount of expenses attributable to a particular Contract or Participant. Prudential makes daily charges for providing investment management of the Fund Portfolios at the following effective annual rates: 0.35% of the average daily net assets of the Stock Index Portfolio, 0.40% of the average daily net assets of the Bond Portfolio and Government Securities Portfolio, 0.45% of the average daily net assets of the Common Stock Portfolio, 0.55% of the average daily net assets of the Conservatively Managed Flexible Portfolio, 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. Other expenses borne by the Fund include costs of Portfolio transactions, legal and accounting expenses, and the fees of the Fund's custodian and transfer agent. Further detail is provided in the accompanying Prospectus for the Fund and its Statement of Additional Information. MODIFICATION OF CHARGES Prudential may impose deferred sales charges and annual account charges lower than those described above with respect to Participants under certain Contracts. These lower charges will reflect Prudential's anticipation that lower sales or administrative costs will be incurred, or less sales or administrative services will be performed, with respect to such Contracts due to economies arising from (1) the utilization of mass enrollment procedures or (2) the performance of recordkeeping or sales functions, which Prudential would otherwise be required to perform, by the Contract-holder, an employee organization, or by a third party on their behalf or (3) an accumulated surplus of charges over expenses under a particular Contract. Generally, the deferred sales charge is lowered or waived depending on the amount of local service the Contract-holder requires. 19 Each Contract-holder makes this election at the time he enters into the Contract. The exact amount of the deferred sales charge and annual account charge applicable to Participants under any given Contract will be stated in the Contract. Prudential may change the deferred sales charge, the annual account charge and the charge of 0.75% for administrative expenses. See "Changes in the Contracts," page 30. THE CONTRACTS Prudential generally issues the Contracts to employers whose employees may become Participants. Under an IRA, a Participant's spouse may also become a Participant. Sometimes a Contract is issued to an association that represents employers of employees who become Participants, sometimes to an association whose members become Participants and sometimes to a trustee of a trust with participating employers whose employees become Participants. Even though an employer, an association or a trustee is the Contract-holder, the Contract normally provides that Participants shall have the rights and interests under them that are described in this Prospectus. But this is not always true. When a Contract is used to fund a deferred compensation plan established under Section 457 of the Internal Revenue Code, for example, all rights under the Contract are owned by the employer to whom, or on whose behalf, the Contract is issued. All amounts becoming payable under the Contract are payable to the employer and are its exclusive property. For a plan established under Section 457 of the Code, the employee has no rights or interests under the Contract, including any right or interest in the Accumulation Account established in his name in VCA-10, VCA-11 or any Subaccount of VCA-24, except as provided in the employer's plan. This may also be true with respect to certain non-qualified annuity arrangements. Also, a particular plan, even if it is not a deferred compensation plan, may limit a Participant's exercise of certain rights under a Contract. Participants should check the provisions of their employer's plan or any agreements with the employer to see if there are any such limitations and, if so, what they are. Prudential may issue the Non-Qualified Combination Contract to cover individuals who are not associated with a single employer or other organization. THE ACCUMULATION PERIOD 1. CONTRIBUTIONS; CREDITING UNITS; ENROLLMENT FORMS; DEDUCTION FOR ADMINISTRATIVE EXPENSES. Contributions to a Program ordinarily will be made periodically pursuant to a payroll deduction or similar agreement between the Participant and his employer. Any contributions to an IRA must be in an amount of no less than $500, except for contributions to an IRA for a non-working spouse (or working spouse who elects to be treated as a non-working spouse), which are limited to $250 per year. A Participant designates what portion of the contributions made on his behalf should be invested in VCA-10, VCA-11 and in any Subaccount of VCA-24 (if all three Accounts are part of his employer's Program) or under a fixed rate option or Companion Contract, if any. The Participant may change this designation usually by notifying Prudential at the address shown on the cover page of this Prospectus. Under certain Contracts, an entity other than Prudential keeps certain records, and Participants under those Contracts must contact the record-keeper. See "Modified Procedures," page 28. The full amount (100%) of each contribution designated for investment in VCA-10, VCA-11 or any Subaccount of VCA-24 is credited to an Accumulation Account maintained for the Participant in that Account or Subaccount. An Accumulation Account in VCA-10 consists of VCA-10 Units; an Accumulation Account in VCA-11 consists of VCA-11 Units; an Accumulation Account in a Subaccount of VCA-24 consists of Units of that Subaccount. The number of Units credited to a Participant in an Account or Subaccount is determined by dividing the amount of the contribution made on his behalf to that Account or Subaccount by the Account's or Subaccount's Unit Value for the business day on which the contribution is received at the address shown on the cover page of this Prospectus. A business day is a day on which the New York Stock Exchange is open for trading. The initial contribution made for a Participant will be invested in VCA-10, VCA-11 or a Subaccount of VCA-24 no later than two business days after it is received by Prudential and identified as being for investment in VCA-10, VCA-11 or a Subaccount of VCA-24, if it is accompanied by satisfactory enrollment information. Contributions for a Participant that are so identified and for whom insufficient enrollment information has been received will be held by Prudential in a suspense account and no interest will be credited upon that amount. A written notice will be mailed to the Participant requesting that enrollment information be sent to Prudential at the address shown on the cover of this Prospectus as soon as possible. The notice will state that unless the Participant consents to retaining the money in the suspense account until the enrollment information is received by Prudential, it will be returned within five business days from the date of the receipt of the contribution. Consent may be given by telephone but should be confirmed in writing. If 20 neither satisfactory enrollment information nor the necessary consent is received, the contribution will be returned. The number of VCA-10 Units, VCA-11 Units or Units of a particular Subaccount of VCA-24 credited to a Participant will not be affected by any subsequent change in the value of those Units, but the dollar value of a Unit will vary from business day to business day depending upon the investment experience of the Account or Subaccount. The number of Units credited to a Participant in an Account or Subaccount will be reduced as the result of the annual account charge. That charge will be made by cancelling the number of Units that is equal to the amount of the charge (see "Annual Account Charge," page 19) divided by the Unit Value for the business day on which the charge is made. 2. VALUATION OF A PARTICIPANT'S ACCOUNT The value of a Participant's Accumulation Account in VCA-10, VCA-11 or in a Subaccount of VCA-24 on any particular day is determined by multiplying the total number of Units then to the Participant's credit in the Account or Subaccount by the Account's or Subaccount's Unit Value on that day. 3. THE UNIT VALUE On November 4, 1982, the date of the first Participant contribution to VCA-10, the Unit Value for VCA-10 was set at $1.00. On November 8, 1982, the date of the first Participant contribution to VCA-11, the Unit Value for VCA-11 was set at $1.00. The Unit Value for each Subaccount of VCA-24 was set at $1.00 on the date of commencement of operations of that Subaccount. The Unit Value for any subsequent business day is determined as of the end of that day by multiplying the Unit Change Factor for that day (see below) by the Account's Unit Value for the preceding business day. 4. THE UNIT CHANGE FACTOR FOR ANY BUSINESS DAY The Unit Change Factor for VCA-10 and VCA-11 for any business day is obtained by (a) dividing the assets at the end of the day (ignoring current day transfers, redemptions and subscriptions) by the assets at the end of the previous business day, and (b) dividing such value by the sum of 1.00 and the rate of deduction for administrative expenses and investment management fee for the number of days in such period, computed at an effective annual rate of 1%. The result is the Account's Unit Change Factor for the business day. The Unit Change Factor for a Subaccount of VCA-24 for any business day is determined by dividing the current day net asset value for shares by the net asset value for shares on the previous business day. This factor is then reduced by a daily equivalent (for the number of days since the last valuation) of the .75% annual charge for administrative expenses. See "Charge for Administrative Expenses and Investment Management Services," page 19. The value of the assets of a Subaccount is determined by multiplying the number of Fund shares held by that Subaccount by the net asset value of each share and adding the value of dividends declared by the Fund but not yet paid. 5. WITHDRAWAL (REDEMPTION) OF CONTRIBUTIONS. The Internal Revenue Code imposes restrictions on withdrawals from tax-deferred annuities subject to Section 403(b) of the Code. Pursuant to Section 403(b)(11) of the Code, amounts attributable to a Participant's salary reduction contributions (including the earnings thereon) that are made under a tax-deferred annuity after December 31, 1988 can only be withdrawn (redeemed) when the Participant attains age 59 1/2, separates from service with his employer, dies or becomes disabled (within the meaning of Section 72(m)(7) of the Code). However, the Code permits the withdrawal at any time of amounts attributable to tax-deferred annuity salary reduction contributions (EXCLUDING THE EARNINGS THEREON) that are made after December 31, 1988, in the case of a hardship. If the retirement arrangement under which a Participant is covered contains a financial hardship provision, withdrawals can be made in the event of the hardship. Furthermore, subject to any restrictions upon withdrawals contained in the tax-deferred annuity arrangement under which a Participant is covered, a Participant can withdraw at any time all or part of his interest in his Accumulation Account(s) as of December 31, 1988. Amounts earned after December 31, 1988 on the December 31, 1988 balance in a Participant's Accumulation Account(s) attributable to salary reduction contributions are, however, subject to the Section 403(b)(11) withdrawal restrictions discussed above. Subject to any conditions or limitations regarding transfers contained in the tax-deferred annuity arrangement under which a Participant is covered, a Participant can continue to make transfers of all or part of his interest in his Accumulation Account(s) among the available investment options offered by the Prudential and can transfer directly all or part of his interest in his Accumulation Account(s) to a Section 21 403(b) tax-deferred annuity contract of another insurance company or to a mutual fund custodial account under Section 403(b)(7). See "Transfer Payments", page 25. Unless restricted by the tax-deferred annuity arrangement under which he is covered, a Participant may withdraw at any time all or part of his interest in his Accumulation Account(s) that is attributable to employer contributions or after-tax Participant contributions, if any. With respect to retirement arrangements other than tax-deferred annuities subject to Section 403(b) of the Code (e.g., Code Section 457 plans) a Participant's right to withdraw at any time all or part of his interest in VCA-10, VCA-11 or any Subaccount of VCA-24 may be restricted by the retirement arrangement under which he is covered. For example, Code Section 457 plans typically permit withdrawals only upon attainment of age 70 1/2, separation from service, or for unforeseeable emergencies. Withdrawal requests should be submitted to Prudential in the manner set out in the Summary section of this prospectus or, if required by the Contract, another entity providing record-keeping services. See "Modified Procedures," page 28. Under certain Contracts, the amount withdrawn from an Account or Subaccount must be at least $500 ($250 with respect to a minimum distribution payment) or, if less, then equal to the full value of the Participant's interest in the Account or Subaccount. The amount withdrawn will be reduced by any deferred sales charge that may apply. See "Deferred Sales Charge," page 18. If a Participant withdraws the value of all of his Accumulation Accounts under a Program, the full annual account charge will be deducted at that time that would otherwise have been deducted at the end of the calendar year and those Accumulation Accounts will be cancelled. The resulting amount will be paid within seven days after the written request for the withdrawal has been received in a manner prescribed by Prudential, except as deferment of such payment may be permitted under the provisions of the 1940 Act in effect from time to time. Currently, deferment is permissible only when the New York Stock Exchange is closed or trading is restricted, when an emergency exists as a result of which disposal of the securities held in the Account or Subaccount involved is not reasonably practicable or it is not reasonably practicable to determine fairly the value of the Account's or Subaccount's assets, or when the Securities and Exchange Commission has provided for such deferment for the protection of Participants. As of the day a written withdrawal request is received on a form approved by Prudential, the Participant's Accumulation Account in VCA-10, VCA-11 or any Subaccount of VCA-24, as the case may be, will be reduced by the lesser of the number of Units obtained by dividing the amount of the Participant's withdrawal request by the Unit Value for that day, or the number of Units remaining in the Accumulation Account. Under certain types of retirement arrangements, the Retirement Equity Act of 1984 requires that in the case of a married Participant, certain withdrawal requests include the consent of the Participant's spouse. This consent must contain the signatures of the Participant and spouse and must be notarized or witnessed by an authorized plan representative. A withdrawal will generally have federal income tax consequences, which can include tax penalties. See "Federal Tax Status," page 31. 6. SYSTEMATIC WITHDRAWAL PLAN If permitted by Internal Revenue Code regulations and the retirement arrangement under which a Participant is covered, and subject to the restrictions and limitations set forth below, a Participant may arrange for systematic withdrawals to be made from his Accumulation Account(s). A Participant may arrange for systematic withdrawals only if, at the time he elects to have such an arrangement, the sum of the balance(s) in his Accumulation Account(s) is at least $5,000, and he has repaid all loans made to him. A Participant who has not reached age 59 1/2, however, may not elect a systematic withdrawal arrangement unless he has first separated from service with his employer. In addition, the $5,000 minimum balance does not apply to systematic withdrawals made for the purpose of satisfying minimum distribution rules. Federal income tax provisions applicable to the retirement arrangement under which a Participant is covered may significantly affect the availability of systematic withdrawals, how they may be made, and the consequences of making them. Withdrawals by Participants are generally taxable and Participants who have not reached age 59 1/2 may incur substantial tax penalties. Withdrawals made after a Participant has attained age 70 1/2 and by beneficiaries must satisfy certain minimum distribution rules. See "Federal Tax Status," page 31. Systematic withdrawals may be arranged only pursuant to an election on a form approved by Prudential. Under certain types of retirement arrangements, an election to arrange for systematic withdrawals by a married Participant must 22 be consented to in writing by the Participant's spouse, with signatures notarized or witnessed by an authorized plan representative. The election must specify that the systematic withdrawals shall be made on a monthly, quarterly, semi-annual, or annual basis. All systematic withdrawals shall be made on the day of the month designated by the Contract-holder, and shall continue until the Participant has withdrawn all of the balances in his Accumulation Account(s) or has instructed Prudential in writing to terminate his systematic withdrawal arrangement. The Participant may elect to make systematic withdrawals in equal dollar amounts (in which case each withdrawal must be at least $250), unless it is made to satisfy minimum distribution rules, or over a specified period of time (at least three years). Where the Participant elects to make systematic withdrawals over a specified period of time, the amount of each withdrawal--which will vary, reflecting investment experience during the withdrawal period--will be equal to the sum of the balances then in the Participant's Accumulation Account(s) divided by the number of systematic withdrawals remaining to be made during the withdrawal period. Systematic withdrawals shall be taken first out of the Participant's Accumulation Account, if any, in the Companion Contract or the fixed rate option until that Accumulation Account is exhausted. Thereafter, systematic withdrawals will be taken in order from the Participant's Accumulation Account(s) (until each is exhausted), in VCA-11, VCA-10, the VCA-24 Common Stock Subaccount, the VCA-24 Bond Subaccount, the VCA-24 Conservatively Managed Flexible Subaccount, the VCA-24 Aggressively Managed Flexible Subaccount, the VCA-24 Stock Index Subaccount, the VCA-24 Government Securities Subaccount, and the VCA-24 Global Equity Subaccount. A Participant may change the frequency, amount or duration of his systematic withdrawals by submitting a form to Prudential that Prudential will provide to him upon request. A Participant may make such a change only once during each calendar year. A Participant may at any time instruct Prudential to terminate the Participant's systematic withdrawal arrangement, and no systematic withdrawals will be made for him after Prudential has received his instruction. A Participant who chooses to stop making systematic withdrawals may not again make them until the next calendar year and may be subject to federal tax consequences as a result thereof. An arrangement to make systematic withdrawals will not affect any of the Participant's other rights under the Contracts, including the right to make withdrawals (redemptions) described on page 21-22 of this Prospectus, the right to make transfers described on pages 25-27, and the right to purchase a fixed dollar annuity described on pages 28-29. A Participant may not effect a loan, however, while his systematic withdrawal arrangement is in effect. No deferred sales charge is imposed upon systematic withdrawals made pursuant to an arrangement elected as described above; provided, however, that Prudential reserves the right to apply a deferred sales charge on systematic withdrawals where payments are made for less than three years. Furthermore, a Participant who is receiving systematic withdrawals and is over the age of 59 1/2 may make one additional, non-systematic, withdrawal during each calendar year in an amount that does not exceed 10% of the sum of the balances in his Accumulation Account(s) and no deferred sales charge shall be imposed upon such withdrawal. This additional withdrawal may be made from any of the Participant's Accumulation Account(s), as the Participant may elect. Different procedures may apply for Contracts under which an entity other than Prudential provides record-keeping services. See "Modified Procedures," page 28. 7. TEXAS OPTIONAL RETIREMENT PROGRAM Special rules apply with respect to Contracts covering persons participating in the Texas Optional Retirement Program ("Texas Program") in order to comply with the provisions of Texas law relating to the Texas Program. Under the terms of the Texas Program, Texas will contribute an amount somewhat larger than a Participant's contribution. Texas' contributions will be credited to the Participant's individual Accumulation Accounts. Until the Participant begins his second year of participation in the Texas Program as a "faculty member" as defined in Section 31.001(8) of Title 110B of the Texas Revised Civil Statutes, Prudential will have the right to withdraw the value of the Units purchased for his account with Texas' contributions. If the Participant does not commence his second year of Texas Program participation, the value of those Units representing Texas' contribution will be withdrawn and returned to the State. Pursuant to Section 36.105 of Title 110B of the Texas Revised Civil Statutes and a ruling of the State Attorney General, withdrawal benefits of Contracts issued under the Texas Program are 23 available only in the event of a Participant's death, retirement or termination of employment in all institutions of higher education as defined in Section 61.003 of the Texas Education Code. Participants will not, therefore, be entitled to exercise the right of withdrawal in order to receive in cash the values credited to them under the Contract unless one of the foregoing conditions has been satisfied. The value of a Participant's interests under the Contract may, however, be transferred to another Prudential contract or contracts of other carriers approved under the Texas Program during the period of the Participant's Texas Program participation. 8. DEATH BENEFITS Upon receipt by Prudential of due proof of a Participant's death and a claim and payment election submitted on a form approved by Prudential, a death benefit made up of the balance in the Participant's Accumulation Accounts (after deduction of the annual account charge and calculated, insofar as Accumulation Accounts in VCA-10, VCA-11 and the Subaccounts of VCA-24 are concerned, as the product of the Unit Value for the business day on which Prudential receives due proof of the Participant's death and other necessary forms multiplied by the number of Units then credited to the Participant's Accumulation Account) will be payable to his designated beneficiary. The appropriate address to which a death benefit claim should be sent is set out in the Summary section of this Prospectus. For certain Contracts a death benefit claim should be sent to a designated record-keeper rather than Prudential. See "Modified Procedures," page 28. The death benefit will be paid in one sum as if it were a single withdrawal, as systematic withdrawals, as an annuity, or a combination of the three, as the Participant may have directed subject to the minimum distribution rules of Code Section 401(a)(9) as described below under "Federal Tax Status." If the Participant has not so directed, the beneficiary may, within any time limit prescribed by or for the retirement arrangement that covered the Participant, elect: a. to receive a one-sum cash payment; b. to have a fixed-dollar annuity purchased under the Contract on a specified date, using the same annuity purchase rate basis that would have applied if the Participant's account were being used to purchase an annuity for the Participant. c. to receive regular payments in accordance with the systematic withdrawal plan; or d. a combination of all or any two of (a), (b), and (c) Unless restricted by the retirement arrangement under which the Participant is covered, or unless the Participant has elected otherwise, if within one year after the Participant's death the beneficiary elects to use at one time the entire balance in any one or more of the Participant's Accumulation Accounts to receive a one-sum cash payment, Prudential will add to the death benefit, if necessary, so that the total made available to the beneficiary will equal the contributions to the Program minus any withdrawals or transfers from it and minus the annual account charge, if any. Under certain types of retirement arrangements, the Retirement Equity Act of 1984 requires that in the case of a married Participant, a death benefit be payable to the Participant's spouse in the form of a "qualified pre-retirement survivor annuity." A "qualified pre-retirement survivor annuity" is an annuity for the lifetime of the Participant's spouse in an amount which can be purchased with no less than 50% of the balance in the Participant's account as of his date of death. Under the Retirement Equity Act, the spouse of a Participant in a retirement arrangement which is subject to these rules may consent to waive the pre-retirement survivor annuity benefit. Such consent must acknowledge the effect of waiving the coverage, contain the signatures of the Participant and spouse and must be notarized or witnessed by an authorized plan representative. Unless the spouse of a Participant in a Plan which is subject to these requirements properly waives the benefit, 50% of the balance in all of the Participant's Accumulation Accounts will be paid to such spouse even if the designated beneficiary is someone other than the spouse. Under these circumstances, the remaining 50% would be paid to Participant's designated beneficiary. Unless the retirement arrangement that covered the Participant provides otherwise, a beneficiary who elects to have a fixed-dollar annuity purchased for himself may choose from among the available forms of annuity. See "Available Forms of Annuity," page 29.The beneficiary may elect to purchase an annuity immediately or at a future date. If an election includes systematic withdrawals, the beneficiary will have the right to terminate such withdrawals and receive the remaining balance in the Participant's Accumulation Accounts in cash (or effect an annuity with it), or to change the frequency, size or duration of such withdrawals, subject to the minimum distribution rules. (See "Federal Tax Status" on page 31). If the beneficiary fails to 24 make any election within any time limit prescribed by or for the retirement arrangement that covered the Participant, within seven days after the expiration of that time limit, a one-sum cash payment will be made to the beneficiary, after deduction of the annual account charge. A specific contract may provide that an annuity is payable to the beneficiary if the beneficiary fails to make an election. Until a death benefit is paid that results in reducing to zero the balance in all of the Participant's Accumulation Accounts under a Program, those Accounts will be maintained for the beneficiary in the same manner as they had been for the Participant, except (i) the beneficiary may make no contributions (ii) no loans may be taken and (iii) no deferred sales charge will be imposed upon withdrawals. 9. DISCONTINUANCE OF CONTRIBUTIONS Contributions on behalf of all Participants under a Contract or for all Participants of an employer covered under a Contract may be discontinued upon notice by the Contract-holder to Prudential. Contributions under the Contract will also be discontinued for all Participants covered by a retirement arrangement that is terminated. On 90 days' advance notice to the Contract-holder, Prudential may elect not to accept any new Participant, or not to accept further contributions for existing Participants, under a Contract. The discontinuance of contributions on a Participant's behalf does not otherwise affect his rights under the Contracts. He may make withdrawals from his Accumulation Account--for transfer, for the purchase of an annuity or for any other purpose--just as if contributions were still being made for him. However, if contributions under a Program are not made for a Participant for a specified period of time (24 months in certain states, 36 months in others) and the total value of his Accumulation Accounts is at or below a specified amount ($1,000 in certain states, $2,000 in others), Prudential may elect to cancel those Accumulation Accounts unless prohibited by the retirement arrangement, and pay the Participant their value (less the annual account charge) as of the date of cancellation. 10. TRANSFER PAYMENTS a. Unless restricted by the retirement arrangement under which a Participant is covered, upon the receipt by Prudential of a duly completed written transfer request form or properly authorized telephone transfer request, all or a portion of the Participant's Accumulation Account in VCA-10, VCA-11, or in any Subaccount of VCA-24 will be transferred to another Account or Subaccount, fixed rate option or to a Companion Contract that covers him. There is no minimum transfer amount. As of the day the transfer request is received, the Participant's Accumulation Account in the Account or Subaccount from which the transfer is made will be reduced by the number of Units obtained by dividing the amount to be transferred by the Unit Value for that day. If the transfer is made to another Account or Subaccount as of the same day, the number of Units credited to the Participant in that Account or Subaccount will be increased by means of a similar calculation. Prudential reserves the right to limit the frequency of these transfers. All transfers are subject to the terms and conditions set forth in this Prospectus and in the Contract(s) covering a Participant. For example, many Contracts may preclude transfers from the Companion Contract or fixed rate option into non-equity investment options that are defined in the Contract as "competing" with the general account options in investment characteristics. If such transfers are precluded, the Contract will further require that amounts transferred from the Companion Contract or fixed rate option into non-competing investment options such as a stock fund may not for 90 days thereafter be transferred into a "competing" option. Different procedures may apply for Contracts under which an entity other than Prudential provides record-keeping services. See "Modified Procedures," page 28. Although there is presently no charge for transfers, Prudential reserves the right to impose such charges in the future. Participants in certain Programs may be able to effect transfers and exchanges by telephone or telecopy. Such privileges are available only if state law permits, if the Contract-holder has so elected, and if the eligible Participant has authorized telephone and/or telecopy transactions on an approved form obtained from the Contract-holder. In the case of a Contract used to fund a Deferred Compensation Plan established under Section 457 of the Internal Revenue Code, if state law permits and the Prudential consents, the Contract-holder may provide authorization for telephone transfers on behalf of all Participants under the Contract. Prudential, the Accounts, and their agents 25 will not be liable for following instructions communicated by telephone that it reasonably believes to be genuine. All telephone requests will be recorded for the protection of the Participant or Contract-holder, and callers will be asked to provide their personal identification number. During times of unusual market activity, it may be difficult to transmit requests by telephone or telecopy. The telephone and telecopy transfer and exchange privileges may be discontinued at any time as to some or all Participants and Contract-holders. b. A Contract may include a provision that, upon discontinuance of contributions for all Participants under the Contract or for all Participants of an employer covered under a Contract (see "Discontinuance of Contributions," above), the Contract-holder may request Prudential to make transfer payments from VCA-10, VCA-11 or any Subaccount of VCA-24 to a designated alternate funding agency. If the Contract is used in connection with certain non-qualified annuity arrangements, certain tax-deferred annuities subject to Section 403(b) of the Code, or with IRAs, Prudential will promptly notify each Participant and each beneficiary of a deceased Participant for whom an Accumulation Account remains in force under the Contract-holder's Program that such a request has been received. Within thirty days of receipt of such notice, each recipient may elect in writing on a form approved by Prudential to have his Account in VCA-10, VCA-11 or any Subaccount of VCA-24, transferred to the alternate funding agency. If he does not so elect, his Accounts will continue in force under the Contract. The Accumulation Account of any Participant or beneficiary who does so elect will be cancelled as of a "transfer date," which is the business day specified in the Contract-holder's request or 90 days after Prudential receives the request, whichever is later. The product of the Units in the Participant's Accumulation Accounts immediately prior to cancellation and the appropriate Unit Value on the transfer date, less the applicable deferred sales and annual account charges, will be transferred to the designated funding agency in cash, securities held in VCA-10 and VCA-11, or both. c. Contributions may be discontinued for all Participants under a Contract or for all Participants of an employer covered under the Contract used in connection with a deferred compensation plan subject to Section 457 of the Code due to certain circumstances, such as a change in any law or regulation, which would have an adverse effect on Prudential in fulfilling the terms of the Contract. If contributions are so discontinued, Prudential may initiate transfer payments from VCA-10, VCA-11 or any Subaccount of VCA-24 to an alternate funding agency. The transfer would be made as described in paragraph b. above. Under certain types of retirement arrangements, the Retirement Equity Act of 1984 requires that in the case of a married Participant, certain requests for transfer payments (other than those described in paragraph a. above) must include the consent of the Participant and spouse and must be notarized or witnessed by an authorized plan representative. 11. EXCHANGE OFFER INTO MEDLEY Certain Contract-holders in The Prudential Variable Contract Account-2 ("VCA-2") may be offered an opportunity to exchange their retirement program's investment in VCA-2 for Units of VCA-10, VCA-11 or the Subaccounts of VCA-24. Participants in plans of VCA-2 Contract-holders that accept this exchange offer have the option of exchanging their interests in VCA-2 for interests in VCA-10 and VCA-11 or any of the Subaccounts of VCA-24. In such an exchange, any years of participation credited to those VCA-2 Participants under VCA-2 contracts will be counted as years of MEDLEY Program participation. In addition, no deferred sales charge will be applied to withdrawals from VCA-10, VCA-11 or the Subaccounts of VCA-24 until a Participant has withdrawn an amount of contributions equal to the amount transferred from VCA-2. 12. EXCHANGE OFFER OUT OF MEDLEY Prudential is offering The Prudential Institutional Fund ("PIF"), an open-end management investment company consisting of seven separate portfolios, as an alternative investment vehicle for existing MEDLEY Contract-holders. If the Contract-holder elects to make PIF available to its Participants, Participants will be given the opportunity to direct new contributions to PIF. Participants will also be provided a fixed period of time (an "open window") at least 60 days in length to exchange any or all amounts in their current variable investment accounts (under VCA-10, VCA-11 or VCA-24) for shares of PIF without the imposition of the deferred sales charge that may otherwise be applicable to 26 withdrawals from those accounts under the MEDLEY Program. If a Participant exchanges all the MEDLEY Program accounts for shares of PIF, the annual account charge, which is assessed at the end of each calendar year, may be deducted from the Participant's PIF account(s). Prudential will advise each Contract-holder of the timing of their particular open window, but all such open windows will be for at least 60 days. Before deciding whether to exchange any or all of their existing MEDLEY accounts for shares of PIF, Participants should carefully read the PIF prospectus. Participants should understand that PIF is a registered management investment company (i.e., mutual fund) offered directly to qualified plans, certain institutional investors and others. It is not a funding vehicle for variable annuity contracts. Thus, Participants investing in PIF will not have the features of an annuity contract, such as a minimum death benefit or certain annuity-related provisions, as they do under the MEDLEY Program. These features may be obtained by transferring from PIF to the companion fixed dollar annuity contract. In Prudential's opinion, there should be no adverse tax consequences if a Participant in a qualified retirement arrangement, in a deferred compensation plan under Section 457 or in an individual retirement annuity under Section 408 of the Internal Revenue Code of 1986, as amended, elects to exchange amounts in the Participants' current MEDLEY account(s) for shares of PIF. Furthermore, exchanges will be effected from a 403(b) annuity contract (Tax Deferred Annuity funds under the MEDLEY Program) to a Section 403(b)(7) custodial account (Tax Deferred Annuity funds under PIF) so that such transactions will not constitute taxable distributions. However, Section 403(b) Participants under the MEDLEY Program should be aware that there may be more restrictive rules on early withdrawals from Section 403(b)(7) custodial accounts under PIF. Prudential does not intend to extend this exchange offer out of MEDLEY to Participants under any Non-Qualified Combination Contract issued to a plan covering employees that share a common employer or are otherwise associated. Any MEDLEY Contract that is held under a non-qualified arrangement is subject to taxation as an annuity Contract. Any permitted exchange of amounts under such MEDLEY Contract to shares of PIF may be treated for tax purposes as a taxable withdrawal up to the amount of the investment income earned in the MEDLEY Contract. In addition, the exchange may constitute a premature withdrawal that is subject to a 10 percent tax penalty of the amount exchanged which is includable in income (i.e., the investment earnings exchanged). However, if the owner of the MEDLEY Contract is not a natural person and the investment income on the Contract is currently taxable each year to such owner, there will be no added tax incurred if such an owner decides to exchange funds from the MEDLEY Contract to shares of PIF. Contract-holders and Participants are encouraged to consult a qualified tax advisor for complete tax information and advice. 13. LOANS The loans described in this Section are generally available to Participants in 401(a) plans and 403(b) programs that are subject to ERISA. The interest rate and other terms and conditions of the loan may vary from program to program, and it is the responsibility of the program trustee or fiduciary to ensure that the interest rate and other terms and conditions of the loan comply with all program qualification requirements including the ERISA regulations. In addition to the loans described in this section, Participants in 403(b) programs, including programs not subject to ERISA, may be able to obtain loans under their Companion Contract and should consult their employer or Prudential. The loans described in this section, which involve the variable investment options, work as follows. The minimum loan amount is as specified in the Participant's Program, or if not specified, as determined by Prudential. The maximum loan amount is the lesser of (a) $50,000, reduced by the highest outstanding balance of loans during the one-year period immediately preceding the date of the loan or (b) 50% of the value of the Participant's vested interest in his or her Accumulation Accounts. In the loan application, the Contract-holder (or in certain cases, the Participant) designates the Accumulation Account(s) from which the loan amount is deducted. Borrowing, therefore, reduces a Participant's Accumulation Accounts. To repay the loan, the Participant makes periodic payments of interest plus a portion of principal. Those payments are invested in the Accounts or Subaccounts chosen by the Participant. The Participant's Program may specify the Accumulation Accounts from which he may borrow and into which repayments may be invested. The maximum loan amount referred to above is imposed by federal tax law. That limit, however, 27 applies to all loans from any qualified retirement plan of the employer. Since Prudential cannot monitor a Participant's loan activity relating to other plans offered to Participants, it is the Participant's responsibility to do so. Provided that a Participant adheres to these limitations, the loan will not be treated as a taxable distribution. If, however, the Participant defaults on the loan by, for example, failing to make required payments, the defaulted loan amount (as described in loan disclosure information provided to a borrowing Participant) will be treated as a taxable distribution and Prudential will send the appropriate tax information to the Participant and the Internal Revenue Service. For information as to how the deferred sales charge applies to loans, see "Deferred Sales Charge." page 18. Prudential charges up to a $75 loan application fee, payable by check submitted with the application. Prudential also charges up to $25 per year as a loan maintenance fee for recordkeeping and other administrative services provided in connection with the loan. This charge is guaranteed not to increase during the term of any loan and is not greater than the average expected cost of the services required to maintain the loan. This annualized loan maintenance charge will be prorated based on the number of full months that the loan is outstanding. The Accumulation Account from which this charge is deducted is determined in the same manner as with the annual account charge. See "Annual Account Charge," page 19. 14. MODIFIED PROCEDURES Under certain Contracts, the Contract-holder or a third party acting on their behalf provides record-keeping services that would otherwise be performed by Prudential. Such Contracts may require procedures somewhat different than those set forth in this Prospectus. For example, such Contracts may require that contribution allocation requests, withdrawal requests, and/ or transfer requests be directed to the Contract's record-keeper rather than Prudential. The record-keeper is the Contract-holder's agent, not Prudential's agent. Accordingly, transactions will be processed and priced as of the end of the valuation period in which Prudential receives appropriate instructions and/or funds from the record-keeper. Any such different procedures will be set forth in the Contract. These contracts may have modified deferred sales charges and annual account charges. See "Modification of Charges," page 19. THE ANNUITY PERIOD 1. ELECTING THE ANNUITY DATE AND THE FORM OF ANNUITY Subject to the restrictions on withdrawals from tax-deferred annuities subject to Section 403(b) of the Code, (see "Withdrawal (Redemption) of Contributions," page 21), and subject to the provisions of the retirement arrangement that covers him, a Participant may elect at any time to have all or a part of his interest in VCA-10, VCA-11 or any Subaccount of VCA-24 used to purchase a fixed-dollar annuity under the Contracts. The Contracts do not provide for annuities that vary with the investment results of VCA-10, VCA-11 or any Subaccount of VCA-24. WITHDRAWALS FROM VCA-10, VCA-11 OR ANY SUBACCOUNT OF VCA-24 THAT ARE USED TO PURCHASE A FIXED-DOLLAR ANNUITY UNDER THE CONTRACTS BECOME PART OF PRUDENTIAL'S GENERAL ACCOUNT, WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. SIMILARLY, AMOUNTS ALLOCATED TO THE COMPANION CONTRACT OR THE FIXED RATE OPTION UNDER THE NON-QUALIFIED COMBINATION CONTRACT BECOME PART OF PRUDENTIAL'S GENERAL ACCOUNT. BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE GENERAL ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS THEREIN ARE GENERALLY SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND WE HAVE BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED-DOLLAR ANNUITY THAT MAY BE PURCHASED UNDER THE CONTRACTS. DISCLOSURES REGARDING THE FIXED-DOLLAR ANNUITY AND THE GENERAL ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES. In electing to have an annuity purchased, the Participant may select from the forms of annuity described below, unless the retirement arrangement covering him provides otherwise. The annuity is purchased on the first day of the month following receipt by Prudential of proper written notice on a form approved by Prudential that the Participant has elected to have an annuity purchased, or on the first day of any subsequent month that the Participant designates. The first monthly annuity payment generally will be made within one month of the date on which the annuity is purchased. 28 Under certain types of retirement arrangements, the Retirement Equity Act of 1984 requires that in the case of a married Participant, certain elections of payouts which are not qualified joint and survivor annuities must include the consent and signatures of the Participant and spouse and must be notarized or witnessed by an authorized plan representative. A "qualified joint and survivor annuity" is an annuity for the Participant's lifetime with at least 50% of the amount payable to the Participant continued after his death to his spouse, if then living. If the dollar amount of the first monthly annuity payment is less than the minimum amount specified in the Contract, Prudential may, at its option and in lieu of making any annuity payment whatsoever, pay the person who would receive the annuity a one-sum cash payment in the amount that would otherwise have been applied to purchase the annuity. Once annuity payments begin, the annuitant cannot surrender his annuity benefit and receive a one-sum payment in lieu thereof. 2. AVAILABLE FORMS OF ANNUITY Option 1--Life annuity with payments certain. This is an immediate annuity payable monthly during the lifetime of the annuitant with the guarantee that if, at the death of the annuitant, payments have been made for less than the period-certain (which may be 60, 120, 180 or 240 months, as selected by the annuitant), they will be continued during the remainder of the selected period to his beneficiary. Option 2--Annuity-certain. This is an immediate annuity payable monthly for a period-certain which may be 60, 120, 180 or 240 months, as selected by the annuitant. If the annuitant dies during the period-certain, payments in the same amount the annuitant was receiving will be continued to his beneficiary, but no further payments are payable after the end of the period-certain. Option 3--Joint and survivor annuity with payments certain. This is an immediate annuity payable monthly during the lifetime of the annuitant with payments continued after his death to his contingent annuitant, if surviving, for the latter's lifetime. Until the selected number of payments certain have been paid, payments made to the contingent annuitant after the annuitant's death are the same as those the annuitant was receiving. Thereafter, the payments continued to the contingent annuitant will be a percentage of the monthly amount paid to the annuitant such as 33%, 50%, 66% or 100% as selected by the annuitant (the amounts of each payment made to the annuitant will be lower as the percentage he selects to be paid to the contingent annuitant is higher). If both the annuitant and the contingent annuitant die during the period- certain (which may be 60, 120, 180 or 240 months, as selected by the annuitant), payments will be continued during the remainder of the period-certain to the properly designated beneficiary. Other forms of annuity may be available under the Contracts. The retirement arrangement under which the Participant is covered may restrict the forms of annuity that a Participant may elect. If the dollar amount of the first monthly payment to a beneficiary is less than the minimum amount specified in the Contract, or if the beneficiary is other than a natural person receiving payments in his own right, Prudential may elect to pay the commuted value of the unpaid payments-certain in one sum. 3. PURCHASING THE ANNUITY No deferred sales charge is deducted from contributions withdrawn to purchase an annuity. If, as a result of a withdrawal to purchase an annuity, all of the Participant's Accumulation Accounts under the Program are reduced to zero, the full annual account charge is deducted, unless the annuity becomes effective on January 1 of any year. The resulting amount, less any applicable taxes on annuity considerations, is applied to the appropriate annuity purchase rate determined in accordance with the schedule in the Contract at the time the annuity is purchased. However, Prudential may determine monthly payments from schedules of annuity purchase rates providing for larger payments than the rates shown in the Contract. The schedule of annuity purchase rates in a Contract is guaranteed by Prudential for ten years from the date the Contract is issued. If at any time after a Contract has been in effect for ten years, the schedule of annuity purchase rates is modified, the modification is also guaranteed for ten years. A change in the schedule of annuity purchase rates used for an annuity-certain with 180 payments or less, as described in Option 2, will apply only to amounts added to a Participant's Accumulation Account after the date of change. A change in any other schedule will apply to all amounts in a Participant's Accumulation Account. ASSIGNMENT Unless contrary to applicable law, the right to any payment under the Contract is neither assignable nor subject to the claim of any creditor. 29 CHANGES IN THE CONTRACTS The Non-Qualified Contract provides that annuity purchase rates may be changed every five years. Furthermore, each Contract provides that after it has been in effect for two years Prudential may change the annual account charge and the table of deferred sales charges. Any change in the table of deferred sales charges generally will apply only to the withdrawal of those contributions made on or after the date the change takes effect. For this purpose, contributions shall be deemed to be withdrawn on a first-in, first-out basis. Each Contract also provides that after it has been in effect for five years Prudential may change the deduction from assets of VCA-10, VCA-11 or any Subaccount of VCA-24 for administrative expenses, the terms and conditions under which a deferred sales charge is made, the minimum amount of any contribution to VCA-10, VCA-11 or any Subaccount of VCA-24 that is made other than on a regular, periodic basis and the terms and amount of any transfer or withdrawal, provided, however, that any such change must be permissible under the provisions of the 1940 Act. The changes described in this paragraph will apply to all amounts in Participants' Accumulation Accounts, whether credited before or after the change is made. The changes discussed in the preceding two paragraphs may not become effective earlier than 90 days after notice of them has been sent to the Contract-holder and to each person to whom the change applies who has an Accumulation Account under the Contract, other than persons covered by a Contract used in connection with deferred compensation plans under Section 457 of the Code and persons covered by a Contract used in connection with non-qualified annuity arrangements. A Contract may be changed at any time by agreement between Prudential and the Contract-holder; however, no change may be made that adversely affects rights with respect to annuities purchased before the effective date of the change, unless the consent of each affected annuitant is obtained. Prudential reserves the right to substitute the shares of any other registered investment company for the shares of the Fund held in any of the Subaccounts of VCA-24. Current law requires approval by the Securities and Exchange Commission and notification to the holders of the Contracts of any such substitution. Prudential also reserves the right to operate VCA-24 as a different form of registered investment company or as an unregistered entity, to transfer the Contracts to a different separate account, or to discontinue any of the Subaccounts of the Account, all to the extent permitted by applicable law. Prudential may also amend any Contract to the extent necessary to comply with any applicable law or regulation. REPORTS Participants will be sent, at least annually, reports showing as of a specified date the number of Units credited to them in VCA-10, VCA-11 and in the Subaccounts of VCA-24 and the appropriate Unit Values. Each Participant will also be sent semi-annual reports showing the financial condition of the Accounts and the Subaccounts with their corresponding Fund Portfolios, and the investments held in each. PERFORMANCE INFORMATION Performance information for VCA-10, VCA-11, and the Subaccounts of VCA-24 may appear in advertising and reports to current and prospective Contract-holders and Participants. Performance information is based on historical investment experience of those investment options and does not indicate or represent future performance. Total returns are based on the overall dollar or percentage change in value of a hypothetical investment. Total return quotations reflect changes in unit values and the deduction of applicable charges. A cumulative total return reflects performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if the performance had been constant over the entire period. VCA-11 may also advertise its current and effective yield. Current yield reflects the income generated by an investment in VCA-11 over a specified seven-day period. Effective yield is calculated in a similar manner except that income earned is assumed to be reinvested. Comparative performance information may from time to time be included in reports or advertising, including, but not limited to, data from Morningstar, Inc., Lipper Analytical Services, Inc., the Standard & Poor's 500 Composite Price Index, Lehman Brothers indices and other commonly used indices or industry publications. See "Performance Information" in the Statement of Additional Information for recent performance information. PARTICIPATION IN DIVISIBLE SURPLUS A mutual life insurance company differs from a stock life insurance company in that it has no stockholders who are the owners of the enterprise. Accordingly, a Contract-holder of Prudential participates in the divisible surplus of Prudential, according to the annual determination of Prudential's Board of Directors as to the portion, if any, of the divisible surplus which has accrued on the Contract. In the case of the Contracts described in this Prospectus, any surplus determined to be payable as a dividend is credited to Participants. No assurance can be given as to the amount of divisible surplus, if any, that will be available for distribution under 30 these Contracts in the future. There were no payments of divisible surplus made under the Contracts in 1994, 1993 or 1992. FEDERAL TAX STATUS The following discussion is general in nature. It is not intended as tax advice. Nor does it consider any applicable state or other tax laws. A qualified tax adviser should be consulted for complete information and advice. TAXES ON PRUDENTIAL. The Accounts are not considered separate taxpayers for purposes of the Internal Revenue Code. As distinguished from most other registered investment companies--which are separate taxpayers-- the earnings of the Accounts (and Subaccounts) are taxed as part of the income of Prudential. Under the current provisions of the Code, Prudential does not expect to incur Federal income taxes on earnings of the Accounts or the Subaccounts to the extent the earnings are credited under the Contracts. Based on this, no charge is being made currently against the Accounts for Federal income taxes. QUALIFIED RETIREMENT ARRANGEMENTS USING THE CONTRACTS. The Contracts may be used in connection with qualified pension and profit sharing plans, plans established by self-employed persons ("Keogh plans"), simplified employee pension plans ("SEPS"), individual retirement plan accounts ("IRAs"), and retirement programs for certain persons known as Section 403(b) annuity plans. The provisions of the Code that apply to the retirement arrangements that may be funded by the Contracts are complex and Participants are advised to consult a qualified tax adviser. In general, however, assuming that the requirements and limitations of the provisions of the Code applicable to the particular type of plan are adhered to by Participants and employers, contributions made under a retirement arrangement funded by a Contract are deductible (or not includible in income) up to certain amounts each year. Further, under the retirement programs with which the Contracts may be used, Federal income tax currently is not imposed, subject to certain limitations, upon the investment income and realized gains earned by the Accounts and Subaccounts in which the contributions have been invested until a distribution or withdrawal is received. When a distribution or withdrawal is received, either as a lump sum, an annuity or as regular payments in accordance with a systematic withdrawal arrangement, all or a portion of the distribution or withdrawal is normally taxable as ordinary income. In some cases, the tax on lump sum distributions may be limited by a special income-averaging rule. The effect of Federal income taxation depends largely upon the type of retirement plan and a generalized description, beyond that given here, is not particularly useful. Careful review of the provisions of the Code applicable to the particular type of plan is necessary. As noted above, withdrawals or distributions are taxable. Furthermore, premature distributions or withdrawals may be subject to a penalty tax. Participants contemplating a withdrawal should consult a qualified tax adviser. In addition, Federal tax laws impose restrictions on withdrawals from Section 403(b) annuities. See "Withdrawal (Redemption) of Contributions," page 21. Distributions are subject to certain minimum distribution requirements. The Contracts may be used in connection with deferred compensation plans that meet the requirements of Section 457 of the Code. The tax rules for such plans involve, among other things, limitations on contributions and minimum distribution requirements. Tax-exempt organizations or governmental employers considering the use of the Contracts to fund or otherwise provide deferred compensation to their employees should consult with a qualified tax adviser concerning the applicability of Section 457 to their plans as well as the specific requirements. Reference is also made to the discussion below of Section 72(u) of the Code which may be applicable in certain circumstances. Subject to the exceptions discussed below with respect to Section 403(b) annuity plans and certain governmental or church plans, distributions from IRAs, qualified retirement arrangements and deferred compensation plans that meet the requirements of Section 457 of the Code must begin by April 1 of the calendar year following the year in which the Participant attains age 70 1/2 (the "Required Beginning Date"). Distributions from a Section 403(b) annuity plan attributable to benefits accruing after December 31, 1986 must begin by the Required Beginning Date. The Required Beginning Date for distributions from a governmental or church plan is the later of April 1 of the calendar year after the calendar year in which the Participant attains age 70 1/2 or the calendar year in which the Participant retires. In general, distributions that are made after the Required Beginning Date must be made in the form of an annuity for the life of the Participant or the lives of the Participant and his designated beneficiary, or over a period that is not longer than the life expectancy of the Participant or the life expectancies of the Participant and his designated beneficiary. Distributions to beneficiaries are also subject to minimum distribution rules. If a Participant dies before his entire interest in his Accumulation Account(s) has been distributed, his remaining interest must be distributed at least as rapidly as under the method of distribution being used as of the date of death. If the Participant dies before distributions have begun (or are treated as having begun) the entire interest in his Accumulation Accounts must be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. Alternatively, if there is a designated beneficiary, the designated beneficiary may elect to receive payments beginning no later than December 31 of the calendar year immediately following the year in 31 which the Participant dies and continuing for the beneficiary's life or a period not exceeding the beneficiary's life expectancy (except that with respect to distributions from a deferred compensation plan subject to Section 457 of the Code, such period cannot exceed 15 years). Special rules apply to the spouse of a deceased Participant. In addition to the above rules, with respect to a deferred compensation plan subject to Section 457 of the Code, any distribution that is payable over a period of more than one year can only be made in substantially non-increasing amounts no less frequently than annually. An excise tax applies to Participants or beneficiaries who fail to take the minimum distribution in any calendar year. NON-QUALIFIED ARRANGEMENTS USING THE CONTRACTS. The Contracts constitute variable annuity contracts. Accordingly, no tax should be payable by a Participant as a result of any increase in the value of his share of the investment income and realized gain earned by the Account or Subaccount in which his accumulated premium payments are held. Generally, amounts are taxed when received, either as an annuity or as a withdrawal before the annuity starting date. For these purposes, loans against the Contracts or the pledging of the Contracts are treated as withdrawals. Amounts withdrawn before the annuity starting date are treated for tax purposes first as being withdrawals of investment income, rather than withdrawals of premium payments, until all investment income earned by a Participant's Account or Subaccount has been withdrawn. Thus, a Participant will be taxed on the amount he withdraws before he starts receiving annuity payments to the extent that the cash value of his Contract, unreduced by the withdrawal charge, exceeds his premium payments. In addition to the ordinary income tax, the Code further provides that premature withdrawals that are includible in income will be subject to a penalty tax. The amount of the penalty is 10 percent of the amount withdrawn that is includable in income. Some withdrawals will be exempt from the penalty. These include withdrawals (1) made on or after the date on which the Participant reaches age 59 1/2, (2) made on or after the death of the Participant, (3) attributable to the Participant becoming disabled (as defined in Code Section 72(m)), (4) in the form of level annuity payments under a lifetime annuity, (5) in the form of an immediate annuity (an annuity which has been purchased with a single purchase payment and under which annuity payments begin no later than one year from the date of purchase), or (6) in the form of substantially equal periodic payments (made at least annually) for the life expectancy of the Participant or the joint life expectancies of the Participant and his designated beneficiary. Different tax rules apply to the receipt of annuity payments or regular payments in accordance with a systematic withdrawal arrangement by a Participant after the annuity starting date. A portion of each payment he receives under a Contract will be treated as a partial return of his post-tax premium payments, if any, and will not be taxable. The remaining portion of the payment will be taxed as ordinary income. Exactly how each payment is divided into taxable and nontaxable portions depends upon (i) the period over which annuity payments are expected to be received, which in turn is governed by the form of annuity selected and, where a lifetime annuity is chosen, by the life expectancy of the annuitant, payee or, in the case of a joint and survivor life annuity, payees, or (ii) whether you elect to have regular payments made in accordance with a systematic withdrawal plan over a fixed period of time or in fixed dollar amounts. Once a Participant has recovered all his premium payments, the balance of the annuity payments will be fully taxable. Certain minimum distribution requirements apply in the case where the Participant dies before the entire interest in his annuity has been distributed. Further, certain transfers of an annuity for less than full compensation, E.G., a gift, will trigger tax on the gain in the Contract. Special rules under section 72(u) of the Code apply to the Contracts if held by a person who is not a natural person and if not covered by one of several exceptions. Under these rules, if a Contract is held by a corporation, partnership, trust or similar nonnatural person, the income on the Contract each year is treated as ordinary income received or accrued that year by the owner of the Contract. Income on the contract is the excess of the sum of the net surrender value of the Contract at the end of the taxable year plus any amounts distributed for all years over the aggregate amount of premiums paid under the Contract minus amounts received under the Contract that have not been included in income. Exceptions to these rules include contracts held by a nonnatural person as an agent for a natural person, contracts acquired by an estate by reason of the death of the decedent, contracts held under a qualified pension or profit sharing plan, a section 403(b) annuity plan or individual retirement plan (see discussion above) or contracts which provide for immediate annuities. WITHHOLDING. Generally, under a nonqualified annuity arrangement, or individual retirement account or individual retirement annuity, unless a Participant elects to the contrary, any amounts that are received under his Contract that Prudential reasonably believes are includable in gross income tax for tax purposes will be subject to withholding to meet Federal income tax obligations. In the absence of an election by a Participant that Prudential should not do so, it will withhold from every withdrawal or annuity payment the appropriate percentage of the amount of the payment that Prudential reasonably believes is subject to withholding. In addition, 32 certain distributions from qualified plans under Section 401 or Section 403(b) of the Code, which are not directly rolled over or transferred to another eligible qualified plan, are subject to a mandatory 20% withholding for federal income tax. The 20% withholding requirement does not apply to: (a) distributions for the life or life expectancy of the participant, or joint and last survivor expectancy of the participant and a designated beneficiary; or (b) distributions for a specified period of ten years or more; or (c) distributions which are required as minimum distributions. Accordingly, a Participant would be well-advised to check the Contract-holder's retirement arrangement and consult with appropriate tax advisers regarding the current state of the law before making a withdrawal. Prudential will provide forms and instructions concerning withholding. However, amounts that are received under a Contract used in connection with a plan that is subject to Section 457 of the Code are treated as wages for Federal income tax purposes and are, thus, subject to general withholding requirements. VOTING RIGHTS Except for Participants and beneficiaries under Contracts used in connection with certain non-qualified annuity arrangements and deferred compensation plans established under Section 457 of the Internal Revenue Code, each person who has an Accumulation Account in VCA-10 or VCA-11, as the case may be, has the right to vote at meetings of Participants in that Account, and Prudential will vote the shares of the Fund that it holds in any Subaccount of VCA-24 in the manner directed by persons who have Accumulation Accounts in that Subaccount. Holders of Contracts used in connection with Section 457 plans also have the right to vote at meetings of Participants of VCA-10 and VCA-11, and Prudential will vote Fund shares held in VCA-24 Subaccounts under such Contracts in the manner directed by the Contract-holders, to the extent that those Contracts are funded through the particular Account or Subaccount. Persons having voting rights with respect to VCA-10 and VCA-11 are entitled to vote in connection with the election of the members of an Account's Committee. Committee members are not elected annually. Beginning in September 1988, all Committee members elected by persons having voting rights are elected for indefinite terms. Vacancies may be filled by a majority vote of all the remaining Committee members, provided that immediately after filling any such vacancy, at least two-thirds of the members then holding office shall have been elected by persons having voting rights. Members elected by a Committee, rather than by persons having voting rights, only hold their positions until the next meeting of persons having voting rights in respect to such Account. At that next meeting, persons with voting rights fill the vacancy by electing a member for an indefinite term. Persons having VCA-10 and VCA-11 voting rights are also entitled to vote in connection with the selection by the Committee of an independent public accountant for the Account. However, such matter is not required to be submitted annually. The Committee is only required to submit the selection of the accountant for ratification or rejection if the Committee selects an accountant other than the one whose selection was most recently ratified by persons having voting rights. In addition, persons having VCA-10 and VCA-11 voting rights are entitled to vote in connection with: a. any amendments of the investment management agreement between Prudential and the Account and any such new agreements negotiated by the Committee; b. any changes in the fundamental investment policies of the Account; and c. any other matter requiring a vote of VCA-10 and VCA-11 Participants. Instructions to Prudential for the voting of Fund shares will involve the following matters: (1) election of the Board of Directors of the Fund; (2) ratification of the independent accountant for the Fund; (3) approval of the investment advisory agreement for the Fund; (4) any change in the fundamental investment policy of a Portfolio in which assets of a Subaccount of VCA-24 are invested; and (5) any other matter requiring a vote of the shareholders of the Fund. With respect to approval of the investment advisory agreement or any change in a Portfolio's fundamental investment policy, Participants with Accumulation Accounts in a Subaccount the assets of which are invested in such Portfolio will vote with other holders of shares in such Portfolio on the matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act. The number of votes which a person may cast at meetings of Participants in VCA-10 or VCA-11 is equal to the number of dollars in the Account and fractions thereof credited to him, or, in the case of holders of Contracts used in connection with deferred compensation plans under Section 457 of the Code, the number of dollars and fractions thereof that are credited to the Participants under that contract, as of the record date. Prudential is entitled to vote the number of votes and fractions thereof equal to the number of dollars and fractions thereof of its own funds invested in either VCA-10 or VCA-11 as of the record date. Prudential will cast its votes in the same proportions as all other votes represented at the meeting, in person or by proxy. Meetings of Participants are not required to be held annually. The Rules and Regulations of both VCA-10 and VCA-11 provide that meetings of persons having voting rights may be called by a majority of the Committee. An Account's Committee is required to call a meeting of persons having voting rights in the event that at 33 any time less than a majority of the members of such Committee holding office at that time were elected by persons having voting rights. Such meeting must be held within 60 days unless the Securities and Exchange Commission by order extends such period. Each Committee must also call a meeting of persons having voting rights in order to submit the selection of the Account's independent public accountant for ratification or rejection if the Committee selects an accountant other than the accountant whose selection was most recently ratified by persons with voting rights. In addition, the Committee is required to call meetings of persons with voting rights in order to submit for a vote matters on which such persons are entitled to vote (as listed above). For the purpose of determining the persons having voting rights in respect of an Account who are entitled to notice of and to vote at such meetings, the Committee may fix, in advance, a record date which shall not be more than 70 nor less than 10 days before the date of the meeting. Votes may be cast either in person or by proxy. Persons entitled to vote will receive all proxy materials. Each person having an Accumulation Account in a Subaccount of VCA-24 may give voting instructions to Prudential equal to the number of Fund shares represented by the Subaccount Units in his Accumulation Account. Prudential will vote the shares of the Fund that are attributable to assets of its own that it maintains in the Subaccount, or to any shares as to which it has not received instructions, in the same manner and proportion as the shares for which it has received instructions. The number of votes for which each person may give Prudential instructions will be determined as of the record date for Fund shareholders chosen by the Board of Directors of the Fund. Prudential will furnish Participants with proper forms and proxies to enable them to give it these instructions. As defined by the 1940 Act and as referred to elsewhere in this Prospectus, a majority vote of persons having voting rights in respect of VCA-10, VCA-11 or the Fund means (a) 67% or more of the votes of such persons present at a meeting if more than 50% of all votes entitled to be cast are held by persons present in person or represented by proxy at such meeting, or (b) more than 50% of all votes entitled to be cast, whichever is less. OTHER CONTRACTS ON A VARIABLE BASIS In addition to the Contracts, Prudential currently issues other forms of contracts on a variable basis. At present, contributions under such other contracts are not held in VCA-10, VCA-11 or any Subaccount of VCA-24 but are held in other separate accounts. STATE REGULATION Prudential is subject to regulation by the Department of Insurance of the State of New Jersey as well as by the insurance departments of all the other states and jurisdictions in which it does business. Prudential must file an annual statement in a form promulgated by the National Association of Insurance Commissioners. This annual statement is reviewed and analyzed by the New Jersey Department, which makes an independent computation of Prudential's legal reserve liabilities and statutory apportionments under its outstanding contracts. New Jersey law requires a quinquennial examination of Prudential to be made. Examination involves extensive audit including, but not limited to, an inventory check of assets, sampling techniques to check the performance by Prudential of its contracts and an examination of the manner in which divisible surplus has been apportioned and distributed to policyholders and contract-holders. This regulation does not involve any supervision or control over the investment policies of either Account or over the selection of investments for them, except for verification of the compliance of Prudential's investment portfolio with New Jersey law. See "Investment restrictions imposed by state law," in the Statement of Additional Information. The laws of New Jersey also contain special provisions which relate to the issuance and regulation of contracts on a variable basis. These laws set forth a number of mandatory provisions which must be included in contracts on a variable basis and prohibit such contracts from containing other specified provisions. No variable contract may be issued for delivery in New Jersey prior to the written acknowledgement by the Department of Insurance of its filing. The Department may initially disapprove or subsequently withdraw approval of any contract if it contains provisions which are "unjust, unfair, inequitable, ambiguous, misleading, likely to result in misrepresentation or contrary to law." Approval can also be withheld or withdrawn if sales are solicited by communications which involve misleading or inadequate descriptions of the provisions of the contract. In addition to the annual statement referred to above, Prudential is required to file with New Jersey and other states a separate statement with respect to the operations of all its variable contracts accounts, in a form promulgated by the National Association of Insurance Commissioners. LEGAL PROCEEDINGS Prudential is engaged in routine litigation of various kinds which in its judgment is not of material importance in relation to its total assets. There is no litigation pending the outcome of which might have a material effect on the operations of VCA-10, VCA-11, VCA-24 or the Fund. 34 ADDITIONAL INFORMATION Registration statements under the Securities Act of 1933 have been filed with the Securities and Exchange Commission with respect to the Contracts. This Prospectus does not contain all the information set forth in the registration statements, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. The omitted information may be obtained from the Commission's principal office in Washington, D.C. upon payment of the fees prescribed by the Commission. For further information, you may also contact Prudential's office, the address and telephone number of which are set forth on the cover of this Prospectus. A copy of the Statement of Additional Information prepared by Prudential, which provides more detailed information about the Contracts, may be obtained without charge by completing the postcard included in this Prospectus or by calling Prudential at the number set forth on the cover of this Prospectus. The Statement includes: TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION PAGE INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-10, VCA-11 AND VCA-24........ 2 Investment restrictions adopted by VCA-10 and VCA-11....................... 3 Investment restrictions imposed by state law............................... 4 Loans of portfolio securities.............................................. 4 Portfolio turnover rate.................................................... 5 Portfolio brokerage and related practices.................................. 5 Custody of securities...................................................... 6 Options and Futures........................................................ 6 Performance Information.................................................... 10 THE VCA-10 AND VCA-11 COMMITTEES............................................. 12 VCA-10 Committee........................................................... 12 VCA-11 Committee........................................................... 12 Remuneration of Members of the Committees and Certain Affiliated Persons... 13 DIRECTORS AND OFFICERS OF PRUDENTIAL......................................... 14 SALE OF THE CONTRACTS........................................................ 17 EXPERTS...................................................................... 17 FINANCIAL STATEMENTS OF VCA-10............................................... 18 FINANCIAL STATEMENTS OF VCA-11............................................... 27 FINANCIAL STATEMENTS OF VCA-24............................................... 35 FINANCIAL STATEMENTS OF THE PRUDENTIAL....................................... 42 35 APPENDIX Some of the terms used in this Prospectus to describe the investment objective and policies of VCA-11 are further explained below. The term "money market" refers to the marketplace composed of the financial institutions which handle the purchase and sale of liquid, short-term, high-grade debt instruments. The money market is not a single entity, but consists of numerous separate markets, each of which deals in a different type of short-term debt instrument. These include U.S. government obligations, commercial paper, certificates of deposit and bankers' acceptances, which are generally referred to as money market instruments. "U.S. Government obligations" are debt securities (including bills, certificates of indebtedness, notes, and bonds) issued by the U.S. Treasury or issued by an agency or instrumentality of the U.S. government which is established under the authority of an act of Congress. Such agencies or instrumentalities include, but are not limited to, the Federal National Mortgage Association, the Federal Farm Credit Bank, and the Federal Home Loan Bank. Although all obligations of agencies and instrumentalities are not direct obligations of the U.S. Treasury, payment of the interest and principal on these obligations 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. "Bank obligations" include (1) "Certificates of deposit" which 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 one year); (2) "Bankers' acceptances" which 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; and (3) "Time deposits" which are non-negotiable deposits in a bank for a fixed period of time. "Commercial paper" consists of short-term (usually from 1 to 270 days) unsecured promissory notes issued to finance current operations. Commercial paper ratings are as follows: A Prime rating is the highest commercial paper rating assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this highest classification. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Commercial paper rated A by Standard & Poor's Corporation ("S&P") has the following characteristics as determined by S&P: 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 borrowing and 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 is unquestioned. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to denote relative strength within this highest classification. "Other corporate obligations" are bonds and notes, loan participations and other debt obligations created by corporations, banks and other business organizations, including business trusts. Corporate bond ratings are as follows: Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all standards. Together with bonds rated Aaa (Moody's highest rating), they comprise what are generally known as high-grade bonds. They are rated lower than the best bond because margins of protection may not be as large as 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. Bonds rated AA by S&P are judged by S&P to be high-grade obligations and, in the majority of instances, to differ only in small degree from issues rated AAA. Bonds rated AAA are considered by S&P to be highest grade obligations and possess the ultimate degree of protection as to principal and interest. As with AAA bonds, prices of AA bonds move with the long-term money market. An "NRSRO" is any nationally recognized statistical rating organization designated by the SEC staff, including Moody's and S&P. An "eligible security" is either (i) a short-term security that is rated, or has been issued by an issuer that is rated with respect to comparable securities, in one of the two highest rating categories for such securities or issuers by two NRSROs (or by only one NRSRO if it is the only NRSRO that has rated such security or issuer), or (ii) an unrated short-term security of comparable quality as determined by the VCA-11 Committee. 36 A "first tier" security is either (i) an "eligible security" that is rated, or has been issued by an issuer that is rated with respect to comparable securities, in the highest rating category for such securities or issuers by two NRSROs (or by only one NRSRO if it is the only NRSRO that has rated such security or issuer), or (ii) is an unrated short-term security of comparable quality as determined by the VCA-11 Committee. A "second tier" security is any "eligible security" other than a "first tier" security. 37 The Prudential Insurance Company of America BULK RATE c/o Prudential Defined Contribution Services U.S. POSTAGE Moosic, Pennsylvania 18507-1789 PAID PERMIT No. 2145 Newark, N.J. ADDRESS CORRECTION REQUESTED FORWARDING AND RETURN POSTAGE GUARANTEED GIA-431 ED. 5/95 Please place correct postage here The Prudential Insurance Company of America c/o Prudential Defined Contribution Services 30 Scranton Office Park Moosic, Pennsylvania 18507-1789 Attention: Defined Contributions Marketing A "Statement of Additional Information" about the Contracts has been filed with the Securities and Exchange Commission. A copy of this Statement is available without charge. To receive additional information about the MEDLEY Program fill in your name and address on this card, tear it off, affix the proper postage, and mail it to us. YOU MUST DETACH BEFORE MAILING Please send me the "Statement of Additional Information" describing The Prudential's Group Variable Contracts. Name ___________________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________ City ___________________________________________________________________________ State ___________________________ Zip Code _____________________________________ PLEASE PRINT -- will be used as mailing label! STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1995 GROUP VARIABLE CONTRACTS ISSUED THROUGH THE PRUDENTIAL THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10 VARIABLE CONTRACT ACCOUNT-11 THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-24 These Contracts are designed for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of 1986 and with non-qualified annuity arrangements. Contributions made on behalf of Participants may be invested in The Prudential Variable Contract Account-10, a separate account primarily invested in common stocks, in The Prudential Variable Contract Account-11, a separate account invested in money market instruments, or in one or more of the seven Subaccounts of The Prudential Variable Contract Account-24. Each Subaccount is invested in a corresponding Portfolio of The Prudential Series Fund, Inc. ------------------- This Statement of Additional Information is not a prospectus and should be read in conjunction with the Prospectus, dated May 1, 1995, which is available without charge upon written request to The Prudential Insurance Company of America, c/o Prudential Defined Contribution Services, 30 Scranton Office Park, Moosic, PA 18507-1789, or by telephoning 1-800-458-6333. TABLE OF CONTENTS PAGE INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-10, VCA-11 AND VCA-24........ 2 Investment restrictions adopted by VCA-10 and VCA-11....................... 3 Investment restrictions imposed by state law............................... 4 Loans of portfolio securities.............................................. 4 Portfolio turnover rate.................................................... 5 Portfolio brokerage and related practices.................................. 5 Custody of securities...................................................... 6 Options and Futures........................................................ 6 PERFORMANCE INFORMATION...................................................... 10 THE VCA-10 AND VCA-11 COMMITTEES............................................. 12 VCA-10 Committee........................................................... 12 VCA-11 Committee........................................................... 12 Remuneration of Members of the Committees and Certain Affiliated Persons... 13 DIRECTORS AND OFFICERS OF PRUDENTIAL......................................... 14 SALE OF THE CONTRACTS........................................................ 17 EXPERTS...................................................................... 17 FINANCIAL STATEMENTS OF VCA-10............................................... 18 FINANCIAL STATEMENTS OF VCA-11............................................... 27 FINANCIAL STATEMENTS OF VCA-24............................................... 35 FINANCIAL STATEMENTS OF THE PRUDENTIAL....................................... 42 The Prudential Insurance Company of America c/o Prudential Defined Contribution Services 30 Scranton Office Park Moosic, PA 18507-1789 Telephone 1-800-458-6333 - --------------------- - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-10, VCA-11 AND VCA-24 Prudential acts as investment manager for The Prudential Variable Contract Account-10 ("VCA-10") and The Prudential Variable Contract Account-11 ("VCA-11") under separate investment management agreements with each of them. Each Account's assets are invested and reinvested in accordance with its investment objective and policies, subject to the general supervision and authorization of the Account's Committee. The assets of each Subaccount of VCA-24 are invested in shares of the series of the common stock of The Prudential Series Fund, Inc. (the "Fund") that represent the portfolio of the Fund that corresponds to the particular Subaccount of VCA-24. The Prospectus and the Statement of Additional Information of the Fund describe the investment management and administration of the Fund and its various portfolios. Subject to Prudential's supervision, all of the investment management services provided by Prudential are furnished by its wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"), pursuant to the service agreement between Prudential and PIC (the "Service Agreement") which provides that Prudential will reimburse PIC for its costs and expenses. PIC is registered as an investment adviser under the Investment Advisers Act of 1940. Prudential continues to have responsibility for all investment advisory services under its advisory or subadvisory agreements with respect to its clients. Prudential's investment management agreement with each of VCA-10 and VCA-11 was most recently renewed by unanimous vote of the Committees on November 11, 1994 and by the Participants in each Account on September 8, 1983. The Service Agreement was submitted to and approved by Participants in VCA-10 and VCA-11 on November 4, 1985 and its annual continuation was most recently approved by unanimous vote of the VCA-10 and VCA-11 Committees on November 11, 1994. Each Account's investment management agreement and the Service Agreement will continue in effect as long as approved at least once a year by a majority of the non-interested members of the Account's Committee and either by a majority of each entire Committee or by a majority vote of persons entitled to vote in respect of the Account. An Account's investment management agreement will terminate automatically in the event of assignment, and may be terminated without penalty on 60 days' notice by the Account's Committee or by the majority vote of persons having voting rights in respect of the Account, or on 90 days' notice by Prudential. The Service Agreement will continue in effect as to each Account for a period of more than two years from its execution only so long as such continuance is specifically approved at least annually in the same manner as the Agreements for Investment Management Services between Prudential and the Accounts. The Service Agreement may be terminated by either party upon not less than thirty days' prior written notice to the other party, will terminate automatically in the event of its assignment and will terminate automatically as to an Account in the event of the assignment or termination of the Agreement for Investment Management Services between Prudential and the Account. Prudential is not relieved of its responsibility for all investment advisory services under the Agreement for Investment Management Services between Prudential and the Accounts. The Service Agreement provides for Prudential to reimburse PIC for its costs and expenses incurred in furnishing investment advisory services. For the meaning of a majority vote of persons having voting rights with respect to an Account, see "Voting Rights," page 33 of the Prospectus. Prudential is responsible for the administrative and recordkeeping functions of VCA-10, VCA-11 and VCA-24 and pays the expenses associated with them. These functions include enrolling Participants, receiving and allocating contributions, maintaining Participants' Accumulation Accounts, preparing and distributing confirmations, statements, and reports. The administrative and recordkeeping expenses borne by Prudential include salaries, rent, postage, telephone, travel, legal, actuarial and accounting fees, office equipment, stationery and maintenance of computer and other systems. Prudential has entered into a service agreement with its indirect wholly-owned subsidiary, The Prudential Asset Management Company, Inc., (PAMCO) which provides that PAMCO may furnish certain administrative and recordkeeping services in connection with Prudential's obligations under the Contracts and provides that Prudential will reimburse PAMCO for its costs and expenses. Prudential is reimbursed for these administrative and recordkeeping expenses by the annual account charge and the daily charge against the assets of each Account and Subaccount for administrative expenses. A daily charge is made which is equal to an effective annual rate of 1.00% of the net value of the assets in VCA-10 and VCA-11. Three quarters of this charge (0.75%) is for administrative expenses not covered by the annual account charge, and one quarter (0.25%) is for investment management. During 1994, 1993, and 1992, Prudential received $2,608,950, $2,122,507, and $1,581,297, respectively, from VCA-10 and $659,492, $575,317, and $529,770, respectively, from VCA-11 for administrative expenses and for providing management services. A daily charge is made which is equal to an effective annual rate of 0.75% of the net value of the assets in each Subaccount of VCA-24. All of this charge is for administrative expenses not covered by the annual account charge. During 1994, 1993, and 1992, Prudential received $3,535,163, $2,451,437, and $1,376,069, respectively, in daily charges for VCA-24. 2 There is also an annual account charge for administrative expenses of not greater than $20 assessed against a Participant's Accumulation Account. During 1994, 1993, and 1992, Prudential collected $69,867, $49,223, and $29,368, respectively, from VCA-10 and $34,832, $35,335, and $32,729, respectively, from VCA-11 in annual account charges. During 1994, 1993, and 1992, Prudential collected $139,359, $95,961, and $57,813, respectively in annual account charges from VCA-24. A deferred sales charge is also imposed on certain withdrawals from the Accounts and Subaccounts. The deferred sales charges imposed on withdrawals from VCA-10 during 1994, 1993, and 1992, were $24,016, $17,485, and $18,198, respectively. The deferred sales charges imposed on VCA-11 withdrawals during 1994, 1993, and 1992, were $16,777, $10,159, and $7,396, respectively. During 1994, 1993, and 1992 the deferred sales charges imposed on withdrawals from VCA-24 were $62,145, $46,085, and $31,972, respectively. INVESTMENT RESTRICTIONS ADOPTED BY VCA-10 AND VCA-11 The following investment restrictions are fundamental investment policies and may not be changed without the approval of a majority vote of persons having voting rights in respect of the Account. Neither of the Accounts will: 1. Buy or sell real estate, mortgages, commodities or commodity contracts, except that (a) VCA-10 may buy and sell shares of real estate investment trusts listed on stock exchanges or reported on the National Association of Securities Dealers, Inc. automated quotation system ("NASDAQ"); and (b) VCA-10 may purchase and sell stock index futures contracts and related options. 2. Buy or sell the securities of other investment companies. 3. Acquire securities for the purpose of exercising control or management of any company. 4. Make short sales of securities or maintain a short position, except that VCA-10 may make short sales against the box. Collateral arrangements entered into by VCA-10 with respect to futures contracts and related options and the writing of options on equity securities and stock indices are not deemed to be short sales. 5. Purchase securities on margin, issue senior securities or otherwise borrow money, except that either Account, in accordance with its investment objective and policies, may purchase and sell securities on a when-issued and delayed delivery basis. Either Account may obtain such short-term credit as it needs for the clearance of securities transactions, and may also borrow from a bank as a temporary measure, in amounts not exceeding 5% of the value of its portfolio, to accommodate abnormally heavy redemption requests, if they should occur, but not for leveraging or investment purposes. Investment securities will not be purchased while borrowings are outstanding. Interest paid on borrowings will not be available for investment by the Accounts. Collateral arrangements entered into by VCA-10 with respect to futures contracts and related options and the writing of options on equity securities and stock indices are not deemed to be the issuance of a senior security or the purchase of a security on margin. 6. Mortgage, pledge or hypothecate any assets, except that either Account may pledge assets in an amount up to 10% of the value of its portfolio, but only to secure borrowings for extraordinary or emergency purposes as described in paragraph 5 above. Collateral arrangements entered into by VCA-10 with respect to futures contracts and related options and the writing of options on equity securities and stock indices are not deemed to be a pledge or hypothecation of assets. 7. Make cash loans except that VCA-10 may make loans of up to 10% of the value of its portfolio 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, and VCA-11 may purchase debt obligations in accordance with its investment objective and policies and may engage in repurchase agreements as described on pages 14 and 15 of the Prospectus. 8. Lend portfolio securities unless the loans are fully collateralized and subject to such other safeguards as the Account's Committee determines are advisable and appropriate. For a discussion of the risks involved in lending portfolio securities, see "Loans of Portfolio Securities," page 4. 9. Underwrite the securities of other issuers, except where VCA-10 may be deemed to be an underwriter for purposes of the Securities Act of 1933 in connection with the loans that it may make pursuant to paragraph 7 above. 10. Seventy-five percent of the assets held in each Account are subject to the limitation that no purchase of a security, other than a security of the U.S. Government or its agencies and instrumentalities, will be made for each Account if as a result of such purchase more than 5% of the total value of the Account's assets will be invested in the securities of one issuer. 3 11. Purchase any securities (other than obligations of the U.S. Government, its agencies and instrumentalities) if as a result 25% or more of the value of the Account's total assets (determined at the time of investment) would be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that there is no limitation with respect to money market instruments of domestic banks, U.S. branches of foreign banks that are subject to the same regulations as U.S. banks, and foreign branches of domestic banks (provided that the domestic bank is unconditionally liable in the event of the failure of the foreign branch to make payment on its instruments for any reason). In addition, VCA-11 will not: Purchase common stock, preferred stock, warrants or other equity securities, or oil and gas interests. INVESTMENT RESTRICTIONS IMPOSED BY STATE LAW In addition to the investment objectives, policies and restrictions that they have adopted, VCA-10 and VCA-11 must limit their investments to those authorized for variable contract accounts of life insurance companies by the laws of the State of New Jersey. In the event of future amendments of the applicable New Jersey statutes, each Account will comply, without the approval of Participants or others having voting rights in respect of the Account, with the statutory requirements as so modified. The pertinent provisions of New Jersey law as they currently read are, in summary form, as follows: 1. An account may not purchase any evidence of indebtedness issued, assumed or guaranteed by any institution created or existing under the laws of the U.S., any U.S. state or territory, District of Columbia, Puerto Rico, Canada or any Canadian province, if such evidence of indebtedness is in default as to interest. "Institution" includes any corporation, joint stock association, business trust, business joint venture, business partnership, savings and loan association, credit union or other mutual savings institution. 2. The stock of a corporation may not be purchased unless (i) the corporation has paid a cash dividend on the class of stock during each of the past five years preceding the time of purchase, or (ii) during the five-year period the corporation had aggregate earnings available for dividends on such class of stock sufficient to pay average dividends of 4% per annum computed upon the par value of such stock, or upon stated value if the stock has no par value. This limitation does not apply to any class of stock which is preferred as to dividends over a class of stock whose purchase is not prohibited. 3. Any common stock purchased must be (i) listed or admitted to trading on a securities exchange in the United States or Canada; or (ii) included in the National Association of Securities Dealers' national price listings of "over-the-counter" securities; or (iii) determined by the Commissioner of Insurance of New Jersey to be publicly held and traded and as to which market quotations are available. As of the date of this Prospectus no such determination has been made. 4. Any security of a corporation may not be purchased if after the purchase more than 10% of the market value of the assets of an Account would be invested in the securities of such corporation. The currently applicable requirements of New Jersey law impose substantial limitations on the ability of VCA-10 to invest in the stock of companies whose securities are not publicly traded or who have not recorded a five-year history of dividend payments or earnings sufficient to support such payments. This means that the Account will not generally invest in the stock of newly organized corporations. Nonetheless, an investment not otherwise eligible under paragraph 1 or 2 above may be made if, after giving effect to the investment, the total cost of all such non-eligible investments does not exceed 5% of the aggregate market value of the assets of the Account. Investment limitations may also arise under the insurance laws and regulations of other states where the Contracts are sold. Although compliance with the requirements of New Jersey law set forth above will ordinarily result in compliance with any applicable laws of other states, under some circumstances the laws of other states could impose additional restrictions on the portfolios of the Accounts. LOANS OF PORTFOLIO SECURITIES VCA-10 and VCA-11 may from time to time lend their portfolio securities to broker-dealers, provided that such loans are made pursuant to written agreements and are continuously secured by collateral in the form of cash, U.S. Government securities or irrevocable standby letters of credit in an amount equal to at least the market value at all times of the loaned securities. During the time portfolio securities are on loan, VCA-10 and VCA-11 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. VCA-10 will not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. The primary risk in lending securities is that the borrower may 4 become insolvent on a day on which the loaned security is rapidly advancing in price. In such event, if the borrower fails to return the loaned securities, the existing collateral might be insufficient to purchase back the full amount of stock loaned, and the borrower would be unable to furnish additional collateral. The borrower would be liable for any shortage, but VCA-10 and VCA-11 would be unsecured creditors 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. VCA-10 and VCA-11 will not lend their portfolio securities to broker-dealers affiliated with Prudential, including Prudential Securities Incorporated. This will not affect the Accounts' ability to maximize their securities lending opportunities. PORTFOLIO TURNOVER RATE VCA-10 has no fixed policy with respect to portfolio turnover, which is an index determined by dividing the lesser of the purchases and sales of portfolio securities during the year by the monthly average of the aggregate value of the portfolio securities owned during the year. VCA-10 seeks long term capital growth rather than short term trading profits. However, during any period when changing economic or market conditions are anticipated, successful management requires an aggressive response to such changes which may result in portfolio shifts that may significantly increase the rate of portfolio turnover. Higher portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which are borne directly by VCA-10. It is not anticipated that under normal circumstances the annual portfolio turnover rate would exceed 100%. During 1994 and 1993 the total portfolio turnover rate for VCA-10 was 31.50% and 45.45%, respectively. PORTFOLIO BROKERAGE AND RELATED PRACTICES Prudential is responsible for decisions to buy and sell securities for VCA-10 and VCA-11, the selection of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any. Transactions on a stock exchange in equity securities for VCA-10 will be executed primarily through brokers who will receive a commission paid by the Account. Fixed income securities, as well as securities traded in the over-the-counter market, on the other hand, will not normally incur any brokerage commissions. These securities are generally traded on a "net" basis with dealers acting as principals for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price that includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain of these securities may be purchased directly from an issuer, in which case neither commissions nor discounts are paid. In placing orders for portfolio transactions of the Accounts, primary consideration is given to obtaining the most favorable price and best execution. An attempt is made to effect each transaction at a price and commission, if any, that provide the most favorable total cost or proceeds reasonably attainable in the circumstances. However, a higher spread or commission than is otherwise necessary for a particular transaction may be paid if to do so appears to further the goal of obtaining the best execution available. In connection with any securities transaction that involves a commission payment, the commission is negotiated with the broker on the basis of the quality and quantity of execution services that the broker provides, in light of generally prevailing commission rates. Periodically, Prudential and PIC review the allocation among brokers of orders for equity securities and the commissions that were paid. When selecting a broker or dealer in connection with a transaction for either Account, consideration is given to whether the broker or dealer has furnished Prudential or PIC with certain services that brokerage houses customarily supply to institutional investors, provided this does not jeopardize the objective of obtaining the best price and execution. These services include statistical and economic data and research reports on particular companies and industries. Prudential and PIC use these services in connection with all of their investment activities, and some of the data or services obtained in connection with the execution of transactions for an Account may be used in managing other investment accounts. Conversely, brokers and dealers furnishing such services may be selected for the execution of transactions of such other accounts, while the data and services may be used in providing investment management for one or both of the Accounts. Although Prudential's present policy is not to permit higher spreads or commissions to be paid on transactions for the Accounts in order to secure research and statistical services from brokers or dealers, Prudential might in the future authorize the payment of higher commissions (but not of higher spreads), with the prior concurrence of an Account's Committee, 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. When investment opportunities arise that may be appropriate for more than one entity for which Prudential serves as investment manager or adviser, one entity will not be favored over another and allocations of investments among them will be made in an impartial manner believed to be equitable to each entity involved. The allocations will be based on each entity's investment objectives and its current cash and investment positions. Because the various entities for which Prudential acts as investment manager or adviser have different investment objectives and positions, from time to time a particular security may be purchased for one or more 5 such entities while at the same time such securities may be sold for another. An affiliated broker may be employed to execute brokerage transactions on behalf of the Accounts as long as the commissions are reasonable and fair compared to the commissions received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time. During 1994, 1993, and 1992, the total dollar amount of commissions paid by VCA-10 to an affiliated broker, Prudential Securities Incorporated, was $-0-, $6,705, and $132, respectively. The Accounts may not engage in any transactions in which Prudential or its affiliates, including Prudential Securities Incorporated, acts as principal, including over-the-counter purchases and negotiated trades in which such a party acts as a principal. Prudential or PIC may enter into business transactions with brokers or dealers for purposes other than the execution of portfolio securities transactions for accounts Prudential manages. These other transactions will not affect the selection of brokers or dealers in connection with portfolio transactions for the Accounts. During 1994, 1993, and 1992, $324,943, $378,737, and $292,910, respectively, was paid to various brokers in connection with securities transactions for VCA-10. Of this amount, approximately 66.57%, 77.4%, and 85.5%, respectively, was allocated to brokers who provided research and statistical services to Prudential. CUSTODY OF SECURITIES Chemical Bank, 4 New York Plaza, New York, NY 10004, is custodian of the equity securities held in VCA-10 and is authorized to use the facilities of the Depository Trust Company (DTC). Morgan Guaranty Trust Company of New York, 23 Wall Street, New York, NY 10015, is custodian of the short-term debt securities, including money market instruments, held in VCA-10 and VCA-11 and is authorized to use the facilities of the Federal Reserve book entry system as well as the DTC. ADDITIONAL INFORMATION ABOUT OPTIONS ON STOCKS, OPTIONS ON STOCK INDICES, STOCK INDEX FUTURES CONTRACTS, AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS. OPTIONS ON EQUITY SECURITIES. VCA-10 may purchase and write (I.E., sell) put and call options on equity securities that are traded on national securities exchanges or that are listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). VCA-10 will write call options on stocks only if they are covered, and such options must remain covered so long as VCA-10 is obligated as a writer. A call option is "covered" if: (1) VCA-10 owns the security underlying the option; or (2) VCA-10 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 held in its portfolio; or (3) VCA-10 holds on a share-for-share basis a call on the same security as the call written where the strike price of the call held is equal to or less than the strike price of the call written or greater than the strike price of the call written if the difference is maintained by VCA-10 in cash, Treasury bills or other liquid high-grade short- term debt obligations in a segregated account with its custodian. VCA-10 will write put options on stocks only if they are covered, and such options must remain covered so long as VCA-10 is obligated as a writer. A put option is "covered" if: (1) VCA-10 holds in a segregated account cash, Treasury bills or other liquid high-grade short-term debt obligations of a value equal to the strike price; or (2) VCA-10 holds on a share-for-share basis a put on the same security 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 VCA-10 in cash, Treasury bills or other liquid high grade short-term debt obligations in a segregated account with its custodian. VCA-10 may 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, VCA-10 acquires the right to sell the underlying security at the strike price of the put regardless of the extent to which the underlying security declines in value. The loss to VCA-10 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 strike price. However, if the market price of the security underlying the put rises, the profit VCA-10 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. VCA-10 may purchase call options for hedging and investment purposes. VCA-10 does not intend to invest more than 5% of its net assets at any one time in the purchase of call options on stocks. If the writer of an 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 option may liquidate his or her position by exercising the option or by effecting a "closing sale transaction," I.E., selling an option of the same series as the option previously purchased. VCA-10 may effect closing sale and purchase transactions. VCA-10 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 6 likely to be offset in whole or in part by appreciation of the underlying equity security owned by VCA-10. There is no guarantee that closing purchase or closing sale transactions can be effected. VCA-10'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 VCA-10'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 VCA-10 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 VCA-10 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 or the exercise of put options. If VCA-10 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 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, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders. However, The Option Clearing Corporation, based on forecasts provided by the U.S. exchanges, believes that its facilities are adequate to handle the volume of reasonably anticipated options transactions, and such exchanges have advised such clearing corporation that they believe their facilities will also be adequate to handle reasonably anticipated volumes. OPTIONS ON STOCK INDICES. VCA-10 will write call options on stock indices only if they are covered, and such options remain covered as long as VCA-10 is obligated as a writer. A call option is covered if VCA-10 follows the segregation requirements set forth in this paragraph. When VCA-10 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. When VCA-10 writes a call 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, VCA-10 will so segregate, escrow or pledge an amount in cash, Treasury bills or other liquid high-grade short-term obligations equal in value to the difference. In addition, when VCA-10 writes a call on an index which is in-the-money at the time the call is written, VCA-10 will segregate with its custodian or pledge to the broker as collateral, cash or U.S. Government or other liquid 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 VCA-10'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 national securities exchange or listed on NASDAQ against which VCA-10 has not written a stock call option and which has not been hedged by VCA-10 by the sale of stock index futures. A 7 call option is also covered and VCA-10 need not follow the segregation requirements set forth in this paragraph if VCA-10 holds a call on the same index as the call written where the strike price of the call held is equal to or less than the strike price of the call written or greater than the strike price of the call written if the difference is maintained by VCA-10 in cash, Treasury bills or other liquid high-grade short-term obligations in a segregated account with its custodian. VCA-10 will write put options on stock indices only if they are covered, and such options must remain covered so long as VCA-10 is obligated as a writer. A put option is covered if: (1) VCA-10 holds in a segregated account cash, Treasury bills or other liquid high-grade short-term debt obligations of a value equal to the strike price times the multiplier times the number of contracts; or (2) VCA-10 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 VCA-10 in cash, Treasury bills or other liquid high-grade short-term debt obligations in a segregated account with its custodian. VCA-10 may purchase put and call options for hedging and investment purposes. VCA-10 does not intend to invest more than 5% of its net assets at any one time in the purchase of puts and calls on stock indices. VCA-10 may effect closing sale and purchase transactions, as described above in connection with options on equity securities. The purchase and sale of options on stock indices will be subject to the same risks as options on equity securities, described above. 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, VCA-10 would not be able to close out options which it had purchased or written and, if restrictions on exercise were imposed, may be unable to exercise an option it holds, which could result in substantial losses to VCA-10. It is the policy of VCA-10 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. Trading in index options commenced in April 1983 with the S&P 100 option (formerly called the "CBOE 100"). Since that time a number of additional index contracts have been introduced, including options on industry indices. Although the markets for certain index option contracts have developed rapidly, the markets for other index options are still relatively illiquid. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop in all index options contracts. VCA-10 will not purchase or sell any index option contract unless and until, in the 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. Price movements in VCA-10'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 VCA-10 bears the risk that the price of the securities held by VCA-10 may not increase as much as the index. In such event, VCA-10 would bear a loss on the call which is not completely offset by movement in the price of VCA-10's equity securities. It is also possible that the index may rise when VCA-10's securities do not rise in value. If this occurred, VCA-10 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 VCA-10'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 VCA-10 has written a call, there is also a risk that the market may decline between the time VCA-10 has a call exercised against it, at a price which is fixed as of the closing level of the index on the date of exercise, and the time VCA-10 is able to sell stocks in its portfolio. As with stock options, VCA-10 will not learn that an index option has been exercised until the day following the exercise date but, unlike a call on stock where VCA-10 would be able to deliver the underlying securities in settlement, VCA-10 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. There are also certain special risks involved in purchasing put and call options on stock indices. If VCA-10 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, VCA-10 will be required to pay the difference between the closing index value and the strike price of the option (times the applicable multiplier) to the assigned writer. Although VCA-10 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. 8 STOCK INDEX FUTURES CONTRACTS. VCA-10 may, to the extent permitted by applicable regulations, attempt to reduce the risk of investment in equity securities by hedging a portion of its equity portfolio 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 is made. No physical delivery of the underlying stocks in the index is made. 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, call "variation margin," will be made on a daily basis as the price of the underlying stock index fluctuates, making the long and short positions in the futures contracts more or less valuable, a process known as "marking to the market." VCA-10 may sell stock index futures to hedge against a decline in the value of equity securities it holds. VCA-10 may also buy stock index futures to hedge against a rise in the value of equity securities VCA-10 intends to acquire. To the extent permitted by federal regulations, VCA-10 may also engage in other types of hedging transactions in stock index futures that are economically appropriate for the reduction of risks inherent in the ongoing management of VCA-10's equity securities. VCA-10's successful use of stock index futures contracts depends upon the investment manager's ability to predict the direction of the market and is subject to various additional risks. The correlation between movement in the price of the stock index future and the price of the securities being hedged is imperfect and the risk from imperfect correlation increases as the composition of VCA-10's securities diverges from the composition of the relevant index. In addition, the ability of VCA-10 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 stock index futures contract at any particular time. Under regulations of the Commodity Futures Trading Commission ("CFTC"), investment companies registered under the Investment Company Act of 1940 are excluded from regulation as commodity pools or commodity pool operators if their use of futures is limited in certain specified ways. VCA-10 will use futures in a manner consistent with the terms of this exclusion. Among other requirements, no more than 5% of VCA-10's assets may be committed as initial margin on futures contracts. OPTIONS ON FUTURES CONTRACTS. VCA-10 may, to the extent permitted by applicable insurance law and federal regulations, enter into certain transactions involving options on stock index 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 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. VCA-10 intends to utilize options on stock index futures contracts for the same purposes that it intends to use the underlying stock index futures contracts. Options on futures contracts are subject to risks similar to those described above and in the prospectus with respect to options on stocks, options on stock indices, and futures contracts. 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, VCA-10 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 VCA-10 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. 9 PERFORMANCE INFORMATION The tables below provide performance information for each variable investment option through December 31, 1994. The performance information is based on historical experience and does not indicate or represent future performance. ANNUAL AVERAGE TOTAL RETURN Table 1 below shows the average annual rates of total return on hypothetical investments of $1,000 for periods ended December 31, 1994 in VCA-10, VCA-11 and the following subaccounts of VCA-24: Bond, Government Securities, Conservatively Managed Flexible, Aggressively Managed Flexible, Stock Index, Common Stock and Global Equity. These figures assume withdrawal of the investments at the end of the period other than to effect an annuity under the Contract. VCA-24 has been in existence since May 1, 1987. However, the applicable underlying Portfolios of the Fund existed as funding vehicles for other Prudential products prior to that date. For performance information purposes, the returns calculated below for periods prior to inclusion in the MEDLEY Program reflect a hypothetical return as if those portfolios were part of the MEDLEY Program at that time, using charges applicable to the MEDLEY Program. TABLE 1 AVERAGE ANNUAL TOTAL RETURN
FROM DATE PORTFOLIO ESTABLISHED THROUGH ONE YEAR FIVE YEARS TEN YEARS 12/31/94 IF PORTFOLIO DATE ENDED ENDED ENDED NOT IN EXISTENCE ESTABLISHED 12/31/94 12/31/94 12/31/94 FOR TEN YEARS ------------ ----------- ----------- ----------- --------------------- VCA-10 8/25/82 -6.99% 9.89% 11.10% VCA-11 8/25/82 -3.57 3.39 5.47 VCA-24: Bond 5/13/83 -10.96 5.83 7.90 Government Securities 5/1/89 -12.87 5.10 6.52% Conservatively Managed 5/13/83 -8.73 6.43 9.34 Flexible Aggressively Managed 5/13/83 -10.91 7.15 10.60 Flexible Stock Index 10/19/87 -6.76 6.08 11.85 Common Stock 5/13/83 -5.05 9.30 13.90 Global Equity 9/19/88 -12.60 2.95 6.83
The average annual rates of total return shown above are computed by finding the average annual compounded rates of return over the periods shown that would equate the initial amount invested to the withdrawal value, in accordance with the following formula: P(1+T)n = ERV. In the formula, P is a hypothetical investment or contribution of $1,000; T is the average annual total return; n is the number of years; and ERV is the withdrawal value at the end of the periods shown. The annual account charge is prorated among the investment options available under MEDLEY, including the Companion Contract, in the same proportions as the aggregate annual contract fees are deducted from each option. These figures assume deduction of the maximum deferred sales charge that may be applicable to a particular period. NON-STANDARD TOTAL RETURN Table 2 below shows the average annual rates of return as in Table 1, but assumes that the contributions or investments are not withdrawn at the end of the period or that the Participant annuitizes at the end of the period. TABLE 2 AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
FROM DATE PORTFOLIO ESTABLISHED THROUGH ONE YEAR FIVE YEARS TEN YEARS 12/31/94 IF PORTFOLIO DATE ENDED ENDED ENDED NOT IN EXISTENCE ESTABLISHED 12/31/94 12/31/94 12/31/94 FOR TEN YEARS ------------ ----------- ----------- ----------- --------------------- VCA-10 8/25/82 0.01% 10.70% 11.25% VCA-11 8/25/82 3.43 4.42 5.71 VCA-24: Bond 5/13/83 -3.96 6.77 8.10
10 Government Securities 5/1/89 -5.87 6.07 7.30% Conservatively Managed 5/13/83 -1.73% 7.34% 9.51% Flexible Aggressively Managed 5/13/83 -3.91 8.04 10.75 Flexible Stock Index 10/19/87 0.24 7.01 12.12% Common Stock 5/13/83 1.95 10.13 Global Equity 9/19/88 -5.60 4.00 7.27
Table 3 shows the cumulative total return for the above investment options, assuming no withdrawal. TABLE 3 CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
FROM DATE PORTFOLIO ESTABLISHED THROUGH ONE YEAR FIVE YEARS TEN YEARS 12/31/94 IF PORTFOLIO DATE ENDED ENDED ENDED NOT IN EXISTENCE ESTABLISHED 12/31/94 12/31/94 12/31/94 FOR TEN YEARS ------------ ----------- ----------- ----------- --------------------- VCA-10 8/25/82 0.01% 66.31% 190.57% VCA-11 8/25/82 3.43 24.15 74.35 VCA-24: Bond 5/13/83 -3.96 38.76 118.05 Government Securities 5/1/89 -5.87 34.27 49.09% Conservatively Managed 5/13/83 -1.73 42.56 148.25 Flexible Aggressively Managed 5/13/83 -3.91 47.25 177.70 Flexible Stock Index 10/19/87 0.24 40.33 128.09 Common Stock 5/13/83 1.95 62.05 271.72 Global Equity 9/19/88 -5.60 21.66 55.45
VCA-11 YIELD The "yield" and "effective yield" of VCA-11 for the seven days ended December 31, 1994 were 4.93% and 5.05%, respectively. The yield is computed by determining the net change, exclusive of capital changes, in the value of a hypothetical preexisting account having a balance of one accumulation unit of VCA-11 at the beginning of the period, subtracting a prorated portion of the annual account charge as explained above, and dividing the difference by the value of the account at the beginning of the base period, and then multiplying the base period by (365/7), with the resulting figure carried to the nearest hundred of 1%. The yield reflects the deduction of the 1% charge for administrative expenses and investment management, but does not reflect the deferred sales charge. The effective yield is obtained by taking the base period return, adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to following formula: Effective Yield = [(base period return + 1)365/7] - 1. The yields on amount held in VCA-11 will fluctuate on a daily basis. Therefore, the stated yields for any given period are not an indication of future yields. 11 THE VCA-10 AND VCA-11 COMMITTEES VCA-10 is managed by The Prudential Variable Contract Account-10 Committee ("VCA-10 Committee"). VCA-11 is managed by The Prudential Variable Contract Account-11 Committee ("VCA-11 Committee"). The members of each Committee are elected by the persons having voting rights in respect of each Account. The affairs of each Account are conducted in accordance with the Rules and Regulations of the Account. The members of each Account's Committee, the Account's Secretary and Assistant Secretaries and the principal occupation of each during the past five years are shown below. VCA-10 COMMITTEE MARK R. FETTING*, CHAIRMAN AND MEMBER OF THE COMMITTEE--President & Chief Operating Officer, Prudential Institutional Fund Management, Inc. (an indirect subsidiary of Prudential) since 5/92; President, Prudential Defined Contribution Services (a unit of PAMCO) since 4/92; Vice President, PIC since 10/91; Vice President, Prudential since 10/91. Investment Management Consultant from 9/89 to 9/91; Partner, Greenwich Associates from 2/88 to 9/89; President, Review Management Corp. from 2/87 to 12/87; Vice President, T. Rowe Price Associates, Inc. from 4/83 to 1/87. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. SAUL K. FENSTER, MEMBER OF THE COMMITTEE--President, New Jersey Institute of Technology (education). Address: 323 Martin Luther King Jr. Boulevard, Newark, New Jersey 07102. MARY C. GENCHER, MEMBER OF THE COMMITTEE--Retired since 5/77; prior to 5/77, President and Chief Executive Officer of Lexol Corporation (leather conditioner manufacturer). Address: 143 Oval Road, Essex Fells, New Jersey 07021. JAMES H. SCOTT, JR.*, MEMBER OF THE COMMITTEE--Chief Executive Officer, Prudential Diversified Investment Strategies (PDI), an investment unit of PIC, since 1/94 and President, PTC Services, Inc. (a Prudential subsidiary) since 8/91. Managing Director, PDI, since 12/87. Mr. Scott is also a Second Vice President of Prudential. Address: 51 JFK Parkway, Short Hills, New Jersey 07078. JOSEPH WEBER, MEMBER OF THE COMMITTEE--Vice President, Interclass (international corporate learning) since 10/90. President, Alliance for Learning from 3/88 to 10/90. Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006. THOMAS A. EARLY, SECRETARY TO THE COMMITTEE--Vice President and General Counsel, Prudential Defined Contribution Services since 4/94. Associate General Counsel, Frank Russell Company from 1988 to 1994. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. ROSANNE J. BARUH, ASSISTANT SECRETARY TO THE COMMITTEE--Assistant General Counsel of Prudential since 11/86. Address: Prudential Plaza, Newark, New Jersey 07102. C. CHRISTOPHER SPRAGUE, ASSISTANT SECRETARY TO THE COMMITTEE--Assistant General Counsel, Prudential Defined Contribution Services since 12/94. Staff Attorney and Senior Counsel, U.S. Securities and Exchange Commission from 9/88 to 11/94. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. MICHAEL G. WILLIAMSON, ASSISTANT SECRETARY TO THE COMMITTEE--Director, Prudential Defined Contribution Services, since 11/93. Manager, Prudential Defined Contribution Services from 10/88 to 11/93. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. VCA-11 COMMITTEE MARK R. FETTING*, CHAIRMAN AND MEMBER OF THE COMMITTEE--President & Chief Operating Officer, Prudential Institutional Fund Management, Inc. (an indirect subsidiary of Prudential) since 5/92; President, Prudential Defined Contribution Services (a unit of PAMCO) since 4/92; Vice President, PIC since 10/91; Vice President, Prudential since 10/91. Investment Management Consultant from 9/89 to 9/91; Partner, Greenwich Associates from 2/88 to 9/89; President, Review Management Corp. from 2/87 to 12/87; Vice President, T. Rowe Price Associates, Inc. from 4/83 to 1/87. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. MARY C. GENCHER, MEMBER OF THE COMMITTEE--Retired since 5/77; prior to 5/77, President and Chief Executive Officer of Lexol Corporation (leather conditioner manufacturer). Address: 143 Oval Road, Essex Fells, New Jersey 07021. W. SCOTT McDONALD, JR., MEMBER OF THE COMMITTEE--Executive Vice President, Fairleigh Dickinson University since 9/91; prior to 9/91, Executive Vice President, Drew University. Address: 23 Forest Road, Madison, New Jersey 07940. JAMES H. SCOTT, JR.*, MEMBER OF THE COMMITTEE--Chief Executive Officer, Prudential Diversified Investment Strategies (PDI), an investment unit of PIC, since 1/94 and President, PTC Services, Inc. ( a Prudential subsidiary) since 8/91. 12 Managing Director, PDI, since 12/87. Mr. Scott is also a Second Vice President of Prudential. Address: 51 JFK Parkway, Short Hills, New Jersey 07078. JOSEPH WEBER, MEMBER OF THE COMMITTEE--Vice President, Interclass (international corporate learning) since 10/90. President, Alliance for Learning from 3/88 to 10/90. Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006. THOMAS A. EARLY, SECRETARY TO THE COMMITTEE--Vice President and General Counsel of Prudential Defined Contribution Services since 4/94. Associate General Counsel, Frank Russell Company from 1988 to 1994. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. ROSANNE J. BARUH, ASSISTANT SECRETARY TO THE COMMITTEE--Assistant General Counsel of Prudential since 11/86. Address: Prudential Plaza, Newark, New Jersey 07102. C. CHRISTOPHER SPRAGUE, ASSISTANT SECRETARY TO THE COMMITTEE--Assistant General Counsel, Prudential Defined Contribution Services since 12/94. Staff Attorney and Senior Counsel, U.S. Securities and Exchange Commission from 9/88 to 11/94. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. MICHAEL G. WILLIAMSON, ASSISTANT SECRETARY TO THE COMMITTEE--Director, Prudential Defined Contribution Services, since 11/93; Manager, Prudential Defined Contribution Services from 10/88 to 11/93. Address: 30 Scranton Office Park, Moosic, Pennsylvania 18507. *These members of the VCA-10 and VCA-11 Committees are interested persons of Prudential, its affiliates or those Accounts as defined in the 1940 Act. Certain actions of each Committee, including the annual continuance of the investment management agreement between each Account and Prudential, must be approved by a majority of the members of each Committee who are not interested persons of Prudential, its affiliates or the Account. Messrs. Fetting and Scott, members of both Committees, are interested persons of Prudential and the Accounts, as that term is defined in the 1940 Act, because they are officers of Prudential, the investment manager of both Accounts. Mrs. Gencher and Doctors Fenster, McDonald and Weber are not interested persons of Prudential, its affiliates or of either Account. However, Dr. Fenster is President of the New Jersey Institute of Technology; Prudential has issued a group annuity contract to the Institute and provides group life and health insurance to its employees. REMUNERATION OF MEMBERS OF THE COMMITTEES AND CERTAIN AFFILIATED PERSONS No member of the Committee of either VCA-10 or VCA-11 nor any other person (other than Prudential) receives remuneration from an Account. Prudential pays certain of the expenses relating to the operation of VCA-10 and VCA-11, including all compensation paid to members of each Committee, its Chairman, its Secretary and Assistant Secretaries. No member of either Account's Committee, its Chairman, its Secretary or Assistant Secretaries who is also an officer, Director or employee of Prudential or an affiliate of Prudential is entitled to any fee for his services as a member or officer of the Committee. 13 DIRECTORS AND OFFICERS OF PRUDENTIAL The names of all Directors and certain officers of Prudential and the positions and offices and principal occupation of each during the past five years are shown below. The Contract-holder under each Contract will be entitled to one vote for the election of Prudential Directors. Participants will not be entitled to vote. DIRECTORS FRANKLIN E. AGNEW, DIRECTOR since 1994 (current term expires April, 2000). Member, Committee on Dividends; Member, Finance Committee. Business consultant since 1987. Senior Vice President H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb Inc. and John Wiley & Sons, Inc. Age 60. Address: One Mellon Bank Center, Suite 2120, Pittsburgh, PA 15129. FREDERICK K. BECKER, DIRECTOR since 1994 (current term expires April, 1999). Member, Auditing Committee, Member, Committee on Business Ethics. President, Wilentz Goldman and Spitzer (law firm) since 1989, with firm since 1960. Age 59. Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095. WILLIAM W. BOESCHENSTEIN, DIRECTOR since 1982 (current term expires April, 1997). Chairman, Executive Committee; Member, Auditing Committee. Retired since 1990. Chairman of the Board and Chief Executive Officer, Owens-Corning Fiberglas Corporation from 1981 to 1990. Mr. Boeschenstein is also a director of FMC Corp. and Owens-Corning Fiberglas Corporation. Age 69. Address: Fiberglas Tower, Toledo, OH 43659. LISLE C. CARTER, JR., DIRECTOR since 1987 (current term expires April, 1997). Chairman, Committee on Nominations; Member Executive Committee; Member Finance Committee. Retired since 1991. Senior Vice President and General Counsel, United Way of America from 1988 to 1991. Age 69. Address: 1307 Fourth Street, S.W., Washington, DC 20024. JAMES G. CULLEN, DIRECTOR since 1994 (current term expires April, 2001). Member, Compensation Committee; Member, Committee on Business Ethics. President, Bell Atlantic Corporation since 1993. President New Jersey Bell 1989-1993. Mr. Cullen is also a director of First Fidelity Bancorporation. Age 52. Address: 1310 North Court House Road, 11th Floor, Alexandria, VA 22201. CAROLYNE K. DAVIS, DIRECTOR since 1989 (current term expires April, 1997). Member, Finance Committee; Member Committee on Business Ethics; Member, Compensation Committee. Health Care Advisor, Ernst & Young since 1985. Dr. Davis is also a director of Merck & Co., Inc., Beckman Instruments, Inc., Pharmaceutical Marketing Services, Inc. and Science Applications International. Age 63. Address: 1200 Nineteenth Street, N.W., Washington, DC 20036. ROGER A. ENRICO, DIRECTOR since 1994 (current term expires April, 1998). Member, Committee on Nominations; Member, Compensation Committee. Vice Chairman, Pepsi Co. Inc. since 1993. Chairman and CEO, Pepsi Co. Worldwide Food, from 1991 to 1993. President and CEO, Pepsi Co. Worldwide Beverage from 1986-1991. Mr. Enrico is also a director of Dayton Hudson Corporation. Age 50. Address: 7701 Legacy Drive, Plano, TX, 75024. ALLAN D. GILMOUR, DIRECTOR since 1995 (current term expires April, 1999). Retired since 1995. Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally joined Ford in 1960. Mr. Gilmour is also a director of USWest, Inc. and Whirlpool Corporation. Age 60. Address: 751 Broad Street, Newark, NJ 07102. WILLIAM H. GRAY, III, DIRECTOR since 1991 (current term expires April, 1996). Member, Finance Committee; Member, Committee on Nominations. President and Chief Executive Officer, United Negro College Fund, Inc. since 1991. Mr. Gray served in Congress from 1979 to 1991. Mr. Gray is also a director of Warner-Lambert Co., Chase Manhattan Corp., Municipal Bond Investors Assurance Corp., Westinghouse Electric Corp., Union Pacific Corp., Lotus Development Corp., Scott Paper Company and Rockwell International Corp. Age 53. Address: 500 East 62nd Street, New York, NY 10021. JON F. HANSON, DIRECTOR since 1991 (current term expires April, 1997). Member, Finance Committee; Member, Committee on Dividends. Chairman, Hampshire Management Co. since 1976. Mr. Hanson is also a director of New Jersey Bell, Wickes Lumber Co. and United Water Resources. Age 58. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601. CONSTANCE J. HORNER, DIRECTOR since 1994 (current term expires April, 1998). Member, Auditing Committee; Member, Committee on Nominations. Guest Scholar, The Brookings Institution since 1993. Assistant to the President and Director of Presidential Personnel, U.S. Government, 1991-1992. Deputy Secretary, Department of Health & Human Services from 1989 to 1991. Ms. Horner is also a director of Pfizer, Inc. and Ingersoll-Rand Company. Age 53. Address: 1775 Massachusetts Ave., N.W. Washington, D.C. 20036-2188. 14 DIRECTORS (CONTINUED) ALLEN F. JACOBSON, DIRECTOR since 1992 (current term expires April, 1997). Member, Auditing Committee; Member Compensation Committee. Retired since 1991. Chairman of the Board and Chief Executive Officer, Minnesota Mining & Manufacturing Co. from 1986 to 1991. Mr. Jacobson is also a director of Abbott Laboratories, Alliant Techsystems, Inc., Deluxe Corp., Northern States Power Co., Silicon Graphics, Inc., Valmont Industries, 3M, Mobil Corporation, U.S. West, Inc., Sara Lee Corporation and Potlatch Corporation. Age 68: Address: 30 Seventh Street East, St. Paul, MN 55101-4901. GARNETT L. KEITH, JR., DIRECTOR since 1984 (current term expires April, 1999). Vice Chairman of Prudential since 1984. Mr. Keith is also a director of Super Valu Stores, Inc., AEA Investors, Inc., and Pan-Holding, Societe Anonyme. Age 59. Address: 751 Broad Street, Newark, NJ 07102-3777. BURTON G. MALKIEL, DIRECTOR since 1978 (current term expires April, 1998). Chairman, Finance Committee; Member, Executive Committee; Member, Committee on Nominations. Chemical Bank Chairman's Professor of Economics, Princeton University, since 1988. Dr. Malkiel is also a director of The Jeffrey Co., Vanguard Group, Inc., Amdahl Corp., Baker Fentress & Co., and Southern New England Telecommunications Co. Age 62. Address: 110 Fisher Hall, Prospect Avenue, Princeton University, Princeton, NJ 08544-1021. JOHN R. OPEL, DIRECTOR since 1984 (current term expires April, 1996). Chairman, Committee on Dividends; Member, Compensation Committee; Member, Committee on Dividends; Member Executive Committee; Member Finance Committee. Retired Chairman, International Business Machines Corporation since 1986. Chairman of the Executive Committee, IBM, from 1986 to 1993. Mr. Opel is also a director of Pfizer, Inc. Age 70. Address: 590 Madison Avenue, New York, NY 10022. ARTHUR F. RYAN, Chairman of the Board, President and Chief Executive Officer of Prudential since 1994. President and Chief Operating Officer, Chase Manhattan Corp. from 1990 to 1994, with Chase since 1972. Age 52. Address: 751 Broad Street, Newark, NJ 07102-3777. CHARLES R. SITTER, DIRECTOR since 1995 (current term expires April, 1999). President, Exxon Corporation since 1993. Mr. Sitter began his career with Exxon in 1957; he is currently a director of Exxon. Age 64. Address: 225 John W. Carpenter Freeway, Irving, TX 75062. DONALD L. STAHELI, DIRECTOR since 1995 (current term expires April, 1999). Chairman and Chief Executive Officer, Continental Grain Company since 1994. Mr. Staheli was Chairman of Continental Grain from 1988 to 1994. Age 63. Address: 277 Park Avenue, New York, NY 10172. RICHARD M. THOMSON, DIRECTOR since 1976 (current term expires April, 1996). Chairman, Compensation Committee; Member, Committee on Nominations, Member, Executive Committee. Chairman of the Board and Chief Executive Officer, The Toronto-Dominion Bank since 1978. Mr. Thomson is also a director of CGC, Inc., Eaton's of Canada, Ltd., INCO, Ltd., The Thomson Corp., S.C. Johnson & Son, Ltd., TEC Leaseholds Limited. Age 61. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K 1A2, Canada. P. ROY VAGELOS, M.D., DIRECTOR since 1989 (current term expires April, 1997). Chairman, Auditing Committee; Member, Committee on Dividends; Member, Executive Committee. Chairman, Regeneron Pharmaceuticals since 1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994. Dr. Vagelos is also a director of Pepsi Co., Inc. and McDonnell Douglas Corp. Age 65. Address: 126 East Lincoln Avenue, Rahway, NJ 07065. STANLEY C. VAN NESS, DIRECTOR since 1990 (current term expires April, 1996). Chairman, Committee on Business Ethics; Member, Auditing Committee; Member, Executive Committee. Attorney, Picco Mack Herbert Kennedy Jaffe Perrella and Yoskin (law firm) from 1990. Partner of Jamieson, Moore, Peskin & Spicer from 1984 to 1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company. Age 61. Address: One State Street Square, Suite 1000, Trenton, NJ 08607-1388. PAUL A. VOLCKER, DIRECTOR since 1988 (current term expires April, 1996). Member, Committee on Dividends; Member, Committee on Nominations. Chairman, James D. Wolfensohn, Inc. since 1988; Chairman, J. Rothschild, Wolfensohn & Co. since 1992. Mr Volcker is also a director of Fuji-Wolfensohn International, Nestle, S.A., Imperial Chemical Industries, PLC, Municipal Bond Investors Assurance Corp., UAL Corp. and the Board of Governors, American Stock Exchange. Age 67. Address: 599 Lexington Avenue, New York, NY 10022. JOSEPH H. WILLIAMS, DIRECTOR since 1994 (current term expires April, 1998). Member, Auditing Committee; Member, Committee on Dividends. Chairman of the Board, The Williams Companies since 1994. Chairman & Chief Executive Officer, The Williams Companies 1979-1993. Age 61. Address: P.O. Box 2400, Tulsa, OK 74102. 15 EXECUTIVE OFFICERS OF PRUDENTIAL ARTHUR F. RYAN, CHAIRMAN, CHIEF EXECUTIVE OFFICER, AND PRESIDENT since 1994; 1990-94 President and Chief Operating Officer, Chase Manhattan Corp. Age 52. GARNETT L. KEITH, JR., VICE CHAIRMAN since 1984. Age 59. WILLIAM P. LINK, EXECUTIVE VICE PRESIDENT since 1990; 1987-90: Senior Vice President. Age 48. EUGENE B. HEIMBERG, EXECUTIVE VICE PRESIDENT since 1994; 1987-94; Senior Vice President. Age 61. ROBERT P. HILL, EXECUTIVE VICE PRESIDENT since 1990. Age 54. ERIC A. SIMONSON, EXECUTIVE VICE PRESIDENT since 1994; 1989-94 Senior Managing Director. Age 49. WILLIAM M. BETHKE, SENIOR VICE PRESIDENT since 1986. Age 47. STEPHEN R. BRASWELL, SENIOR VICE PRESIDENT since 1983. Age 55. JOHN D. BROOKMEYER, SENIOR VICE PRESIDENT since 1988. Age 52. E. MICHAEL CAULFIELD, SENIOR VICE PRESIDENT since 1992; 1989-92 Managing Director. Age 48. ROBERT M. CHMELY, SENIOR VICE PRESIDENT since 1988. Age 60. MARTHA CLARK GOSS, SENIOR VICE PRESIDENT since 1993; 1989-93; Vice President. Age 45. WILLIAM D. FRIEL, SENIOR VICE PRESIDENT since 1993; 1988-92: Vice President. Age 55. JAMES R. GILLEN, SENIOR VICE PRESIDENT AND GENERAL COUNSEL since 1984. Age 57. BRUCE J. GOODMAN, SENIOR VICE PRESIDENT since 1993; 1992-93 Senior Vice President, Metropolitan Life; 1977-91 Vice President, Metropolitan Life. Age 53. NICHOLAS M. GRAVES, SENIOR VICE PRESIDENT since 1988. Age 54. SAMUEL H. HAVENS, SENIOR VICE PRESIDENT since 1989; 1985-89: Vice President. Age 51. MILAN E. JOHNSON, SENIOR VICE PRESIDENT since 1992; 1987-92: Vice President. Age 57. IRA J. KLEINMAN, SENIOR VICE PRESIDENT since 1992; 1978-92: Vice President. Age 47. DONALD C. MANN, SENIOR VICE PRESIDENT since 1990; 1985-90: Vice President. Age 52. JOHN P. MURRAY, SENIOR VICE PRESIDENT since 1984. Age 58. EUGENE M. O'HARA, SENIOR VICE PRESIDENT AND COMPTROLLER since 1982. Age 57. I. EDWARD PRICE, SENIOR VICE PRESIDENT SINCE 1993; 1990-93; Senior Vice President and Company Actuary. 1986-90: Senior Vice President. Age 52. DONALD G. SOUTHWELL, SENIOR VICE PRESIDENT since 1989. Age 43. JOSEPH V. TARANTO, SENIOR VICE PRESIDENT since 1994; 1986-94 President, Transatlantic Holdings. Age 46. MARTIN PFINSGRAFF, VICE PRESIDENT AND TREASURER since 1991; 1989-91: Managing Director, Corporate Finance. Age 40. DOROTHY K. LIGHT, VICE PRESIDENT AND SECRETARY since 1987. Age 57. 16 SALE OF THE CONTRACTS Prudential offers the Contracts on a continuous basis through Corporate Office, regional home office and group sales office employees in those states in which the Contracts may be lawfully sold. It may also offer the Contracts through licensed insurance brokers and agents, or through appropriately registered direct or indirect subsidiary(ies) of Prudential, provided clearances to do so are obtained in any jurisdiction where such clearances may be necessary. Prudential is registered with the Commission under the Securities Exchange Act of 1934 as a broker-dealer. During 1994, 1993, and 1992, Prudential received $24,016 $17,485, and $18,198, respectively, as deferred sales charges from VCA-10. $280,494, $82,543, and $59,050, respectively, were credited to other broker-dealers for the same periods in connection with sales of the contracts. During 1994, 1993, and 1992, Prudential received $16,777, $10,159, and $7,396, respectively, from VCA-11 as deferred sales charges and credited $56,437, $26,232, and $29,639, respectively, to other broker-dealers in connection with sales of the contracts. During 1994, 1993, and 1992, Prudential received $62,145, $46,085, and $31,972 from VCA-24 as deferred sales charges and credited $1,053,343, $373,022, and $211,713 re- spectively to other broker-dealers in connection with sales of the contracts. EXPERTS The financial statements for VCA-10, VCA-11 and VCA-24 included in this Statement of Additional Information and the condensed financial information for VCA-10 and VCA-11 in the Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and the financial statements have been included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche's business address is Two Hilton Court, Parsippany, New Jersey 07054-0319. Financial Statements for VCA-10, VCA-11, VCA-24 and Prudential, all as of December 31, 1994, are included in this Statement of Additional Information, beginning at page 18. 17 VCA-10 REPORT OF MANAGEMENT (FROM THE 1994 MEDLEY REPORT TO PARTICIPANTS) The accompanying financial statements and all information in the annual report are the responsibility of management of The Prudential Insurance Company of America (The Prudential). These financial statements have been prepared in accordance with generally accepted accounting principles, and necessarily include amounts based on best estimates and judgments. Information presented in one section of the annual report is consistent with information dealing with the same or substantially similar subject matter presented elsewhere in the annual report. The system of internal controls for VCA-10 is an integral part of that for The Prudential. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with proper authorization. The concept of reasonable assurance is based on the premise that the cost of internal controls should not exceed the benefits derived. In addition, The Prudential maintains a professional staff of internal auditors who monitor VCA-10's control structure through periodic reviews and tests of the control aspects of accounting, financial and operating activities. The internal auditors coordinate their program with that of the independent certified public accountants. The financial statements have been audited by Deloitte & Touche LLP, Certified Public Accountants. The Independent Auditors' Report, which appears in this annual report, expresses an independent professional opinion on the fairness of presentation, in all material respects, of management's financial statements. The auditors review VCA-10's financial and accounting controls and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Prudential's Board of Directors, through its Auditing Committee, and the VCA-10 Committee monitor management's fulfillment of its responsibilities for accurate accounting, statement preparation and protection of assets. The Auditing Committee is composed solely of outside directors and the VCA-10 Committee has a majority of outside members. Both The Prudential's Auditing Committee and the outside members of the VCA-10 Committee meet with the independent certified public accountants, management and internal auditors periodically to evaluate each party's execution of their respective responsibilities. Each has free and separate access to the Auditing and VCA-10 Committees to discuss accounting, financial reporting, internal control and auditing matters. Mark R. Fetting Chairman VCA-10 Committee Eugene M. O'Hara Chief Financial Officer The Prudential Insurance Company of America 18 VCA-10 INDEPENDENT AUDITORS' REPORT TO THE COMMITTEE OF AND PERSONS PARTICIPATING IN THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10: We have audited the accompanying statement of net assets of The Prudential Variable Contract Account-10 of The Prudential Insurance Company of America as of December 31, 1994, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the condensed financial information for each of the five years in the period then ended. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1994, by correspondence with the custodians and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and condensed financial information present fairly, in all material respects, the financial position of The Prudential Variable Contract Account-10 as of December 31, 1994, the results of its operations, the changes in its net assets and the condensed financial information for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Parsippany, New Jersey February 16, 1995 19 FINANCIAL STATEMENTS OF VCA-10 STATEMENT OF NET ASSETS DECEMBER 31, 1994
COMMON STOCK INVESTMENTS [NOTE 2] SHARES MARKET VALUE - -------------------------------------------------------------------- AEROSPACE/DEFENSE (2.6%) Gen Corp. 137,700 $ 1,635,187 General Motors Corp.(Class 'H' Stock) 67,000 2,336,625 Littelfuse, Inc.+ 48,000 1,404,000 Litton Industries, Inc.+ 42,000 1,554,000 ------------ 6,929,812 - --------------------------------------------------- AUTOS & TRUCKS (2.8%) Automotive Industries Holding, Inc.+ 120,000 2,430,000 Ford Motor Co. 70,000 1,951,250 General Motors Corp. 23,300 981,512 Modine Manufacturing Co. 70,000 2,012,500 ------------ 7,375,262 - --------------------------------------------------- CHEMICALS (1.9%) Imperial Chemical Industries (ADRs) 76,600 3,561,900 W. R. Grace & Co. 42,000 1,622,250 ------------ 5,184,150 - --------------------------------------------------- COMMERCIAL SERVICES (0.7%) Banner Aerospace, Inc.+ 272,500 1,226,250 UNC, Inc.+ 127,600 765,600 ------------ 1,991,850 - --------------------------------------------------- COMPUTER SOFTWARE & SERVICES (1.9%) General Motors Corp. (Class 'E' Stock) 70,000 2,686,250 National Data Corp. 97,900 2,520,925 ------------ 5,207,175 - --------------------------------------------------- CONSUMER CYCLICAL INDICES (0.1%) Florsheim Shoe Company+ 27,200 153,000 - --------------------------------------------------- CONSUMER SERVICES (1.8%) ADT Ltd.+ 126,500 1,359,875 Diebold, Inc. 87,250 3,588,156 ------------ 4,948,031 - --------------------------------------------------- CONTAINERS & PACKAGING (1.8%) Aptargroup, Inc. 18,000 517,500 Ball Corp. 72,000 2,268,000 Owens-Illinois, Inc. (New)+ 120,400 1,324,400 Seda Specialty Packaging+ 60,100 706,175 ------------ 4,816,075 - --------------------------------------------------- COSMETICS & SOAPS (0.6%) Bush Boake Allen, Inc.+ 63,000 1,701,000 - --------------------------------------------------- DIVERSIFIED CONSUMER PRODUCTS (2.4%) Eastman Kodak Co. 76,400 3,648,100 Whitman Corp. 163,400 2,818,650 ------------ 6,466,750 - --------------------------------------------------- COMMON STOCK INVESTMENTS [NOTE 2] SHARES MARKET VALUE - -------------------------------------------------------------------- DRUGS & MEDICAL SUPPLIES (5.8%) Gelman Sciences, Inc.+ 67,700 $ 1,007,037 Schering Plough Corp. 57,400 4,247,600 Sterile Concepts Holdings+ 126,800 2,028,800 Warner Lambert Co. 46,000 3,542,000 Zeneca Group PLC (ADRs) 113,166 4,653,952 ------------ 15,479,389 - --------------------------------------------------- ELECTRICAL EQUIPMENT (1.8%) Belden, Inc. 108,800 2,407,200 Cable Design Technologies+ 144,200 2,379,300 ------------ 4,786,500 - --------------------------------------------------- ELECTRONICS (1.5%) Marshall Industries+ 61,400 1,642,450 Methode Electronics, Inc. 145,000 2,465,000 ------------ 4,107,450 - --------------------------------------------------- ENGINEERING & CONSTRUCTION (0.7%) Giant Cement Holding, Inc.+ 150,000 1,781,250 - --------------------------------------------------- EXPLORATION & PRODUCTION (4.0%) Basin Exploration, Inc.+ 115,100 1,266,100 Cabot Oil & Gas Corp. 120,000 1,740,000 Enron Oil & Gas 21,000 393,750 Mesa Incorporated+ 179,200 873,600 Murphy Oil Corp. 48,000 2,040,000 Oryx Energy Co.+ 200,600 2,382,125 Parker & Parsley Petroleum Co. 38,600 791,300 Seagull Energy Corp.+ 59,200 1,132,200 ------------ 10,619,075 - --------------------------------------------------- FINANCIAL SERVICES (4.6%) American Express Co. 67,600 1,994,200 Dean Witter Discover & Co. 110,300 3,736,413 Financial Security Assurance Holdings Ltd. 56,800 1,192,800 ITT Corp. 29,800 2,641,025 Safecard Services, Inc. 150,000 2,831,250 ------------ 12,395,688 - --------------------------------------------------- FOODS (0.2%) Universal Foods Corp. 22,800 627,000 - --------------------------------------------------- FOOD/DRUG RETAIL (0.6%) Rite Aid Corp. 70,000 1,636,250 - --------------------------------------------------- FOREST PRODUCTS (1.8%) Mead Corp. 97,000 4,716,625 - ---------------------------------------------------
20 FINANCIAL STATEMENTS OF VCA-10 STATEMENT OF NET ASSETS DECEMBER 31, 1994
COMMON STOCK INVESTMENTS [NOTE 2] SHARES MARKET VALUE - -------------------------------------------------------------------- HOSPITAL MANAGEMENT (5.1%) Community Health Systems+ 127,500 $ 3,474,375 Healthtrust, Inc.+ 155,900 4,949,825 National Medical Enterprises+ 365,000 5,155,625 ------------ 13,579,825 - --------------------------------------------------- HOUSING RELATED (3.0%) Leggett & Platt, Inc. 27,100 948,500 Mueller Industries, Inc.+ 90,700 2,709,663 Owens Corning Fiberglass Corp. (New)+ 60,000 1,912,500 Ply-Gem Industries, Inc. 125,200 2,394,450 ------------ 7,965,113 - --------------------------------------------------- INSURANCE (7.5%) Emphesys Financial Group 62,800 1,993,900 Equitable of Iowa Companies 85,000 2,401,250 Life Reinsurance 53,800 948,225 NAC Re Corp. 53,600 1,795,600 National Re Corp. 74,400 1,953,000 Provident Life & Accident Insurance (Class 'B' Stock) 79,500 1,729,125 Reinsurance Group of America 31,500 775,688 TIG Holdings, Inc. 114,000 2,137,500 Trenwick Group, Inc. 50,000 2,118,750 Western National Corp. 185,000 2,381,875 W. R. Berkley Corp. 48,000 1,800,000 ------------ 20,034,913 - --------------------------------------------------- INTEGRATED PRODUCERS (0.6%) Societe Nat Elf Aquitane (ADRs)+ 44,490 1,568,273 - --------------------------------------------------- LODGING/GAMING (1.1%) Caesars World, Inc.+ 46,300 3,090,525 - --------------------------------------------------- MACHINERY (6.0%) Applied Power Co. (Class 'A' Stock) 112,500 2,854,687 Donaldson, Inc. 100,000 2,389,060 Idex Corp.+ 70,000 2,957,500 Indresco, Inc.+ 190,000 2,707,500 Kaydon Corp. 81,400 1,953,600 Parker Hannifan Corp. 16,000 728,000 Regal Beloit Corp. 186,400 2,539,700 ------------ 16,130,047 - --------------------------------------------------- COMMON STOCK INVESTMENTS [NOTE 2] SHARES MARKET VALUE - -------------------------------------------------------------------- MEDIA (7.8%) American Publishing Co. (Class 'A' Stock) 136,400 $ 1,500,400 Comcast Corp. (Class 'A' Stock) 75,000 1,153,125 Comcast Corp. Special (Class 'A' Stock) 37,500 588,281 Harcourt General, Inc. 40,800 1,438,200 Lee Enterprises 80,000 2,760,000 Pulitzer Publishing Co. 24,800 995,100 Scripps (EW) Co. (Class 'A' Stock) 45,000 1,361,250 Tele-Communications, Inc. (New) (Class 'A' Stock)+ 170,000 3,697,500 Time Warner, Inc. 115,000 4,039,375 Times Mirror Co. Ser A 104,200 3,269,275 ------------ 20,802,506 - --------------------------------------------------- MISCELLANEOUS-INDUSTRIAL (9.4%) Ametek, Inc. 126,400 2,133,000 BW/IP, Inc. 43,700 748,362 Coltec Industries, Inc.+ 64,600 1,106,275 Danaher Corp. 35,400 1,849,650 Itel Corp. (New)+ 40,500 1,402,313 Jason, Inc.+ 167,900 1,511,100 Mark IV Industries, Inc. 113,300 2,237,675 Material Sciences Corp.+ 150,000 2,381,250 Pentair, Inc. 100,000 4,275,000 Rockwell International Corp. 39,800 1,422,850 Varlen Corp. 86,250 2,242,500 Welbilt Corp.+ 63,000 2,102,625 Wolverine Tube, Inc.+ 76,800 1,824,000 ------------ 25,236,600 - --------------------------------------------------- MONEY CENTER BANKS (1.0%) First Interstate Bancorp 40,000 2,705,000 - --------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES (0.9%) Wallace Computer Services 85,100 2,467,900 - --------------------------------------------------- RAILROADS (2.1%) Chicago & Northwestern Transp.+ 50,000 975,000 Greenbrier Companies, Inc. 140,600 2,319,900 Illinois Central Corp. 73,600 2,263,200 ------------ 5,558,100 - --------------------------------------------------- REGIONAL BANKS (5.3%) Cullen Frost Bankers, Inc. 75,000 2,315,625 First Bank System, Inc. 111,900 3,715,427 Keycorp (New) 150,625 3,765,625 Norwest Corp. 190,900 4,462,287 ------------ 14,258,964 - ---------------------------------------------------
21 FINANCIAL STATEMENTS OF VCA-10 STATEMENT OF NET ASSETS DECEMBER 31, 1994
COMMON STOCK INVESTMENTS [NOTE 2] SHARES MARKET VALUE - -------------------------------------------------------------------- RESTAURANTS (1.7%) CKE Restaurants, Inc. 57,200 $ 393,250 Morrison Restaurants, Inc. 73,400 1,798,300 Sbarro, Inc. 90,000 2,340,000 ------------ 4,531,550 - --------------------------------------------------- RETAIL (2.0%) Ethan Allen Interiors, Inc.+ 50,000 1,212,500 Haverty Furniture, Inc. 99,000 1,163,250 K Mart Corp. 79,800 1,037,400 Sears Roebuck & Co. 40,000 1,840,000 ------------ 5,253,150 - --------------------------------------------------- SPECIALTY CHEMICALS (2.8%) Ferro Corp. 134,800 3,218,350 M.A. Hanna Co. 88,100 2,092,375 OM Group, Inc. 89,000 2,136,000 ------------ 7,446,725 - --------------------------------------------------- TELECOMMUNICATION SERVICES (3.5%) Airtouch Communication, Inc.+ 33,500 975,688 Century Telephone Enterprises, Inc. 80,000 2,360,000 MCI Communications Corp. 126,000 2,315,250 Rochester Telephone Corp. 170,600 3,603,925 ------------ 9,254,863 - --------------------------------------------------- TEXTILES/APPAREL (0.5%) Interco, Inc.+ 187,000 1,262,250 - --------------------------------------------------- TRUCKING/SHIPPING (0.4%) Ryder System, Inc. 50,000 1,100,000 - --------------------------------------------------- TOTAL COMMON STOCKS (98.3%) (Cost: $237,334,998) $263,168,636 - --------------------------------------------------- PRINCIPAL SHORT-TERM INVESTMENTS [NOTE 2] AMOUNT MARKET VALUE - --------------------------------------------------- REPURCHASE AGREEMENT Sanwa BGK Securities Co., L.P., 5.75% yield, 12/30/94 - 01/03/95, Amount Due - $5,258,357 (collateralized by $5,360,589 U.S. Treasury Notes, 5.50%, Due 04/30/96) $ 5,255,000 $ 5,256,679 - --------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (2.0%) (Cost: $5,255,000) $ 5,256,679 - --------------------------------------------------- TOTAL INVESTMENTS (100.3%) (Cost: $242,589,998) $268,425,315 - --------------------------------------------------- OTHER ASSETS, LESS LIABILITIES Bank Overdraft $ (995,778) Dividends and Interest Receivable 225,723 Receivables for Investments Sold 14,513 Payables for Investments Purchased (311,679) Pending Transfers 263,127 - --------------------------------------------------- TOTAL OTHER ASSETS, LESS LIABILITIES (-0.3%) $(804,094) - --------------------------------------------------- NET ASSETS (100%) $267,621,221 - --------------------------------------------------- NET ASSETS REPRESENTING: Equity of Participants 79,188,724 Accumulation Units at an Accumulation Unit Value of $3.3604 (rounded) $266,103,064 Equity of The Prudential Insurance Company of America 1,518,157 - --------------------------------------------------- $267,621,221 - -------------------------------------------------------------------- - --------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions: ADR American Depository Receipts PLC Public Limited Company +Non income producing securities SEE NOTES TO FINANCIAL STATEMENTS 22 FINANCIAL STATEMENTS OF VCA-10 STATEMENT OF OPERATIONS - ------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1994 - ------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME [NOTE 2] Dividends $ 4,172,264 Interest 299,332 - ------------------------------------------------------------------------------------------------------------ 4,471,596 EXPENSES [NOTE 3] Fees Charged to Participants for Investment Management Services 652,237 Fees Charged to Participants for Administrative Expenses 1,956,713 - ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME-NET 1,862,646 - ------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS-NET Realized Gain on Investments-Net 14,911,860 Unrealized Decrease in Value of Investments-Net (16,570,990) - ------------------------------------------------------------------------------------------------------------ NET LOSS ON INVESTMENTS (1,659,130) - ------------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 203,516 - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31 1994 1993 - ------------------------------------------------------------------------------------------------------- OPERATIONS Investment Income-Net $ 1,862,646 $ 3,577,058 Realized Gain on Investments-Net 14,911,860 19,357,439 Unrealized Increase/(Decrease) In Value of Investments-Net (16,570,990) 17,160,828 - ------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 203,516 40,095,325 - ------------------------------------------------------------------------------------------------------- CAPITAL TRANSACTIONS Purchase Payments and Transfers in 56,061,218 52,887,873 Withdrawals and Transfers Out [Note 9] (36,915,465) (18,950,337) Annual Account Charges Deducted from Participants' Accounts [Note 4] (69,867) (49,223) Deferred Sales Charge [Note 5] (24,016) (17,485) - ------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 19,051,870 33,870,828 - ------------------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 19,255,386 73,966,153 NET ASSETS Beginning of Year 248,365,835 174,399,682 - ------------------------------------------------------------------------------------------------------- End of Year $ 267,621,221 $ 248,365,835 - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS 23 NOTES TO FINANCIAL STATEMENTS OF VCA-10 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- NOTE 1: GENERAL The Prudential Variable Contract Account-10 (VCA-10 or the Account) was established by The Prudential Insurance Company of America (The Prudential) under the laws of the State of New Jersey and is registered as an open-end, diversified management investment company under the Investment Company Act of 1940, as amended. VCA-10 has been designed for use by employers (Contract-holders) in making retirement arrangements on behalf of their employees (Participants). Its investments are composed primarily of common stocks. All contractual and other obligations arising under contracts participating in VCA-10 are general corporate obligations of The Prudential, although Participants' payments from the Account will depend upon the investment experience of the Account. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. INVESTMENTS EQUITY SECURITIES The value of securities (except options and fixed income securities including convertible bonds) held in VCA-10 will be determined once daily as of 5:00 P.M., New York time ("Valuation Time") using composite pricing which reflects prices as of the close of business on all major exchanges, on each day on which the New York Stock Exchange ("NYSE") is open for trading and, as provided below, on any other day in which there is sufficient trading in VCA-10's portfolio securities to result in a material change in the value of the Account. A security that is traded on a national securities exchange will be valued at the last sale price for such security on any major exchange on which such security is traded as of Valuation Time, or, in the absence of recorded sales on such exchange on the valuation date, at the average of readily available bid and asked prices on such exchange at the Valuation Time. Any security not traded on a national securities exchange but traded in the over-the-counter market for which quotations are furnished through the nationwide automated quotation system approved by the National Association of Securities Dealers, Inc. ("NASDAQ") will be valued based on the last sale price as of the Valuation Time on each day on which the NYSE is open for trading, or, in the absence of recorded sales on such day, at the average of readily available bid and asked prices, as established by NASDAQ at the Valuation Time. Unlisted securities not quoted on NASDAQ are valued at the average of the quoted bid and asked prices in the over-the-counter market at the Valuation Time. Portfolio securities for which market quotations are not readily available will be valued at fair value as determined in good faith under the direction of the Account's Committee. FIXED INCOME SECURITIES Fixed income securities including convertible bonds are valued based on prices provided by an industry-recognized pricing service when such prices are believed to reflect the fair market value of such securities. Fixed income securities including convertible bonds not priced in this manner are valued at the mean of the last reported bid and asked prices provided by principal market makers and recognized securities dealers in such securities. SHORT-TERM INVESTMENTS Short-term investments having maturities of sixty days or less are valued at amortized cost, which approximates market value. Amortized cost is computed using the cost on the date of purchase, adjusted for constant accrual of discount or amortization of premium to maturity. REPURCHASE AGREEMENTS Repurchase agreements may be considered loans of money to the seller of the underlying security. VCA-10 will not enter into repurchase agreements unless the agreement is fully collateralized, i.e., the value of the underlying collateral securities is, and during the entire term of the agreement remains, at least equal to the amount of the 'loan' including accrued interest. VCA-10 will take possession of the collateral and will value it daily to assure that this condition is met. In the event that a seller defaults on a repurchase agreement, VCA-10 may incur a loss in the market value of the collateral as well as disposition costs; and, if a party with whom VCA-10 had entered into a repurchase agreement becomes insolvent, VCA-10'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 insolvency proceedings. 24 NOTES TO FINANCIAL STATEMENTS OF VCA-10 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- OPTIONS Options on stocks and stocks indices traded on national securities exchanges are valued as of the close of options trading on such exchanges (which is currently 4:10 P.M., New York time) on the valuation date. Stock index futures and options thereon which are traded on commodities exchanges are valued as of the close of such commodity exchanges (which is currently 4:15 P.M., New York time) on the valuation date. The value of the option or future is based upon the last sale price on the exchange on which the contract is traded or as provided by NASDAQ or at the mean between the last bid and asked price if such bid and asked price are of a more recent day than the last trade price. B. INCOME RECOGNITION Income and realized and unrealized gains and losses on investments are allocated to the Participants and The Prudential on a daily basis in proportion to their respective equities in VCA-10. Realized gains and losses from equity transactions are determined and accounted for on the basis of average cost. Realized gains and losses from convertible bond transactions are determined and accounted for on the basis of identified cost. Dividend income is recorded on the ex-dividend date at declared value. Interest income is accrued daily. Equity, long-term bond and option transactions are recorded on the first business day following the trade date, except that transactions on the last business day of the year are recorded on that date. Short-term security transactions are recorded on trade date. C. TAXES The operations of VCA-10 are part of, and are taxed with, the operations of The Prudential. Under the current provisions of the Internal Revenue Code, The Prudential does not expect to incur federal income taxes on earnings of VCA-10 to the extent the earnings are credited under the Contracts. As a result, the Unit Value of VCA-10 has not been reduced by federal income taxes. NOTE 3: EXPENSES A daily charge, at an effective annual rate of 1.00% of the current value of the Participant's equity in VCA-10, is paid to The Prudential. Three quarters of this charge (0.75%) is for administrative expenses not covered by the annual account charge, and one quarter (0.25%) is for investment management services. NOTE 4: ANNUAL ACCOUNT CHARGE An annual account charge is deducted from the account of each Participant at the time of withdrawal of the value of all of the Participant's accounts or at the end of the accounting year by cancelling Units. The charge will first be made against a Participant's account under a fixed dollar annuity companion contract or fixed rate option of the non-qualified combination contract. If the Participant has no account under a companion contract or the fixed rate option, or if the amount under the companion contract or the fixed rate option is too small to pay the charge, the charge will be made against the Participant's account in VCA-11. If the Participant has no VCA-11 account, or if the amount under that account is too small to pay the charge, the charge will then be made against the Participant's VCA-10 account. If the Participant has no VCA-10 account, or if it is too small to pay the charge, the charge will then be made against any one or more of the Participant's accounts in VCA-24. The annual account charge will not be greater than $20 and is paid to The Prudential. NOTE 5: DEFERRED SALES CHARGE A deferred sales charge is imposed upon that portion of certain withdrawals which represents a return of contributions. The charge is designed to compensate The Prudential for sales and other marketing expenses. The maximum deferred sales charge is 7% on contributions withdrawn from an account during the first two years of participation, 6% on contributions withdrawn during the third through fifth years, 4% on contributions withdrawn during the sixth through tenth years, and 3% on contributions withdrawn during the eleventh through fifteenth years. No deferred sales charge is imposed upon contributions withdrawn for any reason after fifteen years of participation in the Program. In addition, no deferred sales charge is imposed upon contributions withdrawn: (a) to purchase an annuity under a Prudential Group Annuity contract; (b) to provide a death benefit; (c) due to resignation or retirement by the Participant or termination of the Participant by the Contract-holder (for all plans other than IRAs); (d) pursuant to a systematic withdrawal plan; (e) in cases of financial hardship or disability retirement as determined pursuant to the provisions of the employer's retirement arrangement; or (f) as loans. Contributions transferred among VCA-10, VCA-11, the Subaccounts of VCA-24, the Companion Contract, and the fixed rate option of the non-qualified combination contract are 25 NOTES TO FINANCIAL STATEMENTS OF VCA-10 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- considered to be withdrawals from the Account or Subaccount from which the transfer is made, but no deferred sales charge is imposed upon them. NOTE 6: PURCHASES AND SALES OF PORTFOLIO SECURITIES For the year ended December 31, 1994, excluding short-term investments and U.S. government securities, the aggregate cost of purchases and the proceeds from sales of securities were $102,747,049 and $79,438,807, respectively. NOTE 7: UNIT TRANSACTIONS The number of Units issued and redeemed for the years ended December 31, 1994 and 1993 is as follows: 1994 1993 -------------------------------------------- Units issued 16,685,518 17,125,184 -------------------------------------------- Units redeemed 11,065,712 6,147,802 --------------------------------------------
NOTE 8: RELATED PARTY TRANSACTIONS For the year ended December 31, 1994, Prudential Securities Incorporated, an indirect, wholly-owned subsidiary of The Prudential, earned $0 in brokerage commissions from portfolio transactions executed on behalf of VCA-10. NOTE 9: PARTICIPANT LOANS Loans are considered to be withdrawals from the Account from which the loan amount was deducted, however no deferred sales charge is imposed upon them. The principal portion of any loan repayment, however, will be treated as a contribution to the receiving Account for purposes of calculating any deferred sales charge imposed upon any subsequent withdrawal. If the Participant defaults on the loan, for example by failing to make required payments, the outstanding balance of the loan will be treated as a withdrawal for purposes of the deferred sales charge. The deferred sales charge will be withdrawn from the same Accumulation Accounts, and in the same proportions, as the loan amount was withdrawn. If sufficient funds do not remain in those Accumulation Accounts, the deferred sales charge will be withdrawn from the Participant's other Accumulation Accounts as well. Withdrawals, transfers and loans from VCA-10 are considered to be withdrawals of contributions until all of the Participant's contributions to the Account have been withdrawn, transferred or borrowed. No deferred sales charge is imposed upon withdrawals of any amount in excess of contributions. For the year ended December 31, 1994, $938,733 in participant loans has been withdrawn from VCA-10 and $90,587 of principal has been repaid to VCA-10. For the year ended December 31, 1993, $59,285 in participant loans had been withdrawn from VCA-10 and $0 of principal had been repaid to VCA-10. Loan repayments are invested in Participant's account(s) as chosen by the Participant, which may not necessarily be VCA-10. The initial loan proceeds may not necessarily have originated solely from VCA-10. 26 VCA-11 REPORT OF MANAGEMENT (FROM THE 1994 MEDLEY REPORT TO PARTICIPANTS) The accompanying financial statements and all information in the annual report are the responsibility of management of The Prudential Insurance Company of America (The Prudential). These financial statements have been prepared in accordance with generally accepted accounting principles, and necessarily include amounts based on best estimates and judgements. Information presented in one section of the annual report is consistent with information dealing with the same or substantially similar subject matter presented elsewhere in the annual report. The system of internal controls for VCA-11 is an integral part of that for The Prudential. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with proper authorization. The concept of reasonable assurance is based on the premise that the cost of internal controls should not exceed the benefits derived. In addition, The Prudential maintains a professional staff of internal auditors who monitor VCA-11's control structure through periodic reviews and tests of the control aspects of accounting, financial and operating activities. The internal auditors coordinate their program with that of the independent certified public accountants. The financial statements have been audited by Deloitte & Touche LLP, Certified Public Accountants. The Independent Auditors' Report, which appears in this annual report, expresses an independent professional opinion on the fairness of presentation, in all material respects, of management's financial statements. The auditors review VCA-11's financial and accounting controls and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Prudential's Board of Directors, through its Auditing Committee, and the VCA-11 Committee monitor management's fulfillment of its responsibilities for accurate accounting, statement preparation and protection of assets. The Auditing Committee is composed solely of outside directors and the VCA-11 Committee has a majority of outside members. Both The Prudential's Auditing Committee and the outside members of the VCA-11 Committee meet with the independent certified public accountants, management and internal auditors periodically to evaluate each party's execution of their respective responsibilities. Each has free and separate access to the Auditing and VCA-11 Committees to discuss accounting, financial reporting, internal control and auditing matters. Mark R. Fetting Chairman VCA-11 Committee Eugene M. O'Hara Chief Financial Officer The Prudential Insurance Company of America 27 VCA-11 INDEPENDENT AUDITORS' REPORT TO THE COMMITTEE OF AND PERSONS PARTICIPATING IN THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-11: We have audited the accompanying statement of net assets of The Prudential Variable Contract Account-11 of The Prudential Insurance Company of America as of December 31, 1994, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the condensed financial information for each of the five years in the period then ended. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1994, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and condensed financial information present fairly, in all material respects, the financial position of The Prudential Variable Contract Account-11 as of December 31, 1994, the results of its operations, the changes in its net assets and the condensed financial information for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Parsippany, New Jersey February 16, 1995 28 FINANCIAL STATEMENTS OF VCA-11 STATEMENT OF NET ASSETS DECEMBER 31, 1994
SHORT-TERM PRINCIPAL INVESTMENTS [NOTE 2] AMOUNT VALUE - -------------------------------------------------------------------- COMMERCIAL PAPER-U.S. (45.4%) American Home Products Corp., 5.968% Notes, Due 01/31/95 $ 3,569,000 $ 3,551,452 Aristar, Inc., 6.402% Notes, Due 03/20/95 1,000,000 986,350 Asset Securitization Coop. Corp., 5.588% Notes, Due 01/17/95 1,000,000 997,556 Asset Securitization Coop. Corp., 5.609% Notes, Due 01/23/95 1,000,000 996,627 Asset Securitization Coop. Corp., 5.587% Notes, Due 01/23/95 1,000,000 996,639 Bankers Trust (NY) Corp., 5.526% Notes, Due 01/24/95 1,000,000 996,524 CIT Group Holdings, Inc., 6.370% Notes, Due 03/13/95 2,000,000 1,975,268 Chrysler Financial Corp., 5.809% Notes, Due 01/18/95 1,000,000 997,285 Coca Cola Enterprises, Inc., 6.078% Notes, Due 02/01/95 1,000,000 994,820 Colonial Pipeline Company, 5.572% Notes, Due 01/12/95 400,000 399,328 Duracell, Inc., 6.310% Notes, Due 01/30/95 1,000,000 994,965 Falcon Asset Securitization Corp., 6.129% Notes, Due 01/17/95 550,000 548,509 Ford Motor Credit Co., 6.069% Notes, Due 01/17/95 1,000,000 997,311 Ford Motor Credit Co., 5.841% Notes, Due 02/01/95 1,000,000 995,023 General Electric Capital Corp., 5.553% Notes, Due 01/03/95 1,000,000 999,694 General Electric Capital Corp., 5.851% Notes, Due 02/02/95 1,000,000 994,862 General Electric Capital Corp., 6.571% Notes, Due 04/13/95 1,000,000 981,782 General Motors Acceptance Corp., 5.799% Notes, Due 01/17/95 3,000,000 2,992,347 SHORT-TERM PRINCIPAL INVESTMENTS [NOTE 2] AMOUNT VALUE - -------------------------------------------------------------------- Greyhound Financial Corp., 6.267% Notes, Due 01/17/95 $ 1,900,000 $ 1,894,748 Greyhound Financial Corp., 6.210% Notes, Due 01/26/95 1,000,000 995,715 Heller Financial, Inc., 6.401% Notes, Due 03/14/95 1,000,000 987,400 International Lease Finance Corp., 6.143% Notes, Due 02/21/95 750,000 743,572 Merrill Lynch & Company, Inc., 5.807% Notes, Due 01/17/95 1,000,000 997,444 PHH Corp, 6.021% Notes, Due 01/11/95 700,000 698,833 Sears Roebuck Acceptance Corp., 6.120% Notes, Due 02/07/95 1,000,000 993,782 Smith Barney, Inc., 5.845% Notes, Due 01/26/95 1,000,000 995,986 WMX Technologies, Inc., 5.361% Notes, Due 02/07/95 1,000,000 994,630 Whirlpool Corp., 5.627% Notes, Due 01/09/95 1,000,000 998,607 Whirlpool Financial Corp., 5.568% Notes, Due 01/12/95 1,000,000 998,319 Whirlpool Financial Corp., 5.703% Notes, Due 02/06/95 1,000,000 994,400 ------------ ------------ 34,869,000 34,689,778 - --------------------------------------------------- OTHER CORPORATE DEBT-U.S. (16.4%) (MASTER NOTES, MEDIUM TERM NOTES, ASSET BACKED SECURITIES, CORPORATE BONDS) Beneficial Corp., 4.557% Medium Term Note, Due 07/19/95# 1,000,000 999,625 General Motors Acceptance Corp., 5.818% Medium Term Note, Due 05/08/95 500,000 501,873 Goldman Sachs Group, L.P., 5.375% Medium Term Note, Due 01/11/96# 3,000,000 3,000,000 Lehman Brothers Holdings, Inc., 5.028% Master Note, Due 05/23/95# 2,000,000 2,000,000
29 FINANCIAL STATEMENTS OF VCA-11 STATEMENT OF NET ASSETS DECEMBER 31, 1994
SHORT-TERM PRINCIPAL INVESTMENTS [NOTE 2] AMOUNT VALUE - -------------------------------------------------------------------- Merrill Lynch & Company, Inc., 4.842% Medium Term Note, Due 09/22/95# $ 1,000,000 $ 999,858 Merrill Lynch & Company, Inc., 4.905% Medium Term Note, Due 10/02/95# 1,500,000 1,499,779 Money Market Auto Loan Trust, 3.321% Asset Backed Security, Due 11/30/95# 1,000,000 1,000,000 Money Market Card, 3.720% Asset Backed Security, Due 06/12/95# 545,455 545,455 Morgan Stanley Group, Inc., 3.592% Corporate Bond, Due 12/15/95# 1,000,000 1,000,000 Morgan Stanley Group, Inc., 3.530% Corporate Bond, Due 12/15/95# 1,000,000 1,000,000 ------------ ------------ 12,545,455 12,546,590 - --------------------------------------------------- CERTIFICATES OF DEPOSIT-U.S. (13.1%) Bank of Montreal, 5.800% Certificate of Deposit, Due 01/30/95 3,000,000 3,000,000 Bank of Toyko, 6.460% Certificate of Deposit, Due 03/30/95 1,000,000 1,000,000 Fuji Bank Ltd., 5.906% Certificate of Deposit, Due 01/20/95 1,000,000 1,000,000 Fuji Bank Ltd., 6.360% Certificate of Deposit, Due 03/21/95 2,000,000 2,000,000 Sanwa Bank, Ltd., 6.040% Certificate of Deposit, Due 02/02/95 1,000,000 1,000,000 Sumitomo Bank, Ltd., 5.960% Certificate of Deposit, Due 01/30/95 1,000,000 1,000,000 Sumitomo Bank, Ltd., 6.060% Certificate of Deposit, Due 02/01/95 1,000,000 1,000,000 ------------ ------------ 10,000,000 10,000,000 - --------------------------------------------------- OTHER BANK RELATED INSTRUMENTS-U.S. (5.9%) (BANK NOTES) American Express Centurion Bank, 4.823% Bank Note, Due 08/18/95# 1,000,000 999,937 PNC Bank, N.A., 5.600% Bank Note, Due 01/06/95 1,000,000 999,987 SHORT-TERM PRINCIPAL INVESTMENTS [NOTE 2] AMOUNT VALUE - -------------------------------------------------------------------- Republic National Bank of New York, 4.550% Bank Note, Due 03/08/95 $ 500,000 $ 499,774 Republic National Bank of New York, 4.649% Bank Note, Due 03/08/95 1,000,000 999,355 Society National Bank Cleveland, 3.716% Bank Note, Due 01/20/95 1,000,000 999,911 ------------ ------------ 4,500,000 4,498,964 - --------------------------------------------------- COMMERCIAL PAPER-FOREIGN (11.1%) American Honda Finance Corp., 6.202% Notes, Due 01/30/95 2,000,000 1,990,092 Hanson Finance (UK) PLC, 6.356% Notes, Due 03/03/95 1,000,000 989,393 MCA Funding Corp., 5.211% Notes, Due 01/09/95 1,000,000 998,867 National Australia Funding, Delaware, 5.704% Notes, Due 02/01/95 1,500,000 1,492,767 Orix America, Inc., 5.908% Notes, Due 01/27/95 1,000,000 995,775 Seiko Corp. of America, 6.132% Notes, Due 01/20/95 1,000,000 996,781 Sumitomo Corp. of America, 5.254% Notes, Due 01/09/95 1,000,000 998,861 ------------ ------------ 8,500,000 8,462,536 - --------------------------------------------------- OTHER CORPORATE DEBT-FOREIGN (1.3%) (MEDIUM TERM NOTES) Toyota Motor Credit Corp., 6.286% Medium Term Note, Due 01/23/95 1,000,000 999,615 - --------------------------------------------------- CERTIFICATES OF DEPOSIT-FOREIGN (1.3%) (EURO CERTIFICATES OF DEPOSIT) Bayerische Vereinsbank Bank, 5.810% Euro Certificate of Deposit, Due 01/23/95 1,000,000 1,000,012 - --------------------------------------------------- TIME DEPOSITS-FOREIGN (3.3%) (EURO TIME DEPOSITS) Chemical Bank (NY), 6.250% Euro Time Deposit, Due 01/03/95 2,580,000 2,580,000 - --------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (97.8%) (Cost: $74,777,495) $ 74,777,495 - --------------------------------------------------- OTHER ASSETS, LESS LIABILITIES Bank Overdraft $ (6,348) Interest Receivable 270,154
30 FINANCIAL STATEMENTS OF VCA-11 STATEMENT OF NET ASSETS DECEMBER 31, 1994
SHORT-TERM PRINCIPAL INVESTMENTS [NOTE 2] AMOUNT VALUE - -------------------------------------------------------------------- Pending Transfers $ 1,421,994 - --------------------------------------------------- TOTAL OTHER ASSETS, LESS LIABILITIES (2.2%) 1,685,800 - --------------------------------------------------- NET ASSETS (100.0%) $76,463,295 - --------------------------------------------------- SHORT-TERM PRINCIPAL INVESTMENTS [NOTE 2] AMOUNT VALUE - -------------------------------------------------------------------- NET ASSETS, REPRESENTING: Equity of Participants 35,448,241 Units at a Unit Value of $2.1056 (rounded) $ 74,641,129 Equity of The Prudential Insurance Company of America 1,822,166 - -------------------------------------------------------------------- $ 76,463,295 - -------------------------------------------------------------------- - -------------------------------------------------------------------- #Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS 31 FINANCIAL STATEMENTS OF VCA-11 STATEMENT OF OPERATIONS - ------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31 1994 - ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME [NOTE 2] Interest $ 3,050,102 - ------------------------------------------------------------------------------------------------------------ EXPENSES [NOTE 3] Fees Charged to Participants for Investment Management Services 164,873 Fees Charged to Participants for Administrative Expenses 494,619 - ------------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,390,610 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31 1994 1993 - ------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,390,610 $ 1,524,570 - ------------------------------------------------------------------------------------------------------- CAPITAL TRANSACTIONS Purchase Payments and Transfers In 52,961,340 32,795,134 Withdrawals and Transfers Out [Note 7] (40,440,037) (28,972,376) Annual Account Charges Deducted from Participants' Accounts [Note 4] (34,832) (35,335) Deferred Sales Charge [Note 5] (16,777) (10,159) - ------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 12,469,694 3,777,264 - ------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS [NOTE 8] 0 (3,000,000) - ------------------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 14,860,304 2,301,834 NET ASSETS Beginning of Year 61,602,991 59,301,157 - ------------------------------------------------------------------------------------------------------- End of Year $ 76,463,295 $ 61,602,991 - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS 32 NOTES TO FINANCIAL STATEMENTS OF VCA-11 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- NOTE 1: GENERAL The Prudential Variable Contract Account-11 (VCA-11 or the Account) was established by The Prudential Insurance Company of America (The Prudential) under the laws of the State of New Jersey and is registered as an open-end, diversified management investment company under the Investment Company Act of 1940, as amended. VCA-11 has been designed for use by employers (Contract-holders) in making retirement arrangements on behalf of their employees (Participants). Its investments are primarily composed of short-term securities. All contractual and other obligations arising under contracts participating in VCA-11 are general corporate obligations of The Prudential, although Participants' payments from the Account will depend upon the investment experience of the Account. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. SHORT-TERM INVESTMENTS Pursuant to an exemptive order from the Securities and Exchange Commission, securities having a remaining maturity of 397 days or less are valued at amortized cost which approximates market value. Amortized cost is computed using the cost on the date of purchase adjusted for constant accrual of discount or amortization of premium to maturity. The rate displayed is the effective yield from the date of purchase to the date of maturity. B. INCOME RECOGNITION Income on investments is allocated to the Participants and The Prudential on a daily basis in proportion to their respective equities in VCA-11. Interest income is accrued daily. Security transactions are recorded on trade date. C. TAXES The operations of VCA-11 are part of, and are taxed with, the operations of The Prudential. Under the current provisions of the Internal Revenue Code, The Prudential does not expect to incur federal income taxes on earnings of VCA-11 to the extent the earnings are credited under the contracts. As a result, the Unit Value of VCA-11 has not been reduced by federal income taxes. NOTE 3: EXPENSES A daily charge, at an effective annual rate of 1.00% of the current value of the Participant's equity in VCA-11, is paid to The Prudential. Three quarters of this charge (0.75%) is for administrative expenses not covered by the annual account charge, and one quarter (0.25%) is for investment management services. NOTE 4: ANNUAL ACCOUNT CHARGE An annual account charge is deducted from the account of each Participant at the time of withdrawal of the value of all of the Participant's accounts or at the end of the accounting year by cancelling Units. The charge will first be made against a Participant's account under a fixed dollar annuity companion contract or fixed rate option of the non-qualified combination contract. If the Participant has no account under a companion contract or the fixed rate option, or if the amount under the companion contract or the fixed rate option is too small to pay the charge, the charge will be made against the Participant's account in VCA-11. If the Participant has no VCA-11 account, or if the amount under that account is too small to pay the charge, the charge will then be made against the Participant's VCA-10 account. If the Participant has no VCA-10 account, or if it is too small to pay the charge, the charge will then be made against any one or more of the Participant's accounts in VCA-24. The annual account charge will not be greater than $20 and is paid to The Prudential. NOTE 5: DEFERRED SALES CHARGE A deferred sales charge is imposed upon that portion of certain withdrawals which represents a return of contributions. The charge is designed to compensate The Prudential for sales and other marketing expenses. The maximum deferred sales charge is 7% on contributions withdrawn from an account during the first two years of participation, 6% on contributions withdrawn during the third through fifth years, 4% on contributions withdrawn during the sixth through tenth years, and 3% on contributions withdrawn during the eleventh through fifteenth years. No deferred sales charge is imposed upon contributions withdrawn for any reason after fifteen years of participation in a Program. In addition, no deferred sales charge is imposed upon 33 NOTES TO FINANCIAL STATEMENTS OF VCA-11 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- contributions withdrawn: (a) to purchase an annuity under a Prudential Group Annuity contract; (b) to provide a death benefit; (c) due to resignation or retirement by the Participant or termination of the Participant by the Contract-holder (for all plans other than IRAs); (d) pursuant to a systematic withdrawal plan; (e) in cases of financial hardship or disability retirement as determined pursuant to the provisions of the employer's retirement arrangement; or (f) as loans. Contributions transferred among VCA-10, VCA-11, the Subaccounts of VCA-24, the companion contract, and the fixed rate option of the non-qualified combination contract are considered to be withdrawals from the Account or Subaccount from which the transfer is made, but no deferred sales charge is imposed upon them. NOTE 6: UNIT TRANSACTIONS The number of Units issued and redeemed for the years ended December 31, 1994 and 1993 is as follows: 1994 1993 -------------------------------------------- Units issued 25,656,212 16,302,144 -------------------------------------------- Units redeemed 19,628,580 14,399,755 --------------------------------------------
NOTE 7: PARTICIPANT LOANS Loans are considered to be withdrawals from the Account from which the loan amount was deducted, however, no deferred sales charge is imposed upon them. The principal portion of any loan repayment, however, will be treated as a contribution to the receiving Account for purposes of calculating any deferred sales charge imposed upon any subsequent withdrawal. If the Participant defaults on the loan, for example by failing to make required payments, the outstanding balance of the loan will be treated as a withdrawal for purposes of the deferred sales charge. The deferred sales charge will be withdrawn from the same Accumulation Accounts, and in the same proportions, as the loan amount was withdrawn. If sufficient funds do not remain in those Accumulation Accounts, the deferred sales charge will be withdrawn from the Participant's other Accumulation Accounts as well. Withdrawals, transfers and loans from VCA-11 are considered to be withdrawals of contributions until all of the Participant's contributions to the Account have been withdrawn, transferred or borrowed. No deferred sales charge is imposed upon withdrawals of any amount in excess of contributions. For the year ended December 31, 1994, $379,019 in participant loans has been withdrawn from VCA-11 and $27,165 of principal has been repaid to VCA-11. For the year ended December 31, 1993, $24,363 in participant loans had been withdrawn from VCA-11 and $0 of principal had been repaid to VCA-11. Loan repayments are invested in Participant's account(s) as chosen by the Participant, which may not necessarily be VCA-11. The initial loan proceeds may not necessarily have originated solely from VCA-11. NOTE 8: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS The decrease in net assets resulting from surplus transfers represents the net withdrawals from the Equity of The Prudential from VCA-11. 34 VCA-24 REPORT OF MANAGEMENT (FROM THE 1994 MEDLEY REPORT TO PARTICIPANTS) The accompanying financial statements and all information in the annual report are the responsibility of management of The Prudential Insurance Company of America (The Prudential). These financial statements have been prepared in accordance with generally accepted accounting principles, and necessarily include amounts based on best estimates and judgments. Information presented in one section of the annual report is consistent with information dealing with the same or substantially similar subject matter presented elsewhere in the annual report. The system of internal controls for VCA-24 is an integral part of that for The Prudential. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with proper authorization. The concept of reasonable assurance is based on the premise that the cost of internal controls should not exceed the benefits derived. In addition, The Prudential maintains a professional staff of internal auditors who monitor VCA-24's control structure through periodic reviews and tests of the control aspects of accounting, financial and operating activities. The internal auditors coordinate their program with that of the independent certified public accountants. The financial statements have been audited by Deloitte & Touche LLP, Certified Public Accountants. The Independent Auditors' Report, which appears in this annual report, expresses an independent professional opinion on the fairness of presentation, in all material respects, of management's financial statements. The auditors review VCA-24's financial and accounting controls and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Prudential's Board of Directors, through its Auditing Committee, monitors management's fulfillment of its responsibilities for accurate accounting, statement preparation and protection of assets. The Auditing Committee is composed solely of outside directors and meets with the independent certified public accountants, management and internal auditors periodically to evaluate each party's execution of their respective responsibilities. Each has free and separate access to the Auditing Committee to discuss accounting, financial reporting, internal control and auditing matters. Mark R. Fetting President Prudential Defined Contribution Services Eugene M. O'Hara Chief Financial Officer The Prudential Insurance Company of America 35 VCA-24 INDEPENDENT AUDITORS' REPORT TO THE CONTRACT-HOLDERS OF THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-24 AND THE BOARD OF DIRECTORS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA: We have audited the accompanying statements of net assets of The Prudential Variable Contract Account-24 of The Prudential Insurance Company of America (comprising, respectively, the Common Stock, Bond, Aggressively Managed Flexible, Conservatively Managed Flexible, Stock Index, Global Equity, and Government Securities Subaccounts) as of December 31, 1994, the related statements of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended. These financial statements are the responsibility of the Account'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 Contract Account-24 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. Deloitte & Touche LLP Parsippany, New Jersey February 16, 1995 36 FINANCIAL STATEMENTS OF VCA-24 STATEMENTS OF NET ASSETS December 31, 1994
SUBACCOUNTS ------------------------------------------------------------------------------------------------- AGGRESSIVELY CONSERVATIVELY MANAGED MANAGED GLOBAL GOVERNMENT COMMON STOCK BOND FLEXIBLE FLEXIBLE STOCK INDEX EQUITY SECURITIES ------------- ------------ ------------ ------------ ------------ ------------ ------------ Investment in Shares of The Prudential Series Fund, Inc. Portfolios at Net Asset Value [Note 2].............. $ 204,091,123 $24,526,736 $80,097,594 $74,900,913 $81,264,605 $28,283,453 $20,072,728 Pending Transfers....... 506,630 94,926 207,106 289,508 646,300 162,126 188,013 ------------- ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS.............. 204,597,753 24,621,662 80,304,700 75,190,421 81,910,905 28,445,579 20,260,741 NET ASSETS, REPRESENTING: Equity of Participants........ 204,021,182 24,407,810 80,003,811 74,873,662 81,542,929 28,304,183 20,047,432 Equity of The Prudential Insurance Company of America............. 576,571 213,852 300,889 316,759 367,976 141,396 213,309 ------------- ------------ ------------ ------------ ------------ ------------ ------------ $ 204,597,753 $24,621,662 $80,304,700 $75,190,421 $81,910,905 $28,445,579 $20,260,741 ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------ ------------ STATEMENTS OF OPERATIONS Year Ended December 31, 1994 SUBACCOUNTS ------------------------------------------------------------------------------------------------- AGGRESSIVELY CONSERVATIVELY COMMON MANAGED MANAGED STOCK GLOBAL GOVERNMENT STOCK BOND FLEXIBLE FLEXIBLE INDEX EQUITY SECURITIES ------------- ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME Dividend Distribution Received............ $ 12,651,397 $ 1,602,923 $ 4,359,171 $ 3,334,994 $ 1,974,871 $ 81,345 $ 1,318,034 EXPENSES [NOTE 3] Fees Charged to Participants for Administrative Expenses............ 1,388,820 177,681 555,269 534,979 542,091 181,683 154,640 ------------- ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME-NET... 11,262,577 1,425,242 3,803,902 2,800,015 1,432,780 (100,338) 1,163,394 Realized and Unrealized Loss on Investments-Net....... Realized Loss on Investments-Net....... (73,835) (288,665) (129,071) (183,256) (3,497) (130,149) (451,346) Unrealized Decrease in Value of Investments-Net (7,505,048) (2,086,974) (6,483,168) (3,803,749) (1,145,148) (1,430,865) (1,993,696) ------------- ------------ ------------ ------------ ------------ ------------ ------------ NET LOSS ON INVESTMENTS........... (7,578,883) (2,375,639) (6,612,239) (3,987,005) (1,148,645) (1,561,014) (2,445,042) NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............ $ 3,683,694 $ (950,397) $(2,808,337) $(1,186,990) $ 284,135 $(1,661,352) $(1,281,648) ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS 37 FINANCIAL STATEMENTS OF VCA-24 STATEMENTS OF CHANGES IN NET ASSETS
SUBACCOUNTS ---------------------------------------------------------------------------------------- AGGRESSIVELY COMMON MANAGED STOCK BOND FLEXIBLE ---------------------------- ---------------------------- ---------------------------- YEARS ENDED DECEMBER 31 1994 1993 1994 1993 1994 1993 - ------------------------------ ------------- ------------- ------------- ------------- ------------- ------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 3,683,694 $ 22,623,399 $ (950,397) $ 1,761,009 $ (2,808,337) $ 6,925,882 ACCUMULATION UNIT TRANSACTIONS Purchase Payments and Transfers In [Note 8]..... 65,892,826 67,975,653 8,453,804 10,851,076 27,554,349 27,496,377 Withdrawals and Transfers Out [Note 8].............. (26,512,808) (15,420,726) (8,339,324) (3,465,092) (11,787,729) (5,347,755) Annual Account Charges Deducted from Participants' Accumulation Accounts [Note 4]......... (62,784) (43,059) (8,160) (7,041) (23,750) (15,288) Deferred Sales Charge [Note 5]........................ (26,031) (17,025) (2,855) (3,903) (6,972) (8,289) ------------- ------------- ------------- ------------- ------------- ------------- INCREASE IN NET ASSETS RESULTING FROM ACCUMULATION UNIT TRANSACTIONS........... 39,291,203 52,494,843 103,465 7,375,040 15,735,898 22,125,045 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL INCREASE/(DECREASE) IN NET ASSETS.................. 42,974,897 75,118,242 (846,932) 9,136,049 12,927,561 29,050,927 NET ASSETS Beginning of Year......... 161,622,856 86,504,614 25,468,594 16,332,545 67,377,139 38,326,212 ------------- ------------- ------------- ------------- ------------- ------------- End of Year............... $ 204,597,753 $ 161,622,856 $ 24,621,662 $ 24,468,594 $ 80,304,700 $ 67,377,139 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- CONSERVATIVELY MANAGED FLEXIBLE ---------------------------- YEARS ENDED DECEMBER 31 1994 1993 - ------------------------------ ------------- ------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $ (1,186,990) $ 5,253,050 ACCUMULATION UNIT TRANSACTIONS Purchase Payments and Transfers In [Note 8]..... 21,956,428 26,024,716 Withdrawals and Transfers Out [Note 8].............. (10,391,865) (4,743,372) Annual Account Charges Deducted from Participants' Accumulation Accounts [Note 4]......... (25,350) (18,462) Deferred Sales Charge [Note 5]........................ (7,805) (3,275) ------------- ------------- INCREASE IN NET ASSETS RESULTING FROM ACCUMULATION UNIT TRANSACTIONS........... 11,531,408 21,259,607 ------------- ------------- TOTAL INCREASE/(DECREASE) IN NET ASSETS.................. 10,344,418 26,512,657 NET ASSETS Beginning of Year......... 64,846,003 38,333,346 ------------- ------------- End of Year............... $ 75,190,421 $ 64,846,003 ------------- ------------- ------------- -------------
STOCK GLOBAL GOVERNMENT INDEX EQUITY SECURITIES ---------------------------- ---------------------------- ---------------------------- YEARS ENDED DECEMBER 31 1994 1993 1994 1993 1994 1993 - ------------------------------ ------------- ------------- ------------- ------------- ------------- ------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 284,135 $ 4,448,656 $ (1,661,352) $ 3,122,390 $ (1,281,648) $ 1,542,752 ACCUMULATION UNIT TRANSACTIONS Purchase Payments and Transfers In [Note 8]..... 28,168,953 32,087,824 26,544,981 13,036,574 7,998,321 10,866,579 Withdrawals and Transfers Out [Note 8].............. (11,473,983) (9,847,059) (13,664,123) (2,204,412) (7,191,336) (2,810,474) Annual Account Charges Deducted from Participants' Accumulation Accounts [Note 4]......... (13,939) (9,376) (2,860) (794) (2,516) (1,941) Deferred Sales Charge [Note 5]........................ (14,227) (5,444) (1,968) (2,693) (2,287) (5,456) ------------- ------------- ------------- ------------- ------------- ------------- INCREASE IN NET ASSETS RESULTING FROM ACCUMULATION UNIT TRANSACTIONS........... 16,666,804 22,225,945 12,876,030 10,828,675 802,182 8,048,708 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL INCREASE/(DECREASE) IN NET ASSETS.................. 16,950,939 26,674,601 11,214,678 13,951,065 (479,466) 9,591,460 NET ASSETS Beginning of Year......... 64,959,966 38,285,365 17,230,901 3,279,836 20,740,207 11,148,747 ------------- ------------- ------------- ------------- ------------- ------------- End of Year............... $ 81,910,905 $ 64,959,966 $ 28,445,579 $ 17,230,901 $ 20,260,741 $ 20,740,207 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS 38 NOTES TO FINANCIAL STATEMENTS OF VCA-24 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- NOTE 1: GENERAL The Prudential Variable Contract Account-24 (VCA-24 or the Account) was established by The Prudential Insurance Company of America (The Prudential) under the laws of the State of New Jersey and is registered as a unit investment trust under the Investment Company Act of 1940, as amended. VCA-24 has been designed for use by employers (Contract-holders) in making retirement arrangements on behalf of their employees (Participants). The Account is comprised of seven Subaccounts. Each of the Subaccounts invests in a corresponding portfolio of The Prudential Series Fund, Inc. (the Fund). The Common Stock Subaccount invests in the Common Stock Portfolio, the Bond Subaccount invests in the Bond Portfolio, the Aggressively Managed Flexible Subaccount invests in the Aggressively Managed Flexible Portfolio, the Conservatively Managed Flexible Subaccount invests in the Conservatively Managed Flexible Portfolio, the Stock Index Subaccount invests in the Stock Index Portfolio, the Global Equity Subaccount invests in the Global Equity Portfolio, and the Government Securities Subaccount invests in the Government Securities Portfolio. All contractual and other obligations arising under contracts participating in VCA-24 are general corporate obligations of The Prudential, although Participants' payments from the Account will depend upon the investment experience of the Account. NOTE 2: INVESTMENT INFORMATION The number of shares of each portfolio of the Fund, the Net Asset Value (NAV) per share for each portfolio held by the Subaccounts of VCA-24, and the aggregate cost of investments in such shares as of December 31, 1994 are as follows:
AGGRESSIVELY CONSERVATIVELY COMMON MANAGED MANAGED STOCK GLOBAL GOVERNMENT STOCK BOND FLEXIBLE FLEXIBLE INDEX EQUITY SECURITIES - ------------------------------------------------------------------------------------------------------------------------ Number of Shares 9,877,426 2,443,304 5,168,917 5,314,021 5,433,190 2,037,874 1,918,751 - ------------------------------------------------------------------------------------------------------------------------ NAV per Share $ 20.6624 $ 10.0384 $ 15.4960 $ 14.0950 $ 14.9571 $ 13.8789 $ 10.4614 - ------------------------------------------------------------------------------------------------------------------------ Cost at 12-31-94 $ 193,133,287 $ 26,198,377 $ 82,014,022 $ 75,753,115 $ 75,611,983 $ 26,755,251 $ 21,365,353 - ------------------------------------------------------------------------------------------------------------------------
NOTE 3: EXPENSES A daily charge at an effective annual rate of 0.75% of the Net Asset Value of each Subaccount of VCA-24 is paid to The Prudential for administrative expenses not covered by the annual account charge. NOTE 4: ANNUAL ACCOUNT CHARGE An annual account charge is deducted from the account of each Participant at the time of withdrawal of the value of all of the Participant's accounts or at the end of the accounting year by cancelling Units. The charge will first be made against a Participant's account under a fixed dollar annuity companion contract or fixed rate option of the non-qualified combination contract. If the Participant has no account under a companion contract or the fixed rate option, or if the amount under the companion contract or the fixed rate option is too small to pay the charge, the charge will be made against the Participant's account in VCA-11. If the Participant has no VCA-11 account or if the amount under that account is too small to pay the charge, the charge will then be made against the Participant's VCA-10 account. If the Participant has no VCA-10 account, or if it is too small to pay the charge, the charge will then be made against any one or more of the Participant's accounts in VCA-24. The annual account charge will not exceed $20 and is paid to The Prudential. NOTE 5: DEFERRED SALES CHARGE A deferred sales charge is imposed upon the withdrawal of certain purchase payments to compensate The Prudential for sales and other marketing expenses. The maximum deferred sales charge is 7% on contributions withdrawn during the first two years of participation, 6% on contributions withdrawn during the third through fifth years, 4% on contributions withdrawn during the sixth through tenth years, and 3% on contributions withdrawn during the eleventh through fifteenth years. No deferred sales charge is imposed upon contributions withdrawn for any reason after fifteen years of participation in a Program. In addition, no deferred sales charge is imposed upon contributions withdrawn: (a) to purchase an annuity under a Prudential Group 39 NOTES TO FINANCIAL STATEMENTS OF VCA-24 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- Annuity contract; (b) to provide a death benefit; (c) due to resignation or retirement by the Participant or termination of the Participant by the Contract-Holder (for all plans other than IRAs); (d) pursuant to a systematic withdrawal plan; (e) in cases of financial hardship or disability retirement as determined pursuant to the provisions of the employer's retirement arrangement; or (f) as loans. NOTE 6: TAXES The operations of VCA-24 are part of, and are taxed with, the operations of The Prudential. Under the current provisions of the Internal Revenue Code, The Prudential does not expect to incur federal income taxes on earnings of VCA-24 to the extent the earnings are credited under the Contract. As a result, the Unit Value of VCA-24 has not been reduced by federal income taxes. NOTE 7: UNIT TRANSACTIONS The number of units issued and redeemed during the year ended December 31, 1994 is as follows: 1994
AGGRESSIVELY CONSERVATIVELY COMMON MANAGED MANAGED STOCK GLOBAL GOVERNMENT STOCK BOND FLEXIBLE FLEXIBLE INDEX EQUITY SECURITIES - ------------------------------------------------------------------------------------------------------------------------ Units issued 32,467,788 5,000,706 15,263,070 12,718,412 14,115,039 19,450,002 6,275,588 - ------------------------------------------------------------------------------------------------------------------------ Units redeemed 13,129,215 4,906,946 6,568,889 6,056,615 5,771,986 10,078,803 5,691,522 - ------------------------------------------------------------------------------------------------------------------------
The number of units issued and redeemed during the year ended December 31, 1993 is as follows: 1993
AGGRESSIVELY CONSERVATIVELY COMMON MANAGED MANAGED STOCK GLOBAL GOVERNMENT STOCK BOND FLEXIBLE FLEXIBLE INDEX EQUITY SECURITIES - ------------------------------------------------------------------------------------------------------------------------ Units issued 36,592,441 6,523,236 15,653,731 15,557,078 16,718,104 11,028,500 8,517,056 - ------------------------------------------------------------------------------------------------------------------------ Units redeemed 8,246,685 2,144,333 3,028,678 2,848,195 5,093,916 1,840,920 2,230,209 - ------------------------------------------------------------------------------------------------------------------------
NOTE 8: PARTICIPANT LOANS Loans are considered to be withdrawals from the Subaccount from which the loan amount was deducted, however, no deferred sales charge is imposed upon them. The principal portion of any loan repayment, however, will be treated as a contribution to the receiving Subaccount for purposes of calculating any deferred sales charge imposed upon any subsequent withdrawal. If the Participant defaults on the loan by, for example failing to make required payments, the outstanding balance of the loan will be treated as a withdrawal for purposes of the deferred sales charge. The deferred sales charge will be withdrawn from the same Accumulation Accounts, and in the same proportions, as the loan amount was withdrawn. If sufficient funds do not remain in those Accumulation Accounts, the deferred sales charge will be withdrawn from the Participant's other Accumulation Accounts as well. Withdrawals, transfers and loans from each Subaccount of VCA-24 are considered to be withdrawals of contributions until all of the Participant's contributions to the Subaccount have been withdrawn, transferred or borrowed. No deferred sales charge is imposed upon withdrawals of any amount in excess of contributions. For the year ended December 31, 1994, the amount of participant loans that has been withdrawn from the Subaccounts and the amount of principal that has been repaid to the Subaccounts is as follows: 1994
AGGRESSIVELY CONSERVATIVELY COMMON MANAGED MANAGED STOCK GLOBAL GOVERNMENT STOCK BOND FLEXIBLE FLEXIBLE INDEX EQUITY SECURITIES - ------------------------------------------------------------------------------------------------------------------------ Loans $ 619,162 $ 100,860 $ 331,831 $ 274,301 $ 315,157 $ 183,069 $ 51,430 - ------------------------------------------------------------------------------------------------------------------------ Repayments $ 65,846 $ 10,295 $ 33,864 $ 25,486 $ 26,259 $ 17,114 $ 4,043 - ------------------------------------------------------------------------------------------------------------------------
40 NOTES TO FINANCIAL STATEMENTS OF VCA-24 YEARS ENDED DECEMBER 31, 1994 AND 1993 - -------------------------------------------------------------------------------- For the year ended December 31, 1993, the amount of participant loans that was withdrawn from the Subaccounts and the amount of principal that was repaid to the Subaccounts is as follows: 1993
AGGRESSIVELY CONSERVATIVELY COMMON MANAGED MANAGED STOCK GLOBAL GOVERNMENT STOCK BOND FLEXIBLE FLEXIBLE INDEX EQUITY SECURITIES - ------------------------------------------------------------------------------------------------------------------------ Loans $ 124,633 $ 18,267 $ 31,385 $ 20,578 $ 14,671 $ 5,799 $ 2,963 - ------------------------------------------------------------------------------------------------------------------------ Repayments $ 0 $ 0 $ 132 $ 0 $ 0 $ 0 $ 0 - ------------------------------------------------------------------------------------------------------------------------
Loan repayments are invested in Participant's account(s) as chosen by the Participant, which may not necessarily be the Subaccount from which the loan amount was deducted. The initial loan proceeds may not necessarily have originated solely from the Subaccounts of VCA-24. 41 PRUDENTIAL INSURANCE COMPANY OF AMERICA REPORT OF MANAGEMENT (FROM PRUDENTIAL'S 1994 ANNUAL REPORT) The accompanying consolidated financial statements and all information in the annual report are the responsibility of management. They have been prepared in conformity with accounting practices prescribed or permitted by insurance regulatory authorities and generally accepted accounting principles. The statements necessarily include amounts based on management's best estimates and judgments. Information presented in one section of the annual report is consistent with information dealing with the same or substantially similar subject matter presented elsewhere in the annual report. Management depends upon the Company's system of internal controls in meeting its responsibilities for reliable financial statements. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. The concept of reasonable assurance is based on the premise that the cost of internal controls should not exceed the benefits derived. The control environment is enhanced by the selection and training of competent management, a business ethics policy demanding the highest standards of conduct by employees in carrying out the Company's affairs, organizational arrangements that provide for segregation of duties and delegation of authority, and the communication of accounting and operating procedures throughout the organization. In addition, the Company maintains a professional staff of internal auditors who monitor the Company's control structure through periodic reviews and tests of the control aspects of accounting, financial and operating activities. The internal auditors coordinate their program with that of the independent certified public accountants. Deloitte & Touche LLP, independent accountants, have audited and reported on the Company's consolidated financial statements. Their audits were performed in accordance with generally accepted auditing standards. The Board of Directors, through the Auditing Committee, monitors management's fulfillment of its responsibilities for accurate accounting, statement preparation and protection of assets. The Auditing Committee is composed solely of outside directors and meets with the independent public accountants, management and internal auditors periodically to evaluate the discharge by each of their respective responsibilities. Each has free and separate access to the Committee to discuss accounting, financial reporting, internal control and auditing matters. Arthur F. Ryan Chairman, Chief Executive Officer and President Eugene M. O'Hara Chief Financial Officer 42 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. 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 F-17 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES The following financial statements relate to the conditions and operations of The Prudential Insurance Company of America and its subsidiaries, and should be distinquished from the financial statements set forth on the preceding pages which relate solely to VCA-10, VCA-11 and VCA-24 respectively. As explained above, the values of the interests of Participants under the Contracts are affected by the investment results of VCA-10, VCA-11 and VCA-24 respectively. It should not be assumed that presentation of the following financial statements alters or extends the benefits or protections to Participants described in this Statement of Additional Information. [Financial Statements of The Prudential Insurance Company of America and Subsidiaries begin on page 45] 44 The Prudential Insurance Company of America BULK RATE c/o Prudential Defined Contribution Services U.S. POSTAGE Moosic, Pennsylvania 18507-1789 PAID PERMIT No. 2145 Newark, N.J. ADDRESS CORRECTION REQUESTED FORWARDING AND RETURN POSTAGE GUARANTEED Prudential Defined Contribution Services A Unit of The Prudential Rock LOGO Item 28. Financial Statements and Exhibits (a) Financial Statements (1) Financial Statements of The Prudential Variable Contract Account-11 (Registrant) consisting of the Statements of Net Assets, as of December 31, 1994; the Statement of Operations for the periods ended December 31, 1994; the Statements of Changes in Net Assets for the period ended December 31, 1994 and 1993; the Notes relating thereto appear in the statement of additional information (Part B of the Registration Statement). (2) Consolidated Financial Statements of The Prudential Insurance Company of America (Depositor) and subsidiaries consisting of the Consolidated Statements of Financial Position as of December 31, 1994 and 1993; the Consolidated Statements of Operations and Changes in Surplus and Asset Valuation Reserve/Mandatory Valuation Reserve and the Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; and the Notes relating thereto appear in the Statement of Additional Information (Part B of the Registration Statement).
(b) Exhibits (1) Resolution of the Board Directors Incorporated by reference to of The Prudential Insurance Exhibit (1) to this Registration Company of America establishing Statement, filed March 19, 1982 The Prudential Variable Contract (To be filed via EDGAR) Account-11 (2) Rules and Regulations of The Incorporated by reference to Prudential Variable Contract Exhibit (2) to Post-Effective Account-11 Amendment No. 15 to this Registration Statement filed April 28, 1989 (To be filed via EDGAR) (3) Custodian Agreement with Morgan Incorporated by reference to Guaranty Trust Company of New York Exhibit (8)(i) to Pre-Effective Amendment No. 1 to this Registration Statement, filed August 4, 1982 (To be filed via EDGAR) (4) Investment Management Agreement Incorporated by reference to between Prudential and The Exhibit (5) to this Registration Prudential Variable Contract Statement, filed March 19, 1982 Account-11 (To be filed via EDGAR) (i) Amendment No. 1 to Investment Incorporated by reference to Management Agreement between Exhibit (5)(i) to Post-Effective Prudential and The Prudential Amendment No. 4 to this Variable Contract Account-11 Registration Statement, filed March 27, 1985 (To be filed via EDGAR)
C - 1 (5) Agreement Relating to the Sale of Incorporated by reference to Certain Contracts on a Variable Exhibit (6) to this Registration Basis between Prudential and The Statement, filed March 19, 1982 Prudential Variable Contract (To be filed via EDGAR) Account-11 (i) Agreement for the Sale of Incorporated by reference to VCA-11 Contracts between Exhibit (5)(i) to Post-Effective Prudential, The Prudential Amendment No. 23 to this Variable Contract Account-11 and Registration Statement, filed Prudential Asset Management April 27, 1993 Company Securities Corporation (To be filed via EDGAR) (ii) Agreement for the Sale of Incorporated by reference to VCA-11 Contracts between Exhibit (5)(ii) to Post-Effective Prudential, The Prudential Amendment No. 23 to this Variable Contract Account-11 and Registration Statement, filed Prudential Retirement Services, April 27, 1993 Inc. (To be filed via EDGAR) (6) (i)(a) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1000 for Exhibit (6)(i)(a) to individual retirement annuities Post-Effective Amendment No. 9 to this Registration Statement, filed April 24, 1987 (To be filed via EDGAR) (i)(b) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1000 for Exhibit (6)(i)(b) to individual retirement annuity Post-Effective Amendment No. 8 to contracts issued after May 1, 1987 this Registration Statement, filed April 1, 1987 (To be filed via EDGAR) (i)(c) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1000 for Exhibit (6)(i)(c) to individual retirement annuity Post-Effective Amendment No. 11 to contracts issued after May 1, 1988 this Registration Statement, filed April 8, 1988 (To be filed via EDGAR) (i)(d) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1000 for Exhibit (6)(i)(d) to individual retirement annuity Post-Effective Amendment No. 17 to contracts issued after May 1, 1990 this Registration Statement, filed April 30, 1990 (To be filed via EDGAR) (i)(e) Specimen Copy of Group Incorporated by reference to Annuity Amendment Form GAA-7793 Exhibit (6)(i)(e) to for individual retirement annuity Post-Effective Amendment No. 17 to contracts issued before May 1, this Registration Statement, filed 1990 April 30, 1990 (To be filed via EDGAR)
C - 2 (ii)(a) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-120-82 Exhibit (6)(ii)(a) to Post for tax-deferred annuities with Effective Amendment No. 9 to this modifications for certain tax Registration Statement, filed changes and the exchange offer April 24, 1987 (To be filed via EDGAR) (ii)(b) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-120-87 Exhibit (6)(ii)(b) to for tax-deferred annuity contracts Post-Effective Amendment No. 8 to issued after May 1, 1987 this Registration Statement, filed April 1, 1987 (To be filed via EDGAR) (ii)(c) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-120-87 Exhibit (6)(ii)(c) to for tax-deferred annuity contracts Post-Effective Amendment No. 11 to issued after May 1, 1988 this Registration Statement, filed April 8, 1988 (To be filed via EDGAR) (ii)(d) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-120-87 Exhibit (6)(ii)(d) to for tax-deferred annuity contracts Post-Effective Amendment No. 17 to issued after May 1, 1990 this Registration Statement, filed April 30, 1990 (To be filed via EDGAR) (ii)(e) Specimen Copy of Group Incorporated by reference to Annuity Amendment Form GAA-7764 Exhibit (6)(ii)(e) to for tax-deferred annuity contracts Post-Effective Amendment No. 17 to issued before May 1, 1990 this Registration Statement, filed April 30, 1990 (To be filed via EDGAR) (iii)(a) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1010 for Exhibit (6)(iii)(a) to deferred compensation plans Post-Effective Amendment No. 9 to this Registration Statement, filed April 24, 1987 (To be filed via EDGAR) (iii)(b) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1010 for Exhibit (6)(iii)(b) to deferred compensation plan Post-Effective Amendment No. 8 to contracts issued after May 1, 1987 this Registration Statement, filed April 1, 1987 (To be filed via EDGAR) (iii)(c) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1010 for Exhibit (6)(iii)(c) to deferred compensation plan Post-Effective Amendment No. 11 to contracts issued after May 1, 1988 this Registration Statement, filed April 8, 1988 (To be filed via EDGAR)
C - 3 (iii)(d) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1010 for Exhibit (6)(iii)(d) to deferred compensation plan Post-Effective Amendment No. 17 to contracts issued after May 1, 1990 this Registration Statement, filed April 30, 1990 (To be filed via EDGAR) (iii)(e) Specimen Copy of Group Incorporated by reference to Annuity Amendment Form GAA-7792 Exhibit (6)(iii)(e) to for deferred compensation plan Post-Effective Amendment No. 17 to contracts issued before May 1, this Registration Statement, filed 1990 April 30, 1990 (To be filed via EDGAR) (iv) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-110-82 Exhibit (6)(iv) to Post-Effective for Keogh Plans Amendment No. 8 to this Registration Statement, filed April 1, 1987 (To be filed via EDGAR) (v) Specimen Copy of Group Annuity Incorporated by reference to Contract Form GVA-7454 for Exhibit (4)(v) to Post-Effective Participants governed by the Texas Amendment No. 5 to this Optional Retirement Program Registration Statement, filed April 30, 1985 (To be filed via EDGAR) (a) Modifications for certain tax Incorporated by reference to changes Exhibit (6)(v)(a) to Post-Effective Amendment No. 8 to this Registration Statement, filed April 1, 1987 (To be filed via EDGAR) (vi) Specimen Copy of Group Incorporated by reference to Annuity Contract Form GVA-1010 for Exhibit (6)(vi) to Post-Effective non-qualified deferred Amendment No. 11 to this compensation plans Registration Statement, filed April 8, 1988 (To be filed via EDGAR) (7) Application and Enrollment Forms Incorporated by reference to as revised for use after May 1, Exhibit (7) to Post-Effective 1991 Amendment No. 19 to this Registration Statement, filed April 29, 1991 (To be filed via EDGAR) (8) (i) Certificate of Adoption of Incorporated by reference to Amendments to Amended Charter of Exhibit (8)(i) to Post-Effective Prudential and of the Adoption and Amendment No. 11 to this Ratification of a New Amended Registration filed April 8, 1988 Charter of Statement, such (To be filed via EDGAR) Corporation (includes restated Amended Charter)
C - 4 (ii) Copy of the By-Laws of Incorporated by reference to Prudential, as amended Exhibit 99.2 to Post-Effective January 10, 1995 Amendment No. 26 to the Registration Statement of The Prudential Variable Contract Account-10, Registration No. 2-76580, filed April , 1995 (11) (i) Service Agreement between Incorporated by reference to Prudential and The Prudential Exhibit (10)(i) to Post-Effective Investment Corporation Amendment No. 4 to this Registration Statement, filed March 27, 1985 (To be filed via EDGAR) (ii) Service Agreement between Incorporated by reference to Prudential and The Prudential Exhibit (10)(ii) to Post-Effective Asset Management Company, Inc. Amendment No. 4 to this Registration Statement, filed March 27, 1985 (To be filed via EDGAR) (13) (i) Consent of independent public [Filed with this Amendment] accountants (ii) Powers of Attorney (a) Members of the Registrant's Incorporated by reference to Committee: Exhibit 13(ii)(a) to M. Fetting Post-Effective Amendment No. 26 to M. Gencher the Registration Statement of The J. Scott Prudential Variable Contract J. Weber Account-10, Registration No. 2-76580, filed April , 1995 W. McDonald, Jr. [Filed with this Amendment] (b) Directors and Officers of Incorporated by reference to Post- Prudential Effective Amendment No. 15 to the F. Agnew, F. Becker, W. Registration Statement of The Boeschenstein, L. Carter, J. Prudential Variable Appreciable Cullen, C. Davis, R. Enrico, Account, Registration No. A. Gilmour, W. Gray, J. 33-20000, filed April , 1995 Hanson, C. Horner, A. Jacobson, G. Keith, B. Malkiel, E. O'Hara, J. Opel, A. Ryan, C. Sitter, D. Staheli, R. Thomson, P. Vagelos, S. Van Ness, P. Volcker, J. Williams (16) Calculation of Performance Data [Filed with this Amendment] (17) Financial Data Schedule [Filed with this Amendment]
C - 5 Item 29. Directors and Officers of Prudential Information about Prudential's Directors and Executive Officers appears under the heading "Directors and Officers of Prudential" in the Statement of Additional Information (Part B of this Registration Statement). Item 30. Persons Controlled by or Under Common Control with Registrant Registrant is a separate account of The Prudential Insurance Company of America, a mutual life insurance company organized under the laws of the State of New Jersey. The subsidiaries of Prudential are shown on the Organization Chart on pages following. In addition to the subsidiaries shown on the Organization Chart, Prudential holds all of the voting securities of Prudential's Gibraltar Fund, a Delaware corporation, in three of its separate accounts. Prudential also holds directly and in three of its other separate accounts, and in The Prudential Variable Contract Account-24, shares of The Prudential Series Fund, Inc., a Maryland corporation. The balance of the shares are held in separate accounts of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey, wholly-owned subsidiaries of Prudential. All of the separate accounts referred to above are unit investment trusts registered under the Investment Company Act of 1940. Prudential's Gibraltar Fund and The Prudential Series Fund, Inc. are registered as open-end, diversified management investment companies under the Investment Company Act of 1940. The shares of these investment companies are voted in accordance with the instructions of persons having interests in the unit investment trusts, and Prudential, Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey vote the shares they hold directly in the same manner that they vote the shares that they hold in their separate accounts. Registrant may also be deemed to be under common control with The Prudential Variable Contract Account-2 and The Prudential Variable Contract Account-10, separate accounts of Prudential registered as open-end, diversified management investment companies under the Investment Company Act of 1940. The Prudential is a mutual insurance company. Its financial statements include the consolidated accounts of Prudential, its wholly-owned life insurance subsidiary, Pruco Life Insurance Company, and its non-insurance subsidiaries on a fully consolidated basis. The financial statments have been prepared in conformity with generally accepted accounting principles, which as to The Prudential and its insurance subsidiaries include statutory accounting practices prescribed or permitted by state regulatory authorities for insurance companies. C - 6 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ITS SUBSIDIARIES (see page 2 for Direct and Indirect Fine Homes, L.P. (1) subs) Gibraltar Casualty Company Health Venture Partners HSG Health Systems Group Limited Industrial Trust Company Jennison Associates Capital Corp. JACC Services Corp. Page & Gwyther Investments Limited PGR Advisors I, Inc. Clivco Nominees, Ltd. Clive Discount Company, Ltd. Clive Agency Bond Broking Limited Clivwell Securities, Ltd. PRICOA Capital Group, Ltd. PRICOA Funding Limited PRICOA Investment Company PIC Holdings, Ltd. PRICOA Property Investment Management Northern Retail Properties (General Limited Partner) Limited PRICOA P.I.M. (Regulated) Ltd. TransEuropean Properties (General Partnership) Ltd. PRIcoa Realty Group Ltd. PIC Realty Canada Limited PREMISYS Real Estate Services, Inc. PREMISYS Real Estate Services, Inc. of Colorado PRICOA Vida, Sociedad Anonima de PRICOA Invest, Sociedad Anonima, Seguros y Reaseguros S.G.C. The PRICOA Vita S.p.A. Prudential (see pages 3-6 for Direct and PRUCO, Inc. Indirect subs) Insurance Pruco Life Insurance Company of New Jersey Company The Prudential Life Insurance Company Pruco Life Insurance Company of Arizona of Prudential Fund Management Limited America Prudential-Bache Capital Funding Prudential Global Funding, Inc. (Swaps) Limited Prudential Texas Residential Services Prudential Homes Corporation Corporation Prudential Mortgage Asset Corporation Prudential Mortgage Asset Corporation II Prudential Mutual Fund Management, Inc. (2) Prudential of America General Insurance Company (Canada) OTIP/RAEO Insurance Company, Inc. (3) Prudential of America Life Insurance Company (Canada) (4) Prudential Private Placement Investors, Inc. Prudential Realty Securities II, Inc. (5) Prudential Select Life Insurance Prudential Select Holdings, Inc. Company of America Prudential Service Bureau, Inc. PruServicos Participacoes, S.A. (6) Residential Services Corporation of (see page 2 for Direct and Indirect America subs) The Prudential Insurance Company of New Jersey (see page 7 for Direct and Indirect The Prudential Investment Corporation subs) The Prudential Life Insurance Company of Korea, Ltd. The Prudential Life Insurance Company, Ltd. The Prudential Real Estate (see page 2 for Direct and Indirect Affiliates, Inc. subs) U.S. High Yield Management Company
6/30/94 (1) Fine Homes, L.P. is a partnership which owns subsidiaries. (2) Prudential Mutual Fund Management, Inc. is 85% owned by Prudential Securities Incorporated and 15% owned by The Prudential. (3) OTIP/RAEO Insurance Company, Inc. is 95% owned by Prudential of America General Insurance Company (Canada) and 5% owned by OTIP Insurance Brokers, Inc. (4) Prudential of America Life Insurance Company (Canada) is 75% owned by The Prudential and 25% is owned by PPI Financial Group, Ltd. (5) Prudential Realty Securities II, Inc. is 87% owned by The Prudential and 13% owned by PRUCO, Inc. (6) PRUCO, Inc. owns 13 shares (less than 1%) of PruServicos Participacoes, S.A.
C - 7 Major Escrow Corp. ML/MSB Acquisition Inc. PRIcoa Relocation Management, Ltd. PRS Escrow Services, Inc. Fine Homes, LP Prudential Community Interaction Consulting, Inc. (from p. 1) Prudential New York Homes Corporation Prudential Oklahoma Homes Corporation The Prudential Relocation Management Company of Canada Ltd. Prudential The Relocation Funding Corporation of America Insurance Company Lender's Service, Inc. Lender's Service Title Agency, Inc. of Residential Private Label Mortgage Services Corporation America Services Corporation Securitized Asset Sales, Inc. of America Securitized Asset Services Corporation (from p. 1) The Prudential Home Mortgage Company, The Prudential Home Mortgage Inc. Securities Co. Inc. The Prudential Real Estate The Prudential Real Estate Financial The Prudential Real Estate Financial Services of America, Inc. Services of Long Island, Inc. Affiliates, Inc. The Prudential Referral Services, Inc. (from p. 1)
C - 8 Capital Agricultural Property Services, Inc. Flor-Ag Corporation P.G. Realty, Inc. PIC Realty Corporation Pruco Securities Corporation Pruco Services, Inc. Prudential Agricultural Credit, Inc. Prudential Capital and (See Pages 4-6 for Direct and Investment Services, Inc. Indirect subs) Prudential Dental Maintenance Organization, Inc. Prudential Direct, Inc. Prudential Equity Investors, Inc. Prudential Funding Corporation Prudential Health Care Plan, Inc. Prudential Health Care Plan of California, Inc. Prudential Health Care Plan of Connecticut, Inc. The Prudential Health Care Plan of Georgia, Inc. Prudential PRUCO, Prudential Health Care Plan Insurance of New York, Inc. Company Inc. (1) Prudential Holdings, Inc. of (from p. 1) Prudential Institutional Fund Management, Inc. America Prudential Commercial Prudential Insurance Insurance Company Brokerage, Inc. Prudential Property and Prudential General Insurance Casualty Insurance Company The Prudential Property and Casualty General Agency, Inc. The Prudential Property and Casualty Insurance Company of New Jersey Prudential Realty Partnerships, Inc. Prudential Realty Securities, Inc. Prudential Realty Securities II, Inc. (2) Prudential Reinsurance Prudential Reinsurance Holdings, Inc. Company Le Rocher Reinsurance, Ltd. Prudential National Insurance Company Prudential Retirement Services, Inc. Prudential Trust Company PTC Services, Inc. Prudential Uniformed Services Administrators, Inc. The Prudential Bank and Trust Company PBT Mortgage Corporation The Prudential Savings Bank, F.S.B.
(1) PRUCO, Inc. owns 13 shares (less than 1%) of PruServicos Participacoes, S.A. (2) Prudential Realty Securities II, Inc. is 87% owned by The Prudential and 13% owned by PRUCO, Inc.
C - 9 Lapine Technology Corporation Lapine Holding Company (1) PruCapital Management, Inc. Prudential Prudential Interfunding Corp. Capital NNW Utility Funding II, Corporation PruLease, Inc. Inc. Bache Insurance Agency of Arkansas, Inc. Prudential-Bache Bache Insurance Agency Securities (Germany) of Louisiana, Inc. Inc. BraeLoch Successor (See page 5 for Direct Corporation and Indirect subs) PB Bullion Company, Inc. PB Services (U.K.) PGR Advisors, Inc. Prudential-Bache Agriculture Inc. Prudential-Bache Capital Funding (Australia) Limited Prudential-Bache Capital Funding BV Audley Finance BV Prudential-Bache Energy Corp. Prudential-Bache Energy Production Inc. Prudential-Bache Prudential-Bache Holdings Inc. Partners Inc. Prudential-Bache International (U.K.) (See page 6 for Direct Limited and Indirect subs) The Prudential-Bache Investor Services, Inc. Prudential Prudential Prudential-Bache Investor Services II, Inc. Capital Insurance and PRUCO, Inc. Investment Prudential-Bache Leasing Inc. Services, Company Inc. Prudential Prudential-Bache Securities Minerals, Inc. Group, of from p.3) Inc. Prudential-Bache Program Services Inc. America Prudential-Bache Equitec Venture Corp. Properties, Inc. III., Inc. Prudential-Bache Real Estate, Inc. Prudential-Bache Securities (Australia) (See page 5 for Direct Limited Subs) Prudential-Bache Trade Services, Inc. PB Trade Ltd. Prudential-Bache Forex (Hong Kong) Limited Prudential-Bache Forex Prudential Bache Forex (USA) Inc. (U.K.) Limited Prudential-Bache Transfer Agent Services, Inc. Prudential Securities (See page 6 for Direct Incorporated and Indirect subs) Prudential Securities Financial Asset Funding Corp. Prudential Securities Lease Holding Inc. Prudential Securities Municipal Derivatives, Inc. Prudential Securities Realty Funding Corporation Prudential Securities Secured Financing Corporation Prudential Securities Structured Assets, Inc. P-B Finance, Ltd. R&D Funding Corp. Seaport Futures Management, Inc. Special Situations Management Inc. The PRICOA International Bank S.A.
(1) Lapine Holding Company is 66.7% owned by Prudential Capital and Investment Services, Inc., 28.3% owned by Kyocera Corp. and 5% owned by Kyocera (Hong Kong) Ltd.
C - 10 BraeLoch Successor Corporation BraeLoch Holdings, Inc. The (from p. 4) Prudential Prudential Bache Nominees, Limited Insurance Prudential Capital PRUCO, and Corcarr Funds Management Limited Securities Company Inc. Investment Prudential-Bache Corcarr Management Pty. Limited Services, Group, of Inc. Inc. Securities Corcarr Nominees Pty. Limited America (Australia) Corcarr Superannuation Limited Pty. Limited (from p. 4) Divsplit Nominees Pty. Limited PruBache Nominees Pty. Limited Graham Depository Company II Graham Depository Company Series IV Graham Energy, Ltd. Graham Crescent Drilling & Graham Exploration, Ltd. Development, Inc. Resources, Inc. Graham Royalty, Ltd. Graham Production Company Graham Securities Corporation
C - 11 Clive Discount Holdings International Limited Page & Gwyther Holdings Limited Prudential- Page & Gwyther Limited Bache Prudential-Bache Capital International Funding (Equities) Limited Circle (Nominees) Limited (U.K.) Limited Prudential-Bache Capital Funding (Gilts) Limited (from p. 4) Prudential-Bache Capital Funding (Money Brokers) Limited Prudential-Bache (Futures) Limited Prudential-Bache Interfunding (U.K.) Limited Bache & Co. (Lebanon) S.A.L. Bache & Co. S.A. de C.V. (Mexico) Bache Halsey Stuart Shields (Antilles) N.V. Bache Insurance Agency, Incorporated Bache Insurance of Arizona Inc. Bache Insurance of Kentucky, Inc. Bache Shields Securities Corporation Banom Corporation Gelfand, Quinn & Associates Inc. The Prudential Securities P-B Holding Japan Inc. (Japan) Ltd. Prudential Prudential Prudential Prudential Prudential-Bache Brokerage (Hong Kong) Limited Insurance Capital PRUCO, and Securities Securities Prudential-Bache Futures Asia Pacific Ltd. Investment Company Services, Group, Incorporated of Inc. Inc. Inc. (from p. 4) Prudential-Bache Futures (Hong Kong) Limited America Prudential-Bache Securities Asia Pacific Ltd. Prudential-Bache Securities (Belgium) Inc. Prudential-Bache Securities (Espana) S.A. Prudential-Bache Securities (France) S.A. Prudential-Bache Securities (Greece) S.A. Prudential-Bache Securities Prudential-Bache Securities (Holland) Inc. (Holland) N.V. Prudential-Bache Securities (Hong Kong) Limited Prudential-Bache Securities (Luxembourg) Inc. Prudential-Bache Securities (Monaco) Inc. Prudential-Bache Securities (Switzerland) Inc. Prudential-Bache Securities (U.K.) Inc. Shields Model Roland Company Prudential Mutual Fund Distributors, Inc. Prudential Mutual Fund Prudential Mutual Fund Management, Inc. (1) Services, Inc. Prudential Securities Futures Management, Inc. Prudential Securities (Argentina) Inc. Prudential Securities (South Prudential Securities America) Inc. (Uruguay) S.A. Shields Model Roland Securities Incorporated
(1) Prudential Mutual Fund Management, Inc. is 85% owned by Prudential Securities Incorporated and 15% owned by The Prudential.
C - 12 Amicus Investment Company Global Income Fund Management Company, S.A. Global Series Fund II Management Company, S.A. Gateway Holdings, S.A. Jennison Long Bond Management Company PAEC Management Company Prudential Asset Sales and Syndications, Inc. Prudential Home Building Investors, Inc. PruSupply, Inc. PruSupply Capital Assets, Inc. The CSI Asset Management, Inc. Prudential The Prudential The Enhanced Investment Technologies, Inc. Insurance Investment Mercator Asset Management, Inc. Company Corporation PCM International, Inc. of (from p.1) The Prudential Asset Management Company, Inc. America Prudential Asia Investments Limited (1) The Prudential Asset Management Company Securities Corporation Prudential Timber Investments, Inc. (2) The Prudential Investment Advisory Company, Ltd. The Prudential Property Company, Inc. The Prudential Realty Advisors, Inc. Texas Rio Grande Other Assets Group Company, Inc.
PAMA (Indonesia) Limited (4) PAMA (Singapore) Private Limited Prudential Asset Management Asia Hong Kong Ltd. Prudential Asia DBS Limited (3) PT PAMA Indonesia (5) Prudential Asset Management Asia Limited (BVI) Prudential-Bache Capital Prudential-Bache Capital Funding Asia (Hong Kong) Limited Funding Asia Limited S.J. Bedding B.V. Simmons Company Limited (6) Prudential Asia Fund Management Limited (BVI) Simmons Bedding & Furniture (HK) Ltd (6) Simmons Asia Limited (7) Simmons (Southeast Asia) Private Limited Prudential Asia Fund Management Limited Prudential Asia Fund Managers (HK) Limited
(1) The Prudential Asset Management Company, Inc. and Prudential Securities Group, Inc. each own 50% of preferred stock and The Prudential Asset Management Company, Inc. owns 100% common stock. (2) The Prudential owns 6 shares (100%) of preferred stock in Prudential Timber Investments, Inc. (3) Prudential Asia DBS Limited is 50% owned by Prudential Asia Investments Limited and 50% owned by DBS, Inc. (4) PAMA (Indonesia) Limited is 75% owned by Prudential Asset Management Asia Limited (BVI), 15% owned by BDNI and 10% by IFC. (5) PT PAMA Indonesia is 65% owned by Prudential Asset Management Asia Limited (BVI), 20% owned by BDNI and 15% by IFC. (6) Simmons Co. Limited and Simmons Bedding & Furniture (HK) Ltd. are 66.24% owned by S.J. Bedding B.V. and 6.8% owned by Simmons U.S.A., 15% owned by others and 12% by management. (7) Simmons Asia Limited is 90% owned by Simmons Bedding & Furniture (HK) Ltd. and 10% owned by Simmons U.S.A.
C - 13 06/30/94 SHORT DESCRIPTION OF EACH SUBSIDIARY A. SUBSIDIARIES OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 1. FINE HOMES, L.P. (A Limited Partnership) (99% owned by Prudential, the limited partner, and 1% owned by Prudential Homes Corporation, the general partner) (See Section C for direct and indirect subsidiaries) A limited partnership to hold real estate related subsidiaries. 2. GIBRALTAR CASUALTY COMPANY (Incorporated in Delaware) (100%) Previously wrote unusual and non-standard property and casualty risks on a Surplus Line basis. The company is currently servicing policies that it had issued, but is not actively seeking new business. 3. HEALTH VENTURE PARTNERS (Incorporated in Illinois) (100%) Operates as a general partner of the joint venture Rush Prudential Health Plans. 4. HSG HEALTH SYSTEMS GROUP LIMITED (Incorporated in Canada) (100%) Provides consulting and administrative services to corporate fitness facilities and wellness programs in Canada. 5. INDUSTRIAL TRUST COMPANY (Incorporated in Prince Edward Island, Canada) (100%) Holds a permit to operate as a trust and loan company in Prince Edward Island. Currently inactive. 6. JENNISON ASSOCIATES CAPITAL CORP. (Incorporated in New York) (100%) Provides institutional clients (employee benefit plans, endowments, foundations, etc.) with discretionary management of portfolios investing in stocks and bonds and acts as an advisor to The Prudential Institutional Fund. 6a. JACC SERVICES CORP. (Incorporated in New York) (Owned by Jennison Associates Capital Corp.) (100%) Provides computer and accounting support necessary to handle portfolio accounting and reporting. 7. PAGE & GWYTHER INVESTMENTS LIMITED (Incorporated in U.K.) (100%) Inactive. In liquidation. 8. PGR ADVISORS I, INC. (Incorporated in Delaware) (100%) A general partner which provides management, advisory, and administrative services to Global Realty Advisors, a Bermudian partnership that acts as investment manager to the Prudential Global Real Estate Investment Programme. 9. PIC HOLDINGS, LTD. (Incorporated in U.K.) (100%) (See section B for direct and indirect subsidiaries)
C - 14 Acts as a holding company to house the operating entities of Clive Discount Company, Ltd., Clivco Nominees, Clive Agency Bond Broking, Ltd., Clivwell Securities, Ltd., PRICOA Capital Group, Ltd., PRICOA Property Investment Management, Ltd., PRICOA P.I.M. (Regulated) Ltd., TransEuropean Properties (General Partnership) Ltd., and Northern Retail Properties (General Partnership) Ltd. 10. PIC REALTY CANADA LIMITED (Incorporated in Canada) (100%) Owns, develops, operates, manages and leases real estate in Canada. 11. PREMISYS REAL ESTATE SERVICES INC. (Incorporated in Pennsylvania) (100%) Provides real estate properties/facilities management for The Prudential and third parties and advisory services with respect to activities of this type. 11a. PREMISYS REAL ESTATE SERVICES INC. OF COLORADO (Incorporated in Colorado) (Owned by Premisys Real Estate Services, Inc.) (100%) Provides real estate management and related services to unrelated third parties in Colorado. 12. PRICOA VIDA, SOCIEDAD ANONIMA DE SEGUROS Y REASEGUROS (Incorporated in Spain) (Less than 1% owned by PRICOA Vida, Sociedad Anonima de Seguros y Reaseguros, PRUCO, Inc., and The Prudential Investment Corporation. The remainder is owned by The Prudential) Conducts individual life, group pension and group life business in Spain. 12a. PRICOA INVEST, SOCIEDAD ANONIMA, S.G.C. (Incorporated in Spain) (100% owned by PRICOA Vida Sociedad Anonima de Seguros y Reaseguros) Licensed to engage in third party investment management and actuarial consulting in Spain. 13. PRICOA VITA S.P.A. (Incorporated in Italy) (100%) Organized to sell life insurance and related financial products within Italy. 14. PRUCO, INC. (Incorporated in New Jersey) (100%) (See Section F for direct and indirect subsidiaries) A holding company for other subsidiaries. 15. PRUCO LIFE INSURANCE COMPANY (Incorporated in Arizona) (100%) Conducts individual life insurance and single pay deferred annuity business in all states except New York. In addition, the Company markets individual life insurance through it's branch office in Taiwan. 15a. PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY (Incorporated in New Jersey) (Owned by Pruco Life Insurance Company) (100%) Issues a product line corresponding to that of Pruco Life Insurance Company in the states of New Jersey and New York. 15b. THE PRUDENTIAL LIFE INSURANCE COMPANY OF ARIZONA (Incorporated in Arizona) (Owned by Pruco Life Insurance Company) (100%) A company licensed to sell life insurance in the state of Arizona.
C - 15 16. PRUDENTIAL FUND MANAGEMENT LIMITED (Incorporated in Canada) (100%) Manages and distributes mutual funds in Canada. 17. PRUDENTIAL GLOBAL FUNDING, INC. (Incorporated in Delaware) (100%) Provides interest rate and currency swaps and other derivative products. 18. PRUDENTIAL-BACHE CAPITAL FUNDING (SWAPS) LIMITED (Incorporated in Canada) (Owned by Prudential Global Funding, Inc.) (100%) In liquidation. 19. PRUDENTIAL HOMES CORPORATION (Incorporated in New York) (100%) Acts as the sole general partner of Fine Homes, L.P. and Prudential Residential Services, Limited Partnership. It also acts as one of the two general partners of The Prudential Relocation Management, Limited Partnership. 19a. PRUDENTIAL TEXAS RESIDENTIAL SERVICES CORPORATION (Incorporated in Texas) (Owned by Prudential Homes Corporation) (100%) Acts as one of the two general partners of The Prudential Relocation Management, Limited Partnership 20. PRUDENTIAL MORTGAGE ASSET CORPORATION (Incorporated in Delaware) (100%) Formed to invest in mortgage related assets, mortgage loans and mortgage pass-through certificates. 21. PRUDENTIAL MORTGAGE ASSET CORPORATION II (Incorporated in Delaware) (100%) Formed to invest in mortgage pass-through certificates. 22. PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (Incorporated in Delaware) (15% owned by The Prudential and 85% owned by Prudential Securities Incorporated) Acts as a registered investment advisor under the Investment Advisors Act of 1940 and engages in investment supervisory and related functions associated with developing and servicing mutual funds. The company commenced operation on July 1, 1987. 23. PRUDENTIAL OF AMERICA GENERAL INSURANCE COMPANY (CANADA) (Incorporated in Canada) (100%) Provides automobile and homeowner insurance in Canada. 23a. OTIP/RAEO INSURANCE COMPANY, INC. (Incorporated in Canada) (95% owned by Prudential of America General Insurance Company [Canada]) Provides automobile and homeowner insurance in Canada. This company markets its products to those employed in the education sector. 24. PRUDENTIAL OF AMERICA LIFE INSURANCE COMPANY (CANADA) (Incorporated in Canada) (75%) Markets specialized life insurance products to the upper income segment of the Canadian market place. 25. PRUDENTIAL PRIVATE PLACEMENT INVESTORS, INC. (Incorporated in New Jersey) (100%)
C - 16 Serves as General Partner to a newly formed partnership, Prudential Private Placement Investors, L.P. ("PPPI, LP"), a Delaware limited Partnership. It is anticipated that PPPI, LP will provide investment advisory services to pension plans and other institutional investors. 26. PRUDENTIAL REALTY SECURITIES II, INC. (Incorporated in Delaware) (87% owned by The Prudential and 13% owned by PRUCO, Inc.) Issues bonds secured by real estate mortgages. 27. PRUDENTIAL SELECT HOLDINGS, INC. (Incorporated in Delaware) (100%) A holding company for the Prudential Select Life Insurance Company of America. 28. PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA (Incorporated in Minnesota) (Owned by Prudential Select Holdings, Inc.) (100%) Intends to sell universal life insurance products to upper income and high net worth individuals and corporations in all states except New York. 29. PRUDENTIAL SERVICE BUREAU, INC. (Incorporated in Kentucky) (100%) Provides administrative services for employee benefits packages (i.e. COBRA and FLEX) and pays medical and dental claims. 30. PRUSERVICOS PARTICIPACOES, S.A. (Incorporated in Brazil) (Less than 1% owned by PRUCO, Inc. The remainder owned by The Prudential Insurance Company of America.) A holding company owning preferred shares, having certain limited voting rights, representing 49 percent of the share capital of Atlantica-Prudential Participacoes S.A., which in turn owns approximately 95 percent of the share capital of Prudential-Atlantica Companhia Brasileria de Seguros, a Brazilian property and casualty insurer. 31. RESIDENTIAL SERVICES CORPORATION OF AMERICA (Incorporated in Delaware) (100%) (See Section D for direct and indirect subsidiaries) A company which engages in the activities of its direct wholly owned subsidiaries: Lender's Service, Inc., Private Label Mortgage Services Corporation, Securitized Asset Sales, Inc., Securitized Asset Services Corporation and The Prudential Home Mortgage Company, Inc., and their subsidiaries. 32. THE PRUDENTIAL INSURANCE COMPANY OF NEW JERSEY (Incorporated in New Jersey) (100%) A life insurance company which presently is qualified only in New Jersey. It has not yet commenced as an insurance business. 33. THE PRUDENTIAL INVESTMENT CORPORATION (Incorporated in New Jersey) (100%) (See Section H for direct and indirect subsidiaries) Has responsibility for the investment business of The Prudential. It in turn owns all the outstanding stock of Gateway Holdings, S.A., Prudential Asset Sales and Syndications, Inc., Prudential Home Building Investors, Inc., PruSupply, Inc., The Prudential Asset Management Company, Inc., The Prudential Investment Advisory Company, Ltd., The Prudential Mortgage Capital Company, Inc. (a Delaware corporation), The Prudential Property Company, Inc., and The Prudential Realty Advisors, Inc. 34. THE PRUDENTIAL LIFE INSURANCE COMPANY OF KOREA, LTD. (Incorporated in Korea) (100%)
C - 17 Organized to sell life insurance products within Korea. 35. THE PRUDENTIAL LIFE INSURANCE COMPANY, LTD. (Incorporated in Japan) (100%) Organized to sell traditional and variable life insurance products within Japan. 36. THE PRUDENTIAL REAL ESTATE AFFILIATES, INC. (Incorporated in Delaware) (100%) (See Section E for direct and indirect subsidiaries) Offers independently owned residential real estate brokerage franchises. 37. U.S. HIGH YIELD MANAGEMENT COMPANY (Incorporated in New Jersey) (100%) Provides management services (through the Capital Markets Group) to the U.S. High Yield Fund, a high yield corporate bond fund organized in Luxembourg. B. SUBSIDIARIES OF PIC HOLDINGS, LTD. 1. CLIVE DISCOUNT COMPANY, LTD. (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.) (100%) Operates as a discount house in the London market. 1a. CLIVCO NOMINEES (Incorporated in the U.K.) (Owned by Clive Discount Company, Ltd.) (100%) Inactive. 1b. CLIVE AGENCY BOND BROKING, LIMITED (Incorporated in U.K.) (Owned by Clive Discount Company, Ltd.) (100%) Identifies attractive investment opportunities in the business of brokering Government Bonds in the United Kingdom and continental Europe. 2. CLIVWELL SECURITIES, LTD. (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.) (100%) An investment company which consists of Mithras Investment Trust holdings and an 8.5% interest in a real estate investment trust which holds a leasehold interest in a 12 story commercial building in London, England. 3. PRICOA CAPITAL GROUP, LTD. (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.) (100%) Identifies attractive investment opportunities in the United Kingdom and continental Europe. 4. PRICOA FUNDING LIMITED (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.) (100%) A finance company borrowing capital from The Prudential, and lending the capital to its subsidiary company PRICOA Investment Company to fund its investment activities. 4a. PRICOA INVESTMENT COMPANY (Incorporated in U.K.) (Owned by PRICOA Funding Limited) (100%) To identify attractive investment opportunities in the United Kingdom and continental Europe for sale to, or manged on behalf of, third party clients.
C - 18 5. PRICOA PROPERTY INVESTMENT MANAGEMENT, LIMITED (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.) (100%) Provides investment management and investment advisory services to international institutional clients who invest in U.K. and continental European real estate. 5a. NORTHERN RETAIL PROPERTIES (GENERAL PARTNER) LTD. (Incorporated in U.K.) (Owned by PRICOA Property Investment Management, Ltd.) (100%) Serves as general partner to Northern Retail Property Ltd. Partnership. A U.K. limited partnership whose principle activity is investment in three retail units in northern Britain. 5b. PRICOA P.I.M. (REGULATED) LTD. (Incorporated in the U.K.) (Owned by PRICOA Property Investment Management, Ltd.) (100%) Provides investment management and investment advisory services to international institutional clients who invest in U.K. and continental European real estate. 5c. TRANSEUROPEAN PROPERTIES (GENERAL PARTNERSHIP) LTD. (Incorporated in the U.K.) (Owned by PRICOA Property Investment Management, Ltd.) (100%) Serves as general partner to TransEuropean Property Limited Partnership, A U.K. limited partnership. The principal activity of TransEuropean Property Limited Partnership is investment in European property. 6. PRICOA REALTY GROUP LIMITED (Incorporated in U.K.) (Owned by PIC Holdings, Ltd.) (100%) Provides international real estate services to PGR Advisors I, Inc. in connection with the Prudential Global Real Estate Programme, and provides The Prudential with a presence in London to monitor developments and identify attractive investment opportunities in European property markets. C. SUBSIDIARIES OF FINE HOMES, L.P. Subsidiaries C.1 through C.9 are 100% owned by Prudential Residential Services, Limited Partnership ("PRS LP"). 1. MAJOR ESCROW CORP. (Incorporated in California) (100%) Inactive. 2. ML/MSB ACQUISITION INC. (Incorporated in Delaware) (100%) Acts as the general partner of Moran, Stahl & Boyer, L.P. 3. PRICOA RELOCATION MANAGEMENT, LTD. (Incorporated in U.K.) (100%) Involved in the relocation consulting business. 4. PRS ESCROW SERVICES, INC. (Incorporated in California) (100%) Inactive. 5. PRUDENTIAL COMMUNITY INTERACTION CONSULTING, INC. (Incorporated in Delaware) (100%)
C - 19 Acts as a holding company for subsidiaries which are involved the residential real estate referral business. 6. PRUDENTIAL NEW YORK HOMES CORPORATION (Incorporated in New York) (100%) General partner of Prudential Louisiana Homes General Partnership, a New York Partnership, Prudential Insurance Services Limited Partnership, a New York Partnership, Landvest, a New York general partnership, Moran, Stahl & Boyer, a New York general partnership, and Prudential Relocation Management, a New York general partnership. 7. PRUDENTIAL OKLAHOMA HOMES CORPORATION (Incorporated in Oklahoma) (100%) Inactive. 8. PRUDENTIAL RELOCATION MANAGEMENT COMPANY OF CANADA LTD. (Incorporated in Ontario, Canada) (100%) Involved in the relocation business. 9. THE RELOCATION FUNDING CORPORATION OF AMERICA (Incorporated in California) (100%) Involved in the relocation business. D. SUBSIDIARIES OF RESIDENTIAL SERVICES CORPORATION OF AMERICA 1. LENDER'S SERVICE, INC. (Incorporated in Delaware) (100%) Obtains residential mortgage appraisals on behalf of mortgage lenders, provides title agency services, and manages the provision of closing services. 1a. LENDER'S SERVICE TITLE AGENCY, INC. (Incorporated in Ohio) (Owned by Lender's Service, Inc.) (100%) Acts as a title agent in the state of Ohio. 2. PRIVATE LABEL MORTGAGE SERVICES CORPORATION (Incorporated in Delaware) (100%) Provides residential mortgage loan underwriting and origination services to other companies for a fee. 3. SECURITIZED ASSET SALES, INC. (Incorporated in Delaware) (100%) Offers residential mortgage loan securitization services and sells public and private mortgage-backed securities. 4. SECURITIZED ASSET SERVICES CORPORATION (Incorporated in New Jersey) (100%) Offers security administration services and master servicing. 5. THE PRUDENTIAL HOME MORTGAGE COMPANY, INC. (Incorporated in New Jersey) (100%) Finances residential mortgage loans, through direct origination and purchases, services and sells residential mortgage loans, and engages in other residential mortgage banking activities. 5a. THE PRUDENTIAL HOME MORTGAGE SECURITIES COMPANY, INC. (Incorporated in Delaware) (Owned by The Prudential Home Mortgage Company, Inc.) (100%)
C - 20 Sells public and private mortgage-backed securities. E. SUBSIDIARIES OF THE PRUDENTIAL REAL ESTATE AFFILIATES 1. THE PRUDENTIAL REAL ESTATE FINANCIAL SERVICES OF AMERICA, INC. (Incorporated in California) (100%) Acts as a general partner in mortgage brokerage limited partnerships with affiliates of franchisees of The Prudential Real Estate Affiliates, Inc. 1a. THE PRUDENTIAL REAL ESTATE FINANCIAL SERVICES OF LONG ISLAND, INC. (Incorporated in California) (Owned by The Prudential Real Estate Financial Services of America, Inc.) (100%) Acts as a general partner in a New York based mortgage brokerage limited partnership with a franchisee of The Prudential Real Estate Affiliates, Inc. 2. THE PRUDENTIAL REFERRAL SERVICES, INC. (Incorporated in Delaware) (100%) Operates a residential real estate referral network. F. SUBSIDIARIES OF PRUCO, INC. 1. CAPITAL AGRICULTURAL PROPERTY SERVICES, INC. (Incorporated in Delaware) (100%) Provides management and real estate brokerage services for agricultural properties of The Prudential and others. 2. FLOR-AG CORPORATION (Incorporated in Florida) (100%) Engages primarily in the purchase, development, operation, lease and sale of farmland in Florida. 3. P.G. REALTY, INC. (Incorporated in Nebraska) (100%) Engages primarily in the purchase, development, operation, lease and sale of farmland in Nebraska. 4. PIC REALTY CORPORATION (Incorporated in Delaware) (100%) Owns, develops, operates, manages and leases real estate in the United States. 5. PRUCO SECURITIES CORPORATION (Incorporated in New Jersey) (100%) Acts as a registered securities broker-dealer, licensed in every state, Washington D.C. and Guam. Serves primarily as the medium through which registered agents of The Prudential sell Prudential Securities Incorporated mutual funds and offer variable products from Pruco Life and The Prudential. 6. PRUCO SERVICES, INC. (Incorporated in New Jersey) (100%) Provides clinical bioanalytical services to The Prudential, as well as to other insurance companies and industries in the United States and Canada. 7. PRUDENTIAL AGRICULTURAL CREDIT, INC. (Incorporated in Tennessee) (100%)
C - 21 Provides a broad range of financial services to agriculture, including farm real estate mortgages, short term financing and equipment leasing. 8. PRUDENTIAL CAPITAL AND INVESTMENT SERVICES, INC. (Incorporated in Delaware) (100%) (See Section G for direct and indirect subsidiaries) A holding company for other subsidiaries. 9. PRUDENTIAL DENTAL MAINTENANCE ORGANIZATION, INC. (Incorporated in Texas) (100%) A Dental Maintenance Organization which serves the state of Texas. 10. PRUDENTIAL DIRECT, INC. (Incorporated in Georgia) (100%) Provides direct response and direct marketing services to The Prudential and its subsidiaries. 11. PRUDENTIAL EQUITY INVESTORS, INC. (Incorporated in New York) (100%) As a registered investment advisor, it makes private equity investments for The Prudential and others. 12. PRUDENTIAL FUNDING CORPORATION (Incorporated in New Jersey) (100%) Serves as a financing company for The Prudential and its subsidiaries. Funds are obtained primarily through the issuance of commercial paper, private placement medium term notes, Eurobonds, Eurocommercial paper, Euro-medium term notes and master notes. 13. PRUDENTIAL HEALTH CARE PLAN, INC. (Incorporated in Texas) (100%) A federally-qualified Health Maintenance Organization which serves the New Jersey; Houston, Dallas, San Antonio and Austin, Texas; Nashville and Memphis, Tennessee; Chicago, Illinois; Jacksonville, Tampa, Orlando and South Florida, Florida; Richmond, Virginia; St. Louis and Kansas City, Missouri; Columbus, Cleveland and Cincinnati, Ohio; Charlotte, North Carolina; Denver, Colorado; Oklahoma City and Tulsa, Oklahoma; Baltimore, Maryland; Washington, D.C.; Philadelphia, Pennsylvania; Kansas City, Kansas; Little Rock, Arkansas; Massachusetts and Indiana areas. 14. PRUDENTIAL HEALTH CARE PLAN OF CALIFORNIA, INC. (Incorporated in California) (100%) A Health Maintenance Organization which serves the California area. 15. PRUDENTIAL HEALTH CARE PLAN OF CONNECTICUT, INC. (Incorporated in Connecticut) (100%) A Health Maintenance Organization which serves the Connecticut area. 16. PRUDENTIAL HEALTH CARE PLAN OF GEORGIA (Incorporated in Georgia) (100%) A Health Maintenance Organization which serves the Georgia area. 17. PRUDENTIAL HEALTH CARE PLAN OF NEW YORK, INC. (Incorporated in New York) (100%) A Health Maintenance Organization which serves the New York area. 18. PRUDENTIAL HOLDINGS, INC. (Incorporated in Delaware) (100%) A holding company that does not currently hold any other companies.
C - 22 19. PRUDENTIAL INSTITUTIONAL FUND MANAGEMENT, INC. (Incorporated in Pennsylvania) (100%) A registered investment advisor which manages a series of mutual funds. The funds are offered to institutional investors, principally employer-sponsored defined contribution plans. 20. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY (Incorporated in Indiana) (100%) Provides dwelling, fire, automobile, homeowners or personal catastrophe insurance for all states except New Jersey. 20a. PRUDENTIAL COMMERCIAL INSURANCE COMPANY (Incorporated in Delaware) (Owned by Prudential Property and Casualty Insurance Company) (100%) Writes automobile insurance and various commercial coverage in many states. The company's contract as a servicing carrier, for the New Jersey Automobile Full Insurance Underwriting Association, expired in March, 1989. The company will continue to service claims during the run-off period. 20b. PRUDENTIAL INSURANCE BROKERAGE, INC. (Incorporated in Arizona) (Owned by Prudential Commercial Insurance Company) (100%) Acts as an insurance broker and agency in many states. 20c. PRUDENTIAL GENERAL INSURANCE COMPANY (Incorporated in Delaware) (Owned by Prudential Property and Casualty Insurance Company) (100%) Provides coverage for preferred homeowners and private passenger automobiles in many states. 20d. THE PRUDENTIAL PROPERTY AND CASUALTY GENERAL AGENCY, INC. (Incorporated in Texas) (Owned by Prudential Property and Casualty Insurance Company) (100%) Acts as Managing General Agency in the state of Texas. 21. THE PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY OF NEW JERSEY (Incorporated in New Jersey) (100%) Writes automobile, homeowner and personal catastrophe liability lines of business in the state of New Jersey. 22. PRUDENTIAL REALTY PARTNERSHIPS, INC. (Incorporated in Delaware) (100%) Acts as a general partner in limited partnerships which own real estate. 23. PRUDENTIAL REALTY SECURITIES, INC. (Incorporated in Delaware) (100%) Issues zero coupon bonds secured by residential mortgages. 24. PRUDENTIAL REALTY SECURITIES II, INC. (Incorporated in Delaware) (87% owned by The Prudential and 13% owned by Pruco, Inc.) Issues bonds secured by real estate mortgages. 25. PRUDENTIAL REINSURANCE HOLDINGS (Incorporated in Delaware) (100%) A holding company which is the sole owner of Prudential Reinsurance Company.
C - 23 25a. PRUDENTIAL REINSURANCE COMPANY (Incorporated in Delaware) (Owned by Prudential Reinsurance Holdings) (100%) Writes substantially all types of property and casualty reinsurance. 25b. LE ROCHER REINSURANCE LTD. (Incorporated in U.K.) (Owned by Prudential Reinsurance Company) (100%) Engages in the property and casualty reinsurance business, principally in Europe. 25c. PRUDENTIAL NATIONAL INSURANCE COMPANY (Incorporated in Arizona) (Owned by Prudential Reinsurance Company) (100%) Writes commercial property and casualty insurance in the alternative risk market. 26. PRUDENTIAL RETIREMENT SERVICES, INC. (Incorporated in New Jersey) (100%) Acts as the broker-dealer which distributes securities on behalf of Prudential Defined Contribution Service. These securities consist of shares of the Prudential Institutional Fund and four registered separate accounts of The Prudential. 27. PRUDENTIAL TRUST COMPANY (Incorporated in Pennsylvania) (100%) Responsible for the management of assets in trust of certain employee benefit trusts and other tax exempt trusts. 27a. PTC SERVICES, INC. (Incorporated in New Jersey) (Owned by Prudential Trust Company) (100%) Oversees the activities of investment advisers who manage certian assets held in trust by Prudential Trust Company. 28. PRUDENTIAL UNIFORMED SERVICES ADMINISTRATORS, INC. (Incorporated in Oklahoma) (100%) Established to administer CHAMPUS (Civilian Health and Medical Program of Uniformed Service) Insurance for all CHAMPUS eligibles in the states of Texas, Oklahoma, Arkansas and Louisiana. 29. THE PRUDENTIAL BANK AND TRUST COMPANY (Incorporated in Georgia) (100%) As a "non-bank" bank, provides commercial and consumer loans, deposit products (other than demand deposits), and trust services throughout the U.S. 29a. PBT MORTGAGE CORPORATION (Incorporated in Georgia) (Owned by The Prudential Bank and Trust Company) (100%) As a wholly-owned subsidiary of The Prudential Bank and Trust Company, it originates home equity loans in states which would otherwise exclude the bank. 30. THE PRUDENTIAL SAVINGS BANK, F.S.B. (Incorporated in Georgia) (100%) Operating as a federal savings bank, it provides commercial and consumer loans and deposit products in the state of Georgia. It also originates consumer products in various other states. G. SUBSIDIARIES OF PRUDENTIAL CAPITAL AND INVESTMENT SERVICES, INC.
C - 24 1. LAPINE HOLDING COMPANY (Incorporated in Delaware) (66.7%) Holding company for Lapine Technology Corporation. 2. LAPINE TECHNOLOGY CORPORATION (Incorporated in California) (Owned by Lapine Holding Company) (100%) Inactive. 3. PRUDENTIAL CAPITAL CORPORATION (Incorporated in Delaware) (100%) Holding company which has through its subsidiaries, an investment portfolio inclusive of loans, leases and other forms of financing. Holding company for PruCapital Management, Inc., Prudential Interfunding Corp. and Prulease, Inc. 4. PRUCAPITAL MANAGEMENT, INC. (Incorporated in Delaware) (Owned by Prudential Capital Corporation) (100%) Provides various marketing and administrative services to PruLease, Inc., Prudential Interfunding Corp., Prudential Capital Corporation and The Prudential Insurance Company of America. 5. PRUDENTIAL INTERFUNDING CORP. (Incorporated in Delaware) (Owned by Prudential Capital Corporation) (100%) Has an investment portfolio of loans, leases and other forms of financing. 6. PRULEASE, INC. (Incorporated in Delaware) (Owned by Prudential Capital Corporation) (100%) Has an investment portfolio of loans, leases and other forms of financing. 7. NNW UTILITY FUNDING II, INC. (Incorporated in California) (Owned by PruLease, Inc.) (100%) Acting to expedite Prudential Departure from the multi-asset floating rate lease business. 8. PRUDENTIAL SECURITIES GROUP INC. (Incorporated in Delaware) (PRUCO, Inc. owns 100% preferred and Prudential Capital & Investment Services, Inc. owns 100% common.) A holding company. 9. BACHE INSURANCE AGENCY OF ARKANSAS, INC. (Incorporated in Arkansas) (Owned by Prudential Securities Group Inc.) (100%) Insurance agent in the state of Arkansas. 10. BACHE INSURANCE AGENCY OF LOUISIANA, INC. (Incorporated in Louisiana) (Owned by Prudential Securities Group Inc.) (100%) Insurance agent in the state of Louisiana. Holding company for Prudential-Bache Securities (Germany) Inc. 11. PRUDENTIAL-BACHE SECURITIES (GERMANY) INC. (Incorporated in Delaware) (Owned by Bache Insurance Agency of Louisiana, Inc.) (100%) Correspondent of Prudential-Bache Securities Incorporated in Germany.
C - 25 12. BRAELOCH SUCCESSOR CORPORATION (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Owns Braeloch Holdings Inc. which is an oil and gas company engaged in partnership management, oil and gas property management and gas marketing and transportation. 13. BRAELOCH HOLDINGS, INC. (Incorporated in Delaware) (Owned by BraeLoch Successor Corporation) (100%) Holding company. 14. GRAHAM RESOURCES, INC. (Incorporated in Delaware) (Owned by BraeLoch Holdings Inc. ) (100%) Holding company for all partnership management and administration activities. Sole general partner is Graham Acquisition 1984-I. 15. GRAHAM DEPOSITORY COMPANY II (Incorporated in Delaware) (Owned by Graham Resources, Inc.) (100%) Growth Fund depository company. 16. GRAHAM DEPOSITORY COMPANY SERIES IV (Incorporated in Delaware) (Owned by Graham Resources, Inc.) (100%) Series IV depository company. 17. GRAHAM ENERGY, LTD. (Incorporated in Louisiana) (Owned by Graham Resources, Inc.) (100%) General Partner in Growth Fund and related products involved primarily in the investment in oil and gas related companies and assets. General Partner in (1) SPG Reserve Program 1981 (2) SPG Reserve Program (3) Graham Income Fund 82A. 18. GRAHAM EXPLORATION, LTD. (Incorporated in Louisiana) (Owned by Graham Resources, Inc.) (100%) General Partner in various limited and general partnerships involved in exploratory oil and gas operations. General partner to Graham Limited Partnership 83A and Graham Limited Partnership 83B. Managing General Partner to Graham Drilling Partnership 83A and Graham Drilling Partnership 83B. 19. CRESCENT DRILLING & DEVELOPMENT, INC. (Incorporated in Delaware) (Owned by Graham Exploration, Ltd.) (100%) Managing Partner of the following partnerships: Crescent Associates Partnership 1982, Crescent (NDL) Partnership 1985, Crescent (ICW) Partnership 1985, Crescent (CLF) Partnership 1985 and Crescon Partnership 1982. 20. GRAHAM ROYALTY, LTD. (Incorporated in Louisiana) (Owned by Graham Resources, Inc.) (100%) General Partner of Prudential-Bache Energy Income Funds. Named operator of oil and gas properties. 21. GRAHAM PRODUCTION COMPANY (Incorporated in Delaware) (Owned by Graham Royalty, Ltd.) (100%) Managing General Partner of GOP which has been terminated.
C - 26 22. GRAHAM SECURITIES CORPORATION (Incorporated in Delaware) (Owned by Graham Resources, Inc.) (100%) A NASD member firm responsible for marketing various Graham financial products. 23. PB BULLION COMPANY INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Purchases metals for resale to processors, fabricators, and other dealers. 24. P-B SERVICES (U.K.) (Incorporated in U.K.) (Owned by Prudential Securities Group Inc.) (100%) Holds unsecured subordinated loan stock for Prudential-Bache International (U.K) Limited. 25. PGR ADVISORS, INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Vehicle utilized in home office relocation. 26. PRUDENTIAL-BACHE AGRICULTURE INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Inactive. 27. PRUDENTIAL-BACHE CAPITAL FUNDING (AUSTRALIA) LIMITED (Incorporated in Australia) (Owned by Prudential Securities Group Inc.) (100%) Dealer in fixed interest securities. 28. PRUDENTIAL-BACHE CAPITAL FUNDING BV (Incorporated in The Netherlands) (Owned by Prudential Securities Group Inc.) (100%) Management company for special purpose vehicle (Audley Finance BV). 29. AUDLEY FINANCE BV (Incorporated in The Netherlands) (Owned by Prudential-Bache Capital Funding BV) (100%) Investment vehicle. 30. PRUDENTIAL-BACHE ENERGY CORP. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Engages through limited partnerships, in acquisitions of oil drilling properties and financing secondary and tertiary recovery systems. 31. PRUDENTIAL-BACHE ENERGY PRODUCTION INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Acts as a general partner for oil and gas limited partnerships. 32. PRUDENTIAL-BACHE HOLDINGS INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Holding company for Prudential-Bache Partners Inc. 33. PRUDENTIAL-BACHE PARTNERS INC. (Incorporated in Nevada) (Owned by Prudential-Bache Holdings Inc.) (100%)
C - 27 Insurance agent in the State of Nevada and a general partner to an employee investment partnership. 34. P-B CAPITAL PARTNERS (UK) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache Capital Partners I, LP, a general partnership of Prudential-Bache Partners Inc.) (100%) Inactive. 35. PRUDENTIAL-BACHE INTERNATIONAL (UK) LIMITED (Incorporated in U.K.) (Owned by Prudential Securities Group Inc.) (100%) Holding & service company for U.K. subsidiaries. 36. CLIVE DISCOUNT HOLDINGS INTERNATIONAL LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache International [UK] Limited) (100%) Inactive. 37. PAGE & GWYTHER HOLDINGS LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache International [UK] Limited) (100%) Inactive. 38. PAGE & GWYTHER LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache International [U.K.] Limited) (100%) Inactive. 39. PRUDENTIAL-BACHE CAPITAL FUNDING (EQUITIES) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache International (UK) Limited) (100%) London Stock Exchange broker and group custodian services. 40. CIRCLE (NOMINEES) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache Capital Funding [Equities] Limited) (100%) Holds stock for Prudential-Bache Capital Funding (Equities) Limited and Prudential Securities Incorporated customers in nominee name. 41. PRUDENTIAL-BACHE CAPITAL FUNDING (GILTS) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache International [UK] Limited) (100%) Inactive. 42. PRUDENTIAL-BACHE CAPITAL FUNDING (MONEY BROKERS) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache International [UK] Limited) (100%) London Stock Exchange money broker. 43. PRUDENTIAL-BACHE (FUTURES) LIMITED (Incorporated in U.K.) (Owned by Prudential- Bache International [U.K.] Limited) (100%) Broker/trader in financial futures and commodities. 44. PRUDENTIAL-BACHE INTERFUNDING (U.K.) LIMITED (Incorporated in Delaware) (Owned by Prudential- Bache International [U.K.] Limited) (100%) Established to act as a principal in leveraged buyouts but is currently in liquidation.
C - 28 45. PRUDENTIAL-BACHE INVESTOR SERVICES INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Serves as an assignor limited partner for public deals offered by the Direct Investment Department. 46. PRUDENTIAL-BACHE INVESTOR SERVICES II, INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Serves as an assignor limited partner for public deals offered by the Direct Investment Department. 47. PRUDENTIAL-BACHE LEASING INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Leasing company which advises limited partnerships in the leasing business. 48. PRUDENTIAL-BACHE MINERALS INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Acts as co-general partner in the Prudential Securities/Barrick Gold Acquisition Fund. 49. PRUDENTIAL-BACHE PROGRAM SERVICES INC. (Incorporated in New York) (Owned by Prudential Securities Group Inc.) (100%) Leases equipment and furniture to Prudential Securities Incorporated. Issuer of puts in municipal bond offerings underwritten by Prudential Securities Incorporated. 50. PRUDENTIAL-BACHE PROPERTIES INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Monitors syndicated private placements of investments in real estate and acts as general partner for real estate and other limited partnerships. 51. EQUITEC VENTURE CORP. III , INC. (Incorporated in California) (Owned by Prudential-Bache/Equitec Real Estate Partnership - a limited partnership of Prudential-Bache Properties Inc.) (100%) Owns real estate. 52. PRUDENTIAL-BACHE REAL ESTATE, INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Inactive. 53. PRUDENTIAL-BACHE SECURITIES (AUSTRALIA) LIMITED (Incorporated in Australia) (Owned by Prudential Securities Group Inc.) (100%) Stock brokerage. 54. BACHE NOMINEES LTD. (Incorporated in Australia) (Owned by Prudential-Bache Securities [Australia] Limited) Nominee company for the fixed income department. 55. CORCARR FUNDS MANAGEMENT LIMITED (Incorporated in Australia) (Owned by Prudential-Bache Securities [Australia] Limited) (100%) Fund manager.
C - 29 56. CORCARR MANAGEMENT PTY. LIMITED (Incorporated in Australia) (Owned by Prudential-Bache Securities [Australia] Limited) (100%) Nominee and management company. 57. CORCARR NOMINEES PTY. LIMITED (Incorporated in Australia) (Owned by Prudential- Bache Securities [Australia] Limited) (100%) Nominee company for the safe custody of clients' scrip. 58. CORCARR SUPERANNUATION PTY. LIMITED (Incorporated in Australia) (Owned by Prudential-Bache Securities [Australia] Limited) (100%) Trustee company for the staff Superannuation Fund. 59. DIVSPLIT NOMINEES PTY. LIMITED (Incorporated in Australia) (Owned by Prudential- Bache Securities [Australia] Limited) (100%) Nominee company for the protection of client dividends, new issues and takeovers. 60. PRUBACHE NOMINEES PTY. LTD. (Incorporated in Australia) (Owned by Prudential-Bache Securities [Australia] Limited) (100%) Nominee/custodian for clients of Prudential-Bache Securities (Australia) Limited and Prudential Securities Incorporated. 61. PRUDENTIAL-BACHE TRADE SERVICES INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Holding company for PB Trade Finance Co., S.A. (PB Trafco), PB Trade Ltd., and Prudential-Bache Forex (USA) Inc. 62. PB TRADE LTD. (Incorporated in U.K.) (Owned by Prudential-Bache Trade Services Inc.) (100%) Inactive. 63. PRUDENTIAL-BACHE FOREX (USA) INC. (Incorporated in Delaware) (Owned by Prudential-Bache Trade Services Inc.) (100 To engage in the foreign exchange business; holding company for Prudential-Bache Forex (Hong Kong) Limited and Prudential-Bache Forex (U.K.) Limited. 64. PRUDENTIAL-BACHE FOREX (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned by Prudential-Bache Forex [USA] Inc.) (100%) Engages in the foreign exchange business. 65. PRUDENTIAL-BACHE FOREX (U.K.) LIMITED (Incorporated in U.K.) (Owned by Prudential-Bache Forex [USA] Inc.) (100%) Engages in trade, finance and foreign exchange. 66. PRUDENTIAL-BACHE FUTURES (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned by Prudential Securities, Inc.) (100%) To introduce customers to Prudential Securities and affiliates for futures transactions on U.S. exchanges and execute futures orders on behalf of Prudential Securities on the Hong Kong Futures Exchange.
C - 30 67. PRUDENTIAL-BACHE TRANSFER AGENT SERVICES, INC. (Incorporated in New York) (Owned by Prudential Securities Group Inc.) (100%) Acts as transfer agent for limited partnerships sponsored by Prudential Securities Group Inc. or sold by Prudential Securities Incorporated. 68. PRUDENTIAL SECURITIES INCORPORATED (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Securities and commodity broker-dealer; underwriter. 69. BACHE & CO. (LEBANON) S.A.L. (Incorporated in Lebanon) (Owned by Prudential Securities Incorporated) (100%) Inactive. 70. BACHE & CO. S.A. DE C.V. (MEXICO) (Incorporated in Mexico) (Owned by Prudential Securities Incorporated) (100%) Inactive. 71. BACHE HALSEY STUART COMMODITIES S.A. (Incorporated in France) (Owned by Prudential Securities Incorporated) (100%) Inactive. 72. BACHE INSURANCE AGENCY, INCORPORATED (Incorporated in Massachusetts) (Owned by Prudential Securities Incorporated) (100%) Insurance agent in Massachusetts. 73. BACHE INSURANCE OF ARIZONA INC. (Incorporated in Arizona) (Owned by Prudential Securities Incorporated) (100%) Insurance agent in Arizona. 74. BACHE INSURANCE OF KENTUCKY, INC. (Incorporated in Kentucky) (Owned by Prudential Securities Incorporated) (100%) Insurance agent in Kentucky. 75. BACHE SHIELDS SECURITIES CORPORATION (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Inactive. 76. BANOM CORPORATION (Incorporated in New York) (Owned by Prudential Securities Incorporated) (100%) Holds securities as nominee; otherwise inactive. 77. GELFAND, QUINN & ASSOCIATES INC. (Incorporated in Ohio) (Owned by Prudential Securities Incorporated) (100%) Inactive. 78. P-B HOLDING JAPAN INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Holds the stock of Prudential Securities (Japan) Ltd.
C - 31 79. PRUDENTIAL SECURITIES (JAPAN) LTD. (Incorporated in Delaware) (Owned by P-B Holding Japan Inc.) (100%) Service affiliate of Prudential Securities Incorporated in Japan. Registered broker-dealer in Japan. 80. PRUDENTIAL-BACHE BROKERAGE (HONG KONG) LIMITED (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Inactive. 81. PRUDENTIAL-BACHE FUTURES ASIA PACIFIC LTD. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) To introduce customers to Prudential Securities Incorporated for futures transactions on U.S. Exchanges and execute futures orders on behalf of Prudential Securities Incorporated on SIMEX. 82. PRUDENTIAL-BACHE SECURITIES ASIA PACIFIC LTD. (Incorporated in New York) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Singapore. 83. PRUDENTIAL-BACHE SECURITIES (BELGIUM) INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Belgium. 84. PRUDENTIAL-BACHE SECURITIES (ESPANA), S.A. (Incorporated in Spain) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Spain. 85. PRUDENTIAL-BACHE SECURITIES (FRANCE) S.A. (Incorporated in France) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in France. 86. PRUDENTIAL-BACHE SECURITIES (GREECE) S.A. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Inactive. 87. PRUDENTIAL-BACHE SECURITIES (HOLLAND) INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Holland. 88. PRUDENTIAL-BACHE SECURITIES (HOLLAND) N.V. (Incorporated in Holland) (Owned by Prudential Securities [Holland] Inc.) (100%) Inactive. 89. PRUDENTIAL-BACHE SECURITIES (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Hong Kong. 90. PRUDENTIAL-BACHE SECURITIES (LUXEMBOURG) INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%)
C - 32 Service affiliate of Prudential Securities Incorporated in Luxembourg. 91. PRUDENTIAL-BACHE SECURITIES (MONACO) INC. (Incorporated in New York) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Monaco. 92. PRUDENTIAL-BACHE SECURITIES (SWITZERLAND) INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in Switzerland. 93. PRUDENTIAL-BACHE SECURITIES (U.K.) INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in U.K. 94. SHIELDS MODEL ROLAND COMPANY (Incorporated in U.K.) (Owned by Prudential-Bache Securities [U.K.] Inc.) (100%) Inactive. 95. PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (Incorporated in Delaware) (15% owned by The Prudential and 85% owned by Prudential Securities Incorporated) Mutual fund management company. 96. PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (Incorporated in Delaware) (Owned by Prudential Mutual Fund Management, Inc.) (100%) Principal underwriter of new mutual funds. 97. PRUDENTIAL MUTUAL FUND SERVICES, INC. (Incorporated in New Jersey) (Owned by Prudential Mutual Fund Management, Inc.) (100%) Mutual fund transfer agent and shareholder services company. 98. PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) 1) General partner of a limited partnership with assets invested in commodities, futures contracts and commodity related products and 2) Commodities and futures contract business. 99. PRUDENTIAL SECURITIES (SOUTH AMERICA) INC. (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Service affiliate of Prudential Securities Incorporated in South America; holding company for Prudential Securities (Argentina) Incorporated and Prudential Securities (Uruguay) S.A. 100. PRUDENTIAL SECURITIES (ARGENTINA) INC. (Incorporated in Delaware) (Owned by Prudential Securities [South America] Inc.) (100%) Service affiliate of Prudential Securities Incorporated in Argentina. 101. PRUDENTIAL SECURITIES (URUGUAY) S.A. (Incorporated in Uruguay) (Owned by Prudential Securities [South America] Inc.) (100%) Service affiliate of Prudential Securities Incorporated in Uruguay.
C - 33 102. SHIELDS MODEL ROLAND SECURITIES INCORPORATED (Incorporated in New York) (Owned by Prudential Securities Incorporated Inactive. 103. PRUDENTIAL SECURITIES FINANCIAL ASSET FUNDING CORP. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Creation of trusts which issue bonds backed by GNMA, FNMA or FHLMC collateral. 104. PRUDENTIAL SECURITIES LEASE HOLDING INC. (Incorporated in New York) (Owned by Prudential Securities Group Inc.) (100%) Owns IBM computers and leases them to Prudential Securities Incorporated. 105. PRUDENTIAL SECURITIES MUNICIPAL DERIVATIVES (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Serves as a general partner in a limited partnership structure providing floating rate & inverse floating rate municipal securities. 106. PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Involved in the purchase and sale of residential first mortgage whole loans, including purchase and sales under repurchase agreements. Sales may be in whole loan, participation certificates, agency or securitized format. 107. PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION (Incorporated in Delaware) (Owned by Prudential Securities Incorporated) (100%) Purchase and securitization of mortgages and other assets. 108. PRUDENTIAL SECURITIES STRUCTURED ASSETS (Incorporated in Ohio) (Owned by Prudential Securities Group Inc.) (100%) Inactive. 109. P-B FINANCE LTD. (Incorporated in The Cayman Islands) (Owned by Prudential Securities Structured Assets) (100%) Finances commodity margin calls, both original and variation, and does other financing transactions for a select group of international and domestic customers. 110. R & D FUNDING CORP. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Acts as a general partner in research and development partnerships. 111. SEAPORT FUTURES MANAGEMENT, INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Acts as a general partner of limited partnerships with assets invested in commodities, futures contracts and commodity related products. Also engages in commodities and futures contracts business. 112. SPECIAL SITUATIONS MANAGEMENT INC. (Incorporated in Delaware) (Owned by Prudential Securities Group Inc.) (100%) Owns limited partnerships interests in Special Situations Fund, L.P.
C - 34 113. THE PRICOA INTERNATIONAL BANK, S.A. (Incorporated in Luxembourg) (Owned by Prudential Securities Group Inc.) (100%) A Luxembourg licensed universal bank that provides private banking services internationally. H. SUBSIDIARIES OF THE PRUDENTIAL INVESTMENT CORPORATION 1. GATEWAY HOLDINGS, S.A. (Incorporated in Luxembourg) (100%) A financial holding company which owns Luxembourg registered investment management companies. Gateway Holdings S.A. is the parent of Amicus Investment Company, Global Income Fund Management Company, S.A., Global Series Fund II Management Company, S.A., Jennison Long Bond Management Company, and PAEC Management Company. 2. AMICUS INVESTMENT COMPANY (Incorporated in the Cayman Islands) (Owned by Gateway Holdings, S.A.) (100%) Provides promotion and sponsorship functions for the Amicus Equity Fund, an open-ended investment trust established under the jurisdiction of the Cayman Islands. 3. GLOBAL INCOME FUND MANAGEMENT COMPANY, S.A. (Incorporated in Luxembourg) (Owned by Gateway Holdings, S.A.) (100%) Acts as the management company for Global Income Fund, an investment fund organized in Luxembourg. 4. GLOBAL SERIES FUND II MANAGEMENT COMPANY, S.A. (Incorporated in Luxembourg) (Owned by Gateway Holdings, S.A.) (100%) Acts as the management company for Global Series Fund II, an investment fund organized in Luxembourg. 5. JENNISON LONG BOND MANAGEMENT COMPANY (Incorporated in Luxembourg) (Owned by Gateway Holdings, S.A.) (100%) Acts as the management company for Jennison Long Bond Fund, an investment fund organized in Luxembourg. The Fund invests in a diversified portfolio of securities issued or guaranteed by the U.S. Government of which units of the fund are offered privately to Japanese institutional investors through PIC's Japan representative office in Tokyo. 6. PAEC MANAGEMENT COMPANY (Incorporated in Luxembourg) (Owned by Gateway Holdings, S.A.) (100%) Acts as the management company for Prudential Asia Emerging Companies Fund, an investment fund organized in Luxembourg. 7. PRUDENTIAL ASSET SALES AND SYNDICATIONS, INC. (Incorporated in Delaware) (100%) Registered broker/dealer which engages in the investment banking business. Also responsible for the syndication or sale of Prudential originated private placement deals. 8. PRUDENTIAL HOME BUILDING INVESTORS, INC. (Incorporated in New Jersey) (100%)
C - 35 Acts as the general partner of a limited partnership, Prudential Home Building Advisors, L.P. Through this partnership it provides investment advisory services in a portfolio of residential land improvement and/or single family home construction projects. 9. PRUSUPPLY, INC. (Incorporated in Delaware) (100%) Serves as an inventory facility, holding investments pending sale for Prudential Asset Sales and Syndications, Inc. Enters into contracts for the supply of fossil fuel and other inventory. 10. PRUSUPPLY CAPITAL ASSETS, INC. (Incorporated in New Jersey) (Owned by PruSupply, Inc.) (100%) Serve as a capital base for the syndication activity of Prudential Asset Sales and Syndications, Inc. It will hold, invest, and reinvest stocks, bonds, etc. to support the borrowing capacity of PruSupply, Inc. 11. THE PRUDENTIAL ASSET MANAGEMENT COMPANY, INC. (Incorporated in New Jersey) (100%) Provides various record keeping, benefit payment, and plan consulting services to The Prudential and its clients. It also acts as a solicitor on behalf of affiliates who are investments advisors. 12. CSI ASSET MANAGEMENT, INC. (Incorporated in Delaware) (Owned by The Prudential Asset Management Company, Inc.) (100%) Provides institutional clients (primarily state and municipal employee benefit plans) with discretionary management of portfolios investing in U.S. stocks and bonds. 13. ENHANCED INVESTMENT TECHNOLOGIES, INC. (Incorporated in New Jersey) (Owned by The Prudential Asset Management Company, Inc.) (100%) Provides investment advisory services to institutional clients using domestic equity portfolios. 14. MERCATOR ASSET MANAGEMENT, INC. (Incorporated in Florida) (Owned by The Prudential Asset Management Company, Inc.) (100%) Serves as an investment advisor with a focus on global and international investing for institutional clients. 15. PRUDENTIAL ASIA INVESTMENTS LIMITED (Incorporated in the British Virgin Islands) (Common stock 100% owned by The Prudential Asset Management Company, Inc. and preferred stock 50% owned by the Prudential Asset Management Company, Inc. and 50% owned by Prudential Securities Group Inc.) A holding company for subsidiaries engaged in investment management, merchant banking , portfolio management and direct investment activities in the Far East. 16. PRUDENTIAL ASIA DBS LIMITED (Incorporated in Hong Kong) (Owned by Prudential Asia Investments Limited) (50%) Provides corporate finance services in the Far East 17. PRUDENTIAL ASSET MANAGEMENT ASIA LIMITED (BVI) (Incorporated in the British Virgin Islands) (Owned by Prudential Asia Investments Limited) (100%)
C - 36 Makes direct investments and provides investment advisory services in China, Taiwan, Korea, Japan, Australia and New Zealand. 18. PRUDENTIAL ASSET MANAGEMENT ASIA (INDONESIA) LIMITED (Incorporated British Virgin Islands) (Owned by Prudential Asset Management Asia Limited (BVI)) (75%) Engaged in the management and operation of PT PAMA Indonesia, an Indonesian Venture Capital Company, and a unit trust which makes direct investments in Indonesian companies. 19. PT PAMA INDONESIA (Incorporated in Indonesia) (Owned by Prudential Asset Management Asia Limited [BVI]) (65%) An Indonesian Venture Capital Company which invests directly in Indonesian companies or in a trust that invests inIndonesian Companies. 20. PAMA (SINGAPORE) PRIVATE LIMITED (Incorporated in Singapore) (Owned by Prudential Asset Management Asia Limited [BVI]) (100%) Engaged in direct investments, corporate finance and portfolio management activities in Singapore. 21. PRUDENTIAL ASSET MANAGEMENT ASIA (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned by Prudential Asset Management Asia Limited [BVI]) (100%) Engaged in direct investments and portfolio management activities in Hong Kong. 22. PRUDENTIAL-BACHE CAPITAL FUNDING ASIA LIMITED (Incorporated in the British Virgin Islands) (Owned by Prudential Asia Investments Limited) (100%) Inactive. 23. PRUDENTIAL-BACHE CAPITAL FUNDING ASIA (HONG KONG) LIMITED (Incorporated in Hong Kong) (Owned by Prudential-Bache Capital Funding Asia Limited) (100%) Inactive. 24. S J BEDDING B.V. (Incorporated in the Netherlands) (Owned by Prudential Asia Investments Limited) (100%) A holding company for Prudential Asia Investments Limited's investment in the shares of Simmons Co., Limited. 25. SIMMONS BEDDING AND FURNITURE (HK) LIMITED (Incorporated in Hong Kong) (Owned by S J Bedding BV) (66.24%) Collectively with its affiliates engages in the manufacturing, sales and distribution of bedding products, furniture and accessories in Japan, Hong Kong, Singapore and Macau. 26. SIMMONS ASIA LIMITED (Incorporated in the British Virgin Islands) (Owned by Simmons Bedding & Furniture [HK] Limited) (90%) Engages in the business of licensing Simmons related trademarks and technology in Asia Pacific countries other than those covered by Simmons Co., Limited. 27. SIMMONS (SOUTHEAST ASIA) PRIVATE LIMITED (Incorporated in Singapore) (Owned by Simmons Asia Limited) (100%)
C - 37 Carries out manufacturing and distribution activities of the bedding products, furniture and accessories in Singapore. 28. SIMMONS CO., LIMITED (Incorporated in Japan) (Owned by SJ Bedding B.V.) (66.24%) A holding company for Simmons Bedding and Furniture (HK) Limited. 29. PRUDENTIAL ASIA FUND MANAGEMENT LIMITED (BVI) (Incorporated in the British Virgin Islands) (Owned by Prudential Asia Investments Limited) (100%) A holding company for Prudential Asia Fund Management Limited and Prudential Asia Fund Managers (HK) Limited and engages in portfolio investment management and advisory services with a concentration on publicly traded securities. 30. PRUDENTIAL ASIA FUND MANAGEMENT LIMITED (Incorporated in Hong Kong) (Owned by Prudential Asia Fund Management Limited [BVI]) (100%) Provides investment advisory activities in the United States. 31. PRUDENTIAL ASIA FUND MANAGERS (HK) LIMITED (Incorporated in Hong Kong) (Owned by Prudential Asia Fund Management Limited [BVI]) (100%) Provides investment advisory activities in Hong Kong. 32. PRUDENTIAL ASSET MANAGEMENT COMPANY SECURITIES CORPORATION (Incorporated in Delaware) (Owned by The Prudential Asset Management Company, Inc.) (100%) Markets to institutional clients investment products developed by other Prudential affiliates including products which can only be sold by a NASD and SEC registered broker-dealer. 33. PRUDENTIAL TIMBER INVESTMENTS, INC. (Incorporated in New Jersey) (Owned by The Prudential Asset Management Company, Inc.) (100%) (100% of preferred stock owned by the Prudential Insurance Company of America.) Provides timber investment management services to institutional clients. Acquires and manages commercial timber properties with the goal of generating competitive returns. 34. PCM INTERNATIONAL, INC. (Incorporated in New Jersey) (Owned by The Prudential Asset Management Company, Inc.) (100%) Serves as an investment advisor with a focus on global and international investing for institutional clients. 35. TEXAS RIO GRANDE OTHER ASSETS GROUP COMPANY, INC. (Incorporated in Delaware) (100%) Originates and services residential and commercial mortgages 36. THE PRUDENTIAL INVESTMENT ADVISORY COMPANY, LTD. (Incorporated in Japan) (100%) Provides investment management services to Japanese institutional investors and for Prudential's General Account with respect to Japanese and global securities. 37. THE PRUDENTIAL PROPERTY COMPANY, INC. (Incorporated in New Jersey) (100%) Conducts real estate management and development programs for the General Account and all separate and single-client accounts. 38. THE PRUDENTIAL REALTY ADVISORS, INC. (Incorporated in New Jersey) (100%) Provides advice and administrative services to others with respect to the ownership, sale, and management of real property.
C - 38 Item 31. Number of Contractowners As of February 28, 1995, the number of contractowners of qualified contracts offered by Registrant was 491, and the number of contractowners of non-qualified contracts offered by Registrant was 4. Item 32. Indemnification The Prudential Directors' and Officers' Liability and Corporation Reimbursement Program, purchased by The Prudential from Aetna Casualty & Surety Company, CNA Insurance Company, Lloyds of London, Great American Insurance Company, Reliance Insurance Company, Corporate Officers & Directors Assurance Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American Insurance Company, provides coverage for "Loss" (as defined in the policies) arising from any claim or claims by reason of any actual or alleged act, error, misstatement, misleading statement, omission, or breach of duty by persons in the discharge of their duties solely in their capacities as directors or officers of The Prudential, any of its subsidiaries, or certain investment companies affiliated with The Prudential. Coverage is also provided to the individual directors or officers for such Loss, for which they shall not be indemnified. Loss essentially is the legal liability on claims against a director or officer, including adjudicated damages, settlements and reasonable and necessary legal fees and expenses incurred in defense of adjudicatory proceedings and appeals therefrom. Loss does not include punitive or exemplary damages or the multiplied portion of any multiplied damage award, criminal or civil fines or penalties imposed by law, taxes or wages, or matters which are insurable under the law pursuant to which the policies are construed. There are a number of exclusions from coverage. Among the matters excluded are Losses arising as the result of (1) claims brought about or contributed to by the criminal or deliberate fraudulent acts of a director or officer, and (2) claims arising from actual or alleged performance of, or failure to perform, services as, or in any capacity similar to, an investment adviser, investment banker, underwriter, broker or dealer, as those terms are defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules or regulations thereunder, or any similar federal, state or local statute, rule or regulation. The limit of coverage under the Program for both individual and corporate reimbursement coverage is $150,000,000. The retention for corporate reimbursement coverage is $10,000,000 per loss. The relevant provisions of New Jersey Law permitting or requiring indemnification, New Jersey being the state of organization of The Prudential, can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of The Prudential's by-law 27, which relates to indemnification of officers and directors, is incorporated by reference to Exhibit (8)(ii) to this Registration Statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. C - 39 Item 33. Business and Other Connections of Investment Adviser Prudential does have other business of a substantial nature besides activities relating to the assets of the registrant. Prudential is involved in insurance, reinsurance, securities, pension services, real estate and banking. The Prudential Investment Corporation (PIC) is the investment unit of Prudential and is actively engaged in the business of giving investment advice. The officers and directors of Prudential and PIC who are engaged directly or indirectly in activities relating to the registrant have no other business, profession, vocation, or employment of a substantial nature, and have not had such other connections during the past two years. The business and other connections, including principal business address, of Prudential's Directors are listed under "Directors and Officers of Prudential" in the Statement of Additional Information (Part B of this Registration Statement). Item 34. Principal Underwriter (a) Prudential Retirement Services, Inc., an indirect wholly-owned subsidiary of Prudential, acts as the principal underwriter for The Prudential Variable Contract Account-2, the Prudential Variable Contract Account-10 and for the Registrant, all registered as open-end management investment companies under the Investment Company Act of 1940.
(b) (1) (2) (3) Name and Principal Position and Offices Positions and Offices Business Address with Underwriter with Registrant ---------------------- ------------------------ ------------------------ Mark R. Fetting President & Director Chairman, The Prudential 751 Broad Street Variable Contract Newark, NJ 07102-3777 Account-11 Committee Nancy Lindgren Vice President, None Comptroller Robert E. Lee Vice President None Martin Pfinsgraff Treasurer None Thomas A. Early Vice President, Secretary Secretary Walter E. Watkins Vice President, Chief None Compliance Officer Michael G. Williamson Assistant Comptroller Assistant Secretary, The Prudential Variable Contract Account-11 Committee Carl L. McGuire Assistant Secretary None
(c) Reference is made to the Section entitled "Charges" of the prospectus (Part A of this Registration Statement), "Investment Management and Administration of VCA-10, VCA- 11 and VCA-24" on page 2 of the Statement of Additional Information (Part B of this Registration Statement) and Exhibit (5)(ii).
C - 40 Item 35. Location of Accounts and Records The names and addresses of the persons who maintain physical possession of the accounts, books and documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are: The Prudential Insurance Company of America and The Prudential Investment Corporation Prudential Plaza Newark, New Jersey 07102-3777 The Prudential Insurance Company of America and The Prudential Investment Corporation Gateway Three Building and Gateway Four Building 100 Mulberry Street Newark, New Jersey 07102 The Prudential Insurance Company of America and The Prudential Investment Corporation 56 North Livingston Avenue Roseland, New Jersey 07068 The Prudential Insurance Company of America c/o Prudential Defined Contribution Services 30 Scranton Office Park Moosic, Pennsylvania 18507-1789 The Prudential Insurance Company of America c/o The Prudential Asset Management Company, Inc. 71 Hanover Road Florham Park, New Jersey 07932 Item 36. Management Services Not Applicable Item 37. Undertakings Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. Registrant also undertakes (1) to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old as long as payment under the contracts may be accepted; (2) to affix to the prospectus a postcard that the applicant can remove to send for a Statement of Additional Information; and (3) to deliver any Statement of Additional Information promptly upon written or oral request. Restrictions on withdrawal under Section 403(b) Contracts are imposed in reliance upon, and in compliance with, a no-action letter issued by the Chief of the Office of Insurance Products and Legal Compliance of the Securities and Exchange Commission to the American Council of Life Insurance on November 28, 1988. Representation Pursuant to Rule 6c-7 Registrant represents that it is relying upon Rule 6c-7 under the Investment Company Act of 1940 in connection with the sale of its group variable contracts to participants in the Texas Optional Retirement Program. Registrant also represents that it has complied with the provisions of paragraphs (a) - (d) of the Rule.
C - 41 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newark, and State of New Jersey, on the 26th day of April, 1995 and certifies this Amendment is filed solely for one or more of the purposes specified in Rule 485(b)(1) under the Securities Act of 1933 and that no material event requiring disclosure in the prospectus, other than one listed in Rule 485(b)(1), has occurred since the effective date of the most recent Post-Effective Amendment to the Registration Statement which included a prospectus. THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-11 By: /s/ MARK R. FETTING -------------------------------------- Mark R. Fetting Chairman C - 42 SIGNATURES As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature Title Date - ----------------------------- ----------------------------- --------------- *MARK R. FETTING Member and Chairman, The ) - ---------------------------- Prudential Variable Contract) Mark R. Fetting Account-11 Committee ) *MARY C. GENCHER Member, The Prudential ) - ---------------------------- Variable Contract ) April 26, 1995 Mary C. Gencher Account-11 Committee ) *W. SCOTT McDONALD, JR. Member, The Prudential ) - ---------------------------- Variable Contract ) W. Scott McDonald, Jr. Account-11 Committee ) *JAMES H. SCOTT, JR. Member, The Prudential ) - ---------------------------- Variable Contract ) James H. Scott, Jr. Account-11 Committee ) *JOSEPH WEBER Member, The Prudential ) - ---------------------------- Variable Contract ) Joseph Weber Account-11 Committee )
*By: /s/ C. Christopher Sprague ------------------------------------------------------------ C. Christopher Sprague (Attorney-in-Fact) C - 43 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, The Prudential Insurance Company of America has caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newark, and State of New Jersey, on the 26th day of April , 1995. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Mark R. Fetting -------------------------------------- Mark R. Fetting Vice President As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following Directors and Officers of The Prudential Insurance Company of America in the capacities and on the date indicated.
Signature Title Date - ----------------------------- ----------------------------- --------------- *Arthur F. Ryan Chairman of the Board, ) - ---------------------------- President and Chief ) April 26, 1995 Arthur F. Ryan Executive Officer ) *Garnett L. Keith, Jr. ) - ---------------------------- Vice Chairman and Director ) April 26, 1995 Garnett L. Keith, Jr. )
*By: /s/ C. Christopher Sprague ------------------------------------------------------------ C. Christopher Sprague (Attorney-in-Fact) C - 44
Signature Title Date - --------------------------------- ---------------------- --------------- Senior Vice President) *Eugene M. O'Hara and Comptroller and ) - -------------------------------- Principal Financial ) Eugene M. O'Hara Officer ) *Franklin E. Agnew - -------------------------------- Director) Franklin E. Agnew ) *Frederic K. Becker - -------------------------------- Director) Frederic K. Becker ) *William W. Boeschenstein - -------------------------------- Director ) William W. Boeschenstein ) *Lisle C. Carter, Jr. - -------------------------------- Director ) Lisle C. Carter, Jr. ) *James G. Cullen - -------------------------------- Director ) James G. Cullen ) *Carolyne K. Davis April 26, 1995 - -------------------------------- Director ) Carolyne K. Davis ) *Roger A. Enrico - -------------------------------- Director ) Roger A. Enrico ) *Allan D. Gilmour - -------------------------------- Director) Allan D. Gilmour ) *William H. Gray, III - -------------------------------- Director ) William H. Gray, III ) *Jon F. Hanson - -------------------------------- Director ) Jon F. Hanson ) *Constance J. Horner - -------------------------------- Director ) Constance J. Horner ) *Allen F. Jacobson - -------------------------------- Director ) Allen F. Jacobson ) *Burton G. Malkiel - -------------------------------- Director ) Burton G. Malkiel )
*By: /s/ C. Christopher Sprague ------------------------------------------------------------ C. Christopher Sprague (Attorney-in-Fact) C - 45
Signature Title Date - --------------------------------- ---------------------- --------------- *John R. Opel - -------------------------------- Director ) John R. Opel ) *Charles R. Sitter - -------------------------------- Director) Charles R. Sitter ) *Donald L. Staheli - -------------------------------- Director) Donald L. Staheli ) *Richard M. Thomson - -------------------------------- Director ) Richard M. Thomson ) *P. Roy Vagelos, M.D. April 26, 1995 - -------------------------------- Director ) P. Roy Vagelos, M.D. ) *Stanley C. Van Ness - -------------------------------- Director ) Stanley C. Van Ness ) *Paul A. Volcker - -------------------------------- Director ) Paul A. Volcker ) *Joseph H. Williams - -------------------------------- Director ) Joseph H. Williams )
*By: /s/ C. Christopher Sprague ------------------------------------------------------------ C. Christopher Sprague (Attorney-in-Fact) C - 46 Exhibit Index Ex-99.13(i) Consent of Independent Auditors C - Ex-99.13(ii) (a)Power of Attorney-Registrant's C - Committee Ex-99.16 Calculation of Performance Data C - Ex-99.17 Financial Data Schedule C -
C - 47 EX-13.(I) 2 EXH 13(I) CONSENT OF INDEPENDENT AUDITORS INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 26 to Registration Statement No. 2-76581 on Form N-3 of The Prudential Variable Contract Account-11 of The Prudential Insurance Company of America (1) of our reports dated February 16, 1995, relating to the financial statements of The Prudential Variable Contract Account-11, The Prudential Variable Contract Account-10 and The Prudential Variable Contract Account-24, and (2) of our report dated March 1, 1995 except for Note 12, as to which the date is April 25, 1995, relating to the consolidated financial statements of The Prudential Insurance Company of America and subsidiaries appearing in the Statement of Additional Information, which is part of such Registration Statement and to the reference to us under the heading "Experts" also appearing in the Statement of Additional Information. /s/ Deloitte & Touche LLP Parsippany, New Jersey April 26, 1995 C - 48 EX-13.(II)(A) 3 EXH 13(II)(A) POWER OF ATTORNEY VCA-11 EXHIBIT 13(ii)(a) POWER OF ATTORNEY Know all men by these presents: That I, W. Scott McDonald, Jr., Member of the Committee of The Prudential Variable Contract Account-2 and The Prudential Variable Contract Account-11, do hereby make, constitute and appoint as my true and lawful attorneys in fact Dorothy K. Light, Rosanne J. Baruh, Mary L. Cavanaugh, Thomas A. Early, Timothy P. Harris, Colleen P. Kelly, Bernard V. Peterson, Peter T. Scott, Andrew M. Shainberg, George S. Shively and C. Christopher Sprague or any of them severally for me and in my name, place and stead to sign registration statements on the appropriate forms prescribed by the Securities and Exchange Commission for the registration under the Investment Company Act of 1940 and the Securities Act of 1933, as applicable, and any and all amendments thereto that may be filed with the Securities and Exchange Commission, of the following: The Prudential Variable Contract Account-2 and group variable annuity contracts, to the extent they represent participating interests in said Account; The Prudential Variable Contract Account-11 and group annuity contracts, to the extent they represent participating interests in said Account; IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of February, 1995. /s/ W. Scott McDonald, Jr. ------------------------------------ Signature State of New Jersey ) ) SS County of Essex ) On this 17 day of February, 1995, before me personally appeared W. Scott McDonald, Jr., to me known and known to me to be the person mentioned and described in and who executed the foregoing instrument and duly acknowledged to me that he executed same. My commission expires: ANN L. WELLBROCK NOTARY PUBLIC OF NEW JERSEY /s/ Ann L. Wellbrock My Commission Expires July 26, 1999 -------------------------- Notary Public C-49 EX-99.16 4 EXHIBIT 99.16 EXHIBIT 99.16 1994 MEDLEY RATE OF RETURN CALCULATIONS VCA-11
12/31/94 12/31/93 12/31/89 12/31/84 -------- -------- -------- -------- Number of Years (N) 1 5 10 Max % Def Sls Chrg (DSC) 7% 6% 4% Unit Value 2.105637 2.03503266 1.69365015 1.20522557 Units 491.392605 590.4407117 829.7201992 Initial Investment (P) $ 1,000 $ 1,000 $ 1,000 12/31/94 $$ w/DSC (ERV) $ 964.69 $ 1,183.25 $ 1,707.09 12/31/94 $$ w-o/DSC (ERV) $ 1,034.69 $ 1,243.25 $ 1,747.09 Ann Tot Ret w/DSC -3.53% 3.42% 5.49% Ann Total Return w-o/DSC 3.47% 4.45% 5.73% Cumulative Return w-o/DSC 3.47% 24.33% 74.71% Account Charge $ 0.36 Adj for account charge Table 1 Ann w/DSC (T) -3.57% 3.39% 5.47% Table 2 Ann w-o/DSC (T) 3.43% 4.42% 5.71% Table 3 Cum w-o/DSC (T) 3.43% 24.15% 74.35%
C-50 EX-27 5 EXHIBIT 27
6 1 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 74,777,495 74,777,495 270,154 0 0 75,047,649 0 0 (6,348) (6,348) 0 0 35,448,241 29,420,609 0 0 0 0 0 76,463,295 0 3,050,102 0 659,492 2,390,610 0 0 2,390,610 0 0 0 0 25,656,212 19,628,580 0 14,860,304 0 0 0 0 164,873 0 659,492 70,889,037 2.035 0.071 0 0 0 0 2.106 0.010 0 0
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