As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 2-81318
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 24 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 29 |X|
(Check appropriate box or boxes)
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THE PRUDENTIAL QUALIFIED INDIVIDUAL
VARIABLE CONTRACT ACCOUNT
(Exact Name of Registrant)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Depositor)
Prudential Plaza
Newark, New Jersey 07102-3777
(800) 445-4571
(Address and telephone number of principal executive offices)
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THOMAS C. CASTANO
Assistant Secretary
The Prudential Insurance Company of America
Prudential Plaza
Newark, New Jersey 07102-3777
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
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Individual Variable Annuity Contract-The Registrant has registered an indefinite
amount of securities pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Rule 24f-2 notice for fiscal year 1996 was filed on February 28, 1997.
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It is proposed that this filing will become effective (check appropriate space):
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 1997 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| on __________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(A) UNDER THE 1933 ACT)
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N-4 ITEM NUMBER AND CAPTION LOCATION
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PART A
1. Cover Page ............................. Cover Page
2. Definitions ............................ Definition of Special Terms Used in
This Prospectus
3. Synopsis or Highlights ................. Brief Description of the Contract;
Fee Table
4. Condensed Financial Information ........ Accumulation Unit Values
5. General Description of Registrant,
Depositor, and Portfolio Companies ... General Information About The
Prudential, The Prudential
Qualified Individual Variable
Contract Account, and The
Prudential Series Fund, Inc.; The
Fixed Rate Option
6. Deductions and Expenses ................ Brief Description of the Contract;
Charges, Fees and Deductions;
Differences Under the WVQ-83
Contract
7. General Description of Variable Annuity
Contracts ............................ Part A: Brief Description of the
Contract; Allocation of Purchase
Payments; Transfers; Death Benefit;
The Fixed Rate Option; Retirement
Arrangements Using the Contracts;
Differences Under the WVQ-83
Contract; Voting Rights; Ownership
of the Contract; State Regulation
Part B: Participation in Divisible
Surplus
8. Annuity Period ......................... Part A: Brief Description of the
Contract; Effecting an Annuity;
Differences Under the WVQ-83
Contract Part B: Item 22,
Determination of Subaccount Unit
Values and of the Amount of Monthly
Variable Annuity Payments
9. Death Benefit .......................... Death Benefit; Effecting an
Annuity; Retirement Arrangements
Using the Contracts; Differences
Under the WVQ-83 Contract
10. Purchases and Contract Value .......... Brief Description of the Contract;
The Prudential Insurance Company of
America; Requirements for Issuance
of a Contract; Valuation of
Contract Owner's Contract Fund
11. Redemptions ........................... Brief Description of the Contract;
Short-Term Cancellation Right or
"Free Look"; Withdrawals; Charges,
Fees and Deductions; Differences
Under the WVQ-83 Contract;
Effecting an Annuity
12. Taxes ................................. Premium Taxes; Federal Tax Status
13. Legal Proceedings ..................... Litigation
14. Table of Contents of the Statement of
Additional Information ............... Additional Information
PART B
15. Cover Page ............................ Cover Page
16. Table of Contents ..................... Contents
17. General Information and History ....... Not Applicable
18. Services .............................. Experts
19. Purchase of Securities Being Offered .. Part A: Brief Description of the
Contract; Charges, Fees and
Deductions; Sale of the Contract
and Sales Commissions
21. Calculation of Performance Data ....... Financial Statements of The
Prudential Qualified Individual
Variable Contract Account
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N-4 ITEM NUMBER AND CAPTION LOCATION
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22. Annuity Payments ...................... Part A: Valuation of Contract
Owner's Contract Fund; Effecting an
Annuity; Differences Under the
WVQ-83 Contract
Part B: Determination of the
Subaccount Unit Values and of the
Amount of Monthly Variable Annuity
Payments
23. Financial Statements .................. Financial Statements of The
Prudential Qualified Individual
Variable Contract Account;
Statutory Financial Statements of
The Prudential Insurance Company of
America
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
PROSPECTUS
MAY 1, 1997
INDIVIDUAL VARIABLE ANNUITY CONTRACTS OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE INVESTMENT PLAN(R)
This prospectus describes Individual Variable Annuity Contracts (the "Contract")
issued by The Prudential Insurance Company of America ("Prudential"). The
Contracts are designed for use in connection with retirement arrangements that
qualify for federal tax benefits under Sections 401, 403(a), 403(b), 408 or 457
of the Internal Revenue Code.
Purchase payments made through payroll deductions or similar arrangements with
an employer must be at least $300 during any 12-month period. Any other purchase
payment must be at least $50 ($100 or $300 under a certain form of the
Contract). Your accumulated purchase payments will be allocated as you direct in
one or both of two ways: 1) in one or more of thirteen subaccounts of The
Prudential Qualified Individual Variable Contract Account (the "Account"); and
2) under a FIXED-RATE OPTION. The assets of each subaccount of the Account will
be invested in a corresponding portfolio of The Prudential Series Fund, Inc.
(the "Series Fund"). The attached prospectus for the Series Fund and its
statement of additional information describe the investment objectives of and
the risks of investing in the thirteen portfolios of the Series Fund currently
available to Contract owners: the MONEY MARKET PORTFOLIO, the DIVERSIFIED BOND
PORTFOLIO, the GOVERNMENT INCOME PORTFOLIO, the CONSERVATIVE BALANCED PORTFOLIO,
the FLEXIBLE MANAGED PORTFOLIO, the HIGH YIELD BOND PORTFOLIO, the STOCK INDEX
PORTFOLIO, the EQUITY INCOME PORTFOLIO, the EQUITY PORTFOLIO, the PRUDENTIAL
JENNISON PORTFOLIO, the SMALL CAPITALIZATION STOCK PORTFOLIO, the GLOBAL
PORTFOLIO, and the NATURAL RESOURCES PORTFOLIO. This prospectus describes the
Contract generally and The Prudential Qualified Individual Variable Contract
Account.
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This prospectus provides information a prospective investor should know before
investing. Additional information about the Contract has been filed with the
Securities and Exchange Commission in a statement of additional information,
dated May 1, 1997, which information is incorporated herein by reference, and is
available without charge upon written request to The Prudential Insurance
Company of America, Prudential Plaza, Newark, New Jersey 07102-3777, or by
telephoning (800) 445-4571.
The Contents of the statement of additional information appear on page 29 of the
prospectus.
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PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC.
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
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
VARIABLE INVESTMENT PLAN is a registered mark of Prudential.
QVIP-1 Ed 5-97, Catalog #64696C4
<PAGE>
PROSPECTUS CONTENTS
PAGE
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS ...................... 1
BRIEF DESCRIPTION OF THE CONTRACT ......................................... 2
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE ANNUITY CONTRACT ........ 2
CHARGES UNDER THE CONTRACTS .......................................... 3
TRANSFERS AMONG INVESTMENT OPTIONS ................................... 4
FREE LOOK ............................................................ 4
HOW TO CONTACT THE PRUDENTIAL ........................................ 4
FEE TABLE ................................................................. 5
EXAMPLES OF FEES AND EXPENSES ........................................ 6
ACCUMULATION UNIT VALUES .................................................. 8
GENERAL INFORMATION ABOUT THE PRUDENTIAL, THE PRUDENTIAL
QUALIFIED INDIVIDUAL VARIABLE
CONTRACT ACCOUNT, AND THE PRUDENTIAL SERIES FUND, INC. ............... 11
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA .......................... 11
THE PRUDENTIAL QUALIFIED INDIVIDUAL
VARIABLE CONTRACT ACCOUNT .......................................... 11
THE PRUDENTIAL SERIES FUND, INC ...................................... 11
DETAILED INFORMATION ABOUT THE CONTRACT ................................... 12
REQUIREMENTS FOR ISSUANCE OF A CONTRACT .............................. 12
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK" ........................ 12
ALLOCATION OF PURCHASE PAYMENTS ...................................... 13
ADDITIONAL AMOUNTS ................................................... 13
TRANSFERS ............................................................ 14
WITHDRAWALS .......................................................... 14
DEATH BENEFIT ........................................................ 15
VALUATION OF CONTRACT OWNER'S CONTRACT FUND .......................... 16
CHARGES, FEES, AND DEDUCTIONS ............................................. 16
1. PREMIUM TAXES ..................................................... 16
2. SALES CHARGES ON WITHDRAWALS ...................................... 16
3. RECAPTURE OF ADDITIONAL AMOUNTS ................................... 18
4. ANNUAL MAINTENANCE CHARGE ......................................... 18
5. CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS ................... 19
6. EXPENSES INCURRED BY THE SERIES FUND .............................. 19
THE FIXED-RATE OPTION ..................................................... 19
FEDERAL TAX STATUS ........................................................ 20
TAXES ON THE PRUDENTIAL .............................................. 20
RETIREMENT ARRANGEMENTS USING THE CONTRACT ........................... 20
PLANS FOR SELF-EMPLOYED INDIVIDUALS .................................. 21
IRAS ................................................................. 21
SIMPLIFIED EMPLOYEE PENSION PLANS ( "SEPS ") ......................... 21
SECTION 403(B) ANNUITIES ............................................. 22
ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE OR
LOCAL GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS ..................... 22
MINIMUM DISTRIBUTION OPTION .......................................... 23
PENALTY FOR EARLY WITHDRAWALS ........................................ 23
ERISA DISCLOSURE ..................................................... 23
EFFECTING AN ANNUITY ...................................................... 23
ANNUITY OPTIONS UNDER THE VIP-86 CONTRACT ............................ 24
ANNUITY OPTIONS UNDER THE WVQ-83 AND QVIP-84 CONTRACTS ............... 24
OTHER INFORMATION ......................................................... 26
VOTING RIGHTS ........................................................ 26
SALE OF THE CONTRACT AND SALES COMMISSIONS ........................... 26
OWNERSHIP OF THE CONTRACT ............................................ 27
PERFORMANCE INFORMATION .............................................. 27
REPORTS TO CONTRACT OWNERS ........................................... 27
SUBSTITUTION OF SERIES FUND SHARES ................................... 27
DIFFERENCES UNDER THE WVQ-83 CONTRACT ................................ 28
STATE REGULATION ..................................................... 28
LITIGATION ........................................................... 28
ADDITIONAL INFORMATION ............................................... 29
DIRECTORS AND OFFICERS .................................................... 30
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DEFINITIONS OF SPECIAL TERMS USED IN THIS
PROSPECTUS
ADDITIONAL AMOUNT--On payments made during the first 3 Contract years, and
thereafter at Prudential's discretion, an additional 1% added to and invested
with the purchase payment. This Additional Amount or "bonus" will be recaptured
by Prudential if the payment is withdrawn within 8 Contract years after it is
made.
ANNUITANT--The person or persons designated by the Contract owner, upon whose
life or lives monthly annuity payments are based after an annuity is effected.
ANNUITY CONTRACT OR ANNUITY--A contract designed to provide an annuitant with an
income, which may be a lifetime income, beginning on the annuity date.
ANNUITY DATE--The date, specified in the Contract, when annuity payments are to
begin.
BONUS--See Additional Amount above.
CONTRACT ANNIVERSARY DATE--The same day and month as the Contract date in each
later year.
CONTRACT DATE--The date Prudential received the initial purchase payment and
certain required documentation.
CONTRACT FUND--The total value attributable to a specific Contract representing
the sum of all the amounts in the Variable Account (defined below) and the
fixed-rate option (defined below).
CONTRACT OWNER--The person who purchases a Qualified Individual Variable Annuity
Contract of PRUDENTIAL'S VARIABLE INVESTMENT PLAN(R) and makes the purchase
payments. The Contract owner will usually also be an annuitant, but need not be.
The Contract owner has all rights in the Contract before the annuity date,
including the right to make withdrawals or surrender the Contract, to designate
and change the beneficiaries who will receive the proceeds at the death of the
annuitant before the annuity date, to transfer funds among the subaccounts, and
to designate a mode of settlement for the annuitant on the annuity date.
CONTRACT YEAR--A year that starts on the Contract date or on a Contract
anniversary.
FIXED-RATE OPTION--An investment option under which Prudential credits interest
to the amount allocated at a rate periodically declared in advance by Prudential
but not less than 3%.
SUBACCOUNT--A division of the Account, the assets of which are invested in the
shares of the corresponding Portfolio of the Series Fund.
SUBACCOUNT ANNUITY UNIT--When a Contract owner elects to convert his or her
Variable Account into monthly variable annuity payments, the number of
Subaccount Units (defined below) credited to him or her in each subaccount is
first reduced to take into account any applicable sales charge and any state
premium taxes that may be payable. The remaining Subaccount Units are then
converted into a number of Subaccount Annuity Units of equal aggregate value. As
with Subaccount Units, the value of each Subaccount Annuity Unit also changes
each day to reflect the investment results and expenses of and deductions of
charges from the underlying Series Fund portfolio, after deduction of the daily
equivalent of the annual charge of up to 1.2% for assuming expense and mortality
risks. For further discussion, see page C1 of the statement of additional
information.
SUBACCOUNT UNIT--The Contract owner's Variable Account is credited with Units in
each subaccount in which he or she invests. The value of these Units changes
each day to reflect the investment results and expenses of and deductions of
charges from the Series Fund portfolios in which the assets of the subaccount
are invested, in much the same way that the share values of a mutual fund change
each day. The value of the Contract owner's Variable Account is the sum of the
value of Subaccount Units in each subaccount.
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT (THE "ACCOUNT")--A
separate account of Prudential registered as a unit investment trust under the
Investment Company Act of 1940.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")--A mutual fund with
separate portfolios, one or more of which may be chosen as an underlying
investment for the Contract.
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a subaccount to the next. Such determinations are made when
the net asset values of the Portfolios of the Series Fund are calculated, which
is generally at 4:15 p.m. New York City time on each day during which the New
York Stock Exchange is open.
VARIABLE ACCOUNT--The value attributable to a specific Contract representing
amounts in all the subaccounts.
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BRIEF DESCRIPTION OF THE CONTRACT
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE ANNUITY CONTRACT
The Prudential Qualified Individual Variable Annuity Contract (the "Contract")
is designed for use in connection with various retirement arrangements entitled
to federal income tax benefits (qualified plans). These are (a) individual
retirement accounts ("IRAs") subject to Section 408 of the Internal Revenue Code
(the "Code"), (b) tax-deferred annuities ("TDA") subject to Section 403(b) of
the Code, for use by employees of 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 Sections
401(a) and 403(a) of the Code, including those established by self-employed
individuals for themselves and their employees. The Contracts provide a way of
accumulating your savings and investing them in one or more securities
portfolios with different investment objectives, and then using them to
supplement your monthly income after you retire. (The words "you" and "your" as
used in this prospectus refer to the owner of the Contract. See OWNERSHIP OF THE
CONTRACT, page 27. The word "we" refers to The Prudential Insurance Company of
America ("Prudential").)
This prospectus describes three forms of the Contract. One form, which was first
offered in 1983, is called the WVQ-83 Contract (persons holding this Contract
can identify it by the WVQ-83 designation which appears in the lower left corner
of the Contract cover page). A second form, which is a revised edition of the
WVQ-83 Contract, is called the QVIP-84 Contract (persons holding this Contract
can identify it by the QVIP-84 designation which appears in the lower left
corner of the Contract cover page). The third form, which is a revised edition
of the QVIP-84 Contract, is called the VIP-86 Contract (except as described
below, persons holding this Contract can identify it by the VIP-86 designation
which appears in the lower left corner of the Contract cover page). In Texas,
this Contract bears a VIP-89 designation; however, it will be referred to as the
VIP-86 Contract throughout this prospectus. Currently, only the VIP-86 Contract
is offered in all jurisdictions.
The three forms of Contract are basically similar, but there are some
significant differences. This prospectus describes each of the Contracts and
explains, where appropriate, the respects in which they differ. Because the
differences between the first form, WVQ-83, and the later two forms are somewhat
extensive, a special section, DIFFERENCES UNDER THE WVQ-83 CONTRACT, is included
on page 28, to which reference will occasionally be made.
You may make purchase payments under your Contract at regular intervals or from
time to time as you have funds available. Purchase payments made through payroll
deduction or similar arrangements with an employer must be at a rate of at least
$300 during any 12-month period. Any other purchase payment must be at least
$50. (For VIP-86 Contracts issued prior to May 1, 1991, other purchase payments
must be at least $100; For VIP-86 Contracts issued on or after May 1, 1991,
other purchase payments must be at least $300.) See REQUIREMENTS FOR ISSUANCE OF
A CONTRACT, page 12.
Purchase payments are held in one or more subaccounts of The Prudential
Qualified Individual Variable Contract Account (the "Account") as you direct.
You may also direct that all or part of your payment be allocated to a
FIXED-RATE OPTION providing for the addition of interest at a guaranteed rate
upon the amount so held. Each subaccount is invested in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"), a series
mutual fund for which Prudential is the investment advisor. The Series Fund
currently has thirteen portfolios available for investment by Contract owners.
The MONEY MARKET PORTFOLIO is invested in short-term debt obligations similar to
those purchased by money market funds; the DIVERSIFIED BOND PORTFOLIO is
invested primarily in high quality medium-term corporate and government debt
securities; the GOVERNMENT INCOME PORTFOLIO is invested 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; the CONSERVATIVE
BALANCED PORTFOLIO is invested in a mix of money market instruments, fixed
income securities, and common stocks, in proportions believed by the investment
manager to be appropriate for an investor who desires diversification of
investment who prefers a relatively lower risk of loss and a correspondingly
reduced chance of high appreciation; the FLEXIBLE MANAGED PORTFOLIO is invested
in a mix of money market instruments, fixed income securities, and common
stocks, in proportions believed by the investment manager to be appropriate for
an investor desiring diversification of investment who is willing to accept a
relatively high level of loss in an effort to achieve greater appreciation; the
HIGH YIELD BOND PORTFOLIO is invested primarily in high yield fixed income
securities of medium to lower quality, also known as high risk bonds; the STOCK
INDEX PORTFOLIO is invested in common stocks selected to duplicate the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index; the
EQUITY INCOME PORTFOLIO is invested primarily in common stocks and convertible
securities that provide favorable prospects for investment income returns above
those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index; the
EQUITY PORTFOLIO is invested primarily in common stocks; the
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PRUDENTIAL JENNISON PORTFOLIO is invested primarily in equity securities of
established companies with above-average growth prospects; the SMALL
CAPITALIZATION STOCK PORTFOLIO is invested primarily in equity securities of
publicly-traded companies with small market capitalization; the GLOBAL PORTFOLIO
is invested primarily in common stocks and common stock equivalents (such as
convertible debt securities) of foreign and domestic issuers; and the NATURAL
RESOURCES PORTFOLIO is invested primarily in common stocks and convertible
securities of natural resource companies, and in securities (typically debt
securities or preferred stock) the terms of which are related to the market
value of a natural resource. Further information about the Series Fund
portfolios can be found under THE PRUDENTIAL SERIES FUND, INC. on page 11, and
in the attached prospectus for the Series Fund.
You may place your entire payment in one subaccount or divide it among any of
the thirteen and the fixed-rate option. You may transfer funds from one
subaccount to another and to the fixed-rate option. There are limitations upon
transfers from the fixed-rate option to the subaccounts. (See TRANSFERS, page
14.) The amount credited to you in a subaccount will initially be equal to that
part of your purchase payment that you choose to invest in the subaccount.
Thereafter the value of your holdings in the subaccount, after deducting charges
payable under the Contract, will vary in accordance with investment results. See
VALUATION OF CONTRACT OWNER'S CONTRACT FUND, page 16, and page C1 of the
statement of additional information. The total value attributable to a specific
Contract representing amounts allocated to all subaccounts and the fixed-rate
option is known as the "Contract fund". You will receive confirmations of every
purchase payment you make. You will also receive annual statements showing the
status of your Contract fund.
The Contracts described in this prospectus have an attractive feature. During
the first 3 Contract years, and in Contract years thereafter at Prudential's
discretion, Prudential will add an Additional Amount, as a bonus, of 1% to every
purchase payment. Prudential reserves the right to limit its payment of such
Additional Amounts under a particular Contract to $1,000 in each Contract year.
This Additional Amount will be allocated among the subaccounts and the
fixed-rate option in the same proportions as the purchase payment to which it is
added. (See ADDITIONAL AMOUNTS, page 13). During the first 8 Contract years
following a purchase payment, the bonus attributable to any portion of that
purchase payment that is withdrawn will be recaptured by Prudential, unless such
withdrawn purchase payment is used to effect an annuity that is not subject to a
sales charge or is subject to a reduced sales charge. See SALES CHARGES ON
WITHDRAWALS, page 16, and RECAPTURE OF ADDITIONAL AMOUNTS, page 18.
Unless restricted by the retirement arrangement in connection with which you
have purchased a Contract, you may withdraw all or part of your money at any
time. See WITHDRAWALS, page 14. Federal tax law imposes additional withdrawal
restrictions on tax-deferred annuity contracts subject to Section 403(b) of the
Code. See WITHDRAWALS, page 14, and SECTION 403(B) ANNUITIES, page 22. The
amount you request will be deducted from your Contract fund. If your Contract
remains in effect until you retire or until you reach the age of 59 1/2 under
certain retirement plans, you may withdraw the amount credited to you in a lump
sum or use it to effect a monthly annuity that will continue as long as the
annuitant lives or for some other period you select. Other than an annuity
selected under the Supplemental Life Annuity Option, WVQ-83 and QVIP-84 Contract
owners may elect to receive a variable annuity. If you elect a variable annuity
option, annuity payments will vary each month in accordance with the investment
performance of the subaccount[s] you have chosen. See page C1 of the statement
of additional information. If you elect a fixed-dollar annuity option, annuity
payments will be in monthly installments of guaranteed amounts. VIP-86 Contract
owners may only elect a fixed-dollar annuity option. A sales charge may be
deducted from the amount withdrawn, and federal income taxes may be imposed upon
a withdrawal. The sales charge will be higher with respect to withdrawal of a
purchase payment if it is withdrawn in early years, soon after the purchase
payment was made. See SALES CHARGES ON WITHDRAWALS, page 16, FEDERAL TAX STATUS,
page 20, and EFFECTING AN ANNUITY, page 23.
CHARGES UNDER THE CONTRACTS
The charges made by Prudential are intended to compensate it for paying the
various categories of expenses incurred in maintaining and operating the Account
(up to $30 annually, if applicable) and for assuming mortality and expense risks
under the Contracts (an annual rate of up to 1.2% of the assets held in the
subaccount). In addition, there are other expenses incurred in connection with
the operation and management of the Series Fund, the most significant of which
is an investment management fee ranging from an annual rate of 0.35% to 0.75% of
the aggregate average daily net assets in each of the portfolios. For more
information regarding these charges, see CHARGES, FEES, AND DEDUCTIONS, page 16.
A deferred sales charge is imposed to reimburse Prudential for distribution
expenses such as commissions paid to sales personnel, costs of advertising and
sales promotions, prospectus costs, and costs of sales administration. Many
mutual funds other than no-load funds make this charge by deducting a percentage
of the investor's purchase payment and investing only the remainder. Under the
Contracts described in this prospectus, each
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<PAGE>
purchase payment you make (after deduction of any applicable amount needed to
pay premium tax) is allocated to the subaccount designated by you or to the
fixed-rate option if so directed. In any Contract year you may make withdrawals
without charge of up to 10% of your Contract fund value on the date of the first
withdrawal in that Contract year. A sales charge may be deducted on withdrawals
above 10%. The charge is 8% (the maximum charge) of the amount of each purchase
payment withdrawn during the same Contract year that it was made. Thereafter the
charge decreases by 1% per Contract year. See SALES CHARGES ON WITHDRAWALS, page
16. Purchase payments withdrawn 8 or more Contract years after they were made
are subject to no sales charge at all. Withdrawals may be subject to tax
consequences under the Code. See WITHDRAWALS, page 14 and FEDERAL TAX STATUS,
page 20.
On any Contract subject to a premium tax, Prudential will deduct the tax, as
provided under applicable law, from the purchase payment when received, or from
the Contract fund at the time the annuity is effected. The deduction for taxes
imposed on purchase payments will be lower, or not made at all, if total
purchase payments meet certain minimum amounts. See PREMIUM TAXES, page 16.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers may be made from one subaccount to another or to the fixed-rate option
if the amount transferred is $300 or more and any amount remaining to your
credit in the subaccount after the transfer is not less than $300. Also, you can
transfer the total amount remaining in any subaccount even if that amount is
less than $300. Up to four transfers a year between subaccounts or to the
fixe-rated option may be made during the period before annuity payments begin.
Currently, you may make more than four such transfers per year without
Prudential's consent. Transfers from the fixed-rate option to the subaccounts
are permitted only once each Contract year, and there are other limitations on
such transfers. See TRANSFERS, page 14.
WVQ-83 Contract owners and QVIP-84 Contract owners may convert their Contract
fund into either a variable (if available) or fixed dollar annuity. After
variable annuity payments begin, the annuitant may make full or partial
transfers from any subaccount to one or more other subaccounts. Prudential's
consent is needed if (1) more than four transfers are made in a year, or (2) for
any partial transfers, either the number of Subaccount Annuity Units to be
transferred or the number to be retained, multiplied by the corresponding
Subaccount Annuity Unit Value on the transfer effective date, is less than $20.
Transfer requests may be in writing. Transfer requests may also be made by
telephone. A transfer will generally be made at the end of the valuation period
in which your proper written request or authorized telephone request is received
by Prudential. See TRANSFERS, page 14.
FREE LOOK
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free-look" provision. See SHORT-TERM CANCELLATION RIGHT or
"FREE LOOK", page 12.
HOW TO CONTACT PRUDENTIAL
All written requests and notices required by the Contracts, such as withdrawal
or transfer requests, and any questions or inquiries should be sent to your
designated Prudential Service Office.
This Brief Description of the Contract is intended to provide a broad overview
of the more significant featuresof the Contract. More detailed information will
be found in subsequent sections of this prospectus and in the Contract document.
4
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments ... None (1% bonus added to payment up
to a maximum bonus of $1,000 per
Contract year)
Maximum Deferred Sales Load:
MAXIMUM DEFERRED SALES
CHARGE AS A PERCENTAGE OF
CONTRACT YEARS AFTER PAYMENT PURCHASE PAYMENT WITHDRAWN*
================================================================================
0 ...................................... 8% plus return of 1% bonus
1 year ................................. 7% plus return of 1% bonus
2 years ................................ 6% plus return of 1% bonus
3 years ................................ 5% plus return of 1% bonus
4 years ................................ 4% plus return of 1% bonus
5 years ................................ 3% plus return of 1% bonus
6 years ................................ 2% plus return of 1% bonus
7 years ................................ 1% plus return of 1% bonus
8 or more years ........................ 0% plus return of 1% bonus
*The deferred sales load is not imposed on that portion of the withdrawals
made in any Contract year equal to the first 10% of the Contract fund. The
deferred sales load is not imposed in connection with the Critical Care
Access feature and may be reduced on the withdrawal of purchase payments
made on or after the annuitant's 81st birthday.
Annual Administrative Charge ............................................ None*
*If the Contract fund is less than $10,000, a $30 annual charge is assessed.
This $30 fee will not be charged if the Contract fund is less than $10,000 as a
result of a withdrawal due to confinement in a nursing home or hospital, or due
to a terminal illness.
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE CONTRACT FUND)
ALL SUBACCOUNTS
---------------
Total Separate Account
Annual Expenses (Mortality and Expense Risk Fee) ............ 1.20%
====
THE PRUDENTIAL SERIES FUND, INC. ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
HIGH
MONEY DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE YIELD
MARKET BOND INCOME BALANCED MANAGED BOND
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Investment Management
Fee ................... .40% .40% .40% .55% .60% .55%
Other Expenses ......... .04% .05% .06% .04% .04% .08%
---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses ....... .44% .45% .46% .59% .64% .63%
==== ==== ==== ==== ==== ====
<CAPTION>
SMALL
STOCK EQUITY PRUDENTIAL CAPITALIZATION NATURAL
INDEX INCOME EQUITY JENNISON STOCK GLOBAL RESOURCES
============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Management
Fee ................... .35% .40% .45% .60% .40% .75% .45%
Other Expenses ......... .05% .05% .05% .16% .16% .17% .07%
---- ---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses ....... .40% .45% .50% .66% .56% .92% .52%
==== ==== ==== ==== ==== ==== ====
</TABLE>
5
<PAGE>
The purpose of the foregoing tables is to assist the Contract owners in
understanding the expenses of The Prudential Qualified Individual Variable
Contract Account and The Prudential Series Fund, Inc. (the "Series Fund") that
they bear, directly or indirectly. See the sections on charges in this
prospectus and the attached prospectus for the Series Fund. The above tables do
not include any state premium taxes. Currently, there is no deduction for such
taxes at the time purchase payments are made, but in some states a deduction is
made when an annuity is effected.
Except for the Global Portfolio, Prudential reimburses a portfolio when its
ordinary operating expenses, excluding taxes, interest, and brokerage
commissions exceed 0.75% of the portfolio's average daily net assets. The
amounts listed for the portfolios under "Other Expenses" are based on amounts
incurred in the last fiscal year.
EXAMPLES OF FEES AND EXPENSES
The following examples, and those on page 8, illustrate the cumulative
dollar amount of all the above expenses that would be incurred on each $1,000
investment,
o The examples assume a consistent 5% annual return on invested assets;
o The examples do not take into consideration any taxes attributable to
premiums which may be payable at the time of annuitization or at the time
of purchase payments;
o The amounts shown are overstated for Contract funds over $10,000 and
understated for Contract funds less than $10,000;
o The examples assume that the operating expenses incurred in 1996 will
continue for a 10 year period, and that any caps applied to the expenses
will also continue.
For periods less than 10 years, the expenses shown in Table I, describe
applicable charges for the withdrawal of your entire Contract fund. THE EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL
EXPENSES INCURRED IN ANY GIVEN YEAR MAY BE MORE OR LESS THAN THOSE SHOWN IN THE
EXAMPLES.
The following example shows how the Year 1 expenses shown in Table I were
calculated for the Flexible Managed Portfolio, for each $1,000 invested. This
assumes a withdrawal is made just prior to the end of the first year after
payment. The amount of the Annual Administrative Charge in this example is
calculated in a manner prescribed by the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
Initial Investment $ 1,000.00
Plus 1% bonus ($1,000 + $10) 1,010.00
5% Assumed Rate of Return ($1,010 x 1.05) 1,060.50
Average Value of Funds [($1,010 + $1,060.50)/2] 1,035.25
Annual Expenses (1.2 risk fees + 0.60 management fee + 0.03 expense) 1.83%
Annual Administrative Charge .157
Total Contract Expenses ($1,035.25 x 1.83%) + $1.57 20.52
</TABLE>
Contingent Deferred Sales Charge computation for withdrawal of entire fund:
Net Contract fund ($1,060.50--$20.52) $1,039.98
10% Charge-free withdrawal 104.00
Initial investment 1,000.00*
Amount subject to withdrawal charge ($1,000--$104.00) 896.00
Surrender charge @ 8% 71.68
Plus Total Contract Expenses (as calculated above) 20.52
---------
TOTAL CHARGES $ 92.20
*Note that in this example, Prudential would recapture the 1% bonus that had
been credited to the initial investment.
6
<PAGE>
EXAMPLES
TABLE I
If you withdraw your entire Contract fund thereby surrendering your Contract
just prior to the end of the applicable time period, you would pay the following
cumulative expenses on each $1,000 invested, assuming 5% annual return on
assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO ...................... $ 89 $109 $129 $205
DIVERSIFIED BOND PORTFOLIO .................. $ 89 $109 $130 $207
GOVERNMENT INCOME PORTFOLIO ................. $ 89 $108 $131 $206
CONSERVATIVE BALANCED PORTFOLIO ............. $ 98 $132 $171 $287
FLEXIBLE MANAGED PORTFOLIO .................. $ 99 $136 $174 $295
HIGH YIELD BOND PORTFOLIO ................... $ 91 $113 $138 $222
STOCK INDEX PORTFOLIO ....................... $ 90 $110 $133 $212
EQUITY INCOME PORTFOLIO ..................... $ 91 $113 $142 $250
EQUITY PORTFOLIO ............................ $ 96 $128 $172 $307
PRUDENTIAL JENNISON PORTFOLIO ............... $ 92 $117 $165 $269
SMALL CAPITALIZATION STOCK PORTFOLIO ........ $ 91 $113 $142 $253
GLOBAL PORTFOLIO ............................ $ 95 $128 $168 $316
NATURAL RESOURCES PORTFOLIO ................. $ 91 $113 $141 $251
</TABLE>
As an example, if the entire Contract fund is invested in the Flexible Managed
Portfolio, and you surrendered your Contract just prior to the end of 1 year,
you would pay $92 per $1,000 invested, reflecting all charges including the 8%
contingent deferred sales charge.
TABLE II
If you annuitize just before the end of the applicable time period, you would
pay the following cumulative expenses on each $1,000 invested, assuming 5%
annual return on assets:
(Note: The 1, 3, and 5 Year columns reflect the imposition of the
contingent deferred sales charge; however, some of the annuity options may
not be subject to this charge after year 3. Where this is the case, the
expenses shown in Table III below would be applicable. See page 16 under
the SALES CHARGES ON WITHDRAWALS section.)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO ...................... $ 89 $109 $129 $205
DIVERSIFIED BOND PORTFOLIO .................. $ 89 $109 $130 $207
GOVERNMENT INCOME PORTFOLIO ................. $ 89 $108 $131 $206
CONSERVATIVE BALANCED PORTFOLIO ............. $ 98 $132 $171 $287
FLEXIBLE MANAGED PORTFOLIO .................. $ 99 $136 $174 $295
HIGH YIELD BOND PORTFOLIO ................... $ 91 $113 $138 $222
STOCK INDEX PORTFOLIO ....................... $ 90 $110 $133 $212
EQUITY INCOME PORTFOLIO ..................... $ 91 $113 $142 $250
EQUITY PORTFOLIO ............................ $ 96 $128 $172 $307
PRUDENTIAL JENNISON PORTFOLIO ............... $ 92 $117 $165 $269
SMALL CAPITALIZATION STOCK PORTFOLIO ........ $ 91 $113 $142 $253
GLOBAL PORTFOLIO ............................ $ 95 $128 $168 $316
NATURAL RESOURCES PORTFOLIO ................. $ 91 $113 $141 $251
</TABLE>
TABLE III
If you do not withdraw any portion of your Contract fund as of the end of the
applicable time period, you would pay the following cumulative expenses on each
$1,000 invested, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO ...................... $ 18 $55 $ 94 $205
DIVERSIFIED BOND PORTFOLIO .................. $ 18 $55 $ 95 $207
GOVERNMENT INCOME PORTFOLIO ................. $ 18 $55 $ 95 $206
CONSERVATIVE BALANCED PORTFOLIO ............. $ 26 $79 $135 $287
FLEXIBLE MANAGED PORTFOLIO .................. $ 27 $82 $139 $295
HIGH YIELD BOND PORTFOLIO ................... $ 19 $60 $103 $222
STOCK INDEX PORTFOLIO ....................... $ 18 $57 $ 98 $212
EQUITY INCOME PORTFOLIO ..................... $ 19 $60 $106 $250
EQUITY PORTFOLIO ............................ $ 24 $77 $134 $307
PRUDENTIAL JENNISON PORTFOLIO ............... $ 20 $63 $113 $269
SMALL CAPITALIZATION STOCK PORTFOLIO ........ $ 19 $59 $106 $253
GLOBAL PORTFOLIO ............................ $ 23 $75 $132 $316
NATURAL RESOURCES PORTFOLIO ................. $ 19 $59 $106 $251
</TABLE>
Notice that in all 3 of the above tables, the level of cumulative charges is
identical for the 10 year column. This is because at that point there are no
contingent deferred sale charges taken by Prudential upon surrender or
annuitization. It may be helpful to consider the dollar amounts shown as
percentages of the amount invested ($1,000) over the period specified. In the
case of the Flexible Managed Portfolio, $235 at the end of 10 years equals
$23.50 per year, or approximately 2.4% of $1,000.
7
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------
MONEY MARKET
--------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.931 $ 1.847 $ 1.796 $ 1.766 $ 1.722
2. Accumulation unit value
at end of period ........... 2.008 1.931 1.847 1.796 1.766
3. Number of accumulation units
outstanding at end of period 51,204,795 51,330,984 43,401,237 42,593,573 51,724,305
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------
MONEY MARKET
--------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.641 $ 1.536 $ 1.423 $ 1.341 $ 1.274
2. Accumulation unit value
at end of period ........... 1.722 1.641 1.536 1.423 1.341
3. Number of accumulation units
outstanding at end of period 51,946,977 47,904,119 33,934,283 22,782,591 14,141,148
<CAPTION>
DIVERSIFIED BOND
--------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.899 $ 2.430 $ 2.541 $ 2.335 $ 2.204
2. Accumulation unit value
at end of period ........... 2.990 2.899 2.430 2.541 2.335
3. Number of accumulation units
outstanding at end of period 38,483,488 38,379,871 39,963,983 41,705,404 34,565,884
<CAPTION>
DIVERSIFIED BOND
--------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.916 $ 1.790 $ 1.596 $ 1.493 $ 1.507
2. Accumulation unit value
at end of period ........... 2.204 1.916 1.790 1.596 1.493
3. Number of accumulation units
outstanding at end of period 26,914,460 23,633,524 22,074,086 19,475,497 17,183,479
<CAPTION>
GOVERNMENT INCOME
---------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.719 $ 1.456 $ 1.553 $ 1.397
2. Accumulation unit value
at end of period ........... 1.736 1.719 1.456 1.553
3. Number of accumulation units
outstanding at end of period 50,735,981 55,130,988 64,574,144 66,529,517
<CAPTION>
GOVERNMENT INCOME
---------------------------------------------------
01/01/92 01/01/91 01/01/90 05/01/89*
TO TO TO TO
12/31/92 12/31/91 12/31/90 12/31/89
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.335 $ 1.164 $ 1.108 $ 1.000
2. Accumulation unit value
at end of period ........... 1.397 1.335 1.164 1.108
3. Number of accumulation units
outstanding at end of period 41,061,477 10,193,396 3,891,299 1,369,956
<CAPTION>
CONSERVATIVE BALANCED
--------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 3.077 $ 2.655 $ 2.713 $ 2.447 $ 2.316
2. Accumulation unit value
at end of period ........... 3.424 3.077 2.655 2.713 2.447
3. Number of accumulation units
outstanding at end of period 266,987,208 272,339,087 288,743,247 254,782,768 205,054,881
<PAGE>
<CAPTION>
CONSERVATIVE BALANCED
--------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.968 $ 1.892 $ 1.637 $ 1.503 $ 1.499
2. Accumulation unit value
at end of period ........... 2.316 1.968 1.892 1.637 1.503
3. Number of accumulation units
outstanding at end of period 162,911,208 149,027,248 140,207,386 137,719,157 144,419,333
</TABLE>
*Commencement of Business
The financial statements of the Account are in the statement of additional
information.
8
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------
FLEXIBLE MANAGED
------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 3.469 $ 2.828 $ 2.955 $ 2.587 $ 2.434
2. Accumulation unit value
at end of period ........... 3.895 3.469 2.828 2.955 2.587
3. Number of accumulation units
outstanding at end of period 245,530,247 249,259,101 265,104,376 245,194,868 214,343,734
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------
FLEXIBLE MANAGED
------------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.963 $ 1.950 $ 1.621 $ 1.453 $ 1.498
2. Accumulation unit value
at end of period ........... 2.434 1.963 1.950 1.621 1.453
3. Number of accumulation units
outstanding at end of period 191,130,125 190,783,212 186,540,213 192,115,646 209,973,940
<CAPTION>
HIGH YIELD BOND
------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.865 $ 1.605 $ 1.670 $ 1.417 $ 1.220
2. Accumulation unit value
at end of period ........... 2.053 1.865 1.605 1.670 1.417
3. Number of accumulation units
outstanding at end of period 29,828,106 29,634,193 29,220,246 26,485,302 16,592,795
<CAPTION>
HIGH YIELD BOND
------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 02/23/87*
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 0.887 $ 1.019 $ 1.052 $ 0.941 $ 1.000
2. Accumulation unit value
at end of period ........... 1.220 0.887 1.019 1.052 0.941
3. Number of accumulation units
outstanding at end of period 10,973,632 10,683,985 13,396,197 10,451,423 3,209,882
<CAPTION>
STOCK INDEX
-------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.401 $ 1.772 $ 1.776 $ 1.639 $ 1.548
2. Accumulation unit value
at end of period ........... 2.907 2.401 1.772 1.776 1.639
3. Number of accumulation units
outstanding at end of period 83,246,633 69,315,117 62,281,407 60,084,614 44,559,636
<CAPTION>
STOCK INDEX
-------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 10/19/87*
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.208 $ 1.268 $ 0.980 0.859 1.000
2. Accumulation unit value
at end of period ........... 1.548 1.208 1.268 0.980 0.859
3. Number of accumulation units
outstanding at end of period 25,578,770 16,843,644 9,249,076 2,628,467 123,844
<CAPTION>
EQUITY INCOME
-------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.530 $ 2.104 $ 2.099 $ 1.737 $ 1.596
2. Accumulation unit value
at end of period ........... 3.044 2.530 2.104 2.099 1.737
3. Number of accumulation units
outstanding at end of period 65,617,658 63,810,012 56,103,455 37,355,905 18,299,120
<PAGE>
<CAPTION>
EQUITY INCOME
-------------------------------------------------
01/01/91 01/01/90 1/01/89 02/19/88*
TO TO TO TO
12/31/91 12/31/90 2/31/89 12/31/88
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.267 $ 1.332 $ 1.099 $ 1.000
2. Accumulation unit value
at end of period ........... 1.596 1.267 1.332 1.099
3. Number of accumulation units
outstanding at end of period 9,795,017 7,313,593 4,663,452 1,002,158
</TABLE>
*Commencement of Business
The financial statements of the Account are in the statement of additional
information.
9
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------
EQUITY
-----------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 4.850 $ 3.738 $ 3.681 $ 3.056 $ 2.709
2. Accumulation unit value
at end of period ........... 5.680 4.850 3.738 3.681 3.056
3. Number of accumulation units
outstanding at end of period 142,993,051 134,801,790 121,654,470 102,491,968 80,457,602
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------
EQUITY
-------------------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.176 $ 2.323 $ 1.812 $ 1.567 $ 1.560
2. Accumulation unit value
at end of period ........... 2.709 2.176 2.323 1.812 1.567
3. Number of accumulation units
outstanding at end of period 67,197,756 61,186,048 57,285,028 56,763,669 61,958,264
</TABLE>
PRUDENTIAL JENNISON
-------------------------
01/01/96 05/01/95*
TO TO
12/31/96 12/31/95
1. Accumulation unit value
at beginning of period ..... $ 1.245 $ 1.009
2. Accumulation unit value
at end of period ........... 1.408 1.245
3. Number of accumulation units
outstanding at end of period 21,901,003 5,067,514
SMALL CAPITALIZATION STOCK
--------------------------
01/01/96 05/01/95*
TO TO
12/31/96 12/31/95
1. Accumulation unit value
at beginning of period ..... $ 1.190 $ 1.002
2. Accumulation unit value
at end of period ........... 1.408 1.190
3. Number of accumulation units
outstanding at end of period 13,432,923 3,599,798
<TABLE>
<CAPTION>
GLOBAL
------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89*
TO TO TO TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.533 $ 1.339 $ 1.425 $ 1.007 $ 1.056 $ 0.959 $ 1.115 $ 1.015
2. Accumulation unit value
at end of period ........... 1.814 1.533 1.339 1.425 1.007 1.056 0.959 1.115
3. Number of accumulation units
outstanding at end of period 50,862,779 44,920,771 43,407,964 9,912,122 3,274,619 2,255,700 1,542,929 349,391
<CAPTION>
NATURAL RESOURCES
-------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 2.196 $ 1.751 $ 1.851 $ 1.497 $ 1.412
2. Accumulation unit value
at end of period ........... 2.840 2.196 1.751 1.851 1.497
3. Number of accumulation units
outstanding at end of period 26,504,833 23,280,453 22,768,479 14,307,513 10,080,734
<CAPTION>
NATURAL RESOURCES
--------------------------------------------------
01/01/91 01/01/90 01/01/89 05/01/89*
TO TO TO TO
12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C>
1. Accumulation unit value
at beginning of period ..... $ 1.295 $ 1.391 $ 1.038 1.000
2. Accumulation unit value
at end of period ........... 1.412 1.295 1.391 1.038
3. Number of accumulation units
outstanding at end of period 9,150,881 8,875,236 2,829,046 820,249
</TABLE>
*Commencement of Business
The financial statements of the Account are in the statement of additional
information.
10
<PAGE>
GENERAL INFORMATION ABOUT PRUDENTIAL,
THE PRUDENTIAL QUALIFIED INDIVIDUAL
VARIABLE CONTRACT ACCOUNT, AND THE
PRUDENTIAL SERIES FUND, INC.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. It is
licensed to sell life insurance and annuities in the District of Columbia, Guam,
and in all states. These Contracts are not offered in any state in which the
necessary approvals have not yet been obtained.
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 PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
The Prudential Qualified Individual Variable Contract Account (the "Account")
was established on October 12, 1982 under New Jersey law as a separate
investment account. The Account meets the definition of a "separate account"
under the federal securities laws. The Account holds assets that are segregated
from all of Prudential'sother assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporation obligations of Prudential. Prudential is also the legal
owner of the assets in the Account. Prudential will at all times maintain assets
in the Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Prudential conducts. In addition to these assets, the Account's assets may
include funds contributed by Prudential to commence operation of the Account and
may include accumulations of the charges Prudential makes against the Account.
From time to time these additional assets will be transferred to Prudential's
general account. Before making any such transfer, Prudential will consider any
possible adverse impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Prudential. There are currently thirteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements appear in the statement of additional information.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. The
Account will purchase and redeem shares from the Series Fund at net asset value.
Shares will be redeemed to the extent necessary for Prudential to provide
benefits under the Contract and to transfer assets from one subaccount to
another, as requested by Contract owners. Any dividend or capital gain
distribution received from a portfolio of the Series Fund will be reinvested
immediately at net asset value in shares of that portfolio and retained as
assets of the corresponding subaccount.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is Prudential Plaza,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corp. ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio. Further detail is provided in
the prospectus and statement of additional information for the Series Fund.
Prudential, PIC, and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
As an investment advisor, Prudential charges the Series Fund a daily investment
management fee as compensation for its services. The following table shows the
investment management fee charged for each portfolio of the Series Fund
available for investment by Contract owners.
11
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL INVESTMENT
MANAGEMENT FEE AS
PORTFOLIO A PERCENTAGE OF AVERAGE
DAILY NET ASSETS
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 0.40%
DIVERSIFIED BOND PORTFOLIO 0.40%
GOVERNMENT INCOME PORTFOLIO 0.40%
CONSERVATIVE BALANCED PORTFOLIO 0.55%
FLEXIBLE MANAGED PORTFOLIO 0.60%
HIGH YIELD BOND PORTFOLIO 0.55%
STOCK INDEX PORTFOLIO 0.35%
EQUITY INCOME PORTFOLIO 0.40%
EQUITY PORTFOLIO 0.45%
PRUDENTIAL JENNISON PORTFOLIO 0.60%
SMALL CAPITALIZATION STOCK PORTFOLIO 0.40%
GLOBAL PORTFOLIO 0.75%
NATURAL RESOURCES PORTFOLIO 0.45%
- --------------------------------------------------------------------------------
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the Series Fund, nor the Series Fund currently foresees any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO--AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The Contract requires purchase payments made, through payroll deduction or
similar arrangements with an employer, at a rate of at least $300 during any
12-month period. Any other purchase payment must be at least $50 (for VIP-86
Contracts issued prior to May 1, 1991, other purchase payments must be at least
$100; for VIP-86 Contracts issued on or after May 1, 1991, other purchase
payments must be at least $300.)The Contract may generally be issued on proposed
annuitants below the age of 69. Higher issue ages may apply if the Minimum
Distribution Option is selected at issue or if the prospective owner provides
documentation of other appropriate IRS election. The MINIMUM DISTRIBUTION OPTION
is described in further detail on page 22. Before issuing any Contract,
Prudential requires submission of certain information. Following Prudential's
review of the information and approval of issuance of the Contract, a Contract
will be issued that sets forth precisely the owner's rights and the Company's
obligations. Additional purchase payments may be made by check payable to the
order of Prudential and mailed to your designated Prudential Home Office
accompanied by forms that will be provided for this purpose. Prudential
generally will not accept "regular" IRA Contributions on or after the
annuitants's 69th birthday, but reserves the right to do so.
The Contract date will be the date Prudential received the initial purchase
payment and certain required documentation. The amount credited under the
Contract begins to vary on that date to reflect the investment results of the
investment option[s] and/or the interest rate declared for the fixed-rate option
as chosen by the applicant. If the issuance of the Contract is not approved,
because the current underwriting requirements are not met, the purchase payment
will promptly be returned. The Company reserves the right to change these
requirements on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, a Contract may be returned for a refund within 10 days
after it is received by the Contract owner. Some states allow a longer period of
time during which a Contract may be returned for a refund. A refund can be
12
<PAGE>
requested by mailing or delivering the Contract to the representative who sold
it or to the Prudential Home Office specified in the Contract. The Contract
owner will then receive a refund of all purchase payments made, plus or minus
any change due to investment experience in the value of the invested portion of
the payments, excluding any bonus paid on the purchase payments, calculated as
if no charges had been made against the Account or the Series Fund. However, if
applicable law so requires, the Contract owner who exercises his or her
short-term cancellation right will receive a refund of all purchase payments
made, excluding any bonus paid on the purchase payments, with no adjustment for
investment experience.
ALLOCATION OF PURCHASE PAYMENTS
The Contract owner determines how the purchase payment will be allocated among
the subaccounts and between the Account and the fixed-rate option by specifying
the desired allocation on the application form for a Contract. You may change
subsequent purchase payment allocations by providing us with written
instructions. You may also change subsequent purchase payment allocations by
telephoning your designated Prudential Home Office, provided the Contract owner
is enrolled to use the Telephone Transfer System. If, after you have made one
purchase payment, you send Prudential an additional purchase payment without
instructions about how the purchase payment should be allocated, Prudential will
allocate the purchase payment in the same proportions as the most recent
purchase payment you made.
Additionally, a feature called Dollar Cost Averaging ("DCA") is available to
Contract owners. If you wish, purchase payments allocated to the portion of the
Money Market subaccount used for this feature (the "DCA account"), and
designated amounts will be transferred monthly from the DCA account to other
investment options available under the Contract, excluding the Money Market
subaccount and the fixed-rate option. Automatic monthly transfers must be at
least 3% of the amount allocated to the DCA account (that is, if you designate
$5,000 the minimum monthly transfer is $150), with a minimum of $20 transferred
into any one investment option. These amounts are subject to change at
Prudential's discretion. The minimum transfer amount will only be recalculated
if the amount designated for transfer is increased.
When you establish DCA at issue, you must allocate to the DCA account the
greater of $2,000 or 10% of the initial purchase payment. When you establish DCA
after issue, you must allocate to the DCA account at least $2,000. These
minimums are subject to change at Prudential's discretion. After DCA has been
established and as long as the DCA account has a positive balance, you may
allocate or transfer amounts to the DCA account, subject to the limitations on
purchase payments and transfers generally. In addition, if you have already
established DCA, your purchase payment allocation instructions may include an
allocation of all or a portion of all your purchase payments to the DCA account.
Each automatic monthly transfer will take effect as of the end of the valuation
period on the Monthly date (i.e. the Contract date and the same date in each
subsequent month), provided the New York Stock Exchange ("NYSE") is open on that
date. If the NYSE is not open on the Monthly date, the transfer will take effect
as of the end of the valuation period on the next day that the NYSE is open. If
the Monthly date does not occur in a particular month (e.g., February 30), the
transfer will take effect as of the end of the valuation period on the last day
of that month that the NYSE is open. Automatic monthly transfers will continue
until the balance in the DCA account reaches zero, or until the Contract owner
gives notification of a change in allocation or cancellation of the feature. If
you have an outstanding payment allocation to the DCA account, but your DCA
option has previously been canceled, purchase payments allocated to the DCA
account will be allocated to the Money Market subaccount. Currently, there is no
charge for using the DCA feature.
ADDITIONAL AMOUNTS
During the first 3 Contract years, and in Contract years thereafter at
Prudential's discretion, Prudential will add an Additional Amount, as a bonus,
of 1% to every purchase payment that you make and allocate that Additional
Amount to the Account and fixed-rate option in the same manner as your purchase
payment. Prudential reserves the right, however, to limit its payment of such
Additional Amounts to $1,000 in each Contract year. This Additional Amount, or
bonus, will work as follows. Suppose you make an initial purchase payment of
$2,000 to be allocated equally to the Equity Subaccount and the fixed-rate
option. Prudential will increase the payment by 1%, or $20, and allocate $1010
to both the Equity Subaccount and to the fixed-rate option. Later in the year
you send an additional purchase payment of $600, but you fail to indicate how it
should be applied. Prudential will increase that amount by 1% or $6, and based
on your most recent instruction, will allocate $303 to both the Equity
Subaccount and to the fixed-rate option.
The Additional Amount will not be subject to state or local premium taxes. It
will, however, be recaptured by Prudential in the event you make a withdrawal of
a purchase payment on which an Additional Amount was paid
13
<PAGE>
within 8 Contract years after the payment, unless such withdrawn purchase
payment is used to effect an annuity that is not subject to a sales charge or is
subject to a reduced sales charge. See SALES CHARGES ON WITHDRAWALS, page 16,
and RECAPTURE OF ADDITIONAL AMOUNTS, page 18.
TRANSFERS
You may transfer the portions of your Contract fund allocated to any subaccount
to any of the other subaccounts or to the fixed-rate option without charge.
Transfers must be in amounts of $300 or more, or the total amount in the
subaccount, if less than $300, and must not cause the amount credited to you in
any subaccount to be less than $300, unless you transfer the entire amount in
that subaccount. A Contract owner may transfer amounts by proper written notice
to a Prudential Home Office, or by telephone unless the Contract owner asks that
transfers by telephone not be made.
Prudential has adopted procedures designed to ensure that requests by telephone
are genuine and will require appropriate identification for that purpose.
Prudential will not be held liable for following telephone instructions that it
reasonably believes to be genuine. Prudential cannot guarantee that owners will
be able to get through to complete a telephone transfer during peak periods such
as periods of drastic economic or market change.
You may make up to four transfers per Contract year during the period before
annuity payments begin. Currently, you may make additional transfers without
Prudential's consent. After variable annuity payments begin, part or all of the
interest in a subaccount may be transferred to one or more other subaccounts.
The annuitant may then make up to four transfers per Contract year. Currently,
you may make additional transfers without Prudential's consent. Any partial
transfer will require Prudential's consent if either the number of Subaccount
Annuity Units to be transferred or the number to be retained, multiplied by the
corresponding Subaccount Annuity Unit Value on the transfer effective date, is
less than $20. Transfers among subaccounts will take effect as of the end of the
valuation period in which a proper transfer request is received at a Prudential
Home Office, except that if the request is received within 7 days of an annuity
payment date, it will be made on the first business day after the annuity
payment date.
Transfers from the fixed-rate option to the subaccounts are permitted once each
Contract year during a 30-day period. Currently that period begins on the
Contract anniversary. Prudential reserves the right to change the beginning date
of the transfer period. The maximum amount which may currently be transferred
out of the fixed-rate option each year is the greater of: (a) 25% of the amount
in the fixed-rate option, and (b) $2,000. Transfer requests received prior to
the Contract anniversary will be effected on the Contract anniversary. Transfer
requests received within the 30-day period beginning on the Contract anniversary
will be effected as of the end of the valuation period in which a proper
transfer request is received at a Prudential Home Office. These limits are
subject to change in the future. Although it is not Prudential's present
practice to do so, we may in the future permit transfers outside of the 30-day
period beginning on the Contract anniversary referred to above and change the
maximum amount that may be transferred out of the fixed-rate option.
WITHDRAWALS
Unless restricted by the retirement arrangement under which you are covered, you
may at any time withdraw all or part of your investment in the Contract fund.
However, Prudential's consent will be required for a partial withdrawal if the
amount requested is less than $300 or if it would reduce the amount credited
under the Contract to less than $300. In addition, there are certain
restrictions on the withdrawal of salary reduction contributions and earnings
invested in annuity contracts subject to Section 403(b) of the Internal Revenue
Code. Under such contracts, withdrawals may be made prior to attaining age 59
1/2 in the event of severance of employment, death, total and permanent
disability and, in limited circumstances, hardship (See SECTION 403(B)
ANNUITIES, page 22). Amounts held under TDA contracts as of December 31, 1988
are exempt from these restrictions. The withdrawal restrictions do not apply to
transfers among the available investment options and do not apply to the direct
transfer of all or part of your interest in the Contract to a Section 403(b)
tax-deferred annuity contract of another insurance company or to a mutual fund
custodial account under Section 403(b)(7). Prudential will generally pay the
amount within 7 days after it receives a properly completed withdrawal request.
The amount of your requested withdrawal, plus any applicable sales charge and
any applicable recapture of additional amounts, will be deducted from your
Contract fund. Any tax withholding required by law will be deducted from the
amount of your requested withdrawal. Prudential may delay payment of any
withdrawal allocable to the subaccount[s] for a longer period if the disposal or
valuation of the Account's assets is not reasonably practicable because the New
York Stock Exchange is closed for other than a regular holiday or weekend,
trading is restricted by the SEC or the SEC declares that an emergency exists.
With respect to the amount of any withdrawal allocable to the fixed-rate option,
Prudential expects to pay the withdrawal promptly upon request. However,
Prudential has the right to delay payment of such withdrawal for
14
<PAGE>
up to 6 months (or a shorter period if required by applicable law). Prudential
will pay interest of at least 3% a year if it delays such a payment for 30 days
or more (or a shorter period if required by applicable law).
A withdrawal will generally have federal income tax consequences, which could
include tax penalties. You should check the terms of your retirement plan and
consult with a tax advisor before making a withdrawal. See FEDERAL TAX STATUS,
page 20.
Under certain types of retirement arrangements, in the case of a married
Participant, a withdrawal request must include the consent of the Participant's
spouse. This consent must contain the Participant's signature and the notarized
or properly witnessed signature of the Participant's spouse. These spousal
consent requirements were effective beginning January 1, 1985 and apply to
married Participants in most qualified pension plans, including plans for
self-employed individuals, and those Section 403(b) annuities which are
considered employee pension benefit plans under the Employee Retirement Income
Security Act of 1974 (ERISA).
DEATH BENEFIT
If the annuitant should die before he or she has begun to receive annuity
payments, a death benefit, calculated as of the date due proof of death is
received by Prudential, will be payable to the beneficiary you designate. Unless
the retirement arrangement that covered you provides otherwise, the beneficiary
will have the right to elect to receive this amount without the imposition of
any sales charge or any further annual maintenance charge, in one sum, in
periodic payments, in the form of a lifetime annuity or in a combination of
these ways. Payments will begin once Prudential receives all information
necessary to process the claim. If the death benefit is payable as a result of
your coverage under a qualified retirement plan, IRA, SEP, savings incentive
match plan for employees under section 408(p) of the Code ("SIMPLE") or
tax-deferred annuity under section 403(b) of the Code, your entire death benefit
generally must be distributed within 5 years after your date of death. However,
if an annuity payment option is elected, and if annuity payments begin within
one year of your death, the death benefits may be distributed over the
beneficiary's life expectancy. If your spouse is your beneficiary, annuity
payments need only begin on or before April 1 of the calendar year following the
calendar year in which you would have attained age 70 1/2 or in some instances,
the remaining interest in the Contract may be rolled over to an IRA owned by
your spouse. With respect to Contracts issued in connection with IRAs, if your
spouse is the designated beneficiary, the Contract may continue with your spouse
treated as the employee. If you die after you have begun to receive annuity
payments as a result of your coverage under a qualified retirement plan, IRA,
SEP, SIMPLE or tax-deferred annuity, but before your entire interest in the
Contract is distributed, the remaining portion of your interest in the Contract
must be distributed at least as rapidly under the method of distribution being
used as of your date of death. Special additional rules apply to Contracts used
in conjunction with plans subject to Section 457 of the Code. If the beneficiary
fails to make any election within any time limit prescribed by or for the
retirement arrangements that covered the Contract owner, Prudential will make a
one-sum cash payment to the beneficiary, after deduction of the annual account
charge then due.
Subject to the spousal consent rules discussed in the following paragraph,
unless the beneficiary has been irrevocably designated, you may change the
beneficiary at any time. If the annuitant should die before reaching age 65 and
before the annuity date, the amount payable to the beneficiary will be at least
equal to the total amount of purchase payments you have made plus any bonus
credited by Prudential (reduced by any previous withdrawal[s] in the same
proportion that such withdrawal[s] reduced your Contract fund on the withdrawal
date[s]), even if the value of your Contract fund is less than this minimum
amount. (Under the WVQ-83 Contract, the minimum amount payable to the
beneficiary is determined in a different manner. See item 2 under DIFFERENCES
UNDER THE WVQ-83 CONTRACT, page 28.) If the value of your Contract fund is
greater, however, that value will be payable to the beneficiary. If the
annuitant dies after the age of 65 but before the annuity date, the death
benefit payable to the beneficiary will be the value of your Contract fund. If
the annuitant dies after he or she has begun to receive annuity payments, the
death benefit, if any, will be determined by the type[s] of annuity payment you
have selected. See EFFECTING AN ANNUITY, page 23.
Under certain types of retirement arrangements, in the case of a married
Participant, a pre-retirement survivor annuity is paid to the Participant's
spouse if the Participant dies prior to his or her retirement under the plan.
Generally, a Participant may waive this coverage with his or her spouse's
consent on or after attaining age 35 or upon termination of employment, if
earlier. This consent must contain the signatures of the Participant and spouse
and must be notarized or witnessed by an authorized plan representative. Unless
such consent is obtained, the law requires that at least 50% of the
Participant's account balance as of his or her date of death be used to purchase
a life annuity form of payment for the Participant's spouse even if the
designated beneficiary is someone other than the spouse. These spousal consent
requirements were generally effective beginning January 1, 1985 and apply to
married vested Participants in most qualified pension plans, including plans for
self-employed individuals, and those Section 403(b) annuities which are
considered employee pension benefit plans under ERISA.
15
<PAGE>
VALUATION OF CONTRACT OWNER'S CONTRACT FUND
The value of your Contract fund is the sum of your interests in your Variable
Account and in the fixed-rate option. The value of your Variable Account is the
sum of your separate interests in each subaccount in which you have invested.
These values are measured in Units, for example, Money Market Units, Diversified
Bond Units or Flexible Managed Units. You are credited with Units in each
subaccount in which you invest. Every purchase payment you make is converted
into Units of the subaccount or subaccounts you have chosen by dividing the
amount of the purchase payment by the Unit Value for the subaccount to which you
have allocated that purchase payment. With regard to purchase payments
subsequent to the initial payment (described above), this is done as of the end
of the valuation period in which the payment is received at a Prudential Home
Office. The value of these Units changes each day to reflect the investment
results and expenses of and deductions of charges from the Series Fund
portfolios in which the assets of the subaccount are invested, in much the same
way that the share values of a mutual fund change each day. The manner in which
the computation is made is complicated and differs somewhat from how mutual fund
share values are determined. It is explained on page C1 of the statement of
additional information. The result is much the same, however. For example, the
product of the number of Diversified Bond Units that are credited to your
Variable Account multiplied by the Diversified Bond Unit Value on any day is the
value of your exact proportionate share of the net assets of the Diversified
Bond Subaccount on that day, just as the number of shares you might hold in a
mutual fund multiplied by the value of a share represents the value of your
proportionate share of the net assets of the mutual fund.
There is, of course, no guarantee that the value of your Contract fund will
increase or that it will not fall below the amount of your total purchase
payments. However, Prudential guarantees a minimum interest rate of 3% a year on
that portion of the Contract fund allocated to the fixed-rate option. Excess
interest on payments allocated to the fixed-rate option may be credited in
addition to the 3% guaranteed interest rate. See THE FIXED-RATE OPTION, page 19.
If applicable, on each Contract anniversary date before the Annuity date,
Prudential makes an annual maintenance charge of up to $30. See ANNUAL
MAINTENANCE CHARGE, page 18. If the Contract fund is allocated to more than one
subaccount or to one or more subaccounts and to the fixed-rate option, the
charge will be divided on a pro rata basis, according to the value held in each
subaccount and/or the fixed-rate option. This charge will also be made, as a
deduction from the proceeds of the withdrawal, if you withdraw your entire
Contract fund during the year, including a withdrawal to effect an annuity under
your Contract. That portion of the maintenance charge which is attributable to
your Variable Account will be assessed by reducing the number of Units credited
to your Variable Account.
CHARGES, FEES, AND DEDUCTIONS
1. PREMIUM TAXES
If Prudential pays a state or local tax at the time purchase payments are made,
the deduction will be made at that time based on the applicable rate. Currently,
no such deduction is made from purchase payments in any state. In some states,
however Prudential pays a premium tax when an annuity is effected. In those
states, the tax will be deducted at that time. The tax rates currently in effect
in those states that impose a tax range from 0.5% to 5%. Prudential also
reserves the right to deduct from each purchase payment a charge up to a maximum
of 0.3% for federal income taxes measured by premiums in those states where
approval has been obtained. Currently, no such charge is being made in any
state.
2. SALES CHARGES ON WITHDRAWALS
A deferred sales charge may be imposed on the withdrawal of purchase payments.
The charge compensates Prudential for paying all of the expenses of selling and
distributing the Contracts, including commissions, preparation of sales
literature, and other promotional activities. Any amount that you withdraw will
be treated for the purpose of determining sales charge as a withdrawal of
investment income, until you have withdrawn an amount equal to your investment
income. There is no sales charge on withdrawals of investment income. For the
purpose of determining sales charges, further withdrawals will be considered
withdrawals of purchase payments. Purchase payments are deemed to be withdrawn
on a first-in, first-out basis (that is, your first purchase payments will be
the first withdrawn). The amount of any sales charge will depend on the purchase
payments withdrawn and the number of Contract years that have elapsed since you
made the particular purchase payments. Your first Contract year begins on the
date your initial purchase payment is invested in the Contract fund (the
Contract date). A subsequent Contract year begins on each anniversary of that
date. (Under the WVQ-83 Contract, purchase payments, rather than investment
income, are deemed removed first under a withdrawal. Generally, sales charges
16
<PAGE>
on withdrawals under the QVIP-84 Contract and the VIP-86 Contract as described
in this section will be less than under the WVQ-83 Contract because investment
income is deemed removed before purchase payments, and investment income is not
subject to sales charges. However, due to the possibility of flexible purchase
payments, multiple withdrawals and a variable return, it is not possible to
categorically state that the QVIP-84 Contract and the VIP-86 Contract result in
lower charges. For a more detailed description of sales charges on withdrawals
under the WVQ-83 Contract, see item 1 under DIFFERENCES UNDER THE WVQ-83
CONTRACT, page 28.)
In each Contract year you may make withdrawals of purchase payments from your
Contract fund of up to 10% of the value of the Contract fund, valued as of the
date of first withdrawal in that Contract year, without incurring a sales
charge. This charge-free withdrawal amount does not accumulate from Contract
year to Contract year. If you withdraw all or part of a purchase payment before
the end of the Contract year during which it was made, the sales charge will be
8% of the purchase payment you withdraw, subject to the 10% free withdrawal
privilege. For example, suppose you make an initial purchase payment of $1,000.
Within the same Contract year you withdraw $450 and at the time of that
withdrawal the value of your Contract fund has grown to $1,100 (due to the
credit of $10 for the 1% additional amount and $90 in investment earnings).
Since withdrawals are deemed for sales charge purposes to consist of investment
income first, the amount subject to a sales charge is $360 ($450 minus $90 of
investment income). However, 10% of the value of your Contract fund on the date
of the first withdrawal in the Contract year during which the withdrawal is made
may be withdrawn without charge. Ten percent of $1,100 is $110. Thus, the sales
charge, which generally is also withdrawn from the Contract fund, will be 8% of
$250 (the $360 payment withdrawn minus $110), which is $20 (This withdrawal
would also involve a recapture of $3.60 of the 1% additional amount. See
Recapture of Additional Amounts, page 18.).
In addition, Critical Care Access is available for Contracts issued on or after
May 1, 1993. Based on regulatory approval of the Waiver of Withdrawal Charges
endorsement, all or part of any withdrawal and maintenance charges associated
with a full or partial withdrawal, or any annuitization or withdrawal charge due
on the annuity date, will be waived following the receipt of due proof that the
annuitant or co-annuitant (if applicable) has been confined to an eligible
nursing home or hospital for a period of at least 3 months or a physician has
certified that the annuitant or co-annuitant (if applicable) has 6 months or
less to live.
The sales charge imposed on the withdrawal of a purchase payment during the next
Contract year after it was made is 7% and continues to decrease by 1% per year
in accordance with the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FOR WITHDRAWALS OF PURCHASE THE SALES CHARGE WILL BE EQUAL TO
PAYMENTS DURING THE CONTRACT YEAR THE FOLLOWING PERCENTAGE OF THE
INDICATED PURCHASE PAYMENT WITHDRAWN (A)
- ---------------------------------------------------------------------------------------------------
<S> <C>
Contract Year in Which Payment Made 8%
First Contract Year Following Year in Which Payment Made 7%
Second Contract Year Following Year in Which Payment Made 6%
Third Contract Year Following Year in Which Payment Made 5%
Fourth Contract Year Following Year in Which Payment Made 4%
Fifth Contract Year Following Year in Which Payment Made 3%
Sixth Contract Year Following Year in Which Payment Made 2%
Seventh Contract Year Following Year in Which Payment Made 1%
Subsequent Contract Years No Charge
- ---------------------------------------------------------------------------------------------------
(a) Subject to 10% free withdrawal described above.
- ---------------------------------------------------------------------------------------------------
</TABLE>
The sales charge percentages described in the above table will be subject to
reduction for purposes of complying with state non-forfeiture law.
Your withdrawal request must specify the source from which the withdrawal is to
be made. If you fail to specify, your withdrawal, subject to minimum amount
requirements, will be allocated among all subaccounts in which you have an
interest and the fixed-rate option if a portion of your Contract fund is
allocated to that option, in the same proportions as the value of your interest
in each subaccount and in the fixed-rate option bears to the total value of your
Contract fund. Your sales charge will be determined without reference to the
source of the withdrawal. The charge will be determined by reference to the
period that has elapsed since your earliest purchase payment not yet withdrawn,
even if that payment was not originally invested in or has subsequently been
transferred from the source from which the withdrawal was made.
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Under the VIP-86 Contract, an annuity may not be effected earlier than 3 years
after the Contract date. If an annuity is effected 3 or more years after the
Contract date under the Supplemental Life Annuity Option (see ANNUITY OPTIONS
UNDER THE VIP-86 CONTRACT, page 24), there will be no sales charge deducted. If
an annuity is effected under one of the other annuity options under the VIP-86
Contract, the sales charge will be determined as described in the above table.
Under the QVIP-84 Contract, if an annuity is effected at any time after the
Contract date under the Supplemental Life Annuity Option (see ANNUITY OPTIONS
UNDER THE WVQ-83 AND QVIP-84 CONTRACTS, page 24), there will be no sales charge
deducted. If an annuity is effected under one of the other annuity options under
the QVIP-84 Contract less than 3 years after the Contract date, the sales charge
will be determined as described in the above table. However, if an annuity is
effected under one of such other annuity options (excluding the Annuity Certain
Option) 3 or more years after the Contract date, the sales charge will be 4%
less than each percentage shown in the above table (the sales charge applied to
a withdrawal to effect the Annuity Certain Option will be determined as
described in the above table).
Under the WVQ-83 Contract, if an annuity is effected at any time after the
Contract date under the Supplemental Life Annuity Option (see ANNUITY OPTIONS
UNDER THE WVQ-83 AND QVIP-84 CONTRACTS, page 24), there will be no sales charge
deducted. If an annuity is effected under one of the other annuity options under
the WVQ-83 Contract less than 3 years after the Contract date, the sales charge
will be determined as described in the above table. However, if an annuity is
effected under one of such other annuity options (excluding the Annuity Certain
Option) 3 or more years after the Contract date, there will be no sales charge
deducted (the sales charge applied to a withdrawal to effect the Annuity Certain
Option will be determined as described in the above table).
An annuity is effected by applying the annuity purchase rates set forth in your
Contract to the amount credited to your Contract fund--less any applicable sales
charge, recapture of Additional Amounts (see Recapture of ADDITIONAL AMOUNTS,
below), premium tax (see PREMIUM TAXES, page 16), and annual maintenance charge
(see ANNUAL MAINTENANCE CHARGE, below)--on the date the annuity is effected. The
amount of the annuity payments that you will receive monthly will depend upon
the form of the annuity you select and, for a variable annuity, upon the
investment performance of the subaccount or subaccounts in which the assets are
held. See EFFECTING AN ANNUITY, page 23.
3. RECAPTURE OF ADDITIONAL AMOUNTS
If you make a withdrawal which consists partially or wholly of purchase
payments, Prudential may recapture the Additional Amounts that were credited to
your Contract fund. If the duration from the start of the Contract year in which
a purchase payment was made to the start of the Contract year of withdrawal is
less than 8 years (except as provided in the following paragraph, this includes
withdrawals made for the purpose of applying some or all of the Contract fund to
effect an annuity), Prudential will recapture the Additional Amounts originally
credited upon the portion of the purchase payments being withdrawn. If the
duration from the start of the Contract year of purchase payment to the start of
the Contract year of withdrawal is eight years or more, the Additional Amounts
credited will not be recaptured. For example, suppose you make an initial
purchase payment of $1,000 for which you are credited with a bonus of 1% or $10.
In the second year you make an additional payment of $2,400, and are credited
with an additional bonus of $24. In the fifth Contract year you request a
partial withdrawal of $1,600. On the date of the withdrawal, the value of your
Contract fund is $3,900, which includes $466 of earnings. Thus the requested
withdrawal represents a withdrawal of $1,134 of purchase payments. Because
$1,134 of purchase payments is being withdrawn and the duration from the start
of the Contract years of these purchase payments to the Contract year of
withdrawal is less than 8 years, the portion of the Additional Amounts
recaptured will be $11.34(1% of $1,134).
Prudential will not recapture Additional Amounts paid on any purchase payment[s]
withdrawn where surrender charges have been waived due to confinement in a
nursing home or hospital, or due to a terminal illness. See SALES CHARGES ON
WITHDRAWALS, page 16.
Prudential will not recapture Additional Amounts paid on any purchase payment[s]
withdrawn, if such withdrawal is used to effect an annuity that is not subject
to a sales charge or is subject to a reduced sales charge. Such annuity must be
effected 1 or more years after the Contract date (3 or more years after the
Contract date under the VIP-86 Contract.) See SALES CHARGES ON WITHDRAWALS, page
16.
4. ANNUAL MAINTENANCE CHARGE
Currently, an annual maintenance charge of up to $30 will be deducted if and
only if the Contract fund is less than $10,000 on a Contract anniversary or at
the time a full withdrawal is effected. This charge is intended to compensate
18
<PAGE>
Prudential for administering the Account, maintaining records, and preparing and
distributing annual reports and an annual statement of your Contract fund. This
$30 fee will not be charged if the Contract fund is less than $10,000 as a
result of a withdrawal due to confinement in a nursing home or hospital, or due
to a terminal illness, as applied under the Waiver of Withdrawal Charges
endorsement. See SALES CHARGES ON WITHDRAWALS, page 16. In addition, this charge
is not made after annuitization, and it may not be increased by Prudential. See
VALUATION OF CONTRACT OWNER'S CONTRACT FUND, page 16.
5. CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS
A deduction is made daily from each subaccount at an annual rate of up to 1.2%
of the assets held in the subaccount. This charge may not be increased by
Prudential. Of this amount, one-third, up to 0.4%, is for assuming the risk that
the charges made under the Contracts may not cover inflation-increased expenses,
and two-thirds, up to 0.8%, is for assuming mortality risks. The mortality risk
assumed by Prudential is the risk that annuity payments under a selected annuity
option (see EFFECTING AN ANNUITY, page 23) may continue for a longer period than
anticipated under the life expectancy tables and schedule of annuity rates in
effect when the Contract was issued. The charges for mortality and expense risks
will continue throughout the period of any variable annuity selected (including
a variable annuity certain, even though Prudential no longer bears any mortality
risk under such a Contract). This charge is not assessed against amounts
allocated to the fixed-rate option or after a fixed dollar annuity is effected.
6. EXPENSES INCURRED BY THE SERIES FUND
The charges and expenses of the Series Fund, net of reimbursements, are
indirectly borne by the Contract owners. Investment management fees for the
available Series Fund portfolios are briefly described under THE PRUDENTIAL
SERIES FUND, INC. on page 11. Further detail about management fees and other
Series Fund expenses is provided in the attached prospectus for the Series Fund
and its statement of additional information.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE
FIXED-RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND
PRUDENTIAL HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE
FIXED-RATE OPTION. DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE
SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS
RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
As explained earlier, a Contract owner may elect to allocate, either initially
or by transfer, all or part of the amount credited under the Contract to a
fixed-rate option, and the amount so allocated or transferred becomes part of
Prudential's general assets. Sometimes this is referred to as Prudential's
general account, which consists of all assets owned by Prudential other than
those in the Account and in other separate accounts that have been or may be
established by Prudential. Subject to applicable law, Prudential has sole
discretion over the investment of the assets of the general account, and
Contract owners do not share in the investment experience of those assets.
Instead, Prudential guarantees that the part of the Contract fund allocated to
the fixed-rate option will accrue interest daily at an effective annual rate
that Prudential declares periodically, but not less than an effective annual
rate of 3%. Currently, declared interest rates remain in effect from the date
money is allocated to the fixed-rate option until the same date in the following
year. Thereafter, a new crediting rate will be declared each year, and will
remain in effect for at least the calendar year, so long as required by
applicable law. Prudential reserves the right to change this practice.
Prudential is not obligated to credit interest at higher rate than 3%, although
in its sole discretion it may do so. Different crediting rates may be declared
for different portions of the Contract fund allocated to the fixed-rate option.
On request, a Contract owner will be advised of the interest rates that
currently apply to his or her Contract.
Transfers from the fixed-rated option are subject to strict limits. See
TRANSFERS, page 14.
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<PAGE>
FEDERAL TAX STATUS
No tax is payable by any Contract owner as a result of any increase in the value
of his or her Contract fund until money is received by him or her, either in the
form of a withdrawal or an annuity. It is important, however, to consider how
amounts that are withdrawn or received as annuity payments will be taxed. The
following discussion of these points 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 advisor should be consulted for complete information and advice.
The following discussion assumes that the Contract will be treated as an annuity
contract for Federal income tax purposes. Section 817(h) of the Internal Revenue
Code (the "Code") provides that the underlying investments for a variable
annuity must satisfy certain diversification requirements. For further detail on
diversification requirements, see DIVIDENDS, DISTRIBUTIONS, AND TAXES in the
attached prospectus for the Series Fund. The Prudential believes the underlying
variable investment options for the Contract meet these diversification
requirements. In connection with the issuance of temporary regulations relating
to diversification requirements under Section 817(h), the Treasury Department
announced that such regulations do not provide guidance concerning the extent to
which Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or revenue
rulings under Section 817(d) relating to the definition of a variable contract.
Because of this uncertainty, Prudential reserves the right to make such changes
as it deems necessary to assure that the Contract continues to qualify as an
annuity for tax purposes. Any such changes will apply uniformly to affected
Contract owners and will be made with such notice to affected Contract owners as
is feasible under the circumstances.
TAXES ON PRUDENTIAL
Although the Account is registered as an investment company, it is not a
separate taxpayer for purposes of the Code. The earnings of the Account are
taxed as part of the operations of Prudential. Under the current provisions of
the Code, Prudential does not expect to incur federal income taxes on earnings
of the Account to the extent the earnings are credited under the Contract. Based
on this, no charge is being made currently against the Account for company
federal income taxes. Prudential will review the question of a charge to the
Account for company federal income taxes periodically. Such a charge may be made
in future years for any federal income taxes that would be attributable to the
Contract.
Under current law, Prudential may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contract or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon Prudential that are attributable to the Account may result in a
corresponding charge against the Account.
RETIREMENT ARRANGEMENTS USING THE CONTRACT
The provisions of the Code that apply to retirement programs are complex, and
the tax rules vary according to the type of plan and its terms and conditions.
Accordingly, this prospectus provides only general information about the types
of arrangements in connection with which the Contracts may be used. You should
consult a qualified tax advisor before purchasing a Contract, particularly if
you contemplate making withdrawals from your Contract fund before annuity
payments commence. Withdrawals may be subject to income tax consequences,
including tax penalties.
In general, assuming that you adhere to the requirements and limitations of the
Code provisions applicable to the type of retirement arrangement in which you
are participating, purchase payments (other than after-tax employee payments)
under the Contract will be deductible (or not includible in your income) up to
certain amounts each year. Under the retirement programs with which the
Contracts may be used, federal income tax currently is not imposed upon the
investment income and realized gains of the subaccounts in which your purchase
payments have been invested until a distribution is received. When a
distribution is received, either as a lump sum or an annuity, all or a portion
of the distribution is normally taxable as ordinary income. In some cases, the
tax on lump-sum distributions may be limited by a special income-averaging rule.
Unless you elect to the contrary, any amounts that are received under your
Contract (except for Contracts issued in connection with plans that are subject
to Section 457 of the Code--see ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE OR
LOCAL GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS, page 22) that Prudential
reasonably believes are includible in gross income for tax purposes will be
subject to withholding to meet federal income tax obligations. Certain
distributions from qualified retirement plans and 403(b) annuities will be
subject to mandatory 20% withholding unless the distribution is an eligible
rollover distribution that is "directly" rolled over into another qualified
plan, 403(b) annuity or IRA. The rate of withholding on periodic annuity
payments where mandatory
20
<PAGE>
withholding is not required will be determined on the basis of the withholding
certificate you may file with Prudential. For payments not subject to mandatory
withholding, if you do not file such a certificate and you will be receiving
periodic annuity payments, you shall be treated, for purposes of determining
your withholding rate, as a married person with three exemptions; the rate of
withholding on all other payments under your Contract, such as withdrawals, will
be 10%. Thus, in the absence of an election by you 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
includible in gross income. Prudential will provide forms and instructions
concerning the right to elect that no amount be withheld from payments.
Generally there will be no withholding for taxes until payments are actually
received under your Contract.
Recipients, including those who have elected out of withholding, must supply
their Taxpayer Identification Number (Social Security Number) to payers of
distributions for tax reporting purposes. Failure to furnish this number when
required may result in the imposition of a tax penalty and will subject the
distribution to the withholding requirements of the law described above.
The comments which follow concerning specific tax favored plans are intended
merely to call attention to certain of their features. No attempt has been made
to discuss in full the tax ramifications involved or to offer tax advice. As
suggested above, a qualified tax advisor should be consulted for advice and
answers to any questions.
PLANS FOR SELF-EMPLOYED INDIVIDUALS
For self-employed individuals who establish qualified plans, contributions are
deductible within the limits prescribed by the Code. Annual deductible
contributions cannot exceed the lesser of $30,000 or 25% of "earned income". For
this purpose "earned income" is computed after the deduction for contributions
to the plan is considered.
Payments generally must begin by April 1 of the year following the later of: (1)
the calendar year in which the employee attains 70 1/2; or (2) the calendar year
in which the employee retires and are subject to certain minimum distribution
requirements.
IRAS
For persons who establish IRAs, the annual contribution limit is the lesser of
(1) $2,000, or (2) 100% of earned income. An IRA contribution of up to $2,000
for each spouse is permitted (including a non-working spouse) if the combined
compensation of both spouses is at least equal to the contributed amount
provided that the non-working spouse earns less than the working spouse and they
file a joint return. Generally, annuity payments may not begin before attainment
of age 59 1/2 (except in the event of total disability or death), but
distributions must begin by April 1 of the year following attainment of age
70 1/2 and are subject to certain minimum distribution requirements. Certain
penalties may result if the contribution or age limitations are exceeded.
Deductions for IRA contributions in those cases where an individual or an
individual's spouse is an active participant in an employer sponsored pension
plan, SEP, SIMPLE, Section 403(a) plan, or Section 403(b) annuity are limited to
individuals whose adjusted gross income is less than certain specified amounts.
For married individuals who file a joint tax return, a full deduction will be
available if adjusted gross income is $40,000 or less. For a single individual,
the limit is $25,000. Partial deductions for IRA contributions will be available
for married, joint filers who have adjusted gross income of more than $40,000
and less than $50,000 and single individuals whose adjusted gross income is less
than $35,000.
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS")
Under this arrangement, annual employer contributions to an IRA established by
an employee are not includible in income up to the lesser of $30,000 or 15% of
the employee's earned income (excluding the employer's contribution to the SEP).
As with the regular IRA, generally, annuity payments to the Participant may not
begin before attainment of age 59 1/2 (except in the event of total disability
or death) but distributions must begin by April 1 of the year following
attainment of age 70 1/2 and are subject to certain minimum distribution
requirements. Certain penalties may result if the contribution or age
limitations are exceeded.
Certain SEP arrangements are permitted to allow employees to elect to reduce
their salaries by as much as $9,500 (in 1996, indexed) and have their employer
make contributions on their behalf to the SEP. These arrangements, called salary
reduction SEPs, are available only if the employer maintaining the SEP has 25 or
fewer employees and at least 50% of the eligible employees elect to make salary
reduction contributions. Other limitations may reduce the permissible
contribution level for highly compensated employees. New Salary Reduction SEPs
may not be established after 1996.
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In accordance with Internal Revenue Service (the "IRS") Regulations, persons who
would become Participants under a Contract used with an IRA, including one
established under a SEP arrangement, are given disclosure material prepared by
Prudential. The material includes this prospectus, a copy of the governing
instrument to be used in establishing an IRA, and a brochure containing
information about eligibility, contribution limits, tax consequences, and other
particulars concerning IRAs. The regulations require that such persons be given
a free look after making an initial contribution in which to affirm or reverse
their decision to participate. Therefore, within the free look, a Participant
may cancel his or her participation under that Contract by notifying Prudential
in writing, and Prudential will refund all of the contributions under the
Contract or, if greater, the amount credited to the accumulation accounts under
the Contract computed as of the business day that Prudential receives the notice
of cancellation. See SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK", page 12.
SECTION 403(B) ANNUITIES
Section 403(b) of the Code permits employers and employees of Section 501(c)(3)
tax-exempt organizations and public educational organizations to make, subject
to certain limitations, contributions to an annuity in which the employee's
rights are nonforfeitable (commonly referred to as a "tax-deferred annuity" or
"TDA"). The amounts contributed under a TDA and increments thereon are not
taxable as income until distributed as annuity income or otherwise. Generally,
contributions to a TDA may be made through a salary reduction arrangement up to
a maximum of $9,500. However, under certain special rules, the limit could be
increased as much as $3,000. In addition, the Code permits certain total
distributions from a TDA to be "rolled over" to another TDA or IRA. Certain
partial distributions from a TDA may be "rolled over" to an IRA.
An annuity contract will not qualify as a TDA, unless under such contract
distributions from salary reduction contributions and earnings thereon (other
than distributions attributable to assets held as of December 31, 1988) may be
paid only on account of attainment of age 59 1/2, severance of employment,
death, total and permanent disability and, in limited circumstances, hardship.
(Such hardship withdrawals are permitted, however, only to the extent of salary
reduction contributions and not earnings thereon.)
The Section 403(b)(11) withdrawal restrictions do not apply to the transfer of
all or part of a Contract owner's interest in his or her Contract among the
available investment options offered by The Prudential or to the direct transfer
of all or part of the Contract owner's interest in the Contract to a Section
403(b) tax-deferred annuity contract of another insurance company or to a mutual
fund custodial account under Section 403(b)(7).
In imposing the restrictions on withdrawals as described above, Prudential is
relying upon a non-action letter dated November 28, 1988 from the Chief of the
Office of Insurance Products and Legal Compliance of the Securities and Exchange
Commission to the American Council of Life Insurance.
Employer contributions are subject generally to the same coverage, minimum
participation and nondiscrimination rules applicable to qualified pension and
profit-sharing plans. Distributions from a TDA generally must commence by April
1 of the calendar year following the later of: (1) the calendar year in which
the employee attains age 70 1/2; or (2) the calendar year in which the employee
retires. Distributions must satisfy minimum distribution requirements similar to
those that apply to qualified plans generally.
ELIGIBLE DEFERRED COMPENSATION PLANS OF STATE OR LOCAL GOVERNMENTS AND TAX
EXEMPT ORGANIZATIONS
A contract may be used to fund an eligible deferred compensation plan of a state
or local government or a tax-exempt organization. The amounts contributed under
these plans and increments thereon are not taxable as income until distributed
or otherwise made available to the employee or other beneficiary. If the
requirements of Section 457 of the Code are not met, however, employees may be
required to include in gross income all or part of the contributions and
earnings thereon. Although assets of deferred compensation plans are generally
part of the employer's general assets, subject to certain transition rules,
governmental plans must hold assets in a trust, annuity contract or custodial
account. Contributions generally may not exceed the lesser of $7,500 (as
indexed) or 33 1/3% of the employee's compensation. Distributions must begin by
April 1 following attainment of age 70 1/2 or April 1 of the calendar year
following the calendar year the participant retires, if that is later.
Distributions are subject to special minimum distribution rules in addition to
the minimum distribution requirements for qualified plans. Rollovers are not
permitted (other than between Section 457 plans.)
A distribution to a Participant covered under an eligible deferred compensation
plan subject to Section 457 of the Code is treated as payment of wages for
federal income tax purposes and thus subject to general withholding
requirements.
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MINIMUM DISTRIBUTION OPTION
The Minimum Distribution Option is a program available with IRA and SEP
programs. It enables the client to satisfy IRS minimum distribution
requirements, without having to annuitize or cash surrender their Contracts.
Distributions from IRAs and SEPs must begin by April 1 of the year following
attainment of age 70 1/2. Each year until the maturity date, The Prudential will
recalculate the minimum amount that you are required to withdraw from your IRA
or SEP. We will send you a check for the minimum distribution amount less any
partial withdrawals made during the year. Our calculations are based solely on
the cash value of the Contract on the last day of the prior calendar year. If
you have other IRA accounts you will be responsible for taking the minimum
distribution from each.
PENALTY FOR EARLY WITHDRAWALS
A 10% penalty tax will generally apply to the taxable part of distributions
received from an IRA, SEP, SIMPLE (25% penalty in certain situations), Section
403(b) annuity, and qualified retirement plans before age 59 1/2. Limited
exceptions are provided, such as where amounts are paid in the form of a
qualified life annuity, upon death of the employee, to pay certain medical
expenses, or in certain instances disability or upon separation from service on
or after the attainment of age 55.
ERISA DISCLOSURE
The Employee Retirement Income Security Act of 1974 (ERISA) prevents a fiduciary
with respect to a pension or profit-sharing plan from receiving any benefit from
any party dealing with the plan as a result of the sale of the Contract (other
than benefits that would otherwise be provided in the plan).
Administrative exemptions issued by the IRS and the Department of Labor under
ERISA permit transactions between insurance agents and qualified pension and
profit sharing plans under sections 401(a) and 403(a) of the Code and with SEP
IRAs. To be able to rely on the exemption certain information must be disclosed
to the plan fiduciary. The information that must be disclosed includes the
relationship between the agent and the insurer, any charges, fees, discounts,
penalties or adjustments that may be imposed in connection with the purchase,
holding, exchange or termination of the Contract, as well as the commissions
received by the agent. Information about any applicable charges, fees,
discounts, penalties or adjustments may be found under CHARGES, FEES AND
DEDUCTIONS, page 16. Information about sales representatives and commissions may
be found under SALE OF THE CONTRACT AND SALES COMMISSIONS, page 26. In addition
to disclosure, other conditions apply to the use of the exemption. For example,
a plan fiduciary may not be a partner or employee of the Prudential
representative making the sale. The fiduciary must not be a relative of the
representative (including spouse, direct descendant, spouse of a direct
descendant, ancestor, brother, sister, spouse of a brother or sister). The
representative may not be an employee, officer, director or partner of either
the independent fiduciary or the employer establishing the plan. No relative of
the representative may: (1) control, directly or indirectly, the corporation
establishing or maintaining the plan; (2) be either a partner with a 10% or more
interest in the partnership or the sole proprietor establishing or maintaining
the plan; or (3) be an owner of a 5% or more interest in a Subchapter S
Corporation establishing or maintaining the plan. In addition, no affiliate
(including relatives) of the representative may be a trustee, administrator or a
fiduciary with written authority to acquire, manage or dispose of the assets of
the plan.
EFFECTING AN ANNUITY
Subject to the provisions of the retirement plan that covers you, you may at any
time on or before the first day of the calendar month coinciding with or
otherwise next following your 75th birthday (80th birthday under the VIP-86
Contract) convert your Contract fund into a fixed dollar annuity payable to the
annuitant under one or more of the forms of annuity described below. At
Prudential's discretion, this conversion may take place at a later date. Except
for an annuity selected under the Supplemental Life Annuity Option, WVQ-83 and
QVIP-84 Contract owners may select a variable annuity instead of or in addition
to a fixed dollar annuity. Prudential will then make monthly payments to the
annuitant on the first day of each month for a period determined by the form[s]
of annuity you select. You must convert the entire value of your Contract fund
to an annuity, or to an annuity and a cash withdrawal if your retirement plan
permits. If your Contract fund is not large enough to produce an initial payment
of $20 ($50 under VIP-86 Contracts), you will be paid the amount of your
Contract fund in a single sum. Annuity payments will not be assignable by you or
subject to the claims of creditors. The annuity is effected on the first day of
the month following receipt by Prudential of proper written notice that you have
elected to convert your Contract fund to an annuity, or on the first day of any
subsequent month that you designate. The first monthly annuity payment will be
made on the date the annuity is effected.
The Contract includes schedules that are used to determine the amount of the
first monthly variable and/or fixed-dollar annuity payment that will be provided
by the amount credited to your Contract fund (the VIP-86
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Contract provides a schedule only for a Life Annuity with 120 Payments Certain
Option; however other forms of annuity are available under the Supplemental Life
Annuity Option). The amount varies with the form of annuity selected. For life
annuities, the amount also varies with the age of the annuitant (and spouse, if
the Joint and Survivor Annuity Option is chosen) and the date when annuity
payments begin. Also, if Prudential is offering more favorable rates than is set
forth in the table of rates in the Contract, then those will be used. For a
variable annuity, subsequent monthly payments will vary in accordance with the
investment results of the subaccount[s] you have selected. Page C1 of the
statement of additional information explains in more detail how your Contract
fund is converted into a variable annuity. For a fixed-dollar annuity,
subsequent monthly payments will always be at least equal to the first monthly
payment.
In order to permit employers to comply with a decision rendered by the Supreme
Court of the United States (Arizona Governing Committee vs. Norris), the annuity
purchase rates for Contracts issued on and after August 1, 1983 do not vary with
the sex of the annuitant.
Under certain types of retirement arrangements, the Retirement Equity Act of
1984 provides that, in the case of a married Participant, the election of an
annuity payout which is not a joint and 50% survivor annuity payable to the
spouse must include the consent of the Participant's spouse. This consent must
contain the Participant's signature and the notarized or properly witnessed
signature of the Participant's spouse. These spousal consent requirements were
generally effective beginning January 1, 1985 and apply to married Participants
in most qualified pension plans including plans in which self-employed
individuals participate, and those Section 403(b) annuities which are considered
employee pension benefit plans under ERISA.
ANNUITY OPTIONS UNDER THE VIP-86 CONTRACT
If you are the owner of a VIP-86 Contract, you may select any of the annuity
options described below. Unlike the WVA-83 and VIP-84 Contracts, the VIP-86
Contract does not provide an option for a variable payout during the annuity or
payout period. All the annuity options under this Contract are fixed annuity
options under which the Contract owner's participation in the Account's
investment experience ceases when the annuity is effected, and the amount of
each monthly payment does not change.
In electing to have an annuity purchased, you may select from the forms of
annuity described below, subject to the retirement arrangement that covers you.
Under each, annuity payments will be monthly installments of a guaranteed
amount. Unless applicable law states otherwise, if you do not select an annuity
option to take effect by the annuity date stated in your Contract (which will
not be later than the annuitant's 80th birthday) a complete withdrawal will be
processed as of that date. See WITHDRAWALS, page 14.
1. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN. Payments will be made to the
annuitant monthly during his or her lifetime. If the annuitant dies before the
120th monthly payment is due, monthly annuity payments do not continue to the
beneficiary you designate unless you so select. Instead, the discounted value of
the remaining unpaid installments, to and including the 120th monthly payment,
is payable to the beneficiary in one sum. In calculating the discounted value of
the unpaid future payments, Prudential will discount each such payment at the
interest rate used to compute the amount of the actual 120 payments. If the
payments were based on the tables of rates set forth in the Contract, the
interest rate used is 3.5% a year.
2. INTEREST PAYMENT OPTION. You may choose to have Prudential hold a designated
amount for you at interest. Prudential will pay interest at an effective rate of
at least 3% a year, and it may pay a higher rate of interest. Generally, this
option will not satisfy IRS minimum distribution requirements.
3. SUPPLEMENTAL LIFE ANNUITY. You may choose to receive the proceeds of your
Contract fund in the form of payments like those of any annuity or life annuity
then regularly offered by Prudential or by Pruco Life Insurance Company that (1)
is based on United States Currency; (2) is bought by a single sum; (3) does not
provide for dividends; and (4) does not normally provide for deferral of the
first payment. Prudential currently offers a number of different annuity options
including joint and survivor annuities covering more than one person.
Under the Supplemental Life Annuity Option (Option 3 above), Prudential will
waive withdrawal charges that might be applicable under other annuity options.
Further, if you select Option 1 without a right of withdrawal, Prudential will
effect that option under the Supplemental Life Annuity Option if doing so
provides greater monthly payments.
ANNUITY OPTIONS UNDER THE WVQ-83 AND QVIP-84 CONTRACTS
If you own a WVQ-83 Contract or a QVIP-84 Contract, the following provisions
apply to you. You have considerable flexibility in selecting an annuity: (1) you
may select either a fixed-dollar or variable annuity (a variable annuity is not
available under the Supplemental Life Annuity Option described in item 5 below)
or both; (2) you may select
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more than one annuity option; and (3) if you select a variable annuity, you may
apply the value of your Variable Account to only one or to two or more
subaccounts, and not necessarily the same distribution as you used before
selecting an annuity. However, the initial minimum monthly payment amount will
be applicable to each payee, each annuity, and each subaccount selected.
If you are covered under a tax-deferred annuity subject to Section 403(b) of the
Code and do not elect to effect an annuity before the date described in the
endorsement to your Contract with respect to pre-1987 benefit accruals, a
variable life annuity with 120 payments certain (see below) will be purchased
for you on the first day of the month following such date. If any tax-deferred
annuity Contract owner (with respect to post-1986 benefit accruals) or any other
Contract owner has not elected to purchase an annuity before the end of his tax
year in which such an election is required by or for the retirement arrangement
under which he is covered, a variable life annuity with 120 payments certain,
payable as described in item 2 below, will be purchased for him on the first day
of the month preceding the end of such tax year, unless a joint and survivor
annuity pay-out is required by ERISA, in which case a variable joint and
survivor annuity, payable as described in item 3 below, will be purchased for
him.
Except as provided in the Annuity Certain Option described in item 4 below, and
under certain forms of annuity available under the Supplemental Life Annuity
Option described in item 5 below, once annuity payments begin, the annuitant
cannot surrender the annuity benefit and receive a one-sum payment in lieu
thereof. However, as described under TRANSFERS, page 14 , if a variable annuity
is selected, the annuitant may transfer the annuity funds between subaccounts up
to four times each Contract year.
Additionally, an annuitant who is receiving a variable annuity may convert all
or a part of the variable annuity to a fixed-dollar annuity, provided: (1) the
fixed-dollar annuity is the same form of annuity as the variable annuity and has
the same certain or specified period as remained under the variable annuity on
the conversion date, (2) the present value on the conversion date of the
variable annuity, or portion of the variable annuity to be converted, calculated
in accordance with the Contract, must produce a monthly payment of at least $20
under the fixed-dollar annuity, and (3) if only a portion of the variable
annuity is converted, the Subaccount Annuity Units remaining in the unconverted
portion must be sufficient to produce a monthly payment of at least $20 on the
conversion date.
After annuity payments begin, conversion may not be made from a fixed-dollar
annuity to a variable annuity.
The forms of annuity from which you may select are listed below. Under each, (1)
variable annuity payments can be expected to vary from month to month according
to the investment experience of the portfolio or portfolios in which your
account is invested, or (2) fixed-dollar annuity payments will be in monthly
installments of a guaranteed amount. For the reason explained on page C1 of the
statement of additional information, if the assets of the subaccount[s] which
you have selected do not earn an investment return of 4.7% a year, the amount of
payments under a variable annuity will decrease; conversely, if the assets of
the subaccount[s] which you have selected earn an investment return of more than
4.7% a year, variable annuity payments will increase. If you choose to convert
your Variable Account into an annuity but fail to select one or more of the
annuity options, we will provide the annuitant with a variable life annuity with
120 payments certain.
1. LIFE ANNUITY. Payments will be made to the annuitant monthly during his or
her lifetime and will cease with the last monthly payment before his or her
death. Should the annuitant die within a few years after payments begin, his or
her total payments will probably be substantially less than the value of your
Variable Account when annuity payments first began, and he or she could receive
as little as one payment under this form of annuity.
2. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN. Payments will be made to the
annuitant monthly during his or her lifetime. If the annuitant dies before the
120th monthly payment is due, monthly annuity payments do not continue to the
beneficiary you designate unless you so select. Instead, the discounted value of
the remaining unpaid installments, to and including the 120th monthly payment,
is payable to the beneficiary in one sum. In calculating the discounted value of
the unpaid future payments, we will discount each such payment at an interest
rate of 3.5% a year. The monthly payments under this form of annuity will be
slightly lower than those payable under the life annuity described above.
3. JOINT AND SURVIVOR ANNUITY. Payments will be made to the annuitant monthly
during his or her lifetime and, if the annuitant's spouse is living at the time
of the annuitant's death, to the spouse until his or her death. The monthly
payments to the spouse will be equal to those that would have been received by
the annuitant if he or she had survived, unless a different amount is required
under any applicable law or regulation or by the terms of a plan, including
joint and 50% spouse survivor annuity. Monthly payments under this form of
annuity will be less than the payments under either of the forms described
above.
4. ANNUITY CERTAIN. Payments will be made to the annuitant monthly for a period
of 60, 120, 180 or 240 months. During this period, the annuitant may elect to
receive a lump sum payment in lieu of the remaining monthly
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payments or to receive a partial lump sum payment with reduced monthly payments
thereafter. Any partial lump sum payment must be $300 or more. Also, the initial
reduced monthly payment must equal or exceed $20. If the annuitant dies during
the annuity-certain period, monthly payments will not continue to the
beneficiary you designate unless you so select. Instead, the beneficiary will
receive a lump sum payment. The amount of the lump sum payment (or partial lump
sum payment) is determined by discounting each remaining unpaid monthly payment
(or the amount by which each remaining monthly payment is reduced as a result of
a partial lump sum payment) at an interest rate of 3.5% a year. This will be
paid to the annuitant or the beneficiary, whichever is applicable.
5. SUPPLEMENTAL LIFE ANNUITY. You may choose to receive the proceeds of your
Contract fund in the form of payments like those of any annuity or life annuity
then regularly offered by Prudential or by Pruco Life Insurance Company that (1)
is based on United States Currency; (2) is bought by a single sum; (3) does not
provide for dividends; and (4) does not normally provide for deferral of the
first payment.
Under the Supplemental Life Annuity Option (Option 5 above), Prudential will
waive withdrawal charges that might be applicable under Options 1-4. Further, if
you select Options 1, 2, 3 or 4 without a right of withdrawal, Prudential will
effect that option under the Supplemental Life Annuity Option if doing so
provides greater monthly payments.
OTHER INFORMATION
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund.
Prudential is the legal owner of those shares and as such has the right to vote
on any matter voted on at Series Fund shareholders meetings. However, Prudential
will, as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings in accordance with voting instructions received
from Contract owners. The Series Fund will not hold annual shareholders meetings
when not required to do so under Maryland law or the Investment Company Act of
1940. Series Fund shares for which no timely instructions from Contract owners
are received, and any shares attributable to general account investments of
Prudential will be voted in the same proportion as shares in the respective
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit Prudential to vote shares of the Series Fund in its own right, it may
elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give Prudential instructions will be determined as of
the record date chosen by the Board of Directors of the Series Fund. Prudential
will furnish Contract owners with proper forms and proxies to enable them to
give these instructions. Prudential reserves the right to modify the manner in
which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations. WVQ-83 and QVIP-84 Contract owners who
elect to receive a variable annuity option will continue to have voting rights
during their payout period. Their number of votes will be determined in the same
manner as described above, but will decrease throughout the payout period.
Contract owners also share with the owners of all Prudential contracts and
policies the right to vote in elections for members of the Board of Directors of
Prudential.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 213 Washington
Street, Newark, NJ 07102-2992. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract
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may also be sold through other broker-dealers authorized by Prusec and
applicable law to do so. Registered representatives of such other broker-dealers
may be paid on a different basis than described below. Commissions of 3% to the
selling representative and a 0.6% management override will be paid on the first
$2,000 of purchase payments per Contract and commissions of 2.25% to the selling
representative and a 0.4% management override will be paid on all purchase
payments thereafter. Such commissions may not be payable, however, where a
Contract owner has surrendered an existing contract of Prudential or its
subsidiaries to purchase the Contract. Representatives who meet certain
productivity, profitability, and persistency standards with regard to the sale
of the Contract will be eligible for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Prudential expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Prudential's surplus.
OWNERSHIP OF THE CONTRACT
Generally, the purchaser of a Contract is both the Contract owner and the person
entitled to receive an annuity and is entitled to exercise all the rights under
the Contract. Ownership of the Contract may, however, be held by another person
who need not be the person who is to receive annuity payments. This is
frequently the case with respect to Contracts issued in connection with
qualified retirement plans and eligible deferred compensation plans. Transfer of
the ownership of a Contract may involve federal income tax consequences, and you
should consult with a qualified tax advisor before attempting any such transfer.
A transfer of the Contract to or the designation of a beneficiary who is either
37 1/2 years younger than the Contract owner or a grandchild of the Contract
owner may have Generation Skipping Transfer tax consequences under section 2601
of the Code. Generally, ownership of the Contract is not assignable to another
insurance company without Prudential's consent.
PERFORMANCE INFORMATION
Performance information for the subaccounts may appear in advertising and
reports to current and prospective Contract owners. 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.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the subaccounts
over a specified seven-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
Reports or advertising may include comparative performance information,
including, but not limited to: comparisons to market indices; comparisons to
other investments; performance rankings; and data presented by analysts or
included in publications.
See "Performance Information" in the Statement of Additional Information for
recent performance information.
REPORTS TO CONTRACT OWNERS
Once each Contract year, Contract owners will be sent statements that provide
certain information pertinent to their own Contract. These statements detail
values and transactions made and specific Contract data that apply only to each
particular Contract. On request, a Contract owner will be sent a current
statement in a form similar to that of the annual statement described above, but
Prudential may limit the number of such requests or impose a reasonable charge
if such requests are made too frequently.
Contract owners will be sent annual and semi-annual reports of the Series Fund
showing the financial condition of the portfolios and the investments held in
each.
If a single individual or company invests in the Series Fund through more than
one variable insurance contract, then the individual or company will receive
only one copy of each annual and semi-annual report issued by the Series Fund.
However, if such individual or company wishes to receive multiple copies of any
such report, a request may be made by calling the toll-free telephone number
listed on the cover page of this prospectus.
SUBSTITUTION OF SERIES FUND SHARES
Although The Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of
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investment policy changes, tax law changes, or the unavailability of shares for
investment. In that event, Prudential may seek to substitute the shares of
another portfolio or of an entirely different mutual fund. Before this can be
done, the approval of the SEC, and possibly one or more state insurance
departments, will be required. Contract owners will be notified of such
substitution.
DIFFERENCES UNDER THE WVQ-83 CONTRACT
As stated in the section entitled THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE
ANNUITY CONTRACT, page 2, the descriptions of The Prudential Qualified
Individual Variable Annuity 2 Contract in the preceding sections of this
prospectus and on page C1 of the statement of additional information generally
apply to the VIP-86 Contract, the QVIP-84 Contract and the WVQ-83 Contract.
Although differences among the three forms of Contract have been described,
additional differences between the earlier WVQ-83 Contract and the two later
forms of the Contract are set forth below.
1. SALES CHARGES ON WITHDRAWALS. . .Under the WVQ-83 Contract, any
amount that you withdraw will be treated, for the purpose of
determining the sales charge, as a withdrawal of purchase payments,
rather than investment income, until you have withdrawn your
aggregate purchase payments. There will be no sales charge on
amounts withdrawn after all purchase payments have been withdrawn.
For sales charge purposes, purchase payments are deemed to be
withdrawn on a first-in, first-out basis. The amount of the sales
charge will depend on the amount withdrawn and the number of
Contract years that have elapsed since you made the particular
purchase payments deemed to be withdrawn. The 10% free withdrawal
privilege will be applied toward the total amount withdrawn.
2. DETERMINATION OF MINIMUM AMOUNT PAYABLE TO A BENEFICIARY. . .Under
the WVQ-83 Contract, the minimum amount payable to the beneficiary
(due to the death of the annuitant prior to age 65 and before the
annuity date) will be equal to the total amount of purchase payments
you have made, less any withdrawals (i.e., there is no proportional
reduction of the minimum amount as is the case under the QVIP-84
Contract and the VIP-86 Contract.)
3. MODIFICATION OF SENTENCE ON PAGE C1 OF THE STATEMENT OF ADDITIONAL
INFORMATION. . .The second sentence in the next to last paragraph
under section B, Determination of the Amount of Monthly Variable
Annuity Payment, as it applies to the WVQ-83 Contract, is modified
to read: "For example, for a person of 65 years of age who has
selected a lifetime annuity with a guaranteed minimum of 120
payments, the applicable schedules currently provide that 1000
Subaccount Annuity Units will result in the payment each month of an
amount equal to the value of 5.73 Subaccount Annuity Units."
4. DETERMINATION OF AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS. . .
Under the WVQ-83 Contract, the amount of each monthly variable
annuity payment made on the first day of the month will be equal to
the Subaccount Annuity Units (determined as described on page C1 of
the statement of additional information) multiplied by the
Subaccount Annuity Unit Value at the end of that day, if a business
day, or otherwise at the end of the last preceding business day.
STATE REGULATION
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Prudential is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Prudential is required
to file with New Jersey and other jurisdictions a separate statement with
respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
LITIGATION
On October 28, 1996, the Company entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to the
Company's life insurance sales practices. (In re Prudential Insurance Company of
America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
96-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate.
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Pursuant to the Settlement, the Company has agreed to provide an alternative
dispute resolution process for class members who believe they were misled
concerning the sale or performance of their life insurance policies. This
Settlement also provides certain no-fault relief. The ultimate cost of the
Settlement will depend on a variety of factors, including the number of
policyowners who participate in the Settlement, the number of policyowners who
are afforded relief and the remediation option they select. The administrative
costs of implementing the Settlement are also subject to a number of complex
uncertainties. In light of the uncertainties attendant to these and other
factors, it is difficult at this time to estimate the ultimate cost of the
Settlement to the Company.
In addition, a number of actions have been filed against the Company by
policyholders who have excluded themselves from the settlement; the Company
anticipates that additional suits may be filed by other policyowners.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on the Company's activities. As of February 24, 1997, the Company had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million.
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted.
Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation. It is possible that the results of operations or the cash flow of
the Company, in particular quarterly or annual periods could be materially
affected by an ultimate unfavorable outcome of certain pending litigation and
regulatory matters. Management believes, however, that the ultimate outcome of
all pending litigation and regulatory matters referred to above should not have
a material adverse effect on the Company's financial position.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 and the Investment Company Act of 1940, relating to the offering described
in this prospectus. This prospectus does not include all of the information set
forth in the registration statement. Certain portions have been omitted pursuant
to the rules and regulations of the SEC. The omitted information may, however,
be obtained from the SEC's principal office in Washington, D.C., upon payment of
a prescribed fee.
Further information, including the statement of additional information prepared
by Prudential, may also be obtained from The Prudential's office. The address
and telephone number are set forth on the cover of this prospectus.
The Contents of the statement of additional information include:
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
B. PRINCIPAL UNDERWRITER
C. PARTICIPATION IN DIVISIBLE SURPLUS
D. PERFORMANCE INFORMATION
E. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT
ACCOUNT
STATUTORY FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DETERMINATION OF SUBACCOUNT UNIT VALUES AND OF AMOUNT OF MONTHLY VARIABLE
ANNUITY PAYMENTS
A. SUBACCOUNT UNIT VALUES
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT
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DIRECTORS AND OFFICERS OF PRUDENTIAL
The directors and certain officers of Prudential, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUDENTIAL
FRANKLIN E. AGNEW. Director.--Business Consultant. Address: USX Tower, Suite
660, 600 Grant Street, Pittsburgh, PA 15219.
FREDERIC K. BECKER, Director.--President, Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
JAMES G. CULLEN, Director.--Vice Chairman, Bell Atlantic Corporation since 1995;
1993 to 1995: President, Bell Atlantic Corporation; Prior to 1993: President,
New Jersey Bell. Address: 1310 North Court House Road, 11th floor, Alexandria,
VA 22201.
CAROLYNE K. DAVIS, Director.--National and International Health Care Advisor,
Ernst & Young LLP. Address: 1225 Connecticut Avenue, N.W., Washington, D.C.
20036.
ROGER A. ENRICO, Director.--Vice Chairman and Chief Executive Officer, Pepsico
Inc. since 1996; Vice Chairman, Pepsico, Inc., from 1993 to 1996; Chairman and
Chief Executive Officer, Pepsi Co. Worldwide Food, from 1991 to 1993. Address:
14841 North Dallas Parkway, Dallas, TX 75240.
ALLAN D. GILMOUR, Director.--Former Vice Chairman, Ford Motor Company. Address:
Prudential Plaza, Newark, NJ 07102-3777.
WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, The
College Fund/UNCF. Address: 8260 Willow Oaks Corporate Drive, Fairfax, VA 22031.
JON F. HANSON, Director.--Chairman, Hampshire Management Company. Address: 235
Moore Street, Suite 200, Hackensack, NJ 07601.
GLEN H. HINER, JR., Director.--Chairman and Chief Executive Officer, Owens
Corning. Address: One Owens Corning Parkway, Toledo, OH 43659.
CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since
1993; Assistant to the President and Director of Presidential Personnel, U.S.
Government, from 1991 to 1992. Address: 1775 Massachusetts Avenue, N.W.,
Washington, DC 20036-2188.
GAYNOR N. KELLEY, Director.--Former Chairman and Chief Executive Officer, The
Perkins Elmer Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.
BURTON G. MALKIEL, Director.--Professor, Princeton University. Address:
Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton, NJ
08544-1021.
ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.
- -- Chairman, President, and Chief Executive Officer, Prudential since 1994;
Prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.
IDA F.S. SCHMERTZ, Director.--Principal, Investment Strategies International
since 1994. Prior to 1994: Senior vice President of Corporate Affairs, American
Express Company. Address: 90 Riverside Drive, New York, NY 10024.
CHARLES R. SITTER, Director.--Former President, Exxon Corporation. Address: 5959
Las Colinas Boulevard, Irving, TX 75039-2298.
DONALD L. STAHELI, Director.--Chairman and Chief Executive Officer, Continental
Grain Company since 1994; Prior to 1994; Chairman, Continental Grain Company.
Address: 277 Park Avenue, New York, NY 10172.
RICHARD M. THOMSON, Director.--Chairman and Chief Executive Officer, The
Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1A2, Canada.
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<PAGE>
JAMES A. UNRUH, Director.--Chairman and Chief Executive Officer, Unisys
Corporation. Address: P.O. Box 500, Blue Bell, PA 19424-0001.
P. ROY VAGELOS, M.D., Director.--Former Chairman, and Chief Executive Officer,
Merck & Co., Inc. Address: One Crossroads Drive, Bedminster, NJ 07921.
STANLEY C. VAN NESS, Director.--Attorney, Picco Herbert Kennedy (law firm).
Address: One State Street Square, Suite 1000, Trenton, NJ 08607-1388.
PAUL A. VOLCKER, Director.--Business Consultant since 1996; Prior to 1996:
Chairman, Wolfensohn & Co., Inc. Address: 599 Lexington Avenue, New York, NY
10022.
JOSEPH H. WILLIAMS, Director.--Director, The Williams Companies since 1994;
Prior to 1994: Chairman and Chief Executive Officer, The Williams Companies.
Address: One Williams Center, Tulsa, OK 74172.
OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MARTIN A. BERKOWITZ, Senior Vice President and Comptroller.--Senior Vice
President and Chief Financial Officer of Prudential Investment Company since
1991.
SUSAN L. BLOUNT, Vice President and Secretary.--Vice President and Secretary of
Prudential since 1995; Prior to 1995: Assistant General Counsel for Prudential
Residential Services Company.
C. EDWARD CHAPLIN, Vice President and Treasurer.--Vice President and Treasurer
of Prudential since 1995; 1993 to 1995: Managing Director and Assistant
Treasurer of Prudential; 1992 to 1993: Vice President and Assistant Treasurer,
Banking and Cash Management for Prudential.
MARK B. GRIER, Chief Financial Officer.--Chief Financial Officer of Prudential
since 1995; Prior to 1995: Executive Vice President and Head of Global Markets,
Chase Manhattan Corporation.
31
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE
CONTRACT ACCOUNT
The Individual Variable Annuity Contract (the "Contract") of The
Prudential Qualified Individual Variable Contract Account (the "Account") is a
variable annuity contract issued by The Prudential Insurance Company of America
("Prudential"). The Contracts are designed for use in connection with retirement
arrangements that qualify for federal tax benefits under Sections 401, 403(a),
403(b), 408 or 457 of the Internal Revenue Code. Purchase payments made through
payroll deduction or similar arrangements with an employer must be at least $300
during any 12-month period. Any other purchase payment must be at least $50
($100 or $300 under a certain form of the Contract).
This statement of additional information is not a prospectus and should be
read in conjunction with the Contract's prospectus, dated May 1, 1997, which is
available without charge upon written request to The Prudential Insurance
Company of America, Prudential Plaza, Newark, New Jersey, 07102-3777, or by
telephoning (800) 445-4571.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
<PAGE>
CONTENTS
PAGE
----
OTHER INFORMATION CONCERNING THE ACCOUNT ................................. 1
A. EXPERTS ............................................................. 1
B. PRINCIPAL UNDERWRITER ............................................... 1
C. PARTICIPATION IN DIVISIBLE SURPLUS .................................. 1
D. PERFORMANCE INFORMATION
E. FINANCIAL STATEMENTS ................................................ 5
FINANCIAL STATEMENTS OF THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE
CONTRACT ACCOUNT ........................................................ A-1
STATUTORY FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA ................................................................. B-1
DETERMINATION OF SUBACCOUNT UNIT VALUES AND OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENTS ............................................... C-1
A. SUBACCOUNT UNIT VALUES .............................................. C-1
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT ..... C-1
<PAGE>
OTHER INFORMATION CONCERNING THE ACCOUNT
A. EXPERTS
The financial statements included in this prospectus for the year ended
December 31, 1996 have been audited by Price Waterhouse LLP, independent
accountants, as stated in their reports appearing herein, and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing. Price Waterhouse LLP's principal business address in
1177 Avenue of the Americas, New York, New York, 10036.
The financial statements included in this prospectus for years ended
December 31, 1995 and December 31, 1994, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP's principal business
address is Two Hilton Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Prudential. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices,financial
statements disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
B. PRINCIPAL UNDERWRITER
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential, performs all sales and distribution functions
regarding the Contracts and may be deemed to be the "principal underwriter" of
the Account under the Investment Company Act of 1940.
C. PARTICIPATION IN DIVISIBLE SURPLUS
A mutual life insurance company, such as Prudential, differs from a stock
life insurance company in that it has no stockholders who are the owners of the
enterprise. Every owner of a Prudential Contract participates in the divisible
surplus of Prudential, according to an annual determination of Prudential's
Board of Directors of the portion, if any, of the divisible surplus of the
entire company that is attributable to the class of contracts of which he or she
is an owner. Before annuity payments begin it is unlikely that any dividends
will be payable to the owners of the Contracts described in the prospectus
because the charges made by Prudential are not expected to exceed its actual
expenses in distributing and administering the Contracts. However, there may be
dividends payable during an annuity payout period.
D. PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1996. The performance information is based on historical
experience and does not indicate or represent future performance.
AVERAGE ANNUAL TOTAL RETURN
Table 1 below shows the average annual rates of total return on
hypothetical investments of $1,000 for periods ended December 31, 1996 in each
subaccount other than the Money Market Subaccount. These figures assume
withdrawal of the investments at the end of the period other than to effect an
annuity under the Contract.
1
<PAGE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/96 12/31/96 12/31/96 12/31/96
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diversified Bond ............ 6/83 -3.43 5.60 6.86 8.25
Government Income ........... 5/89 -5.59 4.68 N/A 7.15
Conservative Balanced ....... 6/83 4.77 7.49 8.39 9.27
Flexible Managed ............ 5/83 5.77 9.25 9.81 10.33
High Yield Bond ............. 2/87 3.53 10.39 N/A 7.32
Stock Index ................. 10/87 14.66 12.87 N/A 14.83
Equity Income ............... 2/88 13.83 13.24 N/A 13.21
Equity ...................... 6/83 10.63 15.45 13.60 13.46
Prudential Jennison ......... 5/95 6.54 N/A N/A 18.61
Small Capitalization Stock .. 5/95 11.88 N/A N/A 19.17
Global ...................... 5/89 11.80 10.84 N/A 7.58
Natural Resources ........... 5/88 22.92 14.47 N/A 12.75
</TABLE>
The average annual rates of total return shown above are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)"- ERA. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; " is the number of
years; and ERA is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum deferred sales charge that may be
applicable to a particular period. The annual contract fee is included, however
it applies only if the Contract Fund is less than $10,000.
NON-STANDARD TOTAL RETURN
Table 2 below shows the average annual rates of return as in Table 1, but
assumes that the investments are not withdrawn at the end of the period or that
the Contract owner annuitizes at the end of the period.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/96 12/31/96 12/31/96 12/31/96
------------ ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diversified Bond ............ 6/83 2.85 6.02 6.86 8.25
Government Income ........... 5/89 .70 5.11 N/A 7.22
Conservative Balanced ....... 6/83 10.99 7.87 8.39 9.27
Flexible Managed ............ 5/83 11.99 9.60 9.81 10.33
High Yield Bond ............. 2/87 9.76 10.72 N/A 7.32
Stock Index ................. 10/87 20.81 13.17 N/A 14.83
Equity Income ............... 2/88 19.99 13.53 N/A 13.21
Equity ...................... 6/83 16.81 15.72 13.60 13.46
Prudential Jennison ......... 5/95 12.75 N/A N/A 21.80
Small Capitalization Stock .. 5/95 18.05 N/A N/A 22.34
Global ...................... 5/89 17.97 11.17 N/A 7.65
Natural Resources ........... 5/88 29.02 14.74 N/A 12.75
</TABLE>
2
<PAGE>
Table 3 shows the cumulative total return for the subaccounts, assuming no
withdrawal.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
SUBACCOUNT
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
DATE ENDED ENDED ENDED THROUGH
SUBACCOUNT ESTABLISHED 12/31/96 12/31/96 12/31/96 12/31/96
------------ ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diversified Bond ............ 6/83 2.85 33.92 94.16 193.11
Government Income ........... 5/89 0.70 28.31 N/A 70.65
Conservative Balanced ....... 6/83 10.99 46.05 123.87 233.34
Flexible Managed ............ 5/83 11.99 58.15 154.84 280.68
High Yield Bond ............. 2/87 9.76 66.41 N/A 100.57
Stock Index ................. 10/87 20.81 85.63 N/A 257.07
Equity Income ............... 2/88 19.99 88.62 N/A 200.42
Equity ...................... 6/83 16.81 107.51 257.82 455.32
Prudential Jennison ......... 5/95 12.75 N/A N/A 39.01
Small Capitalization Stock .. 5/95 18.05 N/A N/A 40.04
Global ...................... 5/89 17.97 69.82 N/A 75.99
Natural Resources ........... 5/88 29.02 98.91 N/A 182.91
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1996 were 3.6754%% and 3.7425%, respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1% charge for mortality and
expense risks and the 0.20% charge for administration. It does not reflect the
deferred sales charge. It does reflect the annual contract fee, however it will
only be charged if the Contract Fund is less than $10,000.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield--((base period
return + 1) 365/7)--1.
The yields on amounts held in the Money Market Subaccount will fluctuate on a
daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
COMPARISONS
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Annuity Research and Data Services (VARDS), and
Lipper Analytical Services, Inc.; (4) data presented by analysts such as Dow
Jones, A.M. Best, The Bank Rate Monitor National Index; and (5) data in
publications such as The Wall Street Journal, Times, Forbes, Barrons, Fortune,
Money Magazine, and Financial World.
E. FINANCIAL STATEMENTS
The statutory financial statements of Prudential included herein should be
distinguished from the financial statements of the Account, and should be
considered only as bearing upon the ability of Prudential to meet its
obligations under the Contracts.
3
<PAGE>
DETERMINATION OF SUBACCOUNT UNIT VALUES AND OF THE
AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS
A. SUBACCOUNT UNIT VALUES
The value for each Subaccount Unit is computed as of the end of each "valuation
period" as defined in the prospectus (also referred to in this section as
business day).
On any given business day the value of Units in each subaccount will be
determined by multiplying the value of a Unit of that subaccount for the
preceding business day by the net investment factor for that subaccount for the
current business day. The net investment factor for any business day is
determined by dividing the value of the assets of the subaccount for that day by
the value of the assets of the subaccount for the preceding business day
(ignoring, for this purpose, changes resulting from new purchase payments and
withdrawals), and subtracting from the result the daily equivalent of the up to
1.2% annual charge for expense risks and mortality risks. (See CHARGES UNDER THE
CONTRACTS in the prospectus for the Account.) The value of the assets of a
subaccount is determined by multiplying the number of shares of the Series Fund
held by that subaccount by the net asset value of each share, and adding the
value of dividends declared by the Series Fund but not yet paid.
B. DETERMINATION OF THE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENT
When a Contract owner elects to convert his or her Variable Account into monthly
variable annuity payments (an option available under the WVQ-83 Contract and the
QVIP-84 Contract, but not under the VIP-86 Contract), the number of Units
credited to him or her in each subaccount is first reduced to take into account
any applicable sales charge and any state premium taxes that may be payable. The
remaining Subaccount Units are then converted into a number of Subaccount
Annuity Units of equal aggregate value. As with Subaccount Units, the value of
each Subaccount Annuity Unit also changes daily in accordance with the
investment results of the underlying Series Fund Portfolio, after deduction of
the daily equivalent of the up to 1.2% annual charge for assuming expense and
mortality risks.
Built into the value of Subaccount Annuity Units is an assumption that the value
of a subaccount will grow by 3.5% each year. The reason for making this
assumption is explained more fully below. Accordingly, the value of a Subaccount
Annuity Unit always increases by an amount that is somewhat less than the
increase would have been had this assumption not been made and decreases by an
amount that is somewhat greater than the decrease would have been had the
assumption not been made. If the value of the assets of a subaccount increases
from one day to the next at a rate equivalent to 4.7% per year (3.5% plus the
annual charge of 1.2%) the Subaccount Annuity Unit Value will not change. If the
increase is less than at a rate of 4.7% per year the Subaccount Annuity Unit
Value will decrease.
To determine the amount of each monthly variable annuity payment, the first step
is to refer to the Schedule of Annuity Rates set forth in the Contract, relating
to the form of annuity selected by the Contract owner. For example, for a person
of 65 years of age who has selected a lifetime annuity with a guaranteed minimum
of 120 payments, the applicable schedules currently provide that 1000 Subaccount
Annuity Units will result in the payment each month of an amount equal to the
value of 5.20 Subaccount Annuity Units. (Due to the fact that the Schedule of
Annuity Rates set forth in the WVQ-83 Contract differs from that set forth in
the QVIP-84 Contract, the preceding sentence, as it applies to the WVQ-83
Contract, is modified. See item 3 under DIFFERENCES UNDER THE WVQ-83 CONTRACT in
the prospectus for the Account.) The amount of the first variable annuity
payment made on the first day of the month will be equal to that number of
Subaccount Annuity Units multiplied by the Subaccount Annuity Unit Value at the
end of that day, if a business day, or otherwise at the end of the last
preceding business day. The amount of each subsequent variable annuity payment
made on the first day of the month will be equal to the number of Subaccount
Annuity Units multiplied by the Subaccount Annuity Unit Value at the end of the
last business day which is at least 5 days before the date the annuity payment
is due. (Under the WVQ-83 Contract, the amount of each variable annuity payment
made after the first payment is not determined as described in the preceding
sentence. See item 4 under DIFFERENCES UNDER THE WVQ-83 CONTRACT in the
prospectus for the Account.)
As stated above, Subaccount Annuity Unit Values change in accordance with the
investment results of the subaccount but will not increase--and thus the amount
of each monthly variable payment will not increase--unless the value of the
assets in the subaccount increases, after deducting the up to 1.2% annual
charge, at a rate greater than 3.5% per year. This compensates for the fact that
the annuity rate schedules have been constructed upon the assumption that there
will be a 3.5% annual increase in the value of each subaccount.
4
<PAGE>
Although a different assumption could have been made, namely that the
subaccounts will not increase in value, this would have resulted in smaller
variable annuity payments immediately after annuitization and larger payments in
later years. This would have been advantageous for annuitants who happen to live
very long but disadvantageous to those who happen to die earlier. Prudential
believes that the 3.5% annual growth assumption is better for Contract owners,
because it produces a better balance between early and later variable annuity
payments.
5
<PAGE>
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 3]........ $ 103,088,591 $ 114,862,531 $ 813,167,632 $ 960,451,256 $ 914,982,479
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 102,835,102 $ 115,063,706 $ 812,139,042 $ 956,261,741 $ 914,236,287
Equity of annuitants............................ 3,487 8,042 33,886 12,017 103,609
Equity of The Prudential Insurance Company of
America....................................... 250,002 (209,217) 994,704 4,177,498 642,583
-------------- -------------- -------------- -------------- --------------
$ 103,088,591 $ 114,862,531 $ 813,167,632 $ 960,451,256 $ 914,982,479
============== ============== ============== ============== ==============
Number of Contract owner units outstanding...... 51,204,795 38,483,488 142,993,051 245,530,247 266,987,208
============== ============== ============== ============== ==============
Unit Value:..................................... $ 2.00831 $ 2.98995 $ 5.67957 $ 3.89468 $ 3.42427
============== ============== ============== ============== ==============
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 5,037,402 $ 7,243,523 $ 18,336,204 $ 28,082,877 $ 35,906,676
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk
[Note 4A]..................................... 1,168,431 1,330,903 8,730,238 10,814,339 10,411,606
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 3,868,971 5,912,620 9,605,966 17,268,538 25,495,070
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 0 71,638,260 90,320,406 55,896,831
Realized gain (loss) on shares redeemed
[average cost basis].......................... 0 101,250 1,739,262 4,360,663 3,695,555
Net unrealized gain (loss) on investments....... 0 (2,387,656) 33,745,472 (5,934,350) 9,261,394
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 0 (2,286,406) 107,122,994 88,746,719 68,853,780
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 3,868,971 $ 3,626,214 $ 116,728,960 $ 106,015,257 $ 94,348,850
============== ============== ============== ============== ==============
<CAPTION>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 3] $ 61,430,440 $ 243,126,423 $ 199,786,343 $ 75,897,497 $ 92,409,225
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners $ 61,227,259 $ 242,022,103 $ 199,709,312 $ 75,259,679 $ 92,242,701
Equity of annuitants 0 0 0 0 0
Equity of The Prudential Insurance Company of
America 203,181 1,104,320 77,031 637,818 166,524
-------------- -------------- -------------- -------------- --------------
$ 61,430,440 $ 243,126,423 $ 199,786,343 $ 75,897,497 $ 92,409,225
============== ============== ============== ============== ==============
Number of Contract owner units outstanding 29,828,106 83,246,633 65,617,658 26,504,833 50,862,779
============== ============== ============== ============== ==============
Unit Value: $ 2.05267 $ 2.90729 $ 3.04353 $ 2.83947 $ 1.81356
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 3] $ 89,281,134 $ 31,364,728 $ 19,308,060
-------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners $ 88,064,471 $ 30,826,756 $ 18,914,496
Equity of annuitants 0 0 0
Equity of The Prudential Insurance Company of
America 1,216,663 537,972 393,564
-------------- -------------- --------------
$ 89,281,134 $ 31,364,728 $ 19,308,060
============== ============== ==============
Number of Contract owner units outstanding 50,735,981 21,901,003 13,432,923
============== ============== ==============
Unit Value: $ 1.73574 $ 1.40755 $ 1.40807
============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 5,755,410 $ 3,895,498 $ 6,297,887 $ 452,518
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk
[Note 4A] 696,177 2,430,698 2,125,985 770,841
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 5,059,233 1,464,800 4,171,902 (318,323)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received 0 2,734,020 6,252,424 8,837,339
Realized gain (loss) on shares redeemed
[average cost basis] (56,165) 356,328 472,963 224,441
Net unrealized gain (loss) on investments 555,844 34,726,603 22,603,107 6,868,989
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS 499,679 37,816,951 29,328,494 15,930,769
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,558,912 $ 39,281,751 $ 33,500,396 $ 15,612,446
============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 2,188,736 $ 5,756,037 $ 52,375 $ 107,099
EXPENSES
Charges to Contract owners and annuitants for
assuming mortality risk and expense risk
[Note 4A] 968,880 1,083,373 223,434 134,930
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 1,219,856 4,672,664 (171,059) (27,831)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received 1,412,191 0 0 335,060
Realized gain (loss) on shares redeemed
[average cost basis] 155,205 133,813 (4,811) 29,851
Net unrealized gain (loss) on investments 10,971,802 (3,953,017) 2,471,948 1,514,099
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS 12,539,198 (3,819,204) 2,467,137 1,879,010
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 13,759,054 $ 853,460 $ 2,296,078 $ 1,851,179
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 3,868,971 $ 4,019,542 $ 5,912,620 $ 5,770,433 $ 9,605,966 $ 5,660,595
Capital gains distributions
received........................ 0 0 0 242,076 71,638,260 22,789,371
Realized gain (loss) on shares
redeemed
[average cost basis]............ 0 0 101,250 (174,365) 1,739,262 368,111
Net unrealized gain (loss) on
investments..................... 0 0 (2,387,656) 12,161,207 33,745,472 114,546,773
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 3,868,971 4,019,542 3,626,214 17,999,351 116,728,960 143,364,850
-------------- -------------- -------------- -------------- -------------- -------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in.............................. 70,888,503 73,921,488 20,077,647 16,368,770 127,979,145 129,737,331
Withdrawals and transfers out..... (71,008,947) (58,958,696) (19,867,717) (20,074,676) (86,389,028) (73,861,984)
Annuity benefit payments.......... (537) (533) (1,073) (1,026) (17,939) (15,321)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 6].......................... (120,981) 14,962,259 208,857 (3,706,932) 41,572,178 55,860,026
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 7].......................... (316,589) (462,908) (342,954) (262,738) (220,940) (703,672)
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 3,431,401 18,518,893 3,492,117 14,029,681 158,080,198 198,521,204
NET ASSETS:
Beginning of year................. 99,657,190 81,138,297 111,370,414 97,340,733 655,087,434 456,566,230
-------------- -------------- -------------- -------------- -------------- -------------
End of year....................... $ 103,088,591 $ 99,657,190 $ 114,862,531 $ 111,370,414 $ 813,167,632 $ 655,087,434
============== ============== ============== ============== ============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 17,268,538 $ 16,137,365 $ 25,495,070 $ 23,704,165
Capital gains distributions
received 90,320,406 36,063,887 55,896,831 28,485,578
Realized gain (loss) on shares
redeemed
[average cost basis] 4,360,663 6,195,722 3,695,555 4,028,418
Net unrealized gain (loss) on
investments (5,934,350) 105,182,685 9,261,394 61,407,690
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 106,015,257 163,579,659 94,348,850 117,625,851
-------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers in 97,345,705 79,232,575 103,990,719 92,079,777
Withdrawals and transfers out (111,443,852) (127,262,514) (122,077,683) (137,846,442)
Annuity benefit payments (1,861) (1,667) (13,460) (12,420)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 6] (14,100,008) (48,031,606) (18,100,424) (45,779,085)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 7] 3,961,264 (1,235,567) 662,063 (1,878,000)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 95,876,513 114,312,486 76,910,489 69,968,766
NET ASSETS:
Beginning of year 864,574,743 750,262,257 838,071,990 768,103,224
-------------- -------------- -------------- --------------
End of year $ 960,451,256 $ 864,574,743 $ 914,982,479 $ 838,071,990
============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 5,059,233 $ 4,883,150 $ 1,464,800 $ 1,426,453
Capital gains distributions
received 0 0 2,734,020 1,183,600
Realized gain (loss) on shares
redeemed
[average cost basis] (56,165) (84,773) 356,328 240,348
Net unrealized gain (loss) on
investments 555,844 2,837,430 34,726,603 37,706,707
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 5,558,912 7,635,807 39,281,751 40,557,108
-------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers in 13,196,161 13,313,880 62,403,343 34,210,240
Withdrawals and transfers out (12,789,008) (12,564,152) (26,071,871) (18,698,974)
Annuity benefit payments 0 0 0 0
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 6] 407,153 749,728 36,331,472 15,511,266
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 7] 48,023 66,475 225,226 548,163
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 6,014,088 8,452,010 75,838,449 56,616,537
NET ASSETS:
Beginning of year 55,416,352 46,964,342 167,287,974 110,671,437
-------------- -------------- -------------- --------------
End of year $ 61,430,440 $ 55,416,352 $ 243,126,423 $ 167,287,974
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 4,171,902 $ 3,939,872 $ (318,323) $ 42,424 $ 1,219,856 $ 265,259
Capital gains distributions
received........................ 6,252,424 6,797,070 8,837,339 2,340,224 1,412,191 1,314,501
Realized gain (loss) on shares
redeemed
[average cost basis]............ 472,963 51,273 224,441 223,324 155,205 318,798
Net unrealized gain (loss) on
investments..................... 22,603,107 15,057,038 6,868,989 7,780,040 10,971,802 7,108,435
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... 33,500,396 25,845,253 15,612,446 10,386,012 13,759,054 9,006,993
-------------- -------------- -------------- -------------- -------------- -------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers
in.............................. 31,743,690 41,608,348 20,218,684 12,395,333 25,000,108 23,881,641
Withdrawals and transfers out..... (26,995,655) (23,957,522) (11,715,637) (11,485,312) (15,408,555) (21,970,300)
Annuity benefit payments.......... 0 0 0 0 0 0
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 6].......................... 4,748,035 17,650,826 8,503,047 910,021 9,591,553 1,911,341
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 7].......................... (274,050) (696,426) 611,794 (449,168) 73,327 (2,455,043)
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 37,974,381 42,799,653 24,727,287 10,846,865 23,423,934 8,463,291
NET ASSETS:
Beginning of year................. 161,811,962 119,012,309 51,170,210 40,323,345 68,985,291 60,522,000
-------------- -------------- -------------- -------------- -------------- -------------
End of year....................... $ 199,786,343 $ 161,811,962 $ 75,897,497 $ 51,170,210 $ 92,409,225 $ 68,985,291
============== ============== ============== ============== ============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON*
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 4,672,664 $ 4,877,187 $ (171,059) $ (19,115)
Capital gains distributions
received 0 0 0 0
Realized gain (loss) on shares
redeemed
[average cost basis] 133,813 (546,907) (4,811) 8,611
Net unrealized gain (loss) on
investments (3,953,017) 10,935,446 2,471,948 214,307
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 853,460 15,265,726 2,296,078 203,803
-------------- -------------- -------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers in 10,425,861 11,950,990 28,786,477 7,033,968
Withdrawals and transfers out (17,890,303) (26,293,040) (6,596,738) (915,504)
Annuity benefit payments 0 0 0 0
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 6] (7,464,442) (14,342,050) 22,189,739 6,118,464
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 7] 373,815 (1,514,790) (251,305) 807,949
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS (6,237,167) (591,114) 24,234,512 7,130,216
NET ASSETS:
Beginning of year 95,518,301 96,109,415 7,130,216 0
-------------- -------------- -------------- --------------
End of year $ 89,281,134 $ 95,518,301 $ 31,364,728 $ 7,130,216
============== ============== ============== ==============
*Commenced Business on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------
SMALL
CAPITALIZATION
STOCK*
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (27,831) $ (1,607)
Capital gains distributions
received 335,060 38,178
Realized gain (loss) on shares
redeemed
[average cost basis] 29,851 0
Net unrealized gain (loss) on
investments 1,514,099 130,843
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,851,179 167,414
-------------- --------------
ACCUMULATION AND ANNUITY
UNIT TRANSACTIONS
Purchase payments and transfers in 16,692,803 4,618,264
Withdrawals and transfers out (3,917,398) (503,229)
Annuity benefit payments 0 0
-------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM ACCUMULATION
AND ANNUITY UNIT TRANSACTIONS
[Note 6] 12,775,405 4,115,035
-------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 7] 87,525 311,502
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 14,714,109 4,593,951
NET ASSETS:
Beginning of year 4,593,951 0
-------------- --------------
End of year $ 19,308,060 $ 4,593,951
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A6
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1: GENERAL
The Prudential Qualified Individual Variable Contract Account (the
"Account") of The Prudential Insurance Company of America
("Prudential") was established on October 12, 1982 by a resolution of
Prudential's Board of Directors in conformity with insurance laws of
the State of New Jersey. The assets of the Account are segregated from
Prudential's other assets.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are thirteen subaccounts
within the Account, each of which invests only in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The
Series Fund is a diversified open-end management investment company,
and is managed by Prudential.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
the financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated
at the net asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.
Equity of The Prudential Insurance Company of America--Prudential
maintains a position in the Account for the purpose of administering
activity in the Account. The activity includes unit transactions, fund
share transactions, and expense processing. Prudential monitors the
balance daily and transfers funds based upon anticipated activity. At
times, Prudential may owe an amount to the Account, which is reflected
in Prudential's equity as a negative balance. The position does not
have an effect on the Contract owner's account or the related unit
value.
Equity of Annuitants--Equity of annuitants is the reserve for
currently payable Contracts and is computed using the following: the
1983 A Mortality Table, the investment results of annuitants'
subaccounts, an assumed investment result of 3.5% and various
valuation interest rates ranging from 6.5% to 11%, depending on the
Contract's year of issue.
A7
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund,
the number of shares of each portfolio held by the subaccounts of the
Account and the aggregate cost of investments in such shares at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of shares: 10,308,859 10,380,305 30,156,534 53,995,460 58,966,228
Net asset value per
share: $ 10.00000 $ 11.06543 $ 26.96489 $ 17.78763 $ 15.51706
Cost: $ 103,088,591 $ 112,766,229 $ 621,132,052 $ 838,014,435 $ 835,024,891
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 7,808,137 10,239,183 10,793,532 3,839,915
Net asset value per
share: $ 7.86749 $ 23.74471 $ 18.50982 $ 19.76541
Cost: $ 63,109,497 $ 2157,457,552 $ 164,150,474 $ 60,381,669
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 5,175,612 7,956,547 2,189,787 1,399,960
Net asset value per
share: $ 17.85474 $ 11.22109 $ 14.32319 $ 13.79187
Cost: $ 75,033,387 $ 89,750,670 $ 28,678,473 $ 17,663,118
</TABLE>
NOTE 4: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk
The mortality risk and expense risk charges at effective annual
rates of 0.8% and 0.4%, respectively (for a total of 1.2% per
year), are applied against the net assets representing equity of
Contract owners and annuitants held in each subaccount. Mortality
risk is that annuitants may live longer than estimated and
expense risk is that the cost of issuing and administering the
policies may exceed the estimated expenses. For 1996, the amount
of these charges paid to Prudential was $40,889,836.
B. Deferred Sales Charge
Subsequent to a Contract owner redemption, a deferred sales
charge is imposed upon withdrawals of certain purchase payments
to compensate Prudential for sales and other marketing expenses.
The amount of any sales charge will depend on the amount
withdrawn and the number of Contract years that have elapsed
since the Contract owner or annuitant made the purchase payments
deemed to be withdrawn. No sales charge is made against the
withdrawal of investment income. A reduced sales charge is
imposed in connection with the withdrawal of a purchase payment
to effect an annuity if three or more Contract years have elapsed
since the Contract date, unless the annuity effected is an
annuity certain. No sales charge is imposed upon death benefit
payments or upon transfers made between subaccounts. For 1996,
the amount of these charges was $4,612,042.
C. Annual Maintenance Charge
An annual maintenance charge of $30 will be deducted if and only
if the Contract fund is less than $10,000 on a Contract
anniversary or at the time a full withdrawal is effected,
including a withdrawal to effect an annuity. The charge is made
by reducing accumulation units credited to a Contract owner's
account. For 1996, the amount of these charges was $4,039,065.
A8
<PAGE>
NOTE 5: TAXES
Prudential is taxed as a "life insurance company" under the Internal
Revenue Code and the operations of the Account form a part of and are
taxed with those of Prudential. Under current federal law, no federal
income taxes are payable by the Account. As such, no provision for tax
liability has been recorded.
NOTE 6: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM ACCUMULATION AND
ANNUITY UNIT TRANSACTIONS
Contract owner activity in the subaccounts of the Account for the year
ended December 31, 1996, was as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions,
net: $ 18,015,963 $ 13,031,103 $ 83,900,503 $ 74,699,196 $ 78,711,278
Contract Owner
Redemptions: $ (16,377,160) $ (9,788,918) $ (55,601,925) $ (79,381,685) $ (82,723,524)
Net Transfers
from(to) other
subaccounts: $ (1,759,247) $ (3,032,255) $ 13,291,539 $ (9,415,658) $ (14,074,718)
Annuity
Benefit
Payments: $ (537) $ (1,073) $ (17,939) $ (1,861) $ (13,460)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions, net: $ 6,663,918 $ 33,303,062 $ 21,221,046 $ 7,211,228
Contract Owner
Redemptions: $ (5,442,254) $ (13,904,915) $ (14,395,530) $ (4,955,765)
Net Transfers from(to)
other subaccounts: $ (814,511) $ 16,933,325 $ (2,077,481) $ 6,247,584
Annuity Benefit
Payments: $ 0 $ 0 $ 0 $ 0
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions, net: $ 11,793,556 $ 7,515,002 $ 12,202,807 $ 6,919,802
Contract Owner
Redemptions: $ (6,195,589) $ (7,698,463) $ (1,295,553) $ (683,680)
Net Transfers from(to)
other subaccounts: $ 3,993,586 $ (7,280,981) $ 11,282,485 $ 6,539,283
Annuity Benefit
Payments: $ 0 $ 0 $ 0 $ 0
</TABLE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Prudential to (from)
the Account.
A9
<PAGE>
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 35,981,599.223 6,988,089.494 24,837,176.231 26,959,138.268 32,422,059.817
Contract Owner
Redemptions: (36,107,788.198) (6,908,396.604) (16,645,915.104) (30,687,992.089) (37,964,064.423)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions: 6,742,010.311 23,869,769.506 11,762,611.099 7,742,905.812
Contract Owner
Redemptions: (6,548,097.056) (9,938,253.841) (9,954,964.529) (4,518,525.468)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions: 15,062,725.819 6,188,243.536 21,865,155.111 12,879,812.931
Contract Owner
Redemptions: (9,253,387.983) (10,583,251.083) (5,031,666.389) (3,046,687.889)
</TABLE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Series Fund, Inc. were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases......... $ 14,115,000 $ 2,330,000 $ 39,025,000 $ 2,810,000 $ 3,149,000
Sales............. $ (15,721,000) $ (3,795,000) $ (6,404,000) $ (23,699,000) $ (30,744,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases........... $ 2,372,000 $ 35,313,000 $ 5,883,000 $ 9,240,000
Sales............... $ (2,613,000) $ (1,187,000) $ (3,535,000) $ (896,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases........... $ 9,671,000 $ 179,000 $ 21,870,000 $ 13,656,000
Sales............... $ (975,000) $ (8,353,000) $ (155,000) $ (928,000)
</TABLE>
A10
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
-------- --------
(In Millions)
<S> <C> <C>
ASSETS
Bonds ............................................................................ $ 75,006 $ 77,494
Preferred stock .................................................................. 239 396
Common stock ..................................................................... 7,076 6,133
Mortgage loans on real estate .................................................... 17,039 20,280
Real estate ...................................................................... 2,094 2,488
Policy loans and premium notes ................................................... 6,023 6,208
Cash and short-term investments .................................................. 5,982 4,803
Other invested assets ............................................................ 2,591 3,304
-------- --------
TOTAL CASH AND INVESTED ASSETS ................................................... 116,050 121,106
Premiums due and deferred ........................................................ 1,925 1,917
Accrued investment income ........................................................ 1,640 1,688
Other assets ..................................................................... 1,208 1,120
Assets held in separate accounts ................................................. 57,797 53,903
-------- --------
TOTAL ASSETS ..................................................................... $178,620 $179,734
======== ========
LIABILITIES AND SURPLUS
LIABILITIES
Policy liabilities and insurance reserves:
Future policy benefits and claims ............................................ $ 87,582 $ 93,346
Unearned premiums ............................................................ 619 624
Policy dividends ............................................................. 1,878 1,893
Policyholder account balances ................................................ 7,968 7,966
Notes payable and other borrowings ............................................... 763 807
Asset valuation reserve .......................................................... 2,682 2,705
Federal income tax payable ....................................................... 729 1,278
Other liabilities ................................................................ 9,588 9,191
Liabilities related to separate accounts ......................................... 57,436 53,256
-------- --------
TOTAL LIABILITIES ................................................................ 169,245 171,066
-------- --------
CONTINGENCIES (NOTE 11)
SURPLUS
Capital notes .................................................................... 985 984
Special surplus fund ............................................................. 1,268 1,274
Unassigned surplus ............................................................... 7,122 6,410
-------- --------
TOTAL SURPLUS .................................................................... 9,375 8,668
-------- --------
TOTAL LIABILITIES AND SURPLUS .................................................... $178,620 $179,734
======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN SURPLUS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
(In Millions)
<S> <C> <C> <C>
REVENUE
Premiums and annuity considerations .................................... $ 20,674 $ 21,088 $ 23,612
Net investment income .................................................. 8,677 8,637 7,387
Other income ........................................................... 571 363 367
-------- -------- --------
TOTAL REVENUE .......................................................... 29,922 30,088 31,366
-------- -------- --------
BENEFITS AND EXPENSES
Death benefits ......................................................... 2,943 2,858 2,798
Annuity benefits ....................................................... 3,582 3,495 3,354
Disability benefits .................................................... 5,630 5,765 5,201
Other benefits ......................................................... 806 853 845
Surrender benefits and fund withdrawals ................................ 11,844 12,538 11,714
Net (decrease) increase in reserves .................................... (1,572) (2,178) 1,251
Commissions ............................................................ 477 535 610
Other expenses ......................................................... 2,690 2,650 3,727
-------- -------- --------
TOTAL BENEFITS AND EXPENSES ............................................ 26,400 26,516 29,500
-------- -------- --------
Operating income before dividends and income taxes ..................... 3,522 3,572 1,866
Dividends to policyholders ............................................. 2,526 2,464 2,290
-------- -------- --------
Operating income (loss) before income taxes ............................ 996 1,108 (424)
Income tax provision ................................................... 51 590 453
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS .......................................... 945 518 (877)
NET REALIZED CAPITAL GAINS (LOSSES) .................................... 457 (183) (24)
-------- -------- --------
NET INCOME (LOSS) ..................................................... $ 1,402 $ 335 $ (901)
======== ======== ========
SURPLUS
SURPLUS, BEGINNING OF YEAR ............................................. 8,668 7,449 8,004
Net income (loss) ...................................................... 1,402 335 (901)
Change in net unrealized capital gains (losses) ........................ 191 661 (51)
Change in non-admitted assets .......................................... (206) 717 82
Change in asset valuation reserve ...................................... 11 (694) 653
Other changes, net ..................................................... (691) 200 (338)
-------- -------- --------
SURPLUS, END OF YEAR ................................................... $ 9,375 $ 8,668 $ 7,449
======== ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
- 1 -
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums and annuity considerations ...................................... $ 20,669 $ 21,030 $ 23,635
Net investment income .................................................... 8,629 8,511 7,261
Other income received .................................................... 599 479 502
Separate account transfers ............................................... 1,183 1,002 (494)
Benefits and claims paid ................................................. (24,952) (25,524) (24,403)
Policyholders' dividends paid ............................................ (2,453) (2,393) (2,594)
Federal income taxes (paid) received ..................................... (230) (847) 179
Other operating expenses ................................................. (4,224) (3,738) (3,636)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ...................... (779) (1,480) 450
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold, matured, or repaid
Bonds ............................................................... 119,195 93,178 80,668
Stocks .............................................................. 4,328 2,985 4,263
Mortgage loans on real estate ....................................... 3,140 4,997 4,205
Real estate ......................................................... 537 573 935
Net gains (losses) on cash and short-term investments ............... 13 (9) (5)
Miscellaneous proceeds .............................................. 2,128 3,707 2,671
Payments for investments acquired
Bonds ............................................................... (118,009) (101,018) (81,677)
Stocks .............................................................. (6,029) (2,199) (2,312)
Mortgage loans on real estate ....................................... (1,841) (2,810) (3,282)
Real estate ......................................................... (120) (425) (194)
Miscellaneous applications .......................................... (718) (1,213) (1,275)
Net (tax) benefit on capital gains and losses ............................ (622) 107 (275)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...................... 2,002 (2,127) 3,722
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) proceeds from borrowed money ......................... (44) 123 1
Net proceeds from the issuance of capital notes .......................... 0 686 0
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ..................... (44) 809 1
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS ............... 1,179 (2,798) 4,173
Cash and short-term investments, beginning of year ....................... 4,803 7,601 3,428
--------- --------- ---------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR ............................. $ 5,982 $ 4,803 $ 7,601
========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments of $253 million, $144 million and $85 million were made during
1996, 1995 and 1994, respectively.
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
- 2 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ACCOUNTING POLICIES AND PRINCIPLES
A. Business and basis of presentation - The statutory financial
statements include the accounts of The Prudential Insurance Company of
America ("the Company"), a mutual life insurance company. The
activities of the Company include a broad range of financial services,
including life and health insurance, asset management, and investment
advisory services.
These financial statements were prepared on an unconsolidated
statutory basis of accounting, which differs from the 1995 and 1994
financial statements prepared for general distribution on a
consolidated statutory basis of accounting, both of which differ from
generally accepted accounting principles ("GAAP"). The financial
statements for 1995 and 1994 have been restated on an unconsolidated
statutory basis of accounting adopted in 1996 for purposes of general
distribution. Certain reclassifications have been made to the 1995 and
1994 financial statement amounts to conform to the 1996 presentation.
The Company, 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 Banking and
Insurance ("the Department"). 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. The financial
statements are substantially the same as those included in the
Statutory Annual Statement except for certain reclassifications and
adjustments. These financial statements differ from those filed with
the Department in that changes to estimated income and premium taxes
applicable to prior periods, which are recorded as direct charges or
credits to surplus in the Annual Statement, have been included in the
"Income tax provision" and "Other expenses" in the Statements of
Operations and Changes in Surplus. This item has the net effect of
increasing (decreasing) net income by $396 million, ($143) million and
$6 million in 1996, 1995 and 1994, respectively.
Pursuant to the Financial Accounting Standards Board Interpretation
No. 40 "Applicability of Generally Accepted Accounting Principles to
Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 financial statements, statutory accounting
practices ("SAP") are no longer considered GAAP for mutual life
insurance companies. SAP differs from GAAP primarily as follows:
(a) the Commissioner's Reserve Valuation Method ("CRVM") is used for the
majority of individual insurance reserves under SAP, whereas for
individual insurance, policyholder liabilities are generally
established using the net level premium method under GAAP. Policy
assumptions used in the estimation of policyholder liabilities are
generally prescribed under SAP, but are based upon actual company
experience under GAAP;
(b) for investment-type contracts that do not contain mortality or
morbidity risk and universal life-type contracts, cash receipts are
recorded as premiums and reserves are established using prescribed
reserving methods under SAP. Under GAAP, premium from investment-type
and universal life-type contracts are generally recognized as
deposits. Revenues from these contracts represent amounts assessed
against policyholders and are reported in the period of assessment;
(c) policy acquisition costs are expensed when incurred under SAP rather
than being deferred and charged against earnings over the periods
covered by the related policies;
(d) deferred income taxes are not recorded for the tax effect of temporary
differences between book and tax basis of assets and liabilities under
SAP;
(e) certain "non-admitted assets" must be excluded under SAP through a
charge against surplus, e.g. fixed assets, prepaid pensions and
impaired investments;
(f) investments in the common stock of the Company's wholly-owned
subsidiaries are accounted for using the equity method under SAP
rather than consolidated;
(g) bonds are carried at amortized cost under SAP rather than categorized
as "held to maturity", "available for sale", or "trading". Under GAAP,
bonds classified as "available for sale" and "trading" are carried at
market value;
(h) certain reclassifications would be required with respect to the
balance sheet and statement of cash flows under SAP;
(i) the Asset Valuation Reserve ("AVR") and Interest Maintenance Reserve
("IMR") are required for life insurance companies under SAP.
The following is a summary of accounting practices permitted by the
state of New Jersey and reflected in these financial statements:
o Prescribed statutory accounting practices require Department
approval of each and every interest payment at the time of
payment in order to classify the Company's Capital Notes as a
component of surplus. Otherwise, such notes are required to be
classified as a liability. Interest payments on $300 million in
Capital Notes issued in 1993 are pre-approved by the Department,
and permitted to be classified in surplus.
o The Company sells synthetic guaranteed interest contracts
("GICs") containing minimum investment related guarantees on
qualified pension plan assets. The assets are owned by the
trustees of such plans, who invest the assets
- 3 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
under the terms of investment guidelines agreed to with the
Company. The investment related guarantees may include a minimum
rate of return on the underlying assets and/or a guarantee of
liquidity to meet plan cash flow requirements. The Company, with
the approval of the Department, reports both the plan liabilities
associated with the synthetic GICs and the trust assets
supporting this potential liability. In addition, the Company
files detailed schedules of trust assets and related statements
with the Department. Currently, prescribed statutory accounting
practices do not address accounting for synthetic GICs.
o The Company establishes guaranty fund liabilities for the
insolvencies of certain life insurance companies. The liabilities
are 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.
B. Divestiture - On July 31, 1996, Prudential sold a substantial portion
of its Canadian Branch business to the London Life Insurance Company
("London Life"). The transaction was structured as an assumption
reinsurance transaction, whereby London Life assumed total liabilities
of the Canadian Branch equal to $3,146 million as well as a related
amount of total assets equal to $3,040 million. A net gain of $138
million was recorded for this transaction.
C. Use of estimates - The preparation of financial statements in
conformity with SAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from those
estimates.
D. Investments - Bonds, which consist of long-term bonds, are stated
primarily at amortized cost.
Preferred stock is generally valued at amortized cost.
Common Stock is carried at fair value. Investments in subsidiaries,
which are included in "Common stock", are accounted for using the
equity method. The subsidiaries' change in net assets, excluding
capital contributions and distributions, is included in "Net
investment income." The subsidiaries are engaged principally in the
businesses of life and health insurance, property and casualty
insurance, group health care, securities brokerage, asset management,
investment advisory services, retail banking and real estate and
brokerage.
Mortgage loans on real estate are stated primarily at unpaid principal
balances.
Real estate, except for real estate acquired in satisfaction of debt,
is carried at cost less accumulated straight-line depreciation,
encumbrances and permanent impairments in value. Properties acquired
in satisfaction of debt are valued at lower of depreciated cost or
fair value less disposition costs.
Policy loans and premium notes are stated at unpaid principal
balances.
Cash includes cash on hand, amounts due from banks and money market
instruments. Short term investments, including highly liquid debt
instruments purchased with an original maturity of twelve months or
less, are stated at amortized cost, which approximates fair value.
Other invested assets primarily include the Company's investment in
joint ventures and other forms of partnerships. These investments are
accounted for using the equity method where the Company has the
ability to exercise significant influence over the operating and
financial policies of the entity. The cost method is used for all
other assets.
Derivatives used in asset/liability risk management activities, which
support life and health insurance and annuity contracts, are recorded
at either fair value or statement value, depending upon the underlying
instrument, with unrealized gains and losses recorded in "Change in
net unrealized capital gains (losses)." Upon termination of
derivatives, the interest-related gains and losses are amortized
through the IMR.
E. Separate accounts - These assets and liabilities, reported at
estimated fair value, represent segregated funds invested for pension
and other clients. Investment risks associated with fair value changes
are generally borne by the clients, except to the extent of minimum
guarantees made by the Company with respect to certain accounts.
F. Revenue recognition of insurance income 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 premiums are earned ratably over the terms of
the related insurance and reinsurance contracts or policies. Expenses
incurred in connection with acquiring new insurance business,
including such acquisition costs as sales commissions, are charged to
operations as incurred.
- 4 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
G. Policyholder dividends - Substantially all of the policies issued by
the Company are participating. The amount of dividends to be paid to
policyholders is determined annually by the Company's Board of
Directors. The aggregate amount of policyholders' dividends is related
to actual interest, mortality, morbidity, and expense experience for
the year and judgment as to the appropriate level of statutory surplus
to be retained by the Company. Dividends declared by the Board of
Directors which have not been paid are included in "Policy dividends".
2. POLICY LIABILITIES AND INSURANCE RESERVES
A. For life insurance and annuities, future policy benefits and claims
include estimates of benefits and associated settlement expenses on
reported claims and those which are incurred but not reported.
Activity in the liability for unpaid claims and claim adjustment
expenses for accident and health business, which is included in
"Future policy benefits and claims", is as follows:
1996 1995 1994
------- ------- -------
(In Millions)
Balance at January 1 $ 2,636 $ 2,440 $ 2,416
Less reinsurance recoverables 15 23 15
------- ------- -------
Net balance at January 1 2,621 2,417 2,401
------- ------- -------
Incurred related to:
Current year 5,734 5,759 5,398
Prior years (87) 42 (87)
------- ------- -------
Total incurred 5,647 5,801 5,311
------- ------- -------
Paid related to:
Current year 4,135 4,028 3,856
Prior years 1,467 1,569 1,439
------- ------- -------
Total paid 5,602 5,597 5,295
------- ------- -------
Net balance at December 31 2,666 2,621 2,417
Plus reinsurance recoverables 10 15 23
------- ------- -------
Balance at December 31 $ 2,676 $ 2,636 $ 2,440
======= ======= =======
As a result of changes in reserve estimates for insured events of
prior years, the provision for claims and claim adjustment expenses
changed by ($87) million and $42 million in 1996 and 1995,
respectively, due to changes in claim cost trends and changed by ($87)
million in 1994 because of faster-than-expected shrinkage in the
indemnity health business.
B. 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 the net
level premium reserve or the policy cash value. About 52% of
individual life insurance reserves are calculated according to CRVM
or methods which compare CRVM to policy cash values. The remaining
reserves include universal life reserves which are equal to the
greater of the policyholder account value less the unamortized expense
allowance and the policy cash value, or are for supplementary benefits
whose reserves are calculated using methods, interest rates and tables
appropriate for the benefit provided.
For group life insurance, about 56% of the reserves are associated
with extended death benefits. These reserves are primarily calculated
using modified group tables at various interest rates. The remainder
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 deferred individual annuity contracts are determined
using the Commissioner's Annuity Reserve Valuation Method. These
account for 72% of the individual annuity reserves. The remaining
reserves are equal to the present value of future payments with the
annuity mortality table and interest rates based on the date of issue
or maturity as appropriate.
Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves.
Accident and health reserves represent the present value of the future
potential payments, adjusted for contingencies and interest. The
remaining material reserves for active life reserves and unearned
premiums are valued using the preliminary term method, gross premium
valuation method, or a pro rata portion of gross premiums. Reserves
are also held for amounts not yet due on hospital benefits and other
coverages.
- 5 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The reserve for guaranteed interest contracts, deposit funds and other
liabilities without life contingencies equal either the present value
of future payments discounted at the guaranteed rate or the fund
value.
Policyholders, at their discretion, may withdraw funds from their
annuity policies. At December 31, 1996 and 1995, approximately 55% of
total annuity actuarial reserves and deposit liabilities of $92,536
million and $95,092 million, respectively, were not subject to
discretionary withdrawal.
3. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Internal Revenue Code (the "Code") taxes the Company on its
operating income 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
which, in effect, imposes an additional amount of taxable income to the
Company. "Income tax provision" includes an estimate for the total equity tax
to be paid with respect to the year. Income from sources outside the United
States is taxed under applicable foreign statutes.
The Internal Revenue Service (the "Service") has completed an examination of
the consolidated federal income tax return through 1989. The Service is
examining the years 1990 through 1992. Discussions are being held with the
Service with respect to proposed adjustments. However, management believes
there are adequate defenses against, or sufficient reserves to provide for,
such adjustments.
4. INVESTED ASSETS
A. Bonds and stocks - The Company invests in both investment grade and
non-investment grade public and private bonds. The Securities
Valuation Office of the NAIC rates the bonds held by insurers for
regulatory purposes and classifies investments into six categories
ranging from highest quality bonds to those in or near default. The
lowest three NAIC categories represent primarily high-yield securities
and are defined by the NAIC as including any security with a public
agency rating equivalent to B+ or B1 or less. Securities in these
lowest three categories approximated 2.8% and 1.0%, of the Company's
bonds at December 31, 1996, 1995, respectively.
The following tables provide additional information relating to bonds
and preferred stock as of December 31:
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------- ------- ------ -------
Bonds (In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 9,504 $ 353 $ 74 $ 9,783
Obligations of U.S. states and their
political subdivisions 206 7 6 207
Foreign government bonds 2,420 133 11 2,542
Corporate securities 57,282 2,625 323 59,584
Mortgage-backed securities 5,594 131 15 5,710
------- ------- ------- -------
Total $75,006 $ 3,249 $ 429 $77,826
======= ======= ======= =======
Preferred Stock
Redeemable $ 142 $ 3 $ 6 $ 139
Non-redeemable 97 23 0 120
------- ------- ------- -------
Total $ 239 $ 26 $ 6 $ 259
======= ======= ======= =======
</TABLE>
- 6 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------- ------- ------- -------
Bonds (In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $15,715 $ 1,392 $ 1 $17,106
Obligations of U.S. states and their
political subdivisions 214 22 1 235
Foreign government bonds 3,196 260 1 3,455
Corporate securities 54,411 4,609 97 58,923
Mortgage-backed securities 3,958 241 8 4,191
------- ------- ------- -------
Total $77,494 $ 6,524 $ 108 $83,910
======= ======= ======= =======
Preferred Stock
Redeemable $ 304 $ 16 $ 4 $ 316
Non-redeemable 92 2 0 94
------- ------- ------- -------
Total $ 396 $ 18 $ 4 $ 410
======= ======= ======= =======
</TABLE>
The carrying amount and estimated fair value of bonds at December 31,
1996, categorized by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers
may prepay obligations with or without call or prepayment penalties.
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(In Millions)
Due in one year or less $ 1,999 $ 2,012
Due after one year through five years 19,125 19,445
Due after five years through ten years 19,406 20,081
Due after ten years 28,882 30,578
------- -------
69,412 72,116
------- -------
Mortgage-backed securities 5,594 5,710
------- -------
Total $75,006 $77,826
======= =======
Proceeds from the sale and maturity of bonds during 1996, 1995 and
1994 were $119,195 million, $93,178 million and $80,668 million,
respectively. Gross gains of $1,516 million, $1,913 million and $618
million and gross losses of $988 million, $782 million and $1,841
million were realized on such sales during 1996, 1995 and 1994,
respectively. Realized gains and losses are determined using the
specific identification method.
B. Mortgage loans on real estate - Mortgage loans on real estate at
December 31 are as follows:
1996 1995
------------------ ------------------
CARRYING PERCENT CARRYING PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------
(In Millions)
Commercial and agricultural loans:
In good standing $15,546 91.3% $17,649 87.0%
In good standing
with structured terms 809 4.7% 966 4.8%
Past due 90 days or more 229 1.3% 144 0.7%
In process of foreclosure 68 0.4% 157 0.8%
Residential loans 387 2.3% 1,364 6.7%
------- ----- ------- -----
Total $17,039 100.0% $20,280 100.0%
======= ===== ======= =====
At December 31, 1996, the Company's mortgage loans on real estate were
collateralized by the following property types: office buildings
(34%), retail stores (22%), residential properties (2%), apartment
complexes (18%), industrial buildings (11%), agricultural properties
(9%) and other commercial properties (4%). The maximum percentage of
any one loan to the value of collateral at the time of the loan,
exclusive of insured, guaranteed, purchase money mortgages or
mortgages supported by high credit leases is 80%. The mortgage loans
are geographically dispersed throughout the United States and
- 7 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Canada with the largest concentrations in California (26%) and New
York (8%). Included in these balances are mortgage loans with
affiliated joint ventures of $560 million and $653 million at December
31, 1996 and 1995, respectively.
C. Real estate - Real estate at December 31 was as follows:
1996 1995
------ ------
(In Millions)
Investment real estate $1,201 $1,484
Properties occupied by the Company 525 533
Properties acquired in
satisfaction of debt 368 471
------ ------
Total $2,094 $2,488
====== ======
Accumulated depreciation on real estate was $808 million and $853
million at December 31, 1996 and 1995, respectively.
D. Other invested assets - Other invested assets of $2,591 million and
and $3,304 million as of December 31, 1996 and 1995, respectively,
principally include the Company's net equity in joint ventures and
other forms of partnerships. The Company's share of net income from
other invested assets was $283 million, $240 million and $348 million
for 1996, 1995 and 1994, respectively.
E. Investment in subsidiaries - Included in "Common stock" is the
Company's investment in subsidiaries of $4,610 million and $4,328
million at December 31, 1996 and 1995, respectively. Included in "Net
investment income" for 1996, 1995 and 1994 is $370 million, $143
million and $(936) million, respectively, attributable to
undistributed income (loss) of subsidiaries.
In October 1995, the Company completed the sale of Prudential
Reinsurance Holdings, Inc., through an initial public offering of
common stock. As a result of the sale, an after-tax gain of $72
million was recorded in 1995.
In March 1995, the Company announced its intention to sell its
mortgage banking unit. On January 26, 1996, the Company entered into a
definitive agreement to sell substantially all the assets of
Prudential Home Mortgage Company, Inc. ("PHMC") and it also
liquidated certain mortgage-backed securities and extended warehouse
loans. In 1995, PHMC recorded an after-tax loss of $98 million which
includes operating gains and losses, asset write downs, and other
costs directly related to the sale. The Company continues to have
discussions with prospective buyers for the sale of the remaining
assets.
F. Net unrealized capital gains (losses) - Changes in net unrealized
capital gains (losses), which result principally from changes in the
differences between cost and carrying amounts of invested assets, were
$191 million and $661 million for the years ended December 31, 1996
and 1995, respectively, and are reflected in "Unassigned surplus."
G. Asset valuation reserve and interest maintenance reserve - These
reserves are required for life insurance companies under NAIC
requirements. 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. The IMR captures realized capital gains
and losses, net of tax, resulting from changes in the general level of
interest rates. These gains and losses are amortized into net
investment income utilizing grouped amortization schedules over the
expected remaining life of the investments sold. At December 31, 1996,
AVR is comprised of 68% for bonds, stocks, and short-term investments;
17% for mortgage loans on real estate; and 15% for real estate and
other invested assets. The IMR balance at December 31, 1996 and 1995
was $1,365 million and $1,163 million, respectively, and is recorded
in "Other liabilities". During 1996, 1995 and 1994, $327 million, $766
million and ($910) million, respectively, of net realized capital
gains (losses) were deferred and $126 million, $82 million and $102
million, respectively, was amortized and included in income.
H. Restricted assets and special deposits - Assets in the amounts of $941
million and $5,072 million at December 31, 1996 and 1995,
respectively, were on deposit with governmental authorities or
trustees as required by law. Assets valued at $2,994 million and
$3,121 million at December 31, 1996 and 1995, respectively, were
maintained as compensating balances or pledged as collateral for bank
loans and other financing agreements. Letter stock or other securities
restricted as to sale amounted to $720 million in 1996 and $354
million in 1995.
I. Loan backed and structured securities - A retrospective method is
employed to recalculate the values of the loan backed and structured
securities holdings with the exception of interest only bonds. Each
acquisition lot was reviewed to recalculate the effective yield. The
recalculated effective yield was used to derive a book value as if the
new yield were applied at the time of acquisition. Outstanding
principal
- 8 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
factors from the time of acquisition to adjustment date were used to
calculate the prepayment history for all applicable securities.
Conditional prepayment rates, computed with life to date factor
histories and weighted average maturities, were used to affect the
calculation of projected payments for pass through, interest only and
principal only security types. Interest only bond adjustments are
developed on a prospective basis with adjustments made for permanent
impairments if needed.
J. Securities lending is a program whereby the Company loans securities
to third parties, primarily major brokerage firms. As of December 31,
1996 and 1995, the estimated fair values of loaned securities were
$6,362 million and $5,939 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. The offsetting collateral
liability as of December 31, 1996 and 1995 is $4,813 million and
$3,625 million, respectively. Non-cash collateral is not reflected in
the Statements of Admitted Assets, Liabilities and Surplus.
5. EMPLOYEE BENEFIT PLANS
A. Pension plans - The Company has several defined benefit pension plans,
which cover substantially all of its employees. Benefits are generally
based on career average earnings and credited length of service. The
Company's funding policy for U.S. plans is to contribute annually the
amount necessary to satisfy the Internal Revenue Service contribution
guidelines.
Employee pension benefit plan status is as follows:
1996 1995
------- -------
(In Millions)
Actuarial present value of benefit obligation:
Vested benefit obligation $(3,878) $(3,270)
======= =======
Accumulated benefit obligation $(4,174) $(3,572)
======= =======
Projected benefit obligation $(4,989) $(4,330)
Plan assets at fair value 7,326 6,688
------- -------
Plan assets in excess of projected
benefit obligation 2,337 2,358
Unrecognized transition amount (769) (904)
Unrecognized prior service cost 356 199
Unrecognized net gain (916) (753)
------- -------
Prepaid pension cost $ 1,008 $ 900
======= =======
Plan assets consist primarily of equity securities, bonds, real estate
and short-term investments, of which $5,668 million and $4,788 million
are included in separate account assets and liabilities at December
31, 1996 and 1995, respectively.
The components of the net periodic pension benefit for 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Service cost $ 119 $ 110 $ 141
Interest cost 336 371 293
Actual return on assets (720) (1,249) 62
Net amortization and deferral 57 604 (633)
Net curtailment gains and special termination benefits 63 0 156
------ ------ ------
Net periodic pension benefit $ (145) $ (164) $ 19
====== ====== ======
</TABLE>
The net increase to surplus relating to the Company's pension plans is
$37 million, $30 million and $0 million in 1996, 1995 and 1994,
respectively, which considers the changes in the non-admitted prepaid
pension asset of $108 million, $134 million and ($19) million,
respectively.
The accounting assumptions used by the Company were:
AS OF SEPTEMBER 30,
------------------------
1996 1995 1994
------ ------ ------
Discount rate 7.75% 7.50% 8.50%
Rate of increase in compensation levels 4.50% 4.50% 5.50%
Expected long-term rate of return on assets 9.50% 9.00% 9.00%
The Company maintains non-qualified supplemental retirement plans
providing benefits that may not be paid from the Company's two
qualified plans since qualified plans have limits imposed by Section
415 and 401(a)(17) of the Code. One of these plans also provides
certain participants with a subsidized early retirement benefit.
- 9 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
B. Postretirement 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 these
benefits if they retire after age 55 with at least 10 years of
service.
Postretirement benefits are accounted for in accordance with
prescribed NAIC policy. The Company has elected to amortize its
transition obligation over 20 years. During 1996, 1995 and 1994,
funding of its postretirement benefit obligations totaled $35 million,
$47 million and $31 million, respectively.
The postretirement benefit plan status is as follows:
SEPTEMBER 30,
------------------
1996 1995
---- ----
(In Millions)
Accumulated postretirement benefit obligation for:
Retirees $(1,418) $(1,465)
Fully eligible active plan participants (35) (103)
Plan assets at fair value 1,341 1,309
------- -------
Funded status (112) (259)
Unrecognized transition amount 355 378
Unrecognized net gain (177) (19)
------- -------
Prepaid postretirement benefit cost $ 66 $ 100
======= =======
Plan assets consist of group and individual variable life insurance
policies, group life and health contracts and short-term investments,
of which $1,003 million and $990 million are included in the separate
account assets and liabilities at December 31, 1996 and 1995,
respectively.
Net periodic postretirement benefit cost for 1996, 1995 and 1994
includes the following components:
1996 1995 1994
----- ----- -----
(In Millions)
Service cost $ 24 $ 30 $ 36
Interest cost 115 117 107
Actual return on plan assets (104) (144) (98)
Amortization of transition obligation 22 22 23
Other 12 49 52
----- ----- -----
Net periodic postretirement benefit cost $ 69 $ 74 $ 120
===== ===== =====
The net reduction to surplus relating to the Company's postretirement
benefit plans is $35 million, $46 million, and $30 million in 1996,
1995 and 1994, respectively, which considers the changes in the
prepaid postretirement benefit cost of $34 million, $28 million and
$90 million in 1996 , 1995 and 1994, respectively.
The assumptions used for the postretirement benefit plan were:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.75% 7.50% 8.50%
Expected long-term rate of return on plan assets 9.00% 8.00% 9.00%
Rate of increase in compensation levels 4.50% 4.50% 5.50%
Health care cost trend rates 8.50-12.50% 8.90-13.30% 9.10-13.90%
Ultimate health care cost trend rate at 2006 5.00% 5.00% 6.00%
</TABLE>
A 1% increase in health care cost trend rates would increase the
September 30, 1996 accumulated postretirement benefit obligation and
service/interest costs by $115 million and $12 million, respectively.
C. Postemployment benefits - The Company accrues for postemployment
benefits primarily for life and health benefits provided to former or
inactive employees who are not retirees. The net accumulated liability
for these benefits at December 31, 1996 and 1995 was $99 million and
$96 million, respectively.
- 10 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following at December
31:
Short-term: 1996 1995
---- ----
(In Millions)
Notes payable to affiliate $ 99 $ 0
Current portion of long term
notes payable 11 128
---- ----
$110 $128
Long-Term: 1996 1995
---- ----
8.173% note due 2002 $249 $249
7.501% note due 1999 248 248
5.0819% note due 2004 56 66
12.00% note due 1999 0 16
Secured demand note
due 1998 100 100
---- ----
653 679
---- ----
Total principal repayments and accrued interest $763 $807
==== ====
Scheduled principal repayments as of December 31, 1996, are as
follows: $110 million in 1997, $100 million in 1998, $239 million in
1999, $0 in 2000, $0 in 2001 and $294 million thereafter.
7. SURPLUS
A. Capital notes - The Company issues Capital Notes that are subordinate
in right of payment to policy claims, prior claims and senior
indebtedness. A summary of the outstanding Capital Notes as of
December 31, 1996 is as follows:
PRINCIPAL CARRYING INTEREST MATURITY
ISSUE DATE (PAR) AMOUNT RATE DATE
- ---------- --------- -------- -------- --------
(In Millions)
April 28, 1993 $ 300 $ 299 6.875% April 15, 2003
July 1, 1995 350 340 8.300% July 1, 2025
July 1, 1995 250 246 7.650% July 1, 2007
July 15, 1995 100 100 8.100% July 15, 2015
------- -----
Total $ 1,000 $ 985
======= =====
B. Special surplus fund - In accordance with the requirements of various
states, a special surplus fund has been established for contingency
reserves of $1,268 million and $1,274 million as of December 31, 1996
and 1995, respectively.
C. Non-admitted assets - Non-admitted assets were $1,367 million and
$1,167 million as of December 31, 1996 and 1995, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available
information and reasonable valuation methodologies. Considerable judgment
is applied in interpreting data to develop the estimates of fair value.
Accordingly, such estimates presented may not be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values.
The following methods and assumptions were used in calculating the fair
values. (For all other financial instruments, the carrying value is a
reasonable estimate of fair value.)
Bonds and preferred stock - Fair values for bonds and preferred stock,
other than private placement securities, are based on quoted market
prices or estimates from independent pricing services. Fair values for
private placement securities are estimated using a discounted cash
flow model which considers the current market spreads between the U.S.
Treasury yield curve and corporate bond yield curve, adjusted for the
type of issue, its current credit quality and its remaining average
life. The fair value of certain non-performing private placement
securities is based on amounts provided by state regulatory
authorities.
Common stock - Fair value of unaffiliated common stock is based on
quoted market prices, where available, or prices provided by state
regulatory authorities.
- 11 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Mortgage loans on real estate - 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 and premium notes - The estimated fair value of policy
loans is calculated using a discounted cash flow model based upon
current U.S. Treasury rates and historical loan repayments.
Derivative financial instruments - The fair value of swap agreements
is estimated based on the present value of future cash flows under the
agreements discounted at the applicable zero coupon U.S. Treasury rate
and swap spread. The fair value of forwards, futures and options is
estimated based on market quotes for a transaction with similar terms.
The fair value of loan commitments is derived by comparing the
contractual future stream of fees with such fee streams adjusted to
reflect current market rates that would be applicable to instruments
of similar type, maturity and credit standing.
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. Carrying amounts are included in
"Future policy benefits and claims."
Notes payable and other borrowings - The estimated fair value of notes
payable is derived using discount rates based on the borrowing rates
currently available to the Company for debt with similar terms and
remaining maturities.
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
(In Millions)
FINANCIAL ASSETS:
<S> <C> <C> <C> <C>
Bonds $75,006 $77,826 $77,494 $83,910
Preferred stock 239 259 396 410
Common stock * 2,466 2,466 1,805 1,805
Mortgage loans on real estate 17,039 17,364 20,280 20,839
Policy loans and premium notes 6,023 5,942 6,208 6,452
Short-term investments 5,817 5,817 4,633 4,633
Cash 165 165 170 170
Assets held in separate accounts 57,797 57,797 53,903 53,903
Derivative financial instruments 9 16 15 64
FINANCIAL LIABILITIES:
Investment-type insurance
contracts 30,194 30,328 34,799 35,720
Notes payable and other borrowings 763 794 807 829
Liabilities related to separate accounts 57,436 57,436 53,256 53,256
Derivative financial instruments 60 63 94 108
</TABLE>
* Excludes investments in subsidiaries of $4,610 million and $4,328 million
at December 31, 1996 and 1995, respectively.
- 12 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
A. Derivative financial instruments - Derivatives include swaps,
forwards, futures, options and fixed-rate loan commitments subject to
market risk, all of which are used by the Company in the normal course
of business in activities other than trading. The Company does not
issue or hold derivatives for trading purposes. This classification is
based on management's intent at the time of contract inception and
throughout the life of the contract. The Company uses derivatives
primarily for asset/liability risk management and to reduce exposure
to interest rate, currency and other market risks. Of those
derivatives held at December 31,1996, 35% of the notional amounts
consisted of interest rate derivatives and 65% consisted of foreign
currency derivatives.
The tables below summarize the Company's outstanding positions on a
gross basis before netting pursuant to rights of offset, qualifying
master netting agreements with counterparties or collateral
arrangements at December 31:
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENTS
1996 1995
---- ----
(In Millions)
CARRYING ESTIMATED CARRYING ESTIMATED
NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
-------- ------ ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Swaps:
Assets $ 159 $ 1 $ 6 $ 418 $ (1) $ 32
Liabilities 479 50 53 371 76 79
Forwards:
Assets 453 8 8 235 13 17
Liabilities 980 9 9 1,074 13 13
Futures:
Assets 0 0 0 683 5 5
Liabilities 399 1 1 864 5 7
Options:
Assets 175 0 0 195 0 0
Liabilities 0 0 0 3 0 0
Loan Commitments:
Assets 164 0 2 122 (2) 10
Liabilities 9 0 0 532 0 9
------ ------ ------ ------ ------ ------
Total:
Assets $ 951 $ 9 $ 16 $1,653 $ 15 $ 64
====== ====== ====== ====== ====== ======
Liabilities $1,867 $ 60 $ 63 $2,844 $ 94 $ 108
====== ====== ====== ====== ====== ======
</TABLE>
B. Off-balance sheet credit-related instruments - During the normal
course of its business, the Company utilizes financial instruments
with off-balance sheet credit risk such as commitments, financial
guarantees and letters of credit. Commitments include variable rate
commitments to purchase and sell mortgage loans and the unfunded
portion of commitments to fund investments in private placement
securities. The Company also provides financial guarantees incidental
to other transactions and letters of credit that guarantee the
performance of customers to third parties. These credit-related
financial instruments have off-balance sheet credit risk because only
their origination fees, if any, and accruals for probable losses, if
any, are recognized until the obligation under the instrument is
fulfilled or expires. These instruments can extend for several years
and expirations are not concentrated in any period. The Company seeks
to control credit risk associated with these instruments by limiting
credit, maintaining collateral where customary and appropriate, and
performing other monitoring procedures.
The notional amount of these instruments, which represents the
Company's maximum exposure to credit loss from other parties'
non-performance, was $785 million and $1,254 million at December 31,
1996 and 1995, respectively. Because many of these amounts expire
without being advanced in whole or in part, the notional amounts do
not represent future cash flows.
The estimated fair value of these instruments, which represents the
Company's current exposure to credit loss from other parties'
non-performance, was $8 million and $56 million at December 31, 1996
and 1995, respectively.
10. RELATED PARTY TRANSACTIONS
A. Service agreements - The Company has entered into service agreements
with various subsidiaries. Under these agreements, the Company
furnishes services of officers and employees and provides supplies,
use of equipment, office space, and makes payment to
- 13 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
third parties for general expenses, state and local taxes. The
agreements obligate the subsidiaries to reimburse the Company for the
approximate cost of providing such services. The amounts receivable
from subsidiaries, reported in "Other assets" at December 31, 1996 and
1995, were $490 million and $509 million, respectively. The
subsidiaries also furnish similar services to the Company in
connection with such agreements. The amount payable to subsidiaries,
reported in "Other liabilities" at December 31, 1996 was $87 million.
There was no outstanding balance at December 31, 1995.
Certain of the Company's group health care subsidiaries provide health
insurance to certain employees of the Company. Enrollment contract
costs reported in "Other expenses" were $126 million, $111 million and
$104 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company purchases corporate owned life insurance policies from one
of its life insurance subsidiaries for certain employees. The premium
charged for these policies reported in "Other expenses" was $3
million, $12 million and $12 million for the years ended December 31,
1996, 1995 and 1994, respectively. The cash value associated with
these policies was $118 million and $102 million at December 31,
1996 and 1995, respectively.
Certain of the Company's subsidiaries perform services for the Company
in connection with the Company's obligations under investment advisory
or subadvisory agreements. The costs incurred in connection with
performing such services, primarily reported in "Other expenses," were
$145 million, $327 million and $342 million for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company also
provides these services to subsidiaries in connection with such
agreements. The investment advisory fees received from affiliates by
the Company, reported in "Other income" were $161 million, $92 million
and $110 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company borrows short-term funds from Prudential Funding
Corporation ("Funding"), a wholly owned subsidiary. The interest
expense for these borrowings was $131 million, $66 million and $21
million for the years ended December 31, 1996, 1995 and 1994,
respectively. The outstanding balance at December 31, 1996 was $99
million. There was no outstanding balance at December 31, 1995.
B. Net worth maintenance agreement - The Company has entered into a
support agreement with Funding under which it agrees to maintain
Funding's tangible net worth, including subordinated debt, at not less
than $1.00. As of December 31, 1996, the tangible net worth of Funding
was $44 million. Since the inception of the agreement, no support
payments have been required.
11. CONTINGENCIES
The Company is reviewing its obligations under certain managed care
arrangements for possible failure to comply with contractual and regulatory
requirements. It is the opinion of management that appropriate reserves
have been established in accordance with applicable accounting standards to
provide for appropriate reimbursements to customers.
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.
Twenty-six purported class actions and over 280 individual actions are
pending against the Company on behalf of those persons who purchased life
insurance policies allegedly because of deceptive sales practices engaged
in by the Company and its insurance agents in violation of state and
federal laws. The Company anticipates additional suits may be filed by
individuals who opted out of the class action settlement described below.
The sales practices alleged to have occurred are contrary to Company
policy. Some of these cases seek very substantial damages while others seek
unspecified compensatory, punitive and treble damages. The Company intends
to defend these cases vigorously.
A Multi-State Life Insurance Task Force (the "Task Force"), comprised of
insurance regulators from 29 states and the District of Columbia, was
created to conduct a review of sales and marketing practices throughout the
life insurance industry. As the largest life insurance company in the
United States, the Company was the initial focus of the Task Force
examination. On July 9, 1996, the Task Force released its report on the
Company's activities. In it, the Task Force found that some sales of life
insurance policies made by the Company were improper. The report criticizes
the Company's training, oversight, discipline and compliance programs
related to insurance sales. Based on these findings, the Task Force
recommended, and the Company agreed to, a series of fines allocated to all
50 states and the District of Columbia amounting to a total of $35 million.
In addition, the Task Force recommended a remediation program pursuant to
which the Company would offer relief to policyowners who purchased 10.7
million whole life insurance policies in the United States from the Company
from 1982 through 1995. In subsequent negotiations with several states, the
Company agreed to pay additional amounts aggregating approximately $30
million by way of fine, reimbursement of investigation expenses and costs
associated with outreach to residents of Florida and California.
On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in the class actions consolidated in a
Multi-District Litigation involving alleged improprieties in connection
with the Company's sale of whole life
- 14 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
insurance policies from 1982 through 1995. Pursuant to the proposed
settlement, the Company has agreed to provide certain enhancements and
changes to the remediation program previously accepted by the Multi-State
Task Force, including some additional remedies. In addition, the Company
agreed that a minimum cost of $410 million (which was recorded in the
Statement of Operations and Changes in Surplus) would be incurred in
providing remedies to policyowners under the program, and agreed to certain
other payments and guarantees. Under the terms of the guarantees, the
Company has agreed that the average cost per remedy will not be less than
$2,364 for up to 330,000 claims remedied. For claims remedied in excess of
330,000, the Company has not guaranteed an average cost per remedy. The
Company has also agreed to provide additional compensation to be
distributed by formula that will range in an aggregate amount from $50
million to $300 million depending on the total number of claims remedied.
The Company cannot predict how many claims ultimately will be remedied. The
Company has also recorded in the Statement of Operations and Changes in
Surplus, its estimate of the minimum administrative costs related to the
remediation program. As of March 5, 1997, all 50 states and the District of
Columbia have directed the Company to offer a remediation plan based on the
program accepted by the Task Force and containing many of the enhancements
of the class action settlement.
Also on October 28, 1996, the U.S. District Court of the District of New
Jersey, in which the Multi-District Litigation is pending, conditionally
certified a class for settlement purposes and scheduled a hearing on the
fairness, reasonableness and adequacy of the proposed settlement. This
hearing was held on February 24, 1997. On March 7, 1997, the Court
rendered its decision approving the settlement. The owners of approximately
23,000 policies have taken steps to exclude themselves from the class
action and are not bound by the settlement.
To date, the Company has mailed packages to 8.5 million policyowners
eligible for the remediation program, informing policyowners in all 50
states and the District of Columbia of their rights under the program. The
deadline for electing to participate in the Alternative Dispute Resolution
Process ("ADR") or Basic Claim Relief is June 1, 1997. Policyowners who
believe that they were misled can file a claim through the ADR.
Policyowners who do not believe they were misled, or who do not wish to
file a claim under the ADR, may choose from several options available under
Basic Claim Relief, such as preferred rate premium loans, or the purchase
of enhanced annuities, mutual fund shares or life insurance policies.
It is not possible on any reliable basis to estimate how many policyowners
will participate in the settlement. The cost of the settlement is dependent
upon complex and varying factors, including the number of policyowners that
participate in the settlement, the relief options chosen and the ultimate
dollar value of the settlement. The administrative costs to the Company of
remediation of policyowner claims are also subject to a number of complex
uncertainties in addition to the unknown quantity and cost of policyowner
claims. In light of the uncertainties attendant to these and other factors,
management is unable to make a reasonable estimate of the ultimate cost of
the remediation program to the Company.
A purported class action was brought against the Company and certain
subsidiaries alleging common law fraud, negligent misrepresentation and
violations of the New Jersey RICO statute arising out of the plaintiffs'
purchase of certain subordinated mortgage pass-through securities and
seeking compensatory and punitive damages and injunctive relief. The
Company will deny the substantive allegations of the complaint in its
answer and will vigorously defend the suit. The case is at a preliminary
stage, and management is not now in a position to predict the outcome or
effect of the litigation.
Litigation is subject to many uncertainties, and given the complexity and
scope of these suits, their outcome cannot be predicted. It is also not
possible to predict the likely results of any regulatory inquiries or their
effect on litigation which might be initiated in response to widespread
media coverage of these matters. Accordingly, management is unable to make
a meaningful estimate of the amount or range of loss that could result from
an unfavorable outcome of all pending litigation and the regulatory
inquiries. It is possible that the results of operations or the cash flow
of the Company, in particular quarterly or annual periods, could be
materially affected by an ultimate unfavorable outcome of certain pending
litigation and regulatory matters. Management believes, however, that the
ultimate outcome of all pending litigation and regulatory matters referred
to above should not have a material adverse effect on the Company's
financial position, after consideration of applicable reserves.
In 1993, Prudential Securities, Inc. ("PSI"), a subsidiary of 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. The agreement also
required PSI to take measures to enhance the adequacy of its sales
practices compliance controls.
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.
- 15 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Company has entered into a reinsurance agreement with The Prudential
Life Insurance Company, Ltd., a wholly owned subsidiary, under which it has
agreed to reinsure certain individual life insurance policies through a
yearly renewable term contract. The reinsurance assumed premiums and
reserves for 1996 were $27 million and $17 million, respectively.
The Company as a result of the sale of Prudential Reinsurance Inc. (a PRUCO
Inc. subsidiary), agreed to guarantee up to $775 million of Gibraltar
Casualty Company (a Prudential subsidiary) obligations with respect to a
Stop Loss Agreement and PRUCO Inc.'s (a Prudential subsidiary) payment
obligations under an Indemnity Agreement, subject to maximum aggregate
payments of $400 million. The maximum aggregate payments under the
Prudential Guarantee of the Gibraltar Casualty Company obligations will be
reduced in certain circumstances to take account of payments made and
collateral provided in respect of the guaranteed obligations. The Stop Loss
Agreement is intended to mitigate the impact on Prudential Reinsurance Inc.
of adverse development of loss reserves, as of June 30, 1995, of up to $375
million of the first $400 million of adverse development. The Company has
recorded a loss reserve of $175 million as of December 31, 1996.
Gibraltar Casualty Company and other property and casualty insurance
subsidiaries receive claims under expired contracts which assert alleged
injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances. The liabilities for such claims
cannot be estimated by traditional reserving techniques. As a result of
judicial decisions and legislative actions, the coverage afforded under
these contracts may be expanded beyond their original terms. Extensive
litigation between insurers and insureds over these issues continues and
the outcome is not predictable. In establishing the unpaid claim reserves
for these losses, management considered the available information and
established these reserves in accordance with applicable accounting
standards. 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.
The Company and a number of other insurers (the "Consortium") entered into
a Reinsurance and Participation Agreement ("the Agreement") with MBL Life
Assurance Corporation ("MBLLAC") and others, under which the Company and
the other insurers agreed to reinsure certain payments to be made to
contractholders by MBLLAC in connection with the plan of rehabilitation of
Mutual Benefit Life Insurance Company. Under the Agreement, the Consortium,
subject to certain terms and conditions, will indemnify MBLLAC for the
ultimate net loss sustained by MBLLAC on each contract subject to the
Agreement. The ultimate net loss represents the amount by which the
aggregate required payments exceed the fair market value of the assets
supporting the covered contracts at the time such payments are due. The
Company's share of any net loss is 30.55%. The Company has determined that
it does not expect to make any payments to MBLLAC under the agreement. The
Company concluded this after testing a wide range of potentially adverse
scenarios during the rehabilitation period for MBLLAC.
******
- 16 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Policyholders of
The Prudential Insurance Company of America
We have audited the accompanying statement of admitted assets, liabilities and
surplus (statutory basis) of The Prudential Insurance Company of America as of
December 31, 1996, and the related statements of operations and changes in
surplus (statutory basis), and of cash flows (statutory basis) for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the New Jersey Department
of Insurance, which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matters referred to in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of The Prudential Insurance Company of America at December
31, 1996, and the results of its operations and its cash flows for the year then
ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and surplus of The
Prudential Insurance Company of America at December 31, 1996, and the results of
its operations and its cash flows for the year then ended, on the basis of
accounting described in Note 1.
/s/ PRICE WATERHOUSE, LLP
New York, New York
March 10, 1997
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying statement of admitted assets, liabilities and
surplus--statutory basis of The Prudential Insurance Company of America as of
December 31, 1995, and the related statements of operations and changes in
surplus--statutory basis, and cash flows--statutory basis for each of the two
years in the period ended December 31, 1995. 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 report dated March 1, 1996, we expressed an opinion that the 1995 and
1994 financial statements, prepared using accounting practices prescribed and
permitted by the New Jersey Department of Insurance, presented fairly, in all
material respects, the financial position of The Prudential Insurance Company of
America as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. As described in Note 1 to these financial statements,
pursuant to the pronouncements of the Financial Accounting Standards Board, the
1995 and 1994 financial statements of The Prudential Insurance Company of
America, prepared using accounting practices prescribed or permitted by
insurance regulators (statutory financial statements) are no longer considered
presentations in conformity with generally accepted accounting principles. The
effects on the financial statements of the differences between the statutory
basis of accounting and generally accepted accounting principles are material
and are also described in Note 1. Accordingly, our present opinion on the
presentation of the 1995 and 1994 financial statements in accordance with
generally accepted accounting principles, as presented herein, is different from
that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the admitted assets,
liabilities and surplus of the Company as of December 31, 1995, and its
operations, changes in surplus and its cash flows for each of the two years in
the period ended December 31, 1995.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities and surplus
of The Prudential Insurance Company of America as of December 31, 1995, and the
results of its operations, changes in surplus and its cash flows for each of the
two years in the period then ended, on the basis of accounting described in Note
1.
Also, as described in Note 1 to the financial statements, these financial
statements were prepared on an unconsolidated statutory basis of accounting,
which differs from the 1995 and 1994 financial statements prepared for general
distribution on a consolidated statutory basis of accounting, both of which
differ from generally accepted accounting principles. The financial statements
for 1995 and 1994 have been restated on an unconsolidated statutory basis of
accounting adopted in 1996 for purposes of general distribution. Further, these
financial statements differ from the previously issued unconsolidated statutory
financial statements because certain permitted financial statement presentation
practices are no longer being used.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 1, 1996, except for Note 1A,
as to which the date is March 10, 1997
- 18 -
<PAGE>
QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial Statements of The Prudential Qualified Individual Variable
Contract Account (Registrant) consisting of the Statements of Net Assets,
as of December 31, 1996; the Statements of Operations for the periods
ended December 31, 1996; the Statements of Changes in Net Assets for the
periods ended December 31, 1996 and 1995; and the Notes relating thereto
appear in the statement of additional information (Part B of the
Registration Statement).
(2) Statutory Financial Statements of The Prudential Insurance Company of
America (Depositor) consisting of the Statements of Admitted Assets,
Liabilities and Surplus (Statutory Basis) as of December 31, 1996 and
1995; Statements of Operations and Changes in Surplus (Statutory Basis)
and Statements of Cash Flows (Statutory Basis) for the years ended
December 31, 1996, 1995 and 1994; and the Notes relating thereto appear in
the statement of additional information (Part B of the Registrant
Statement).
(b) EXHIBITS
(1) Resolution of the Board of Directors of The Prudential Insurance Company
of America establishing The Prudential Qualified Individual Variable
Contract Account. (Note 2)
(2) Agreements for custody of securities and similar investments--Note
Applicable.
(3) (a) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and The Prudential Insurance Company of America
(Depositor). (Note 3)
(b) Proposed form of Selected Broker Agreement between Pruco Securities
Corporation and brokers with respect to sale of the Contracts. (Note
3)
(4) (a) Qualified Individual Variable Annuity Contract (Form WVQ-83). (Note
3)
(b) Special Page One to the Contract (Form WVQ-83) for N.Y. state
issues. (Note 3)
(c) Endorsement WVQ-84 to the Contract (Forms WVQ-83, QVIP-84 and
VIP-86) for use in the IRA/SEP markets. (Note 6)
(d) Endorsement WVQ 3 to the Contract (Forms WVQ-83, QVIP-84 and VIP-86)
for use in the TDA market. (Note 3)
(e) Endorsement WVQ 4 to the Contract (Forms WVQ-83, QVIP-84 and VIP-86)
for use in the CORP/HR10 Non-Trusteed markets. (Note 3)
(f) Endorsement WVQ5 to the Contract (Forms WVQ-83, QVIP-84 and VIP-86)
for use in the CORP.HR10 Money Purchase and Define Benefit plans.
(Note 3)
(g) Texas ORP Supplement. (Note 3)
(h) Endorsement WVQ 7-83 to the Contract (Form WVQ-83) for use in New
Jersey issues. (Note 4)
(i) Special Page Six (WVQ-83) (OKLA) to the Contract (Form WVQ-83) for
use in Oklahoma. (Note 4)
(j) Special Page Six (WVQ-83) (CAL) to the Contract (Form WVQ-83) for
use in California. (Note 4)
(k) Special Page 8 (WVQ-83) (N.Y.) to the Contract (Form WVQ-83) for use
in New York issues. (Note 5)
(l) Endorsement WVQ 8-83 to the Contract (Form WVQ-83) for use in
Tennessee issues. (Note 5)
(m) Disclosure Notice WVQ 9-83 to the Contract (Forms WVQ-83, QVIP 84
and VIP-86) for use in the IRA market. (Note 5)
(n) Endorsement for WVQ 10-83 to the Contract (Forms WVQ-83 and QVIP-84)
for use in Texas issues. (Note 5)
(o) Endorsement WVA 5-83 to the Contract (Form WVQ-83) for use in Texas
and Pennsylvania issue. (Note 5)
(p) Notice to the Contract (Forms WVQ-83 and QVIP-84) for use in
Virginia issues. (Note 5)
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<PAGE>
(q) Endorsement WVA 6-83 to the Contract (Form WVQ-83) for use in
California issues. (Note 5)
(r) Endorsement COMB 84889-83 to the Contract (Form WVQ-83) for use in
New York issues. (Note 5)
(s) Endorsement COMB 84890-83 to the Contract (Form WVQ-83) for use in
the District of Columbia and in all states except New York. (Note 5)
(t) Qualified Individual Variable Annuity Contract (Form QVIP-84). (Note
7)
(u) Special Page One to the Contract (Form QVIP-84) for NY issues (Note
7)
(v) Special Page Seventeen (QVIP-84) (NY) to the Contract (Form QVIP-84)
for NY issues. (Note 7)
(w) Special Page One (QVIP-84)(OKLA) to the Contract (Form QVIP084) for
use in Oklahoma issues.(Note 7)
(x) Special Page Sixteen (QVIP-84) (OKLA) to the Contract (Form QVIP-84)
for use in Oklahoma issues. (Note 7)
(y) Special Page Seventeen (QVIP-84) (OKLA) to the Contract (Form
QVIP-84) for use in Oklahoma issues (Note 7)
(z) Special Page One (QVIP-84) (Cal) to the Contract (Form QVIP-84) for
use in California issues.(Note 7)
(aa) Special Page Sixteen (QVIP-84) (CAL) to the Contract (Form QVIP-84)
for use in California issues.(Note 7)
(bb) Special Page Seventeen (QVIP-84) (CAL) to the Contract (Form
QVIP-84) for use in California issues. (Note 7)
(cc) Endorsement VIP 3-84 to the Contract (Form QVIP-84) for use in
California issues. (Note 6)
(dd) Endorsement WVQ 3-85 to the Contract (Form WVQ-83) for use in all
states so that the Contract meets Internal Revenue Code Section
72(s) requirements for an annuity. (Note 8)
(ee) Individual Variable Annuity Contract (Form VIP-86). (Note 10)
(ff) Individual Variable Annuity Contract (Form VIP-86) revised. (Note
11)
(gg) Endorsement Form VIP 500-86 which makes the Contract qualified.
(Note 11)
(hh) Special Jacket VIP-86 MN to the VIP-86 Contract for use in Minnesota
issues. (Note 11)
(ii) Special Jacket VIP-86 Y to the VIP-86 Contract for use in New York
issues. (Note 11)
(jj) Special Contract Data Page 3 (VIP-86) (MN) to the VIP-86 Contract
for use in Minnesota issues.(Note 11)
(kk) Special Page 7 (VIP-86) Y to the VIP-86 Contract for use in New York
issues. (Note 11)
(ll) Special Page 7 (VIP-86) (OK) to the VIP-86 Contract for use in
Oklahoma issues. (Note 11)
(mm) Special Page 7 (VIP-86) (SC) to the VIP-86 Contract for use in South
Carolina issues. (Note 11)
(nn) Special Page 8 (VIP-86) (OK) to the VIP-86 Contract for use in
Oklahoma issues. (Note 11)
(oo) Special Page 11 (VIP-86) (WA) to the VIP-86 Contract for use in
Washington issues (Note 11)
(pp) Special Page 11 (VIP-86) (SC) to the VIP-86 Contract for use in
South Carolina issues. (Note 11)
(qq) Special Page 11 (VIP-86) (Y) to the VIP-86 Contract for use in New
York issues. (Note 11)
(rr) Special Page 11 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(ss) Special Page 12 (VIP-86) (SC) to the VIP-86 Contract for use in
South Carolina and Washington issues. (Note 11)
(tt) Special Page 12 (VIP-86) (Y) to the VIP Contract for use in New York
issues. (Note 11)
(uu) Special Page 12 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(vv) Special Page 13 (VI)-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
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<PAGE>
(ww) Special Page 14 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(xx) Special Back Jacket Page 18 (VIP-86) (MN) to the VIP-86 Contract for
use in Minnesota issues.(Note 11)
(yy) Special Back Jacket Page 18 (VIP-86) (Y) to the VIP-86 Contract for
use in New York issues. (Note 11)
(zz) Special Jacket VIP-86-P to the VIP-86 Contract for use in
Pennsylvania issues. (Note 12)
(aaa) Special Contract Data Page 3 (VIP-86) (MA) to the VIP-86 Contract
for use in Massachusetts issues. (Note 12)
(bbb) Special Page 7 (VIP-86) (PA) to the VIP-86 Contract for use in
Pennsylvania issues. (Note 12)
(ccc) Special Page 13 (VIP-86) (MA) to the VIP-86 Contract for use in
Massachusetts issues. (Note 12)
(ddd) Special Blank Page 17 (VIP-86) to the VIP-86 Contract for use in
Pennsylvania issues. (Note 12)
(eee) Special Back Jacket Page 18 VIP-86-P to the VIP-86 Contract for use
in Pennsylvania issues. (Note 12)
(fff) Endorsement VIP 501-86 to the VIP-86 Contract for use in all states
except Delaware, Georgia, Massachusetts, North Dakota, New York,
Oregon, Pennsylvania and Texas. (Note 12)
(ggg) Endorsement COMB 84890-83 to the VIP-86 Contract for use in Montana.
(Note 14)
(hhh) Endorsement Certification PLI 254-86 to the VIP-86 Contract for use
in Pennsylvania. (Note 12)
(iii) Endorsement PLI 288-88 to the VIP-86 Contract. (Note 14)
(jjj) Endorsement COMB 84890-88 to the VIP-86 Contract. (Note 14)
(kkk) Waiver of Withdrawal Charges rider ORD 88753-92 to the VIP Contract
(at issue). (Note 16)
(lll) Waiver of Withdrawal Charges rider ORD 88754-92 to the VIP-86
Contract (after issue). (Note 16)
(mmm) Spousal Continuance Rider ORD 89011-93. (Note 17)
(5) Application for Qualified Individual Variable Annuity Contract:
(a) Application Form VAQ 201 ED 07/83 for Qualified Individual Variable
Annuity Contract (Forms WVQ-83 and QVIP-84). (Note 5)
(b) Revision of Application Form, VAQ 201 Ed 5/86. (Note 9)
(c) Revised Application Form VAQ 201 Ed 9/86. (Note 10)
(d) Revised Application Form VAQ 201 Ed 11/86. (Note 12)
(e) Application for an Annuity contract ORD 87348-92. (Note 17)
(f) Supplement to the Annuity application ORD 87454-92. (Note 17)
(6) (a) Charter of The Prudential Insurance Company of America, as amended
November 14, 1995. (Note 15)
(b) By-laws of The Prudential Insurance Company of America, as amended
April 8, 1997. (Note 19)
(7) Contract of reinsurance in connection with variable annuity contract--Not
Applicable.
(8) Other material contracts performed in whole or in part after the date the
registration statement is filed:
(a) Purchase Agreement between The Prudential Series Fund, Inc. and The
Prudential Insurance Company of America. (Note 3)
(9) Opinion of Counsel and consent to its use as to legality of the securities
being registered. (Note 20)
(10) Written consent of Price Waterhouse, LLP, independent auditors. (Note 1)
(11) All financial statements omitted from Item 23, Financial Statements--Not
Applicable.
(12) Agreements in consideration for providing initial capital between or among
Registrant, Depositor, Underwriter, or initial contract owners---Not
Applicable.
(13) Schedule of Performance Computations. (Note 1)
C-3
<PAGE>
(14) Powers of Attorney.
(a) F. Agnew, F. Becker, M. Berkowitz, J. Cullen, C. Davis, R. Enrico,
A. Gilmour, W. Gray, M. Grier,J. Hanson, C. Horner, B. Malkiel, A.
Ryan, C. Sitter, D. Staheli, R. Thomson, J. Unruh, P. Vagelos,S. Van
Ness, P. Volcker, J. Williams (Note 18)
(b) Glen H. Hiner (Note 19)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Registrant's Form N-8B-2, filed
December 15, 1982.
(Note 3) Incorporated by reference to Pre-Effective Amendment No. 2 to
this Registration Statement, filed March 10, 1983.
(Note 4) Incorporated by reference to Pre-Effective Amendment No. 3 to
this Registration Statement, filed April 27, 1983.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 1 to
this Registration Statement, filed December 8, 1983.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 2 to
this Registration Statement, filed March 22, 1984.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 3 to
this Registration Statement, filed April 27, 1984.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 4 to
this Registration Statement, filed April 30, 1985.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 6 to
this Registration Statement filed April 30, 1986.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 7 to
this Registration Statement, filed July 9, 1986.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 8 to
this Registration Statement, filed October 23, 1986.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 10 to
this Registration Statement, filed April 27, 1987.
(Note 13) Incorporated by reference to Post-Effective Amendment No. 4 to
Form S-6, Registration No. 33-20000, filed March 2, 1990, on behalf
of The Prudential Variable Appreciable Account.
(Note 14) Incorporated by reference to Post-Effective Amendment No. 13 to
this Registration Statement, filed March 3, 1989.
(Note 15) Incorporated by reference to Post-Effective Amendment No. 9 to
Form S-1, Registration No. 33-20083, filed April 9, 1997 on behalf
of The Prudential Variable Contract Real Property Account.
(Note 16) Incorporated by reference to Post-Effective Amendment No. 19 to
the Registration Statement, filed April 28, 1993.
(Note 17) Incorporated by reference to Post-Effective Amendment No. 20 to
Form N-4, Registration No. 2-81318, filed April 28, 1994.
(Note 18) Incorporated by reference to Pre-Effective Amendment No. 1 to
Form S-6, Registration No. 333-01031, filed August 22, 1996, on
behalf of the Prudential Variable Contract Account GI-2.
(Note 19) Incorporated by reference to Post-Effective Amendment No. 12 to
Form N-4, Registration No. 33-25434, filed on or about April 25,
1997 on behalf of the Prudential Individual Variable Contract
Account.
(Note 20) Incorporated by reference to Post-Effective Amendment No. 23 to
this Registration Statement filed May 1, 1996 and to the Rule 24f-2
filing for this Registration Statement for fiscal year 1995 filed
February 29, 1996.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Incorporated by reference to The Prudential Qualified Individual Variable
Contract Account prospectus under "Directors and Officers" contained in Part A
of this Registration Statement.
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ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Prudential Insurance Company of America ("Prudential") is a mutual
life insurance company organized under the laws of New Jersey. The subsidiaries
of Prudential are listed on the Organization Chart set forth on the following
pages.
Prudential may be deemed to control The Prudential Series Fund, Inc., a
Maryland corporation which is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, all the shares of
which are held by Prudential and the following separate accounts which are
registered as unit investment trusts under the Investment Company Act of 1940:
The Prudential Variable Appreciable Account, The Prudential Individual Variable
Contract Account, The Prudential Qualified Individual Variable Contract Account
(Registrant), The Prudential Variable Contract Account-24 (separate accounts of
The Prudential); the Pruco Life PRUvider Variable Appreciable Account, the Pruco
Life Variable Universal Account, the Pruco Life Variable Insurance Account, the
Pruco Life Variable Appreciable Account, the Pruco Life Single Premium Variable
Life Account, the Pruco Life Flexible Premium Variable Annuity Account, the
Pruco Life Single Premium Variable Annuity Account (separate account of Pruco
Life Insurance Company ("Pruco Life")) the Pruco Life of New Jersey Variable
Insurance Account, the Pruco Life of New Jersey Variable Appreciable Account,the
Pruco Life of New Jersey Single Premium Variable Life Account,and the Pruco Life
of New Jersey Single Premium Variable Annuity Account (separate accounts of
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey")). Pruco
Life, a corporation organized under the laws of Arizona, is a direct
wholly-owned subsidiary of Prudential. Pruco Life of New Jersey, a corporation
organized under the laws of New Jersey, is a direct wholly-owned subsidiary of
Pruco Life, and an indirect wholly-owned subsidiary of Prudential.
Prudential holds all of the shares of Prudential's Gibraltar Fund, Inc., a
Maryland corporation, in three of its separate accounts. Each of these separate
accounts is a unit investment trust registered under the Investment Company Act
of 1940. Prudential's Gibraltar Fund, Inc. is registered as an open-end,
diversified, management investment company under the Investment Company Act of
1940.
In addition, Prudential may also be deemed to be under common control with
The Prudential Variable Contract Account--2, The Prudential Variable Contract
Account--10, and The Prudential Variable Contract Account--11, separate account
of Prudential, all of which are registered as open-end, diversified, management
investment companies under the Investment Company Act of 1940.
The subsidiaries of Prudential and short descriptions of each are listed
under item 25 of Post-Effective Amendment No. 32 to the Form N-1 A Registration
Statement for The Prudential Series Fund, lnc., RegistrationNo. 2-80896, filed
February 28, 1997, the text of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 25, 1997 there were 288,882 contract owners of qualified
Contracts by the Registrant.
ITEM 28. INDEMNIFICATION
The Prudential Directors' and Officers' Liability and Corporation
Reimbursement Insurance program, purchased by The Prudential from Aetna Casualty
& Surety Company, CNA Insurance Companies, 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 reimbursement for "Loss" (as
defined in the policies) which the Company pays as indemnification to its
directors or officers resulting from any claim for any actual or alleged act,
error, misstatement, misleading statement, omission, or breach of duty by
persons in the discharge of their duties in their capacities as directors or
officers of Prudential, any of its subsidiaries, or certain investment companies
affiliated with 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 deference 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 uninsurable 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, dishonest or fraudulent acts or omissions or the willful
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<PAGE>
violation of any law by a director or officer, (2) claims based on or
attributable to directors or officers gaining personal profit or advantage to
which they were not legally entitled, and (3) 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 of 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 Prudential, can
be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of
Prudential's by-law 26, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 1.A.(6)(b) of Post-Effective
Amendment No. 1 to Form S-6, Registration No. 33-61079, filed April 25, 1996, on
behalf of The Prudential Variable Appreciable Account.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant or 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 it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Pruco Securities Corporation also acts as principal underwriter for the
Pruco Life PRUvider Variable Appreciable Account, the Pruco Life Variable
Universal Account, the Pruco Life Variable Insurance Account, the Pruco
Life Variable Appreciable Account, the Pruco Life Flexible Variable
Annuity Account, the Pruco Life Single Premium Variable Life Account, The
Pruco Life Single Premium Variable Annuity Account, the Pruco Life of New
Jersey Variable Insurance Account, the Pruco Life of New Jersey Variable
Appreciable Account, The Pruco Life of New Jersey Single Premium Variable
Life Account, The Pruco Life of New Jersey Single Premium Variable Annuity
Account, The Prudential Variable Appreciable Account. The Prudential
Individual Variable Contract Account, the Prudential Annuity Plan Account,
the Prudential Investment Plan Account, the Prudential Annuity Plan
Account--2, Prudential's Gibraltar Fund, and The Prudential Series Fund,
Inc.
(b) Incorporated by Reference to item 29(b) of Post-Effective Amendment No.11
to Form N-4, RegistrationNo. 33-25434, filed April 25, 1996, on behalf of
The Prudential Individual Variable Contract Account.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by
Section 31 (a) of the 1940 Act and the rules promulgated thereunder are
maintained by the Registrant through The Prudential Insurance Company of
America, Prudential Plaza, Newark, New Jersey 07102-3777.
ITEM 31. MANAGEMENT SERVICES
Summary of any contract not discussed in Part A or Part B of the
Registration Statement under which management-related services are provided to
the Registrant--Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post-effective amendment to this
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 for so long as payments under the variable annuity
contracts may be accepted.
C-6
<PAGE>
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a statement of
additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a non-action letter issued by the
Chief of the Office of Insurance Products and Legal Compliance of the
Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988.
(e) The Prudential Insurance Company of America ("Prudential") hereby
represents that the fees and charges deducted under the Contract, in the
aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred and the risks assumed by Prudential.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent
Amendment to the Registration Statement which included a prospectus and has
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal hereunto affixed and attested, all in
the city of Newark and the State of New Jersey, on this 25th day of April 1997.
(Seal) The Prudential Qualified Individual Variable Contract Account
(Registrant)
By: The Prudential Insurance Company of America
(Depositor)
Attest: /s/ Thomas C. Castano *By: /s/ Esther H. Milnes
----------------------------- -------------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary Vice President and Actuary
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 24 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
Signature and Title
-------------------
/s/ * April 25, 1997
- -------------------------------------
Arthur F. Ryan
Chairman of the Board, President,
and Chief Executive Officer
/s/ *
- -------------------------------------
Franklin E. Agnew
Director
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------- ------------------------------
Mark G. Grier Thomas C. Castano
Chief Financial Officer (Attorney-in-Fact)
/s/ *
- -------------------------------------
Franklin K. Becker
Director
/s/ *
- -------------------------------------
James G. Cullen
Director
/s/ *
- -------------------------------------
Carolyne K. Davis
Director
C-8
<PAGE>
Signature and Title
-------------------
/s/ * April 25, 1997
- -------------------------------------
Roger A. Enrico
Director
/s/ *
- -------------------------------------
Allan D. Gilmour
Director
/s/ *
- -------------------------------------
William H. Gray, III
Director
/s/ *
- -------------------------------------
Jon F. Hanson
Director
/s/ *
- -------------------------------------
Glen H. Hiner, Jr.
Director
/s/ *
- -------------------------------------
Constance J. Horner
Director
*By: /s/ Thomas C. Castano
- ------------------------------------- ------------------------------
Gaynor N. Kelley Thomas C. Castano
Director
/s/ *
- -------------------------------------
Burton G. Malkiel
Director
- -------------------------------------
Ida F.S. Schmertz
Director
/s/ *
- -------------------------------------
Charles R. Sitter
Director
/s/ *
- -------------------------------------
Donald L. Staheli
Director
/s/ *
- -------------------------------------
Richard M. Thomson
Director
/s/ *
- -------------------------------------
James A. Unruh
Director
/s/ *
- -------------------------------------
P. Roy Vagelos, M.D.
Director
C-9
<PAGE>
Signature and Title
-------------------
/s/ * April 25, 1997
- -------------------------------------
Stanley C. Van Ness
Director
/s/ *
- -------------------------------------
Paul A. Volcker
Director
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------- ------------------------------
Joseph H. Williams Thomas C. Castano
Director
C-10
<PAGE>
EXHIBIT INDEX
(10)(a) Written consent of Price Waterhouse, LLP,
independent accountants ............................... Page C-
(10)(b) Written Consent of Deloitte & Touche LLP,
independent auditors .................................. Page C-
(13) Schedule of Performance Computations. .................... Page C-
C-11
CONSENT OF INEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 24 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated
March 31, 1997, relating to the financial statements of Prudential Qualified
Individual Variable Contract Account, which appears in such Statement of
Additional Information.
We also consent to the use in the Statement of Additional Information
constituting part of this Registration Statement of our report dated March 10,
1997, relating to the statutory financial statements of Prudential Insurance
Company of America, which appears in such Statement of Additional Information.
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 24, 1997
VIP/QVIP - MMKT SUBACCOUNT YIELD
MMKT
UNIT VALUE
Wed. 12/25/96 2.00678
Thur. 12/26/96 2.00700
Fri. 12/27/96 2.00765
Sat. 12/28/96 2.00765
Sun. 12/29/96 2.00765
Mon. 12/30/96 2.00787
Tue. 12/31/96 2.00831
--------------
YIELD 0.0704875% * (365/7) = 3.6754%
EFFECTIVE YIELD ( 1.000704875 ^(365/7))-1 = 3.7425%
STEP 1 2.00678
------- = 0.0002006980698
$9,999
$30.00
STEP 2 ------ = 0.082191780821918
365 x 7 days
-----------------
0.575342465753425
STEP 3 = 1*2 0.000115470122355
STEP 4 = 12/31 UV 2.00831
- 12/25 UV 2.00678
------------------
0.00153
STEP 5 = 4-3 0.0014145299
STEP 6 = 5/BOP UV 0.0014145299
--------------- = 0.00070487541
2.00678
STEP 7 = 6* (365/7) 0.036754
STEP 8 = 7*100 3.67542
<PAGE>
VIP/QVIP-MMKT SUBACCOUNT YIELD
MMKT
UNIT VALUE
Wed. 12/25/96 2.00678
Thur.12/26/96 2.00700
Fri. 12/27/96 2.00765
Sat. 12/28/96 2.00765
Sun. 12/29/96 2.00765
Mon. 12/30/96 2.00787
Tue. 12/31/96 2.00831
==========
<PAGE>
UVDATE COMPANY PRODUCT PORTFOLIO UNITVAL
- ------ ------- ------- --------- -------
961224 PRU VIP MMKT 2.00678
961226 PRU VIP MMKT 2.00700
961227 PRU VIP MMKT 2.00765
961230 PRU VIP MMKT 2.00787
961231 PRU VIP MMKT 2.00831
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
VIP/QVIP 31-Dec-96 SAPDU 1 TABLE 1
ASSUMING NO LOAD
1YR 5YR 10YR INCPT DATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIBOND 2.85% 6.02% 6.86% 6/83
GVTINC 0.70% 5.11% N/A 5/89
CONS 10.99% 7.87% 8.39% 6/83
FLXMGD 11.99% 9.60% 9.81% 5/83
HIYLD 9.76% 10.72% N/A 2/87
STIX 20.81% 13.17% N/A 10/87
EQINC 19.99% 13.53% N/A 2/88
EQUITY 16.81% 15.72% 13.60% 6/83
PRUJEN 12.75% N/A N/A 5/95
SMCAP 18.05% N/A N/A 5/95
GLOBAL 17.97% 11.17% N/A 5/89
NATR 29.02% 14.74% N/A 5/88
RPA 4.11% 3.72% N/A 5/88
TOTAL 175.81% 111.38% 38.66% 151.64%
- ----------------------------------------------------------------------------------------------------------------------------------
CHECK ABOVE 179.50% 114.22% 43.07% 156.70%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
VIP/QVIP 31-Dec-96 SAPDU 1 TABLE 2
ASSUMING CHARGES
1YR 5YR 10YR INCPT DATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIBOND -3.43% 5.60% 6.86% 6/83
GVTINC -5.59% 4.68% N/A 5/89
CONS 4.77% 7.49% 8.39% 6/83
FLXMGD 5.77% 9.25% 9.81% 5/83
HIYLD 3.53% 10.39% N/A 2/87
STIX 14.66% 12.87% N/A 10/87
EQINC 13.83% 13.24% N/A 2/88
EQUITY 10.63% 15.45% 13.60% 6/83
PRUJEN 6.54% N/A N/A 5/95
SMCAP 11.88% N/A N/A 5/95
GLOBAL 11.80% 10.84% N/A 5/89
NATR 22.92% 14.47% N/A 5/88
RPA -2.16% 3.26% N/A 5/88
TOTAL 95.14% 107.54% 38.66% 145.14%
- ----------------------------------------------------------------------------------------------------------------------------------
CHECK ABOVE 92.56% 109.90% 43.07% 150.20%
</TABLE>
<TABLE>
<CAPTION>
VIP/QVIP 31-Dec-96 SAPDU 1 TABLE 3
ASSUMING NO LOAD - CUMULATIVE
1YR 5YR 10YR INCPT DATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIBOND 2.85% 33.92% 94.16% 6/83
GVTINC 0.70% 28.31% N/A 5/89
CONS 10.99% 46.05% 123.87% 6/83
FLXMGD 11.99% 58.15% 154.84% 5/83
HIYLD 9.76% 66.41% N/A 2/87
STIX 20.81% 85.63% N/A 10/87
EQINC 19.99% 88.62% N/A 2/88
EQUITY 16.81% 107.51% 257.82% 6/83
PRUJEN 12.75% N/A N/A 5/95
SMCAP 18.05% N/A N/A 5/95
GLOBAL 17.97% 69.82% N/A 5/89
NATR 29.02% 98.91% N/A 5/88
RPA 4.11% 20.02% N/A 5/88
TOTAL 175.81% 703.36% 630.69% 2160.53%
- ----------------------------------------------------------------------------------------------------------------------------------
CHECK ABOVE 92.56%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED RATES OF RETURN 30/9999*1000 = $3.00
AVG POLICY SIZE 1000
VIP/QVIP DIBOND EQUITY FLXMGD CONS EQINC
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5 YR RATE OF RETURN
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 5.00
'91(OR INCEPT) TO '92 ROR 5.90% 12.81% 6.32% 5.67% 8.82%
'91 TO '92 ERV 1059.04 1128.06 1063.24 1056.74 1088.19
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'91 TO '92 ERV LESS ADMIN CHG 1056.04 1125.06 1060.24 1053.74 1085.19
'92(OR INCEPT) TO '93 ROR 8.83% 20.43% 14.21% 10.87% 20.84%
'92 TO '93 ERV 1149.31 1354.90 1210.92 1168.33 1311.33
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'92 TO '93 ERV LESS ADMIN CHG 1146.31 1351.90 1207.92 1165.33 1308.33
'93(OR INCEPT) TO '94 ROR -4.38% 1.56% -4.31% -2.14% 0.23%
'93 TO '94 ERV 1096.14 1372.99 1155.82 1140.38 1311.36
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'93 TO '94 ERV LESS ADMIN CHG 1093.14 1369.99 1152.82 1137.38 1308.36
'94(OR INCEPT) TO '95 ROR 19.31% 29.74% 22.66% 15.89% 20.26%
'94 TO '95 ERV 1304.18 1777.44 1414.08 1318.08 1573.49
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'94 TO '95 ERV LESS ADMIN CHG 1301.18 1774.44 1411.08 1315.08 1570.49
'95(OR INCEPT) TO '96 ROR 3.15% 17.11% 12.29% 11.29% 20.29%
'95 TO '96 ERV 1342.21 2078.07 1584.45 1463.53 1889.21
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 1339.21 2075.07 1581.45 1460.53 1886.21
ANNUALIZED ROR BEFORE LOAD 6.02% 15.72% 9.60% 7.87% 13.53%
AMT SUBJ TO LOAD IF + RETURN 866.08 792.49 841.85 853.95 811.38
AMT SUBJ TO LOAD IF - RETURN 1205.29 1867.56 1423.31 1314.47 1697.59
AMT SUBJ TO LOAD 866.08 792.49 841.85 853.95 811.38
5TH (OR INCEPTION) SALE CHARGE 3.00% 3.00% 3.00% 3.00% 3.00%
AMT OF LOAD 25.98 23.77 25.26 25.62 24.34
ERV LESS LOAD 1313.22 2051.29 1556.20 1434.91 1861.87
= = = = = =
ANN.5YR RET W/LOAD AND ADM CHG 5.60% 15.45% 9.25% 7.49% 13.24%
</TABLE>
<TABLE>
<CAPTION>
Date: 28-Apr-97
Filename: Z:\JOBS\97-12500\CONVERT\PQVIP496.WK4
RPA HIYLD NATR STIX GLOBAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 5.00
'91(OR INCEPT) TO '92 ROR -3.45% 16.14% 6.03% 5.85% -4.57%
'91 TO '92 ERV 965.53 1161.40 1060.25 1058.53 954.28
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'91 TO '92 ERV LESS ADMIN CHG 962.53 1158.40 1057.25 1055.53 951.28
'92(OR INCEPT) TO '93 ROR 4.84% 17.85% 23.67% 8.37% 41.45%
'92 TO '93 ERV 1009.09 1365.20 1307.53 1143.84 1345.55
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'92 TO '93 ERV LESS ADMIN CHG 1006.09 1362.20 1304.53 1140.83 1342.55
'93(OR INCEPT) TO '94 ROR 7.11% -3.88% -5.43% -0.19% -6.02%
'93 TO '94 ERV 1077.61 1309.41 1233.67 1138.66 1261.76
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'93 TO '94 ERV LESS ADMIN CHG 1074.61 1306.41 1230.67 1135.66 1258.76
'94(OR INCEPT) TO '95 ROR 7.52% 16.17% 25.42% 35.45% 14.51%
'94 TO '95 ERV 1155.41 1517.64 1543.51 1538.22 1441.42
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'94 TO '95 ERV LESS ADMIN CHG 1152.41 1514.64 1540.51 1535.22 1438.42
'95(OR INCEPT) TO '96 ROR 4.41% 10.06% 29.32% 21.11% 18.27%
'95 TO '96 ERV 1203.25 1667.08 1992.14 1859.30 1701.22
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 1200.25 1664.08 1989.14 1856.30 1698.22
ANNUALIZED ROR BEFORE LOAD 3.72% 10.72% 14.74% 13.17% 11.17%
AMT SUBJ TO LOAD IF + RETURN 879.98 833.59 801.09 814.37 830.18
AMT SUBJ TO LOAD IF - RETURN 1080.22 1497.67 1790.23 1670.67 1528.40
AMT SUBJ TO LOAD 879.98 833.59 801.09 814.37 830.18
5TH (OR INCEPTION) SALE CHARGE 3.00% 3.00% 3.00% 3.00% 3.00%
AMT OF LOAD 26.40 25.01 24.03 24.43 24.91
ERV LESS LOAD 1173.85 1639.07 1965.11 1831.87 1673.32
= = = = = = =
ANN.5YR RET W/LOAD AND ADM CHG 3.26% 10.39% 14.47% 12.87% 10.84%
</TABLE>
GVTINC PRUJEN SMCAP
- --------------------------------------------------------------------------------
YEARS IN EXISTENCE 5.00 N/A N/A
'91(OR INCEPT) TO '92 ROR 4.58% N/A N/A
'91 TO '92 ERV 1045.85 N/A N/A
ANNUAL ADMIN CHARGE 3.00 N/A N/A
'91 TO '92 ERV LESS ADMIN CHG 1042.85 N/A N/A
'92(OR INCEPT) TO '93 ROR 11.23% N/A N/A
'92 TO '93 ERV 1159.93 N/A N/A
ANNUAL ADMIN CHARGE 3.00 N/A N/A
'92 TO '93 ERV LESS ADMIN CHG 1156.93 N/A N/A
'93(OR INCEPT) TO '94 ROR -6.29% N/A N/A
'93 TO '94 ERV 1084.11 N/A N/A
ANNUAL ADMIN CHARGE 3.00 N/A N/A
'93 TO '94 ERV LESS ADMIN CHG 1081.10 N/A N/A
'94(OR INCEPT) TO '95 ROR 18.06% N/A N/A
'94 TO '95 ERV 1276.37 N/A N/A
ANNUAL ADMIN CHARGE 3.00 N/A N/A
'94 TO '95 ERV LESS ADMIN CHG 1273.37 N/A N/A
'95(OR INCEPT) TO '96 ROR 1.00% N/A N/A
'95 TO '96 ERV 1286.15 N/A N/A
ANNUAL ADMIN CHARGE 3.00 N/A N/A
'95 TO '96 ERV LESS ADMIN CHG 1283.15 N/A N/A
ANNUALIZED ROR BEFORE LOAD 5.11% N/A N/A 114.22% W/OUT
AMT SUBJ TO LOAD IF + RETURN 871.69 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 1154.83 N/A N/A
AMT SUBJ TO LOAD 871.69 N/A N/A
5TH (OR INCEPTION) SALE CHARGE 3.00% N/A N/A
AMT OF LOAD 26.15 N/A N/A
ERV LESS LOAD 1257.00 N/A N/A
= = = =
ANN.5YR RET W/LOAD AND ADM CHG 4.68% N/A N/A 109.90% WITH
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED RATES OF RETURN
VIP/QVIP
10 YR RATE OF RETURN DIBOND EQUITY FLXMGD CONS EQINC
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEARS IN EXISTENCE 10.00 10.00 10.00 10.00 8.87
'85 TO '86 ERV LESS ADMIN CHG 1,000.00 1,000.00 1,000.00 1,000.00 N/A
'86 TO '87 ROR -0.91% 0.45% -3.00% 0.32% N/A
'86 TO '87 ERV 990.92 1,004.50 970.01 1,003.24 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'86 TO '87 ERV LESS ADMIN CHG 987.92 1,001.50 967.01 1,000.24 N/A
'87 TO '88 ROR 6.91% 15.66% 11.50% 8.88% N/A
'87 TO '88 ERV 1,056.15 1,158.38 1,078.18 1,089.04 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'87 TO '88 ERV LESS ADMIN CHG 1,053.15 1,155.38 1,075.18 1,086.04 N/A
'88(OR INCEPT) TO '89 ROR 12.14% 28.20% 20.33% 15.61% N/A
'88 TO '89 ERV 1,181.02 1,481.16 1,293.77 1,255.51 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'88 TO '89 ERV LESS ADMIN CHG 1,178.02 1,478.16 1,290.77 1,252.51 N/A
'89(OR INCEPT) TO '90 ROR 7.03% -6.34% 0.69% 4.01% N/A
'89 TO '90 ERV 1,260.78 1,384.37 1,299.70 1,302.73 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'89 TO '90 ERV LESS ADMIN CHG 1,257.78 1,381.37 1,296.70 1,299.73 N/A
'90(OR INCEPT) TO '91 ROR 15.05% 24.51% 23.94% 17.66% N/A
'90 TO '91 ERV 1,447.14 1,720.00 1,607.16 1,529.26 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'90 TO '91 ERV LESS ADMIN CHG 1,444.14 1,717.00 1,604.16 1,526.26 N/A
'91(OR INCEPT) TO '92 ROR 5.90% 12.81% 6.32% 5.67% N/A
'91 TO '92 ERV 1,529.40 1,936.88 1,705.60 1,612.86 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'91 TO '92 ERV LESS ADMIN CHG 1,526.39 1,933.88 1,702.60 1,609.86 N/A
'92(OR INCEPT) TO '93 ROR 8.83% 20.43% 14.21% 10.87% N/A
'92 TO '93 ERV 1,661.22 2,328.95 1,944.59 1,784.93 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'92 TO '93 ERV LESS ADMIN CHG 1,658.22 2,325.95 1,941.59 1,781.93 N/A
'93(OR INCEPT) TO '94 ROR -4.38% 1.56% -4.31% -2.14% N/A
'93 TO '94 ERV 1,585.64 2,362.24 1,857.84 1,743.78 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'93 TO '94 ERV LESS ADMIN CHG 1,582.64 2,359.24 1,854.84 1,740.78 N/A
'94(OR INCEPT) TO '95 ROR 19.31% 29.74% 22.66% 15.89% N/A
'94 TO '95 ERV 1,888.18 3,060.90 2,275.20 2,017.34 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'94 TO '95 ERV LESS ADMIN CHG 1,885.18 3,057.90 2,272.20 2,014.34 N/A
'95(OR INCEPT) TO '96 ROR 3.15% 17.11% 12.29% 11.29% N/A
'95 TO '96 ERV 1,944.62 3,581.15 2,551.36 2,241.72 N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A
'95 TO '96 ERV LESS ADMIN CHG 1,941.62 3,578.15 2,548.36 2,238.72 N/A
ANNUALIZED ROR BEFORE LOAD 6.86% 13.60% 9.81% 8.39% N/A
AMT SUBJ TO LOAD IF + RETURN 805.84 642.18 745.16 776.13 N/A
AMT SUBJ TO LOAD IF - RETURN 1,747.46 3,220.34 2,293.53 2,014.85 N/A
AMT SUBJ TO LOAD 805.84 642.18 745.16 776.13 N/A
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00% N/A
AMT OF LOAD 0.00 0.00 0.00 0.00 N/A
ERV LESS LOAD 1,941.62 3,578.15 2,548.36 2,238.72 N/A
= = = = = =
ANN.10YR RET W/LOAD AND ADM CHG 6.86% 13.60% 9.81% 8.39% N/A
</TABLE>
<TABLE>
<CAPTION>
Date: 28-Apr-97
Filename: Z:\JOBS\97-12500\CONVERT\PQVIP496.WK4
RPA HIYLD NATR STIX GLOBAL GVTINC
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 8.67 9.85 8.67 9.20 7.67 7.67
'85 TO '86 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'86 TO '87 ROR N/A N/A N/A N/A N/A N/A
'86 TO '87 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'86 TO '87 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'87 TO '88 ROR N/A N/A N/A N/A N/A N/A
'87 TO '88 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'87 TO '88 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'88(OR INCEPT) TO '89 ROR N/A N/A N/A N/A N/A N/A
'88 TO '89 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'88 TO '89 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'89(OR INCEPT) TO '90 ROR N/A N/A N/A N/A N/A N/A
'89 TO '90 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'89 TO '90 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'90(OR INCEPT) TO '91 ROR N/A N/A N/A N/A N/A N/A
'90 TO '91 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'90 TO '91 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'91(OR INCEPT) TO '92 ROR N/A N/A N/A N/A N/A N/A
'91 TO '92 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'91 TO '92 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'92(OR INCEPT) TO '93 ROR N/A N/A N/A N/A N/A N/A
'92 TO '93 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'92 TO '93 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'93(OR INCEPT) TO '94 ROR N/A N/A N/A N/A N/A N/A
'93 TO '94 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'93 TO '94 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'94(OR INCEPT) TO '95 ROR N/A N/A N/A N/A N/A N/A
'94 TO '95 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'94 TO '95 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'95(OR INCEPT) TO '96 ROR N/A N/A N/A N/A N/A N/A
'95 TO '96 ERV N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A N/A
'95 TO '96 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
ANNUALIZED ROR BEFORE LOAD N/A N/A N/A N/A N/A N/A
AMT SUBJ TO LOAD IF + RETURN N/A N/A N/A N/A N/A N/A
AMT SUBJ TO LOAD IF - RETURN N/A N/A N/A N/A N/A N/A
AMT SUBJ TO LOAD N/A N/A N/A N/A N/A N/A
10TH (OR INCEPTION) SALE CHARGE N/A N/A N/A N/A N/A N/A
AMT OF LOAD N/A N/A N/A N/A N/A N/A
ERV LESS LOAD N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
ANN.10YR RET W/LOAD AND ADM CHG N/A N/A N/A N/A N/A N/A
</TABLE>
PRUJEN SMCAP
- --------------------------------------------------------------------------------
YEARS IN EXISTENCE 1.67 1.67
'85 TO '86 ERV LESS ADMIN CHG N/A N/A
'86 TO '87 ROR N/A N/A
'86 TO '87 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'86 TO '87 ERV LESS ADMIN CHG N/A N/A
'87 TO '88 ROR N/A N/A
'87 TO '88 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'87 TO '88 ERV LESS ADMIN CHG N/A N/A
'88(OR INCEPT) TO '89 ROR N/A N/A
'88 TO '89 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'88 TO '89 ERV LESS ADMIN CHG N/A N/A
'89(OR INCEPT) TO '90 ROR N/A N/A
'89 TO '90 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'89 TO '90 ERV LESS ADMIN CHG N/A N/A
'90(OR INCEPT) TO '91 ROR N/A N/A
'90 TO '91 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'90 TO '91 ERV LESS ADMIN CHG N/A N/A
'91(OR INCEPT) TO '92 ROR N/A N/A
'91 TO '92 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'91 TO '92 ERV LESS ADMIN CHG N/A N/A
'92(OR INCEPT) TO '93 ROR N/A N/A
'92 TO '93 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'92 TO '93 ERV LESS ADMIN CHG N/A N/A
'93(OR INCEPT) TO '94 ROR N/A N/A
'93 TO '94 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'93 TO '94 ERV LESS ADMIN CHG N/A N/A
'94(OR INCEPT) TO '95 ROR N/A N/A
'94 TO '95 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'94 TO '95 ERV LESS ADMIN CHG N/A N/A
'95(OR INCEPT) TO '96 ROR N/A N/A
'95 TO '96 ERV N/A N/A
ANNUAL ADMIN CHARGE N/A N/A
'95 TO '96 ERV LESS ADMIN CHG N/A N/A
ANNUALIZED ROR BEFORE LOAD N/A N/A W/OUT 43.07%
AMT SUBJ TO LOAD IF + RETURN N/A N/A
AMT SUBJ TO LOAD IF - RETURN N/A N/A
AMT SUBJ TO LOAD N/A N/A
10TH (OR INCEPTION) SALE CHARGE N/A N/A
AMT OF LOAD N/A N/A
ERV LESS LOAD N/A N/A
- --------------------------------------------------------------------------------
ANN.10YR RET W/LOAD AND ADM CHG N/A N/A WITH 43.07%
<PAGE>
ANNUALIZED RATES OF RETURN
<TABLE>
<CAPTION>
VIP/QVIP
SINCE INCEPTION RATE OF RETURN DIBOND EQUITY FLXMGD CONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEARS IN EXISTENCE 13.57 13.57 13.60 13.58
INCEPT. TO '83 ROR 1.94% -2.08% -0.98% 1.31%
INCEPT. TO 'ERV 1019.43 979.20 990.17 1013.05
ANNUAL ADMIN CHARGE 1.69 1.71 1.79 1.74
INCEPT TO '83 ERV LESS ADMIN CHG 1017.74 977.49 988.38 1011.31
83 TO '84 ROR 11.86% 6.44% 6.53% 9.13%
INCEPT. TO '84 ERV 1138.40 1040.40 1052.87 1103.62
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
INCEPT. TO 84 ERV LESS ADMIN CHG 1135.40 1037.40 1049.87 1100.62
'84 TO '85 ROR 17.21% 31.28% 24.42% 19.64%
'84 TO '85 ERV 1330.85 1361.92 1306.28 1316.77
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'84 TO '85 ERV LESS ADMIN CHG 1327.85 1358.92 1303.28 1313.77
'85 TO '86 ROR 13.09% 13.73% 14.11% 12.81%
'85 TO '86 ERV 1501.68 1545.43 1487.12 1482.05
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'85 TO '86 ERV LESS ADMIN CHG 1498.68 1542.43 1484.12 1479.05
'86 TO '87 ROR -0.91% 0.45% -3.00% 0.32%
'86 TO '87 ERV 1485.07 1549.37 1439.61 1483.85
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'86 TO '87 ERV LESS ADMIN CHG 1482.07 1546.37 1436.61 1480.85
'87(OR INCEPT) TO '88 ROR 6.91% 15.66% 11.50% 8.88%
'87 TO '88 ERV 1584.43 1788.61 1601.77 1612.31
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'87 TO '88 ERV LESS ADMIN CHG 1581.43 1785.60 1598.77 1609.31
'88(OR INCEPT) TO '89 ROR 12.14% 28.20% 20.33% 15.61%
'88 TO '89 ERV 1773.44 2289.08 1923.80 1860.44
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'88 TO '89 ERV LESS ADMIN CHG 1770.44 2286.08 1920.80 1857.44
'89(OR INCEPT) TO 90 ROR 7.03% -6.34% 0.69% 4.01%
'89 TO '90 ERV 1894.82 2141.04 1934.10 1931.90
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'89 TO '90 ERV LESS ADMIN CHG 1,891.82 2,138.04 1,931.10 1,928.90
'90(OR INCEPT) TO '91 ROR 15.05% 24.51% 23.94% 17.66%
'90 TO '91 ERV 2,176.63 2,662.16 2,393.45 2,269.56
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'90 TO '91 ERV LESS ADMIN CHG 2,173.63 2,659.16 2,390.45 2,266.56
'91(OR INCEPT) TO '92 ROR 5.90% 12.81% 6.32% 5.67%
'91 TO '92 ERV 2,301.95 2,999.69 2,541.61 2,395.16
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'91 TO '92 ERV LESS ADMIN CHG 2,298.95 2,996.69 2,538.61 2,392.16
'92(OR INCEPT) TO '93 ROR 8.83% 20.43% 14.21% 10.87%
'92 TO '93 ERV 2,502.01 3,608.88 2,899.41 2,652.31
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'92 TO '93 ERV LESS ADMIN CHG 2,499.01 3,605.88 2,896.41 2,649.30
'93(OR INCEPT) TO '94 ROR -4.38% 1.56% -4.31% -2.14%
'93 TO '94 ERV 2,389.64 3,662.14 2,771.49 2,592.57
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'93 TO '94 ERV LESS ADMIN CHG 2,386.64 3,659.14 2,768.49 2,589.57
'94(OR INCEPT) TO '95 ROR 19.31% 29.74% 22.66% 15.89%
'94 TO '95 ERV 2,847.39 4,747.40 3,395.90 3,000.99
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'94 TO '95 ERV LESS ADMIN CHG 2,844.39 4,744.40 3,392.90 2,997.99
'95(OR INCEPT) TO '96 ROR 3.15% 17.11% 12.29% 11.29%
'95 TO '96 ERV 2,934.08 5,556.24 3,809.76 3,336.41
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 2,931.08 5,553.24 3,806.76 3,333.41
ANNUALIZED ROR BEFORE LOAD 8.25% 13.46% 10.33% 9.27%
AMT SUBJ TO LOAD IF + RETURN 706.89 444.68 619.32 666.66
AMT SUBJ TO LOAD IF - RETURN 2,637.97 4,997.91 3,426.08 3,000.07
AMT SUBJ TO LOAD 706.89 444.68 619.32 666.66
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00%
AMT OF LOAD 0.00 0.00 0.00 0.00
ERV LESS LOAD 2,931.08 5,553.24 3,806.76 3,333.41
= = = = =
ANN. RET W/LOAD AND ADM CHG 8.25% 13.46% 10.33% 9.27%
</TABLE>
<PAGE>
Date: 28-Apr-97
Filename: Z:\JOBS\97-12500\CONVERT\PQVIP496.WK4
<TABLE>
<CAPTION>
EQINC RPA HIYLD NATR STIX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8.87 8.67 9.85 8.67 9.20
YEARS IN EXISTENCE N/A N/A N/A N/A N/A
INCEPT. TO '83 ROR N/A N/A N/A N/A N/A
INCEPT. TO 'ERV N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A
INCEPT TO '83 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A
83 TO '84 ROR N/A N/A N/A N/A N/A
INCEPT. TO '84 ERV N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A
INCEPT. TO 84 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A
'84 TO '85 ROR N/A N/A N/A N/A N/A
'84 TO '85 ERV N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A
'84 TO '85 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A
'85 TO '86 ROR N/A N/A N/A N/A N/A
'85 TO '86 ERV N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A N/A
'85 TO '86 ERV LESS ADMIN CHG N/A N/A -5.87% N/A 7.10%
'86 TO '87 ROR N/A N/A 941.26 N/A 1070.96
'86 TO '87 ERV N/A N/A 2.56 N/A 0.60
ANNUAL ADMIN CHARGE N/A N/A 938.70 N/A 1070.36
'86 TO '87 ERV LESS ADMIN CHG 10.17% 4.34% 11.83% 5.10% 14.08%
'87(OR INCEPT) TO '88 ROR 1101.70 1043.39 1049.75 1051.03 1221.02
'87 TO '88 ERV 2.60 2.00 3.00 2.00 3.00
ANNUAL ADMIN CHARGE 1099.11 1041.39 1046.75 1049.03 1218.02
'87 TO '88 ERV LESS ADMIN CHG 21.21% 2.00% -3.20% 34.03% 29.38%
'88(OR INCEPT) TO '89 ROR 1332.25 1062.27 1013.20 1406.01 1575.88
'88 TO '89 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 1329.25 1059.27 1010.20 1403.01 1572.88
'88 TO '89 ERV LESS ADMIN CHG -4.88% 4.38% -12.89% -6.88% -4.78%
'89(OR INCEPT) TO 90 ROR 1264.42 1105.69 879.97 1306.46 1497.63
'89 TO '90 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 1,261.42 1,102.69 876.97 1,303.46 1,494.63
'89 TO '90 ERV LESS ADMIN CHG 26.00% -0.55% 37.53% 8.99% 28.18%
'90(OR INCEPT) TO '91 ROR 1,589.33 1,096.59 1,206.07 1,420.64 1,915.86
'90 TO '91 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 1,586.33 1,093.58 1,203.07 1,417.64 1,912.86
'90 TO '91 ERV LESS ADMIN CHG 8.82% -3.45% 16.14% 6.03% 5.85%
'91(OR INCEPT) TO '92 ROR 1,726.22 1,055.89 1,397.24 1,503.05 2,024.83
'91 TO '92 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 1,723.22 1,052.89 1,394.24 1,500.05 2,021.83
'91 TO '92 ERV LESS ADMIN CHG 20.84% 4.84% 17.85% 23.67% 8.37%
'92(OR INCEPT) TO '93 ROR 2,082.32 1,103.82 1,643.15 1,855.15 2,190.97
'92 TO '93 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 2,079.32 1,100.82 1,640.15 1,852.15 2,187.97
'92 TO '93 ERV LESS ADMIN CHG 0.23% 7.11% -3.88% -5.43% -0.19%
'93(OR INCEPT) TO '94 ROR 2,084.13 1,179.08 1,576.59 1,751.55 2,183.80
'93 TO '94 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 2,081.13 1,176.08 1,573.59 1,748.55 2,180.80
'93 TO '94 ERV LESS ADMIN CHG 20.26% 7.52% 16.17% 25.42% 35.45%
'94(OR INCEPT) TO '95 ROR 2,502.86 1,264.50 1,828.01 2,193.03 2,953.83
'94 TO '95 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 2,499.86 1,261.50 1,825.01 2,190.03 2,950.83
'94 TO '95 ERV LESS ADMIN CHG 20.29% 4.41% 10.06% 29.32% 21.11%
'95(OR INCEPT) TO '96 ROR 3,007.20 1,317.15 2,008.69 2,832.09 3,573.74
'95 TO '96 ERV 3.00 3.00 3.00 3.00 3.00
ANNUAL ADMIN CHARGE 3,004.20 1,314.15 2,005.69 2,829.09 3,570.74
'95 TO '96 ERV LESS ADMIN CHG
13.21% 3.20% 7.32% 12.75% 14.83%
ANNUALIZED ROR BEFORE LOAD
699.58 868.58 799.43 717.09 642.93
AMT SUBJ TO LOAD IF + RETURN 2,703.78 1,182.74 1,805.12 2,546.18 3,213.67
AMT SUBJ TO LOAD IF - RETURN 699.58 868.58 799.43 717.09 642.93
AMT SUBJ TO LOAD 0.00% 0.00% 0.00% 0.00% 0.00%
10TH (OR INCEPTION) SALE CHARGE 0.00 0.00 0.00 0.00 0.00
AMT OF LOAD 3,004.20 1,314.15 2,005.69 2,829.09 3,570.74
ERV LESS LOAD 13.21% 3.20% 7.32% 12.75% 14.83%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANN. RET W/LOAD AND ADM CHG
<TABLE>
<CAPTION>
GLOBAL GVTINC PRUJEN SMCAP
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEARS IN EXISTENCE 7.67 7.67 1.67 1.67
INCEPT. TO '83 ROR N/A N/A N/A N/A
INCEPT. TO 'ERV N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A
INCEPT TO '83 ERV LESS ADMIN CHG N/A N/A N/A N/A
83 TO '84 ROR N/A N/A N/A N/A
INCEPT. TO '84 ERV N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A
INCEPT. TO 84 ERV LESS ADMIN CHG N/A N/A N/A N/A
'84 TO '85 ROR N/A N/A N/A N/A
'84 TO '85 ERV N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A
'84 TO '85 ERV LESS ADMIN CHG N/A N/A N/A N/A
'85 TO '86 ROR N/A N/A N/A N/A
'85 TO '86 ERV N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A
'85 TO '86 ERV LESS ADMIN CHG N/A N/A N/A N/A
'86 TO '87 ROR N/A N/A N/A N/A
'86 TO '87 ERV N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A
'86 TO '87 ERV LESS ADMIN CHG N/A N/A N/A N/A
'87(OR INCEPT) TO '88 ROR N/A N/A N/A N/A
'87 TO '88 ERV N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A N/A N/A N/A
'87 TO '88 ERV LESS ADMIN CHG N/A N/A N/A N/A
'88(OR INCEPT) TO '89 ROR 10.23% 10.72% N/A N/A
'88 TO '89 ERV 1102.34 1107.18 N/A N/A
ANNUAL ADMIN CHARGE 2.01 2.01 N/A N/A
'88 TO '89 ERV LESS ADMIN CHG 1100.33 1105.18 N/A N/A
'89(OR INCEPT) TO 90 ROR -13.95% 5.06% N/A N/A
'89 TO '90 ERV 946.87 1161.06 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 N/A N/A
'89 TO '90 ERV LESS ADMIN CHG 943.87 1,158.06 N/A N/A
'90(OR INCEPT) TO '91 ROR 10.07% 14.73% N/A N/A
'90 TO '91 ERV 1,038.91 1,328.66 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 N/A N/A
'90 TO '91 ERV LESS ADMIN CHG 1,035.91 1,325.66 N/A N/A
'91(OR INCEPT) TO '92 ROR -4.57% 4.58% N/A N/A
'91 TO '92 ERV 988.55 1,386.44 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 N/A N/A
'91 TO '92 ERV LESS ADMIN CHG 985.55 1,383.44 N/A N/A
'92(OR INCEPT) TO '93 ROR 41.45% 11.23% N/A N/A
'92 TO '93 ERV 1,394.03 1,538.76 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 N/A N/A
'92 TO '93 ERV LESS ADMIN CHG 1,391.03 1,535.76 N/A N/A
'93(OR INCEPT) TO '94 ROR -6.02% -6.29% N/A N/A
'93 TO '94 ERV 1,307.32 1,439.09 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 N/A N/A
'93 TO '94 ERV LESS ADMIN CHG 1,304.32 1,436.09 N/A N/A
'94(OR INCEPT) TO '95 ROR 14.51% 18.06% 23.43% 18.78%
'94 TO '95 ERV 1,493.58 1,695.47 1234.32 1187.84
ANNUAL ADMIN CHARGE 3.00 3.00 2.01 2.01
'94 TO '95 ERV LESS ADMIN CHG 1,490.58 1,692.47 1,232.32 1,185.83
'95(OR INCEPT) TO '96 ROR 18.27% 1.00% 13.05% 18.35%
'95 TO '96 ERV 1,762.92 1,709.46 1,393.14 1,403.45
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 1,759.92 1,706.46 1,390.14 1,400.45
ANNUALIZED ROR BEFORE LOAD 7.65% 7.22% 21.80% 22.34 W/OUT 156.70%
AMT SUBJ TO LOAD IF + RETURN 824.01 829.35 860.99 859.96
AMT SUBJ TO LOAD IF - RETURN 1,583.93 1,535.81 1,251.13 1,260.40
AMT SUBJ TO LOAD 824.01 829.35 860.99 859.96
10TH (OR INCEPTION) SALE CHARGE 1.00% 1.00% 7.00% 7.00%
AMT OF LOAD 8.24 8.29 60.27 60.20
ERV LESS LOAD 1,751.68 1,698.16 1,329.87 1,340.25
= = = = =
ANN. RET W/LOAD AND ADM CHG 7.58% 7.15% 18.61% 19.17 150.20%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VIP/QVIP 31-Dec-96 SAPDU 1 TABLE 3
ASSUMING NO LOAD CUMULATIVE
- ------------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H
SINCE (A/1000)-1 (B/1000)-1 (C/1000)-1 (D/1000)-1
INCPT DATE 1YR 5YR 10YR% INCEPTION 1YR% 5YR% 10YR% SINCE INCPT.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DIBOND 6/83 1,028.53 1,339.21 1,941.62 2,931.08 2.85% 33.92% 94.16% 193.11%
GVTINC 5/89 1,007.04 1,283.15 N/A 1,706.46 0.70% 28.31% N/A 70.65%
CONS 6/83 1,109.88 1,460.53 2,238.72 3,333.41 10.99% 46.05% 123.87% 233.34%
FLXMGD 5/83 1,119.86 1,581.45 2,548.36 3,806.76 11.99% 58.15% 154.84% 280.68%
HIYLD 2/87 1,097.64 1,664.08 N/A 2,005.69 9.76% 66.41% N/A 100.57%
STIX 10/87 1,208.10 1,856.30 N/A 3,570.74 20.81% 85.63% N/A 257.07%
EQINC 2/88 1,199.95 1,886.21 N/A 3,004.20 19.99% 88.62% N/A 200.42%
EQUITY 6/83 1,168.12 2,075.07 3,578.15 5,553.24 16.81% 107.51% 257.82% 455.32%
PRUJEN 5/95 1,127.51 N/A N/A 1,390.14 12.75% N/A N/A 39.01%
SMCAP 5/95 1,180.51 N/A N/A 1,400.45 18.05% N/A N/A 40.04%
GLOBAL 5/89 1,179.70 1,698.22 N/A 1,759.92 17.97% 69.82% N/A 75.99%
NATR 5/88 1,290.17 1,989.14 N/A 2,829.09 29.02% 98.91% N/A 182.91%
RPA 5/88 1,041.11 1,200.25 N/A 1,314.15 4.11% 20.02% N/A 31.42%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED RATES OF RETURN
AVG POLICY SIZE 1000 30/9999*1000 = $3.00 ANNUAL CHG
VIP/QVIP DIBOND EQUITY FLXMGD CONS EQINC
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 3.15% 17.11% 12.29% 11.29% 20.29%
ERV(ENDING REDEEMABLE VALUE) 1031.53 1171.12 1122.86 1112.88 1202.95
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1028.53 1168.12 1119.86 1109.88 1199.95
ROR BEFORE LOAD 2.85% 16.81% 11.99% 10.99% 19.99%
AMT SUBJ TO LOAD IF + RETURN 897.15 883.19 888.01 889.01 880.01
AMT SUBJ TO LOAD IF - RETURN 925.68 1051.30 1007.88 998.89 1079.95
AMT SUBJ TO LOAD 897.15 883.19 888.01 889.01 880.01
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.80 61.82 62.16 62.23 61.60
ERV LESS ADMIN CHG & LOAD 965.73 1106.29 1057.70 1047.65 1138.35
- ------------------------------------------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -3.43% 10.63% 5.77% 4.77% 13.83%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RPA HIYLD NATR STIX GLOBAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 4.41% 10.06% 29.32% 21.11% 18.27%
ERV(ENDING REDEEMABLE VALUE) 1044.11 1100.65 1293.17 1211.10 1182.71
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1041.11 1097.64 1290.17 1208.10 1179.70
ROR BEFORE LOAD 4.11% 9.76% 29.02% 20.81% 17.97%
AMT SUBJ TO LOAD IF + RETURN 895.89 890.24 870.98 879.19 882.03
AMT SUBJ TO LOAD IF - RETURN 937.00 987.88 1161.15 1087.29 1061.73
AMT SUBJ TO LOAD 895.89 890.24 870.98 879.19 882.03
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.71 62.32 60.97 61.54 61.74
ERV LESS ADMIN CHG & LOAD 978.40 1035.33 1229.20 1146.55 1117.96
- ------------------------------------------------------------------------------------------------------------------------------------
-2.16% 3.53% 22.92% 14.66% 11.80%
</TABLE>
<TABLE>
<CAPTION>
GVTINC PRUJEN SMCAP
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR % OF RETURN 1.00% 13.05% 18.35%
ERV(ENDING REDEEMABLE VALUE) 1010.04 1130.51 1183.51
ANNUAL ADMIN CHARGE 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1007.04 1127.51 1180.51
ROR BEFORE LOAD 0.70% 12.75% 18.05% 179.50 % W/OUT
AMT SUBJ TO LOAD IF + RETURN 899.30 887.25 881.95
AMT SUBJ TO LOAD IF - RETURN 906.33 1014.76 1062.46
AMT SUBJ TO LOAD 899.30 887.25 881.95
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00%
AMT OF LOAD 62.95 62.11 61.74
ERV LESS ADMIN CHG & LOAD 944.09 1065.40 1118.77
-5.59% 6.54% 11.88% 92.56% WITH
</TABLE>
INEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 24 to Registration
Statement No. 2-81318 on Form N-4 of The Prudential Qualified Individual
Variable Contract Account of The Prudential Insurance Company of America of our
report dated February 15, 1996, relating to the financial statements of The
Prudential Qualified Individual Variable Contract Account, and of our report
dated March 1, 1996, except for Note 1A as to which the date is March 10, 1997,
relating to the statutory financial statements of The Prudential Insurance
Company of America in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts", also
appearing in such Statement of Additional Information.
/s/ Deloitte & Touche
Parsippany, New Jersey
April 25, 1997
