AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 2-81318
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 25 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 30 [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)
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(888) PRU-2888
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(Address and telephone number of principal executive offices)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
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(Name and address of agent for service)
COPIES TO:
LEE AUGSBURGER CHRISTOPHER E. PALMER
ASSISTANT GENERAL COUNSEL SHEA & GARDNER
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 1800 MASSACHUSETTS AVENUE, N.W.
751 BROAD STREET WASHINGTON, D.C. 20036
NEWARK, NEW JERSEY 07102-3777
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
(date)
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on __________ pursuant to paragraph (a)(1) of Rule 485
(date)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered:
Interests in Individual Variable Annuity Contracts
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(a) UNDER THE 1933 ACT)
N-4 ITEM NUMBER AND CAPTION LOCATION
- --------------------------- --------
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
i
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20. Calculation of Performance Data ....... Financial Statements of The
Prudential Qualified Individual
Variable Contract Account
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;
Consolidated Financial Statements
of The Prudential Insurance
Company of America and
subsidiaries
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.
ii
<PAGE>
PROSPECTUS
MAY 1, 1998
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.
---------------------------------------
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, 1998, which information is incorporated herein by reference, and is
available without charge upon written request to The Prudential Insurance
Company of America, 751 Broad Street, Newark, New Jersey 07102-3777, or by
telephoning (888) PRU-2888.
The Contents of the statement of additional information appear on page 30 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 PRUDENTIAL ANNUITY SERVICE CENTER
AMERICA P.O. BOX 14205
751 BROAD STREET NEW BRUNSWICK, NEW JERSEY 08906-4205
NEWARK, NEW JERSEY 07102-3777 TELEPHONE: (888) PRU - 2888
TELEPHONE: (888) PRU - 2888
VARIABLE INVESTMENT PLAN is a registered mark of Prudential
QVIP-1 Ed 5-98,
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"........................ 13
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.................. 18
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......................................... 22
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........................................... 26
<PAGE>
PERFORMANCE INFORMATION............................................. 27
REPORTS TO CONTRACT OWNERS.......................................... 27
SUBSTITUTION OF SERIES FUND SHARES.................................. 27
DIFFERENCES UNDER THE WVQ-83 CONTRACT............................... 27
STATE REGULATION.................................................... 28
LITIGATION.......................................................... 28
YEAR 2000 COMPLIANCE................................................ 29
ADDITIONAL INFORMATION.............................................. 30
DIRECTORS AND OFFICERS..................................................... 31
<PAGE>
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 26. 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 27, 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 PRUDENTIAL JENNISON
PORTFOLIO is invested primarily in equity securities of established companies
with above-average growth prospects;
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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 purchase payment you make (after
deduction of any applicable amount needed to pay premium tax) is allocated to
the
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<PAGE>
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
fixed-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 up to four full or
partial transfers per year from any subaccount to one or more other subaccounts.
Currently, the Contract owner may make more than four such transfers per year
without Prudential's consent. Prudential's consent is needed if, 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. 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 13.
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 the
Prudential Annuity Service Center ("Annuity Service Center", previously the
Prudential Home Office).
This Brief Description of the Contract is intended to provide a broad overview
of the more significant features of 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%
*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 ............ .03% .03% .04% .01% .02% .02%
---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses ........ .43% .43% .44% .56% .62% .57%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<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 ......... .02% .01% .01% .04% .10% .10% .09%
---- ---- ---- ---- ---- ---- ----
Total Series Fund
Annual Expenses ..... .37% .41% .46% .64% .50% .85% .54%
==== ==== ==== ==== ==== ==== ====
</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 portfolios 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 7, illustrate the cumulative dollar
amount of all the above expenses that would be incurred on each $1,000
investment.
* The examples assume a consistent 5% annual return on invested assets;
* 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;
* The amounts shown are overstated for Contract funds over $10,000 and
understated for Contract funds less than $10,000;
* The examples assume that the operating expenses incurred in 1997 will
continue for a 10 year period.
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 portfolio example shows how the Year 1 expenses shown in Table I were
calculated for the Money Market 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
Total Contract Expenses (1.2 risk fees + .43 management fee + .075
annual maintenance charges) 1.705%
Assumed 5% Rate of Return Minus
Total Contract Expenses 3.295%
Value of Funds ($1,010 x 3.295%) 33.28
Total Value of Funds ($1,010 + 33.28) 1,043.28
Average Value of Funds {($1,043 + 1,010)*12} 1,026.64
Total Contract Expenses ($1,026.64 x 1.705% (rounded)) 18.00
Contingent Deferred Sales Charges
Initial Investment 1,000.00*
10% Charge Free Withdrawal 100.00
Amount Subject to Withdrawal Charge 900.00
Surrender Charge (900 * 8.00%) 72.00
Plus Total Contract Expenses 18.00
Total Charges 90.00
</TABLE>
*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............................... $ 90 $ 96 $113 $203
DIVERSIFIED BOND PORTFOLIO........................... $ 90 $ 96 $113 $203
GOVERNMENT INCOME PORTFOLIO.......................... $ 90 $ 97 $114 $205
CONSERVATIVE BALANCED PORTFOLIO...................... $ 91 $100 $120 $217
FLEXIBLE MANAGED PORTFOLIO........................... $ 91 $102 $123 $224
HIGH YIELD BOND PORTFOLIO............................ $ 91 $101 $121 $219
STOCK INDEX PORTFOLIO................................ $ 89 $ 94 $110 $197
EQUITY INCOME PORTFOLIO.............................. $ 89 $ 96 $112 $201
EQUITY PORTFOLIO..................................... $ 90 $ 97 $115 $207
PRUDENTIAL JENNISON PORTFOLIO........................ $ 92 $103 $124 $226
SMALL CAPITALIZATION STOCK PORTFOLIO................. $ 90 $ 98 $117 $211
GLOBAL PORTFOLIO..................................... $ 94 $109 $135 $248
NATURAL RESOURCES PORTFOLIO.......................... $ 91 $100 $119 $215
</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 $91 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............................... $ 90 $ 96 $113 $203
DIVERSIFIED BOND PORTFOLIO........................... $ 90 $ 96 $113 $203
GOVERNMENT INCOME PORTFOLIO.......................... $ 90 $ 97 $114 $205
CONSERVATIVE BALANCED PORTFOLIO...................... $ 91 $100 $120 $217
FLEXIBLE MANAGED PORTFOLIO........................... $ 91 $102 $123 $224
HIGH YIELD BOND PORTFOLIO............................ $ 91 $101 $121 $219
STOCK INDEX PORTFOLIO................................ $ 89 $ 94 $110 $197
EQUITY INCOME PORTFOLIO.............................. $ 89 $ 96 $112 $201
EQUITY PORTFOLIO..................................... $ 90 $ 97 $115 $207
PRUDENTIAL JENNISON PORTFOLIO........................ $ 92 $103 $124 $226
SMALL CAPITALIZATION STOCK PORTFOLIO................. $ 90 $ 98 $117 $211
GLOBAL PORTFOLIO..................................... $ 94 $109 $135 $248
NATURAL RESOURCES PORTFOLIO.......................... $ 91 $100 $119 $215
</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 $54 $ 93 $203
DIVERSIFIED BOND PORTFOLIO........................... $ 18 $54 $ 93 $203
GOVERNMENT INCOME PORTFOLIO.......................... $ 18 $55 $ 94 $205
CONSERVATIVE BALANCED PORTFOLIO...................... $ 19 $58 $100 $217
FLEXIBLE MANAGED PORTFOLIO........................... $ 19 $60 $103 $224
HIGH YIELD BOND PORTFOLIO............................ $ 19 $59 $101 $219
STOCK INDEX PORTFOLIO................................ $ 17 $52 $ 90 $197
EQUITY INCOME PORTFOLIO.............................. $ 17 $54 $ 92 $201
EQUITY PORTFOLIO..................................... $ 18 $55 $ 95 $207
PRUDENTIAL JENNISON PORTFOLIO........................ $ 20 $61 $104 $226
SMALL CAPITALIZATION STOCK PORTFOLIO................. $ 18 $56 $ 97 $211
GLOBAL PORTFOLIO..................................... $ 22 $67 $115 $248
NATURAL RESOURCES PORTFOLIO.......................... $ 19 $58 $ 99 $215
</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 Money Market Portfolio, $203 at the end of 10 years equals $20.30
per year, or approximately 2.03% of $1,000. The above examples use as the annual
Contract fee the average fee assessed based on the aggregate annual Contract
fees collected during the 12 month period ended December 31, 1997, divided by
the total assets allocated to the subaccounts.
7
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY MARKET
------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 2.008 $ 1.931 $ 1.847 $ 1.796 $ 1.766 $ 1.722
2. Accumulation unit value at
end of period ........................ 2.092 2.008 1.931 1.847 1.766 1.766
3. Number of accumulation units
outstanding at end of period ......... 42,127,659 51,204,795 51,330,984 43,401,237 42,593,573 51,724,305
<CAPTION>
MONEY MARKET
--------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
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 .................. $ 1.641 $ 1.536 $ 1.423 $ 1.341
2. Accumulation unit value at
end of period ........................ 1.722 1.641 1.536 1.423
3. Number of accumulation units
outstanding at end of period ......... 51,946,977 47,904,119 33,934,283 22,782,591
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND
----------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 2.990 $ 2.899 $ 2.430 $ 2.541 $ 2.335 $ 2.204
2. Accumulation unit value at
end of period ........................ 3.208 2.990 2.899 2.430 2.541 2.335
3. Number of accumulation units
outstanding at end of period ......... 33,970,629 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
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 .................. $ 1.916 $ 1.790 $ 1.596 $ 1.493
2. Accumulation unit value at
end of period ........................ 2.204 1.916 1.790 1.596
3. Number of accumulation units 26,914,460 23,633,524 22,074,086 19,475,497
outstanding at end of period .........
</TABLE>
<TABLE>
<CAPTION>
EQUITY
---------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 5.680 $ 4.850 $ 3.738 $ 3.681 $ 3.056 $ 2.709
2. Accumulation unit value at
end of period ........................ 6.996 5.680 4.850 3.738 3.681 3.056
3. Number of accumulation units
outstanding at end of period ......... 136,204,888 142,993,051 134,801,790 121,654,470 102,491,968 80,457,602
<CAPTION>
EQUITY
--------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
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 .................. $ 2.176 $ 2.323 $ 1.812 $ 1.567
2. Accumulation unit value at
end of period ........................ 2.709 2.176 2.323 1.812
3. Number of accumulation units
outstanding at end of period ......... 67,197,756 61,186,048 57,285,028 56,763,669
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
---------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 3.895 $ 3.469 $ 2.828 $ 2.955 $ 2.587 $ 2.434
2. Accumulation unit value at
end of period ........................ 4.540 3.895 3.469 2.828 2.955 2.587
3. Number of accumulation units
outstanding at end of period ......... 222,907,582 245,530,247 249,259,101 265,104,376 245,194,868 214,343,734
<CAPTION>
FLEXIBLE MANAGED
------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
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 .................. $ 1.963 $ 1.950 $ 1.621 $ 1.453
2. Accumulation unit value at
end of period ........................ 2.434 1.963 1.950 1.621
3. Number of accumulation units
outstanding at end of period ......... 191,130,125 190,783,212 186,540,213 192,115,646
</TABLE>
8
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------
CONSERVATIVE BALANCED
----------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 3.424 $ 3.077 $ 2.655 $ 2.713 $ 2.447 $ 2.316
2. Accumulation unit value at
end of period ........................ 3.839 3.424 3.077 2.655 2.713 2.447
3. Number of accumulation units
outstanding at end of period ......... 241,343,777 266,987,208 272,339,087 288,743,247 254,782,768 205,054,881
<CAPTION>
CONSERVATIVE BALANCED
------------------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
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 .................. $ 1.968 $ 1.892 $ 1.637 $ 1.503
2. Accumulation unit value at
end of period ........................ 2.316 1.968 1.892 1.637
3. Number of accumulation units
outstanding at end of period ......... 162,911,208 149,027,248 140,207,386 137,719,157
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND
---------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 2.053 $ 1.865 $ 1.605 $ 1.670 $ 1.417 $ 1.220
2. Accumulation unit value at
end of period ........................ 2.308 2.053 1.865 1.605 1.670 1.417
3. Number of accumulation units
outstanding at end of period ......... 28,839,212 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
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 .................. $ 0.887 $ 1.019 $ 1.052 $ 0.941
2. Accumulation unit value at
end of period ........................ 1.220 0.887 1.019 1.052
3. Number of accumulation units
outstanding at end of period ......... 10,973,632 10,683,985 13,396,197 10,451,423
</TABLE>
<TABLE>
<CAPTION>
STOCK INDEX
----------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 2.907 $ 2.401 $ 1.772 $ 1.776 $ 1.639 $ 1.548
2. Accumulation unit value at
end of period ........................ 3.816 2.907 2.401 1.772 1.776 1.639
3. Number of accumulation units
outstanding at end of period ......... 89,281,291 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
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 .................. $ 1.208 $ 1.268 $ 0.980 $ 0.859
2. Accumulation unit value at
end of period ........................ 1.548 1.208 1.268 0.980
3. Number of accumulation units
outstanding at end of period ......... 25,578,770 16,843,644 9,249,076 2,628,467
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME
-----------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 3.044 $ 2.530 $ 2.104 $ 2.099 $ 1.737 $ 1.596
2. Accumulation unit value at
end of period ........................ 4.108 3.044 2.530 2.104 2.099 1.737
3. Number of accumulation units
outstanding at end of period ......... 68,401,048 65,617,658 63,810,012 56,103,455 37,355,905 18,299,120
<CAPTION>
EQUITY INCOME
----------------------------------------------
01/01/91 01/01/90 01/01/89 01/01/88
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 .................. $ 1.267 $ 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>
9
<PAGE>
ACCUMULATION UNIT VALUES
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION) (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------
NATURAL RESOURCES
----------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 2.840 $ 2.196 $ 1.751 $ 1.851 $ 1.497 $ 1.412
2. Accumulation unit value at
end of period ........................ 2.481 2.840 2.196 1.751 1.851 1.497
3. Number of accumulation units
outstanding at end of period ......... 26,401,911 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 01/01/88
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>
<TABLE>
<CAPTION>
GLOBAL
---------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 1.814 $ 1,533 $ 1.339 $ 1.425 $ 1.007 $ 1.056
2. Accumulation unit value at
end of period ........................ 1.917 1.814 1.533 1.339 1.425 1.007
3. Number of accumulation units
outstanding at end of period ......... 51,481,170 50,862,779 44,920,771 43,407,964 9,912,122 3,274,619
</TABLE>
GLOBAL
--------------------------------
01/01/91 01/01/90 01/01/89
TO TO TO
12/31/91 12/31/90 12/31/89
---------- ---------- --------
1. Accumulation unit value at
beginning of period .................. $ 0.959 $ 1.115 $ 1.015
2. Accumulation unit value at
end of period ........................ 1.056 0.959 1.115
3. Number of accumulation units
outstanding at end of period ......... 2,255,700 1,542,929 349,391
<TABLE>
<CAPTION>
GOVERNMENT INCOME
----------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1. Accumulation unit value at
beginning of period .................. $ 1.736 $ 1.719 $ 1.456 $ 1.553 $ 1.397 $ 1.335
2. Accumulation unit value at
end of period ........................ 1.881 1.736 1.719 1.456 1.553 1.397
3. Number of accumulation units
outstanding at end of period ......... 39,604,005 50,735,981 55,130,988 64,574,144 66,529,517 41,061,477
</TABLE>
GOVERNMENT INCOME
-----------------------------------
01/01/91 01/01/90 01/01/89
TO TO TO
12/31/91 12/31/90 12/31/89
----------- ---------- ----------
1. Accumulation unit value at
beginning of period ................ $ 1.164 $ 1.108 $ 1.000
2. Accumulation unit value at
end of period ...................... 1.335 1.164 1.108
3. Number of accumulation units
outstanding at end of period ....... 10,193,396 3,891,299 1,369,956
PRUDENTIAL JENNISON
------------------------------------
01/01/97 01/01/96 01/01/95
TO TO TO
12/31/97 12/31/96 12/31/95
----------- ----------- ----------
1. Accumulation unit value at
beginning of period ............... $ 1.408 $ 1.245 $ 1.009
2. Accumulation unit value at
end of period ..................... 1.832 1.408 1.245
3. Number of accumulation units
outstanding at end of period ...... 34,004,121 21,901,003 5,067,514
SMALL CAPITALIZATION STOCK
------------------------------------
01/01/97 01/01/96 01/01/95
TO TO TO
12/31/97 12/31/96 12/31/95
----------- ----------- ----------
1. Accumulation unit value at
beginning of period ............... $ 1.408 $ 1.190 $ 1.002
2. Accumulation unit value at
end of period ..................... 1.742 1.408 1.190
3. Number of accumulation units
outstanding at end of period ...... 25,991,072 13,432,923 3,599,798
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,
the U.S. Virgin Islands, and in all states. These Contracts are not offered in
any state in which the necessary approvals have not yet been obtained.
Prudential is currently considering reorganizing itself into a stock company.
This form of reorganization, known as demutualization, is a complex process that
may take two or more years to complete. No plan of demutualization has been
adopted yet by Prudential's Board of Directors. Adoption of a plan of
demutualization would occur only after enactment of appropriate legislation in
New Jersey and would have to be approved by Prudential's policyholders and
appropriate state insurance regulators. Throughout the process, there will be a
continuing evaluation by the Board of Directors and management of Prudential as
to the desirability of demutualization. The Board of Directors, in its
discretion, may choose not to demutualize or to delay demutualization for a
time.
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's other assets.
The obligations to Contract owners and beneficiaries rising 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 751 Broad Street,
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
11
<PAGE>
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.
- --------------------------------------------------------------------------------
ANNUAL INVESTMENT
MANAGEMENT FEE AS
A PERCENTAGE OF AVERAGE
PORTFOLIO 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 the Annuity Service Center 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.
12
<PAGE>
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 requested by
mailing or delivering the Contract to the representative who sold it or to the
Annuity Service Center. 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 the Annuity Service Center, 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 initially allocated to the DCA account (that is, if
$10,000 is initially allocated, the minimum monthly transfer is $300), 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 the Annuity Service Center, 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 the Annuity Service Center. 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.
The Contract was not designed for professional market timing organizations or
other organizations or individuals using programmed, large or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the Series Fund and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to, not accepting transfer requests of an agent acting
under a power of attorney on behalf of more than one owner.
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
14
<PAGE>
withdrawal promptly upon request. However, Prudential has the right to delay
payment of such withdrawal for 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,
traditional 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 27.) 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 the Annuity Service
Center. 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 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
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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 27.)
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:
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
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.
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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
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.
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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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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 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
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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, for traditional IRAs, 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 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. In the case of an individual who is not an active participant in
an employer sponsored plan as described above, but whose spouse is an active
participant, a full deduction will be available for married joint filers if
adjusted gross income is $150,000 or less, with partial deductions being
available for adjusted gross income up to $160,000.
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 traditional 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 $10,000 (in 1998, as 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.
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
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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 13.
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 $10,000 (in 1998, as indexed). 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 $8,000 (in 1998,
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.
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 traditional IRAs and SEPs must begin by April 1 of the year
following attainment of age 70 1/2. Each year until the maturity date,
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.
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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 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.
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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 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.
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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 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.
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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
Currently, Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential which was organized in 1971 under New Jersey law, acts
as the principal underwriter of the Contract. Prudential expects that during the
second quarter of 1998 Prusec's responsibilities as principal underwriter will
be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS,
also an indirect wholly-owned subsidiary of Prudential, is a limited liability
corporation organized under Delaware law in 1996. PIMS will act as principal
underwriter under substantially the same terms as Prusec does currently. Both
Prusec and PIMS are registered as broker-dealers under the Securities Exchange
Act of 1934 and are members of the National Association of Securities Dealers,
Inc. The principal business address of both Prusec and PIMS is 751 Broad Street,
Newark, New Jersey 07102-3777.
The Contract is currently sold by registered representatives of the principal
underwriter and may also be sold through other broker-dealers authorized by the
principal underwriter, including broker-dealers otherwise unaffiliated with
Prudential. Registered representatives of such other unaffiliated broker-dealers
may be paid on a different basis than registered representatives of the
principal underwriter or broker-dealers affiliated with Prudential. The maximum
commission that will be paid to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 6%
of the purchase payment. In addition, trail commissions based on the size of the
Contract fund may be paid.
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 have gift, estate, and/or income tax
consequences, and you should consult with a qualified tax advisor before
attempting any such transfer. In addition, a transfer of the Contract to or the
designation of a beneficiary who is either 37 1/2 years younger than the
Contract owner or a grandchild of the Contract owner may have Generation
Skipping Transfer tax consequences under section 2601 of the Code. Generally,
ownership of
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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 Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, 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
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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, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential'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 and later issued a Final Order and Judgment in the
consolidated class actions before the Court (962 F. Supp. 450 March 17, 1997, as
amended April 14, 1997). The Court's Final Order and Judgment approving the
class action Settlement has been appealed to the United States Court of Appeals
for the Third Circuit which held a hearing on January 26, 1998. The Court has
not yet issued a ruling on the appeal.
Pursuant to the Settlement, Prudential has agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance policies. Management now has information which allows for computation
of a reasonable estimate of losses associated with ADR claims. Based on this
information, management estimated the cost of remedying policyholder claims in
the ADR process before taxes to be approximately $2.05 billion. While management
believes these to be reasonable estimates based on information currently
available, the ultimate amount of the total cost of remedied policyholder claims
is dependent on complex and varying factors, including actual claims by eligible
policyholders, the relief options chosen and the dollar value of those options.
There are also additional elements of the ADR process which cannot be fully
evaluated at this time (e.g., claims which may be successfully appealed) which
could increase this estimate.
In addition, a number of actions have been filed against Prudential 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 Prudential's activities. As of February 24, 1997, Prudential 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. These agreements are now being implemented through
Prudential's implementation of the class Settlement.
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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 regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, 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 Prudential's
financial position, after consideration of applicable reserves.
YEAR 2000 COMPLIANCE
The services provided to the Contract owners by Prudential, Prusec and PIMS
depend on the smooth functioning of their respective computer systems. The year
2000 however, holds the potential for a significant disruption in the operation
of these systems. Many computer programs cannot distinguish the year 2000 from
the year 1900 because of the way in which dates are encoded. Left uncorrected,
the year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
Prudential, as Prusec's and PIMS's ultimate corporate parent, identified this
issue as a critical priority in 1995 and has established quality assurance
procedures including a certification process to monitor and evaluate enterprise
wide conversion and upgrading of systems for "Year 2000" compliance. Prudential
has also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional internal testing, to
participate in securities industry-wide test efforts and to complete major
service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Prudential's,
Prusec's and PIMS's abilities to meet their commitments to Contract owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
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 Prudential's office. The address and
telephone number are set forth on the cover of this prospectus.
29
<PAGE>
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
30
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DIRECTORS
The directors and certain officers of Prudential, listed with their principal
occupations during the past 5 years, are shown below.
FRANKLIN E. AGNEW -- Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc., John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address:
600 Grant Street, Suite 660, Pittsburgh, PA 15219.
FREDERICK K. BECKER -- Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.
JAMES G. CULLEN -- Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS -- Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102.
ROGER A. ENRICO -- Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee; Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.
ALLAN D. GILMOUR -- Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995;
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool Corporation,
USWest, Inc., The Dow Chemical Company and DTE Energy Company. Age 63. Address:
751 Broad Street, 23rd Floor, Newark, NJ 07102.
WILLIAM H. GRAY, III -- Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979 to 1991. Mr.
Gray is also a director of Chase Manhattan Corporation, The Chase Manhattan
Bank, Lotus Development Corporation, Municipal Bond Investors Assurance
Corporation, Rockwell International Corporation, Union-Pacific Corporation,
Warner-Lambert Company, Westinghouse Electric Corporation, and Electronic Data
Systems. Age 56. Address: 8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.
JON F. HANSON -- Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
GLEN H. HINER, JR. -- Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.
31
<PAGE>
CONSTANCE J. HORNER -- Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
GAYNOR N. KELLEY -- Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.
BURTON G. MALKIEL -- Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65. Address: Princeton University, 110 Fisher Hall,
Prospect Avenue, Princeton, NJ 08544-1021.
ARTHUR F. RYAN -- Chairman of the Board, President and Chief Executive Officer
of Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.
IDA F.S. SCHMERTZ -- Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994 Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
CHARLES R. SITTER -- Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.
DONALD L. STAHELI -- Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.
RICHARD M. THOMSON -- Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.
JAMES A. UNRUH -- Director since 1996 (current term expires April, 2000).
Member, Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.
P. ROY VAGELOS, M.D. -- Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.
STANLEY C. VAN NESS -- Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.
PAUL A. VOLCKER -- Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
Bankers Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite
420, New York, NY 10020.
32
<PAGE>
JOSEPH H. WILLIAMS -- Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74102.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
ARTHUR F. RYAN -- Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.
E. MICHAEL CAULFIELD -- Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.
MICHELE S. DARLING -- Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.
ROBERT C. GOLDEN -- Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.
MARK B. GRIER -- Executive Vice President, Financial Management since 1997;
Chief Financial Officer from 1995 to 1997; prior to 1995, Executive Vice
President, Chase Manhattan Corporation, New York, NY. Age 44.
RODGER A. LAWSON -- Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.
JOHN V. SCICUTELLA -- Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.
JOHN R. STRANGFELD -- Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
R. BROCK ARMSTRONG -- Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.
JAMES J. AVERY, JR. -- Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.
MARTIN A. BERKOWITZ -- Senior Vice President and Comptroller since 1995; prior
to 1995, Senior Vice President and CFO, Prudential Investment Corporation. Age
48.
WILLIAM M. BETHKE -- Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.
RICHARD J. CARBONE -- Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.
LEO J. CORBETT -- Senior Vice President, Individual Insurance Marketing since
1997; prior to 1997, Managing Director, Lehman Brothers, New York, NY. Age 49.
MARK R. FETTING -- President, Prudential Retirement Services since 1996; prior
to 1996, President, Prudential Defined Contribution Services. Age 43.
WILLIAM D. FRIEL -- Senior Vice President and Chief Information Officer since
1993. Age 59.
JONATHAN M. GREENE -- President, Investment Management since 1996; prior to
1996, Vice President, T. Rowe Price, Baltimore, MD. Age 54.
JEAN D. HAMILTON -- President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.
33
<PAGE>
RONALD P. JOELSON -- Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.
IRA J. KLEINMAN -- Executive Vice President, International Insurance Group,
since 1997; prior to 1997, Senior Vice President. Age 51.
NEIL A. MCGUINNESS -- Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.
PRISCILLA A. MYERS -- Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.
RICHARD O. PAINTER -- President, Prudential Insurance & Financial Services since
1995; prior to 1995, Senior Vice President, New York Life, New York, NY. Age 50.
I. EDWARD PRICE -- Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.
KIYOFUMI SAKAGUCHI -- President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.
BRIAN M. STORMS -- President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.
ROBERT J. SULLIVAN -- Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.
SUSAN J. BLOUNT -- Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.
C. EDWARD CHAPLIN -- Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
34
<PAGE>
QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
VARIABLE ANNUITY CONTRACTS
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (888) PUU-2888
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
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, 1998, which is
available without charge upon written request to The Prudential Insurance
Company of America, 751 Broad Street, Newark, New Jersey, 07102-3777, or by
telephoning (888) PRU - 2888.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (888) PRU - 2888
QVIP-1B Ed 5-98
Catalog#64M100Y
<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............................................ 3
FINANCIAL STATEMENTS OF THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT
ACCOUNT................................................................. A-1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA AND SUBSIDIARIES................................................ 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 years ended
December 31, 1997 and 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 the year ended December
31, 1995 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 replaced 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
Currently, Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential which was organized in 1971 under New Jersey law, acts
as the principal underwriter of the Contract. Prudential expects that during the
second quarter of 1998 Prusec's responsibilities as principal underwriter will
be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS,
also an indirect wholly-owned subsidiary of Prudential, is a limited liability
corporation organized under Delaware law in 1996. PIMS will act as principal
underwriter under substantially the same terms as Prusec does currently. Both
Prusec and PIMS are registered as broker-dealers under the Securities exchange
Act of 1934 and are members of the National Association of Securities Dealers,
Inc. The principal business address of both Prusec and PIMS is 751 Broad Street,
Newark, New Jersey 07102-3777.
The Contract is currently sold by registered representatives of the principal
underwriter and may also be sold through other broker-dealers authorized by the
principal underwriter, including broker-dealers otherwise unaffiliated with
Prudential. Registered representatives of such other unaffiliated broker-dealers
may be paid on a different basis than registered representatives of the
principal underwriter or broker-dealers affiliated with Prudential. The maximum
commission that will be paid to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 6%
of the purchase payment. In addition, trail commissions based on the size of the
Contract fund may be paid.
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, 1997. 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, 1997 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 12/31/97 12/31/97 12/31/97 12/31/97
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diversified Bond......................... 6/83 0.73 5.88 7.73 8.18
Government Income........................ 5/89 1.83 5.45 N/A 7.33
Conservative Balanced.................... 6/83 5.59 8.80 9.62 9.46
Flexible Managed......................... 5/83 10.08 11.33 11.87 10.74
High Yield Bond.......................... 2/87 5.92 9.65 9.16 7.77
Stock Index.............................. 10/87 24.87 17.93 15.89 16.34
Equity Income............................ 2/88 28.63 18.32 N/A 15.24
Equity................................... 6/83 16.74 17.54 15.96 14.10
Prudential Jennison...................... 5/95 23.76 N/A N/A 23.51
Small Capitalization Stock............... 5/95 17.25 N/A N/A 21.44
Global................................... 5/89 -0.85 13.22 N/A 7.40
Natural Resources........................ 5/88 -18.42 10.06 N/A 9.80
</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 12/31/97 12/31/97 12/31/97 12/31/97
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diversified Bond......................... 6/83 6.98 6.29 7.73 8.18
Government Income........................ 5/89 8.07 5.87 N/A 7.33
Conservative Balanced.................... 6/83 11.80 9.16 9.62 9.46
Flexible Managed......................... 5/83 16.26 11.65 11.87 10.74
High Yield Bond.......................... 2/87 12.14 9.99 9.16 7.77
Stock Index.............................. 10/87 30.96 18.17 15.89 16.34
Equity Income............................ 2/88 34.69 18.55 N/A 15.24
Equity................................... 6/83 22.88 17.78 15.96 14.10
Prudential Jennison...................... 5/95 29.85 N/A N/A 24.79
Small Capitalization Stock............... 5/95 23.39 N/A N/A 22.77
Global................................... 5/89 5.41 13.52 N/A 7.40
Natural Resources........................ 5/88 -12.94 10.40 N/A 9.80
</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 12/31/97 12/31/97 12/31/97 12/31/97
---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Diversified Bond......................... 6/83 6.98 35.67 110.59 214.15
Government Income........................ 5/89 8.07 32.98 N/A 84.63
Conservative Balanced.................... 6/83 11.80 55.00 150.60 273.38
Flexible Managed......................... 5/83 16.26 73.47 207.05 343.43
High Yield Bond.......................... 2/87 12.14 61.01 140.25 125.22
Stock Index.............................. 10/87 30.96 130.42 337.14 368.39
Equity Income............................ 2/88 34.69 134.17 N/A 305.23
Equity................................... 6/83 22.88 126.68 339.79 583.75
Prudential Jennison...................... 5/95 29.85 N/A N/A 80.63
Small Capitalization Stock............... 5/95 23.39 N/A N/A 72.92
Global................................... 5/89 5.41 88.49 N/A 85.74
Natural Resources........................ 5/88 -12.94 63.99 N/A 146.85
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1997 were 4.22% and 4.30%, 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 consolidated financial statements of Prudential and its subsidiaries
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>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE PRUDENTIAL
QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
SUBACCOUNTS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- --------------
<C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios at net
asset value [Note 3] .......................... $ 88,646,379 $ 109,177,693 $ 950,401,401 $1,015,470,797
Receivable from The Prudential Insurance
Company of America [Note 2] .................... 0 0 2,523,078 0
-------------- -------------- -------------- --------------
Net Assets ..................................... $ 88,646,379 $ 109,177,693 $ 952,924,479 $1,015,470,797
============== ============== ============== ==============
NET ASSETS, representing:
Equity of Contract owners ....................... $ 88,132,326 $ 108,966,218 $ 952,904,382 $1,011,946,927
Equity of annuitants ............................ 3,365 8,014 20,097 12,226
Equity of The Prudential Insurance
Company of America ............................. 510,688 203,461 0 3,511,644
-------------- -------------- -------------- --------------
$ 88,646,379 $ 109,177,693 $ 952,924,479 $1,015,470,797
============== ============== ============== ==============
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS
-------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ................. $ 5,190,787 $ 8,063,460 $ 20,914,790 $ 30,217,730
EXPENSES
Charges to Contract owners and annuitants
for assuming mortality risk and expense risk
[Note 5A] ...................................... 1,161,264 1,322,355 10,832,839 12,011,141
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) ..................... 4,029,523 6,741,105 10,081,951 18,206,589
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ........... 0 1,281,608 51,646,191 153,465,362
Realized gain on shares redeemed
[average cost basis] .......................... 0 442,346 20,901,819 20,572,745
Net change in unrealized gain (loss)
on investments ................................ 0 (719,252) 104,089,968 (38,310,295)
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS ................... 0 1,004,702 176,637,978 135,727,812
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ....................... $ 4,029,523 $ 7,745,807 $ 186,719,929 $ 153,934,401
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD STOCK EQUITY
BALANCED BOND INDEX INCOME
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios at net
asset value [Note 3] ......................... $ 927,681,496 $ 66,587,734 $ 341,007,463 $ 281,277,860
Receivable from The Prudential Insurance
Company of America [Note 2] ................... 0 0 0 0
-------------- -------------- -------------- --------------
Net Assets ..................................... $ 927,681,496 $ 66,587,734 $ 341,007,463 $ 281,277,860
============== ============== ============== ==============
NET ASSETS, representing:
Equity of Contract owners ...................... $ 926,443,942 $ 66,561,478 $ 340,702,763 $ 281,019,550
Equity of annuitants ........................... 106,462 0 0 0
Equity of The Prudential Insurance
Company of America ............................ 1,131,092 26,256 304,700 258,310
-------------- -------------- -------------- --------------
$ 927,681,496 $ 66,587,734 $ 341,007,463 $ 281,277,860
============== ============== ============== ==============
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD STOCK EQUITY
BALANCED BOND INDEX INCOME
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ................ $ 42,913,076 $ 6,119,349 $ 4,550,855 $ 6,312,367
EXPENSES
Charges to Contract owners and annuitants
for assuming mortality risk and expense risk
[Note 5A] ..................................... 11,148,910 771,136 3,580,355 2,867,238
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) .................... 31,764,166 5,348,213 970,500 3,445,129
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .......... 100,449,018 0 9,466,636 25,262,802
Realized gain on shares redeemed
[average cost basis] ......................... 13,781,187 72,721 3,836,378 1,814,272
Net change in unrealized gain (loss)
on investments ............................... (39,385,264) 2,192,224 64,776,170 40,948,076
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS .................. 74,844,941 2,264,945 78,079,184 68,025,150
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ...................... $ 106,609,107 $ 7,613,158 $ 79,049,684 $ 71,470,279
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A2
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------
NATURAL GOVERNMENT
RESOURCES GLOBAL INCOME
-------------- -------------- --------------
<S> <C> <C> <C>
Investment in shares of The Prudential
Series Fund, Inc. Portfolios at net
asset value [Note 3] ......................... $ 65,562,868 $ 98,738,739 $ 74,647,615
Receivable from The Prudential Insurance
Company of America [Note 2] ................... 0 0 0
-------------- -------------- --------------
Net Assets ..................................... $ 65,562,868 $ 98,738,739 $ 74,647,615
============== ============== ==============
NET ASSETS, representing:
Equity of Contract owners ...................... $ 65,492,845 $ 98,697,126 $ 74,495,134
Equity of annuitants ........................... 0 0 0
Equity of The Prudential Insurance
Company of America ............................ 70,023 41,613 152,481
-------------- -------------- --------------
$ 65,562,868 $ 98,738,739 $ 74,647,615
============== ============== ==============
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------
NATURAL GOVERNMENT
RESOURCES GLOBAL INCOME
--------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ................ $ 397,999 $ 1,228,942 $ 4,969,983
EXPENSES
Charges to Contract owners and annuitants
for assuming mortality risk and expense risk
[Note 5A] ..................................... 938,401 1,217,185 926,258
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) .................... (540,402) 11,757 4,043,725
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .......... 8,396,574 4,713,287 0
Realized gain on shares redeemed
[average cost basis] ......................... 1,365,162 1,459,266 43,960
Net change in unrealized gain (loss)
on investments ............................... (18,726,364) (961,981) 2,028,538
-------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS .................. (8,964,628) 5,210,572 2,072,498
--------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ...................... $ (9,505,030) $ 5,222,329 $ 6,116,223
=============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------
SMALL
PRUDENTIAL CAPITALIZATION
JENNISON STOCK
-------------- --------------
<S> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios at net
asset value [Note 3] ............................... $ 62,424,137 $ 45,671,632
Receivable from The Prudential Insurance
Company of America [Note 2] ......................... 0 0
-------------- --------------
Net Assets ........................................... $ 62,424,137 $ 45,671,632
============== ==============
NET ASSETS, representing:
Equity of Contract owners ............................ $ 62,293,169 $ 45,266,571
Equity of annuitants 0 0
Equity of The Prudential Insurance
Company of America .................................. 130,968 405,061
-------------- --------------
$ 62,424,137 $ 45,671,632
============== ==============
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS (CONTINUED)
------------------------------------
SMALL
PRUDENTIAL CAPITALIZATION
JENNISON STOCK
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividend distributions received ...................... $ 113,992 $ 216,386
EXPENSES
Charges to Contract owners and annuitants
for assuming mortality risk and expense risk
[Note 5A] ........................................... 562,277 378,112
-------------- --------------
NET INVESTMENT INCOME (LOSS) .......................... (448,285) (161,726)
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ................ 3,515,075 3,056,348
Realized gain on shares redeemed
[average cost basis] ............................... 121,331 80,931
Net change in unrealized gain (loss)
on investments ..................................... 8,270,011 3,628,907
-------------- --------------
NET GAIN (LOSS) ON INVESTMENTS ........................ 11,906,417 6,766,186
--------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 11,458,132 $ 6,604,460
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE PRUDENTIAL
QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
SUBACCOUNTS
------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... $ 4,029,523 $ 3,868,971 $ 6,741,105 $ 5,912,620
Capital gains distributions received .............. 0 0 1,281,608 0
Realized gain (loss) on shares redeemed
[average cost basis] ............................. 0 0 442,346 101,250)
Net change in unrealized gain (loss)
on investments ................................... 0 0 (719,252) (2,387,656)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ........................................ 4,029,523 3,868,971 7,745,807 3,626,214
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [Note 7] ................................ (18,675,537) (120,981) (13,821,415) 208,857
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [Note 8] ................................ 203,802 (316,589) 390,770 (342,954)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ........................................ (14,442,212) 3,431,401 (5,684,838) 3,492,117
NET ASSETS:
Beginning of year ................................. 103,088,591 99,657,190 114,862,531 111,370,414
------------ ------------ ------------ ------------
End of year ....................................... $ 88,646,379 $103,088,591 $109,177,693 $114,862,531
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
-------------------------------- ------------------------------------
1997 1996 1997 1996
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... $ 10,081,951 $ 9,605,966 $ 18,206,589 $ 17,268,538
Capital gains distributions received .............. 51,646,191 71,638,260 153,465,362 90,320,406
Realized gain (loss) on shares redeemed
[average cost basis] ............................. 20,901,819 1,739,262 20,572,745 4,360,663
Net change in unrealized gain (loss)
on investments ................................... 104,089,968 33,745,472 (38,310,295) (5,934,350)
------------ ------------ -------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ........................................ 186,719,929 116,728,960 153,934,401 106,015,257
------------ ------------ -------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [Note 7] ................................ (45,956,053) 41,572,178 (97,891,163) (14,100,008)
------------ ------------ -------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [Note 8] ............................... (1,007,029) (220,940) (1,023,697) 3,961,264
------------ ------------ -------------- ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ........................................ 139,756,847 158,080,198 55,019,541 95,876,513
NET ASSETS:
Beginning of year ................................. 813,167,632 655,087,434 960,451,256 864,574,743
------------ ------------ -------------- ------------
End of year ....................................... $952,924,479 $813,167,632 $1,015,470,797 $960,451,256
============ ============ ============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A4
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
CONSERVATIVE BALANCED HIGH YIELD BOND
---------------------------------- ----------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... $ 31,764,166 $ 25,495,070 $ 5,348,213 $ 5,059,233
Capital gains distributions received .............. 100,449,018 55,896,831 0 0
Realized gain (loss) on shares redeemed
[average cost basis] ............................. 13,781,187 3,695,555 72,721 (56,165)
Net change in unrealized gain (loss)
on investments ................................... (39,385,264) 9,261,394 2,192,224 555,844
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ........................................ 106,609,107 94,348,850 7,613,158 5,558,912
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [Note 7] ................................ (93,909,090) (18,100,424) (2,279,208) 407,153
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [Note 8] ................................ (1,000) 662,063 (176,656) 48,023
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ........................................ 12,699,017 76,910,489 5,157,294 6,014,088
NET ASSETS:
Beginning of year ................................. 914,982,479 838,071,990 61,430,440 55,416,352
------------ ------------ ------------ ------------
End of year
$927,681,496 $914,982,479 $ 66,587,734 $ 61,430,440
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------
STOCK INDEX
----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 970,500 $ 1,464,800
Capital gains distributions received ............. 9,466,636 2,734,020
Realized gain (loss) on shares redeemed
[average cost basis] ............................ 3,836,378 356,328
Net change in unrealized gain (loss)
on investments .................................. 64,776,170 34,726,603
------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ....................................... 79,049,684 39,281,751
------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [Note 7] ............................... 19,711,874 36,331,472
------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [Note 8] ............................... (880,518) 225,226
------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ....................................... 97,881,040 75,838,449
NET ASSETS:
Beginning of year ................................ 243,126,423 167,287,974
------------ ------------
End of year ...................................... $341,007,463 $243,126,423
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE PRUDENTIAL
QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------
EQUITY INCOME NATURAL RESOURCES
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. $ 3,445,129 $ 4,171,902 $ (540,402) $ (318,323)
Capital gains distributions received .......... 25,262,802 6,252,424 8,396,574 8,837,339
Realized gain (loss) on shares redeemed
[average cost basis] ......................... 1,814,272 472,963 1,365,162 224,441
Net change in unrealized gain (loss)
on investments ............................... 40,948,076 22,603,107 (18,726,364) 6,868,989
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .................................... 71,470,279 33,500,396 (9,505,030) 15,612,446
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [NOTE 7] ............................ 9,822,386 4,748,035 (214,673) 8,503,047
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [NOTE 8] ............................ 198,852 (274,050) (614,926) 611,794
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................................... 81,491,517 37,974,381 (10,334,629) 24,727,287
NET ASSETS:
Beginning of year ............................. 199,786,343 161,811,962 75,897,497 51,170,210
------------ ------------ ------------ ------------
End of year ................................... $281,277,860 $199,786,343 $ 65,562,868 $ 75,897,497
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
GLOBAL GOVERNMENT INCOME
-------------------------------- ----------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. $ 11,757 $ 1,219,856 $ 4,043,725 $ 4,672,664
Capital gains distributions received .......... 4,713,287 1,412,191 0 0
Realized gain (loss) on shares redeemed
[average cost basis] ......................... 1,459,266 155,205 43,960 133,813
Net change in unrealized gain (loss)
on investments ............................... (961,981) 10,971,802 2,028,538 (3,953,017)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .................................... 5,222,329 13,759,054 6,116,223 853,460
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [NOTE 7] ............................ 1,219,465 9,591,553 (19,632,658) (7,464,442)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [NOTE 8] ............................ (112,280) 73,327 (1,117,084) 373,815
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................................... 6,329,514 23,423,934 (14,633,519) (6,237,167)
NET ASSETS:
Beginning of year ............................. 92,409,225 68,985,291 89,281,134 95,518,301
------------ ------------ ------------ ------------
End of year ................................... $ 98,738,739 $ 92,409,225 $ 74,647,615 $ 89,281,134
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A6
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
PRUDENTIAL JENNISON SMALL CAPITALIZATION STOCK
---------------------------------- ----------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. $ (448,285) $ (171,059) $ (161,726) $ (27,831)
Capital gains distributions received .......... 3,515,075 0 3,056,348 335,060
Realized gain (loss) on shares redeemed
[average cost basis] ......................... 121,331 (4,811) 80,931 29,851
Net change in unrealized gain (loss)
on investments ............................... 8,270,011 2,471,948 3,628,907 1,514,099
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .................................... 11,458,132 2,296,078 6,604,460 1,851,179
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS [NOTE 7] ............................ 20,013,208 22,189,739 19,746,456 12,775,405
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM EQUITY
TRANSFERS [NOTE 8] ............................ (411,931) (251,305) 12,656 87,525
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................................... 31,059,409 24,234,512 26,363,572 14,714,109
NET ASSETS:
Beginning of year ............................. 31,364,728 7,130,216 19,308,060 4,593,951
------------ ------------ ------------ ------------
End of year ................................... $ 62,424,137 $ 31,364,728 $ 45,671,632 $ 19,308,060
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A12.
A6
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL QUALIFIED INDIVIDUAL VARIABLE CONTRACT ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997
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 liquidity purposes
including unit purchases and redemptions, 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 the Account's Statements of Net Assets as
a receivable from Prudential. The receivable does not have an
effect on the Contract owner's account or the related unit value.
Equity of Annuitants--Equity of annuitants represents reserve for
amounts currently payable to certain Contract owners and is
estimated using the following factors: 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>
<TABLE>
<CAPTION>
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, 1997 were as follows:
PORTFOLIOS
------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 8,864,638 9,905,569 30,589,934 58,764,683 61,968,459
Net asset value per share: $ 10.00000 $ 11.02185 $ 31.06909 $ 17.28029 $ 14.97022
Cost: $88,646,379 $107,800,643 $654,275,853 $931,344,271 $887,109,173
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
----------- ------------ ------------ ------------ ------------
Number of shares: 8,175,761 11,284,329 12,564,131 4,300,823 5,508,906
Net asset value per share: $ 8.14453 $ 30.21956 $ 22.38737 $ 15.24426 $ 17.92348
Cost: $66,074,566 $190,562,421 $204,693,916 $ 68,773,404 $ 82,324,883
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
----------- ------------ --------------
Number of shares: 6,478,219 3,520,520 2,866,833
Net asset value per share: $ 11.52286 $ 17.73151 $ 15.93104
Cost: $73,088,612 $ 51,467,871 $ 40,397,783
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding ... 42,127,658.933 33,970,625.907 136,204,888.393 222,907,582.475 241,343,776.589
Unit Value ......................... $ 2.09203 $ 3.20766 $ 6.99611 $ 4.53976 $ 3.83869
-------------- -------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY ........ $ 88,132,326 $ 108,966,218 $ 952,904,382 $ 1,011,946,927 $ 926,443,942
============== ============== =============== =============== ===============
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
Contract Owner Units Outstanding ... 28,839,212.159 89,281,290.986 68,401,048.047 26,401,911.223 51,481,170.376
Unit Value ......................... $ 2.30802 $ 3.81606 $ 4.10841 $ 2.48061 $ 1.91715
-------------- -------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY ........ $ 66,561,478 $ 340,702,763 $ 281,019,550 $ 65,492,845 $ 98,697,126
============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- -------------- --------------
Contract Owner Units Outstanding ... 39,604,005.487 34,004,120.933 25,991,072.110
Unit Value ......................... $ 1.88100 $ 1.83193 $ 1.74162
-------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY ........ $ 74,495,134 $ 62,293,169 $ 45,266,571
============== ============== ==============
</TABLE>
A8
<PAGE>
NOTE 5: 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 daily 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 1997, the
amount of these charges paid to Prudential was $47,717,471.
B. Deferred Sales Charges
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 1997,
the amount of these charges paid to Prudential was $ 5,623,303.
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 1997, the amount of these charges paid to Prudential
was $3,965,577.
NOTE 6: TAXES
Prudential is taxed as a "life insurance company" as defined by
the Internal Revenue Code and the results of operations of the
Account form a part of Prudential's consolidated federal tax
return. Under current federal law, no federal income taxes are
payable by the Account. As such, no provision for tax liability
has been recorded in these financial statements.
A9
<PAGE>
<TABLE>
<CAPTION>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
The following amounts represent Contract owner activity components for
the year ended December 31, 1997:
SUBACCOUNTS
-----------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments ........... $ 10,990,988 $ 5,862,238 $ 58,657,217 $ 49,824,976 $ 45,684,119
Annuity Payments ...................... $ (540) $ (1,116) $ (21,494) $ (2,111) $ (14,767)
Surrenders, Withdrawals, and Death
Benefits............................. $(21,067,761) $(14,370,705) $(103,851,662) $ (130,676,366) $(120,476,315)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ... $ (8,506,500) $ (5,196,435) $ 186,285 $ (15,933,359) $ (18,275,790)
Administrative and Other Charges ...... $ (91,724) $ (115,397) $ (926,399) $ (1,104,303) $ (826,337)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
------------ ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments ........... $ 3,763,166 $ 27,962,220 $ 17,789,866 $ 8,000,090 $ 9,745,717
Annuity Payment ....................... $ 0 $ 0 $ 0 $ 0 $ 0
Surrenders, Withdrawals, and Death
Benefits............................. $(8,153,956) $(31,257,264) $(23,882,445) $(9,050,752) $(10,641,562)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ... $ 2,166,876 $ 23,278,721 $ 16,113,684 $ 916,021 $ 2,224,474
Administrative and Other Charges ...... $ (55,294) $ (271,803) $ (198,719) $ (80,032) $ (109,164)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------ ------------ -------------
<S> <C> <C> <C>
Contract Owner Net Payments ........... $ 2,877,055 $11,269,475 $ 8,062,707
Annuity Payments ...................... $ 0 $ 0 $ 0
Surrenders, Withdrawals, and Death
Benefits............................. $(10,752,082) $(4,338,217) $ (2,644,900)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ... $(11,681,296) $13,150,606 $ 14,370,063
Administrative and Other Charges ...... $ (76,335) $ (68,656) $ (41,414)
</TABLE>
NOTE 8: 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.
A10
<PAGE>
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts)
for the years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
---------------------------------- --------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions ... 35,191,348.112 35,981,599.223 4,259,556.437 6,988,089.494 16,724,804.629 24,837,176.231
Contract Owner
Redemptions ..... (44,076,527,515) (36,107,788.198) (8,657,580.311) (6,908,396.604) (23,295,870.486) (16,645,915.104)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE HIGH YIELD
MANAGED BALANCED BOND
---------------------------------- --------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions ... 17,415,276.883 26,959,138.268 19,501,115.008 32,422,059.817 7,088,747.106 6,742,010.311
Contract Owner
Redemptions ..... (39,856,393.661) (30,687,992.089) (44,796,100.035) (37,964,064.423) (8,018,827.282) (6,548,097.056)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
---------------------------------- --------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions ... 22,493,122.043 23,869,769.506 13,310,352.076 11,762,611.099 8,354,859.817 7,742,905.812
Contract Owner
Redemptions ..... (16,326,245.940) (9,938,253.841) (10,485,668.758) (9,954,964.529) (8,419,776.909) (4,518,525.468)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON
---------------------------------- --------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions ... 13,454,213.274 15,062,725.819 3,621,535.347 6,188,243.536 19,398,286.999 21,865,155.111
Contract Owner
Redemptions ..... (12,650,288.119) (9,253,387.983) (14,672,784.653) (10,583,251.083) (7,265,301.741) (5,031,666.389)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------
SMALL
CAPITALIZATION
STOCK
------------------------------------
1997 1996
-------------- --------------
Contract Owner
Contributions ... 18,837,625.472 12,879,812.931
Contract Owner
Redemptions ..... (6,269,620.626) (3,046,687.889)
</TABLE>
A11
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund 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, 1997
Purchases ................................ $ 13,408,000 $ 813,000 $ 3,677,000 $ 294,000 $ 0
Sales .................................... $(33,041,000) $(15,566,000) $(63,996,000) $(111,220,000) $(105,059,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases ................................ $ 4,237,000 $24,058,000 $13,010,000 $ 6,557,000 $ 6,305,000
Sales .................................... $ (7,464,000) $(8,807,000) $(5,856,000) $ (8,325,000) $(6,415,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------ ----------- -----------
<S> <C> <C> <C>
For the year ended December 31, 1997
Purchases ................................ $ 0 $19,705,000 $19,865,000
Sales .................................... $(21,676,000) $ (666,000) $ (484,000)
</TABLE>
A12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Prudential Qualified Individual Variable Contract Account
and the Board of Directors of
The Prudential Insurance Company of America
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Money Market, Diversified Bond,
Equity, Flexible Managed, Conservative Balanced, High Yield Bond, Stock Index,
Equity Income, Natural Resources, Global, Government Income, Prudential Jennison
and Small Capitalization Stock Subaccounts of the Prudential Qualified
Individual Variable Contract Account at December 31, 1997, the results of each
of their operations for the year then ended and the changes in each of their net
assets for each of the two years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of The Prudential Insurance Company of America's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentations. We believe that our audits, which included confirmation of shares
owned in The Prudential Series Fund, Inc. at December 31, 1997, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
March 5, 1998
To the Board of Directors and Policyholders of
The Prudential Insurance Company of America
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in equity and
of cash flows present fairly, in all material respects, the financial position
of The Prudential Insurance Company of America and its subsidiaries at December
31, 1997 and 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. 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 audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying consolidated statements of operations, changes
in equity, and cash flows of The Prudential Insurance Company of America and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the 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.
In our opinion, such consolidated statements of operations, changes in equity,
and cash flows present fairly, in all material respects, the results of
operations and cash flows of The Prudential Insurance Company of America and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
June 4, 1997
2
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN MILLIONS)
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost, 1997: $71,496; 1996: $64,545) .......... $ 75,270 $ 66,553
Held to maturity, at amortized cost (fair value, 1997: $19,894; 1996: $21,362) ............ 18,700 20,403
Trading account assets, at fair value........................................................ 6,044 4,219
Equity securities, available for sale, at fair value (cost, 1997: $2,376; 1996: $2,103) ..... 2,810 2,622
Mortgage loans on real estate ............................................................... 16,004 17,097
Investment real estate ...................................................................... 1,519 2,586
Policy loans ................................................................................ 6,827 6,692
Securities purchased under agreements to resell ............................................. 8,661 5,347
Cash collateral for borrowed securities ..................................................... 5,047 2,416
Short-term investments ...................................................................... 12,106 9,294
Other long-term investments ................................................................. 3,360 2,995
----------- -----------
Total investments ......................................................................... 156,348 140,224
Cash ........................................................................................ 3,636 2,091
Deferred policy acquisition costs ........................................................... 5,994 6,291
Accrued investment income ................................................................... 1,909 1,828
Receivables from broker-dealer clients ...................................................... 6,273 5,281
Other assets ................................................................................ 11,276 9,990
Separate Account assets ..................................................................... 74,046 63,358
----------- -----------
TOTAL ASSETS .................................................................................. $ 259,482 $ 229,063
=========== ===========
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits ...................................................................... $ 65,581 $ 63,955
Policyholders' account balances ............................................................. 32,941 36,009
Other policyholders' liabilities ............................................................ 6,659 6,043
Policyholders' dividends .................................................................... 1,269 714
Securities sold under agreements to repurchase .............................................. 12,347 7,503
Cash collateral for loaned securities ....................................................... 14,117 8,449
Short-term debt ............................................................................. 6,774 6,562
Long-term debt .............................................................................. 4,273 3,760
Income taxes payable ........................................................................ 500 1,544
Payables to broker-dealer clients ........................................................... 3,338 3,018
Securities sold but not yet purchased ....................................................... 3,533 1,900
Other liabilities ........................................................................... 14,774 8,238
Separate Account liabilities ................................................................ 73,658 62,845
----------- -----------
TOTAL LIABILITIES ......................................................................... 239,764 210,540
=========== ===========
COMMITMENTS AND CONTINGENCIES (SEE NOTES 12, 13 AND 14)
EQUITY
Retained earnings ........................................................................... 18,051 17,443
Net unrealized investment gains ............................................................. 1,752 1,136
Foreign currency translation adjustments .................................................... (85) (56)
----------- -----------
TOTAL EQUITY .............................................................................. 19,718 18,523
----------- -----------
TOTAL LIABILITIES AND EQUITY .................................................................. $ 259,482 $ 229,063
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Premiums .................................................................... $ 18,534 $ 18,962 $ 19,783
Policy charges and fee income ............................................... 1,828 1,912 1,824
Net investment income ....................................................... 9,863 9,742 10,178
Realized investment gains, net .............................................. 2,187 1,138 1,503
Commissions and other income ................................................ 4,661 4,521 3,952
------------ ----------- -----------
Total revenues ............................................................ 37,073 36,275 37,240
------------ ----------- -----------
BENEFITS AND EXPENSES
Policyholders' benefits ..................................................... 18,208 19,306 19,470
Interest credited to policyholders' account balances ........................ 2,043 2,251 2,739
Dividends to policyholders .................................................. 2,429 2,339 2,317
General and administrative expenses ......................................... 11,926 10,875 10,345
Sales practice remediation costs ............................................ 1,640 410 --
------------ ----------- -----------
Total benefits and expenses ............................................... 36,246 35,181 34,871
------------ ----------- -----------
INCOME FROM OPERATIONS BEFORE INCOME TAXES .................................... 827 1,094 2,369
------------ ----------- -----------
Income taxes
Current ................................................................... (46) 406 1,293
Deferred .................................................................. 263 (390) (167)
------------ ----------- -----------
217 16 1,126
------------ ----------- -----------
NET INCOME .................................................................... $ 610 $ 1,078 $ 1,243
============ =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
FOREIGN NET
CURRENCY UNREALIZED
RETAINED TRANSLATION INVESTMENT TOTAL
EARNINGS ADJUSTMENTS GAINS EQUITY
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 ........................ $ 15,126 $ (42) $ 16 $ 15,100
Net income .................................... 1,243 -- -- 1,243
Change in foreign currency translation
adjustments ................................. -- 18 -- 18
Change in net unrealized investment gains ..... -- -- 2,381 2,381
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995 ...................... 16,369 (24) 2,397 18,742
Net income .................................... 1,078 -- -- 1,078
Change in foreign currency translation
adjustments ................................. -- (32) -- (32)
Change in net unrealized investment gains ..... -- -- (1,261) (1,261)
Additional pension liability adjustment ....... (4) -- -- (4)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 ...................... 17,443 (56) 1,136 18,523
Net income .................................... 610 -- -- 610
Change in foreign currency translation
adjustments ................................. -- (29) -- (29)
Change in net unrealized investment gains ..... -- -- 616 616
Additional pension liability adjustment ....... (2) -- -- (2)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 ...................... $ 18,051 $ (85) $ 1,752 $ 19,718
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 610 $ 1,078 $ 1,243
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized investment gains, net ............................... (2,187) (1,138) (1,503)
Policy charges and fee income ................................ (258) (208) (201)
Interest credited to policyholders' account balances ......... 2,043 2,128 2,616
Depreciation and amortization ................................ 258 266 398
Other, net ................................................... 4,681 (1,180) (2,628)
Loss (gain) on divestitures .................................. -- (116) 297
Change in:
Deferred policy acquisition costs .......................... 143 (122) (214)
Policy liabilities and insurance reserves .................. 2,477 2,471 2,382
Securities purchased under agreements to resell ............ (3,314) (217) 461
Trading account assets ..................................... (1,825) (433) 2,579
Income taxes receivable/payable ............................ (1,391) (937) 194
Cash collateral for borrowed securities .................... (2,631) (332) 25
Broker-dealer client receivables/payables .................. (672) (607) (420)
Securities sold but not yet purchased ...................... 1,633 251 (225)
Securities sold under agreements to repurchase ............. 4,844 (490) (712)
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES ...................... $ 4,411 $ 414 $ 4,292
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities, available for sale .......................... $ 123,550 $ 123,368 $ 97,084
Fixed maturities, held to maturity ............................ 4,042 4,268 3,767
Equity securities, available for sale ......................... 2,572 2,162 2,370
Mortgage loans on real estate ................................. 4,299 5,731 5,553
Investment real estate ........................................ 1,842 615 435
Other long-term investments ................................... 5,081 3,203 3,385
Divestitures .................................................. -- 52 790
Payments for the purchase of:
Fixed maturities, available for sale .......................... (129,854) (125,093) (101,197)
Fixed maturities, held to maturity ............................ (2,317) (2,844) (6,803)
Equity securities, available for sale ......................... (2,461) (2,384) (1,391)
Mortgage loans on real estate ................................. (3,363) (1,906) (3,015)
Investment real estate ........................................ (241) (142) (387)
Other long-term investments ................................... (4,148) (2,060) (1,849)
Cash collateral for securities loaned (net) .................... 5,668 2,891 3,471
Short-term investments (net) ................................... (2,848) (1,915) 2,793
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES ...................... $ 1,822 $ 5,946 $ 5,006
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits ................................ $ 5,020 $ 2,799 $ 2,724
Policyholders' account withdrawals ............................. (9,873) (8,099) (9,164)
Net increase(decrease) in short-term debt ...................... 305 583 (3,077)
Proceeds from the issuance of long-term debt ................... 324 93 763
Repayments of long-term debt ................................... (464) (1,306) (30)
--------- --------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES ................... (4,688) (5,930) (8,784)
--------- --------- ---------
NET INCREASE IN CASH ............................................. 1,545 430 514
CASH, BEGINNING OF YEAR .......................................... 2,091 1,661 1,147
--------- --------- ---------
CASH, END OF YEAR ................................................ $ 3,636 $ 2,091 $ 1,661
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid ................................................ $ 968 $ 793 $ 430
--------- --------- ---------
Interest paid .................................................... $ 1,243 $ 1,404 $ 1,413
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
The Prudential Insurance Company of America and its subsidiaries
(collectively, "the Company") provide insurance and financial services
throughout the United States and many locations worldwide. Principal
products and services provided include life and health insurance, annuities,
pension and retirement related investments and administration, managed
healthcare, property and casualty insurance, securities brokerage, asset
management, investment advisory services and real estate brokerage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Prudential
Insurance Company of America, a mutual life insurance company, and its
subsidiaries, and those partnerships and joint ventures in which the Company
has a controlling interest. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP"). All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the period. Actual results could differ from
those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent
and ability to hold to maturity are stated at amortized cost and classified
as "held to maturity." The amortized cost of fixed maturities are written
down to estimated fair value when considered impaired and the decline in
value is considered to be other than temporary. Unrealized gains and losses
on fixed maturities "available for sale," net of income tax, the effect on
deferred policy acquisition costs and participating annuity contracts that
would result from the realization of unrealized gains and losses, are
included in a separate component of equity, "Net unrealized investment
gains."
TRADING ACCOUNT ASSETS are carried at estimated fair value.
EQUITY SECURITIES, available for sale, comprised of common and
non-redeemable preferred stock, are carried at estimated fair value. The
associated unrealized gains and losses, net of income tax, the effect on
deferred policy acquisition costs and participating annuity contracts that
would result from the realization of unrealized gains and losses, are
included in a separate component of equity, "Net unrealized investment
gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal
balances, net of unamortized discounts and allowance for losses on impaired
loans. Impaired loans are identified by management as loans in which a
probability exists that all amounts due according to the contractual terms
of the loan agreement will not be collected. Impaired loans are measured
based on the present value of expected future cash flows, discounted at the
loan's effective interest rate or the fair value of the collateral, if the
loan is collateral dependent. The Company's periodic evaluation of the
adequacy of the allowance for losses is based on a number of factors,
including past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of the underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires estimating the
amounts and timing of future cash flows expected to be received on impaired
loans.
Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to
the collectibility of principal. Management discontinues the accrual of
interest on impaired loans after the loans are 90 days delinquent as to
principal or interest or earlier when management has serious doubts about
collectibility. When a loan is recognized as
8
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impaired, any accrued but unpaid interest previously recorded on such loan
is reversed against interest income of the current period. Generally, a loan
is restored to accrual status only after all delinquent interest and
principal are brought current and, in the case of loans where interest has
been interrupted for a substantial period, a regular payment performance has
been established.
INVESTMENT REAL ESTATE, which the Company has the intent to hold for the
production of income, is carried at depreciated cost less any write-downs to
fair value for impairment losses. Depreciation on real estate is computed
using the straight-line method over the estimated lives of the properties.
Real estate to be disposed of is carried at the lower of depreciated cost or
fair value less selling costs and is not depreciated once classified as
such.
POLICY LOANS are carried at unpaid principal balances.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE are carried at the amounts at which the securities
will be subsequently resold or reacquired, including accrued interest, as
specified in the respective agreements. The Company's policy is to take
possession of securities purchased under agreements to resell. The market
value of securities to be repurchased is monitored, and additional
collateral is requested, where appropriate, to protect against credit
exposure.
SECURITIES BORROWED AND SECURITIES LOANED are recorded at the amount of cash
advanced or received. With respect to securities loaned, the Company obtains
collateral in an amount equal to 102% and 105% of the fair value of the
domestic and foreign securities, respectively. The Company monitors the
market value of securities borrowed and loaned on a daily basis with
additional collateral obtained as necessary. Non-cash collateral received is
not reflected in the Consolidated Statements of Financial Position.
Substantially, all the Company's securities borrowed contracts are with
other brokers and dealers, commercial banks and institutional clients.
Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30
days or less) and are collateralized principally by U.S. Government and
mortgage-backed securities. The carrying amounts of these instruments
approximate fair value because of the relatively short period of time
between the origination of the instruments and their expected realization.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased
with an original maturity of twelve months or less, are carried at amortized
cost, which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments
in joint ventures and partnerships in which the Company does not have
control and derivatives held for purposes other than trading. Joint venture
and partnership investments are recorded using the equity method of
accounting, reduced for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific
identification method. Costs of fixed maturities and equity securities are
adjusted for impairments considered to be other than temporary. Allowances
for losses on mortgage loans on real estate are netted against asset
categories to which they apply and provisions for losses on investments are
included in "Realized investment gains, net." Unrealized gains and losses on
trading account assets are included in "Commissions and other income."
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production
of new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions,
costs of policy issuance and underwriting, and certain variable field office
expenses. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and loss recognition testing at the end
of each accounting period. Deferred policy acquisition costs are adjusted
for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
9
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For life insurance, deferred policy acquisition costs are amortized over the
expected life of the contracts (up to 45 years) in proportion to estimated
gross margins based on historical and anticipated future experience, which
is updated periodically. The effect of changes in estimated gross margins is
reflected in earnings in the period they are revised. Policy acquisition
costs related to interest-sensitive products and certain investment-type
products are deferred and amortized over the expected life of the contracts
(periods ranging from 15 to 30 years) in proportion to estimated gross
profits arising principally from investment results, mortality and expense
margins and surrender charges based on historical and anticipated future
experience, updated periodically. The effect of revisions to estimated gross
profits on unamortized deferred acquisition costs is reflected in earnings
in the period such estimated gross profits are revised.
For property and casualty contracts, deferred policy acquisition costs are
amortized over the period in which related premiums are earned. Future
investment income is considered in determining the recoverability of
deferred policy acquisition costs.
For disability insurance, health insurance, group life insurance and most
group annuities, acquisition costs are expensed as incurred.
POLICYHOLDERS' DIVIDENDS
The amount of the 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, persistency and expense experience for the year and judgment as
to the appropriate level of statutory surplus to be retained by the Company.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value
and represent segregated funds which are invested for certain policyholders,
pension fund and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, real estate mortgage loans and
short-term investments. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. Investment risks associated with market value
changes are generally borne by the customers, except to the extent of
minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue
to the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
INSURANCE REVENUE AND EXPENSE RECOGNITION
Premiums from participating insurance policies are generally recognized when
due. Benefits are recorded as an expense when they are incurred. A liability
for future policy benefits is recorded using the net level premium method.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities and
structured settlements, premiums are recognized when due with any excess
profit deferred and recognized in a constant relationship to insurance
in-force or, for annuities, the amount of expected future benefit payments.
Amounts received as payment for interest sensitive investment contracts,
deferred annuities and participating group annuities are reported as
deposits to "Policyholders' account balances." Revenues from these contracts
are reflected in "Policy charges and fee income" and consist primarily of
fees assessed during the period against the policyholders' account balances
for mortality charges, policy administration charges, surrender charges and
interest earned from the investment of these account balances. Benefits and
expenses for these products include claims in excess of related account
balances, expenses of contract administration, interest credited and
amortization of deferred policy acquisition costs.
For disability insurance, group life insurance, health insurance and
property and casualty insurance, premiums are recognized over the period to
which the premiums relate in proportion to the amount of insurance
protection provided. Claim and claim adjustment expenses are recognized when
incurred.
10
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of foreign operations and subsidiaries reported in
other than U.S. dollars are translated at the exchange rate in effect at the
end of the period. Revenues, benefits and other expenses are translated at
the average rate prevailing during the period. Translation adjustments
arising from the use of differing exchange rates from period to period are
charged or credited directly to equity. The cumulative effect of changes in
foreign exchange rates are included in "Foreign currency translation
adjustments."
COMMISSIONS AND OTHER INCOME
Commissions and other income principally includes securities and
commodities, commission revenues, asset management fees, investment banking
revenue and realized and unrealized gains on trading account assets of the
Company's broker-dealer subsidiary.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include swaps, forwards, futures, options and loan commitments
subject to market risk, all of which are used by the Company in both trading
and other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis as an adjustment
to the carrying amount or to the yield of the related assets or liabilities
over the periods covered by the derivative contracts. Gains and losses
relating to early terminations of interest rate swaps used to hedge are
deferred and amortized over the remaining period originally covered by the
swap. Gains and losses relating to derivatives used to hedge the risks
associated with anticipated transactions are deferred and utilized to adjust
the basis of the transaction once it has closed. If it is determined that
the transaction will not close, such gains and losses are included in
"Realized investment gains, net."
DERIVATIVES HELD FOR TRADING PURPOSES are used in the Company's securities
broker-dealer business and in a limited-purpose swap subsidiary to meet the
risk management needs of its customers by structuring transactions that
allow customers to manage their exposure to interest rates, foreign exchange
rates, indices or prices of securities and commodities and when possible,
matched trading positions are established to minimize risk to the Company.
Derivatives used for trading purposes are recorded at fair value as of the
reporting date. Realized and unrealized changes in fair values are included
in "Commissions and other income" in the period in which the changes occur.
DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING are primarily used to hedge
or reduce exposure to interest rate and foreign currency risks associated
with assets held or expected to be purchased or sold, and liabilities
incurred or expected to be incurred. Additionally, other than trading
derivatives are used to change the characteristics of the Company's
asset/liability mix consistent with the Company's risk management
activities.
INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Internal Revenue Code (the "Code") limits the amount of
non-life insurance losses that may offset life insurance company taxable
income. The Code also imposes an "equity tax" on mutual life insurance
companies which, in effect, imputes an additional tax to the Company based
on a formula that calculates the difference between stock and mutual
insurance companies' earnings. Income taxes include an estimate for changes
in the total equity tax to be paid for current and prior years. Subsidiaries
operating outside the United States are taxed under applicable foreign
statutes.
Deferred income taxes are generally recognized, based on enacted rates, when
assets and liabilities have different values for financial statement and tax
reporting purposes. A valuation allowance is recorded to reduce a deferred
tax asset to that portion which management believes is more likely than not
to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS
11
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities and provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 became effective January 1, 1997 and is to be applied
prospectively. Subsequent to June 1996, FASB issued SFAS No. 127 "Deferral
of the Effective Date of Certain Provisions of SFAS 125" ("SFAS 127"). SFAS
127 delays the implementation of SFAS 125 for one year for certain
provisions, including repurchase agreements, dollar rolls, securities
lending and similar transactions. The Company will delay implementation
with respect to those affected provisions. Adoption of SFAS 125 has not and
will not have a material impact on the Company's results of operations,
financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This
statement defines comprehensive income as "the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources, excluding investments by owners and
distributions to owners" and establishes standards for reporting and
displaying comprehensive income and its components in financial statements.
The statement requires that the Company classify items of other
comprehensive income by their nature and display the accumulated balance of
other comprehensive income separately from retained earnings in the equity
section of the Statement of Financial Position. In addition,
reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to
current year presentation.
12
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables provide additional information relating to fixed
maturities and equity securities (excluding trading account assets) as of
December 31:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ------------
FIXED MATURITIES AVAILABLE FOR SALE (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 9,755 $ 783 $ -- $ 10,538
Obligations of U.S. states and
their political subdivisions..................... 1,375 93 -- 1,468
Foreign government bonds............................ 3,177 218 17 3,378
Corporate securities................................ 49,997 2,601 144 52,454
Mortgage-backed securities.......................... 6,828 210 5 7,033
Other fixed maturities.............................. 364 35 -- 399
-------------- -------------- -------------- ------------
Total fixed maturities available for sale........... $ 71,496 $ 3,940 $ 166 $ 75,270
============== ============== ============== ============
EQUITY SECURITIES AVAILABLE FOR SALE................ $ 2,376 $ 680 $ 246 $ 2,810
============== ============== ============== ============
<CAPTION>
1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ------------
FIXED MATURITIES HELD TO MATURITY (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 88 $ - $ - $ 88
Obligations of U.S. states and
their political subdivisions...................... 152 4 1 155
Foreign government bonds............................ 33 5 - 38
Corporate securities................................ 18,282 1,212 34 19,460
Mortgage-backed securities.......................... 1 - - 1
Other fixed maturities.............................. 144 8 - 152
-------------- -------------- -------------- ------------
Total fixed maturities held to maturity............. $ 18,700 $ 1,229 $ 35 $ 19,894
============== ============== ============== ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- ------------
FIXED MATURITIES AVAILABLE FOR SALE (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 10,618 $ 361 $ 77 $ 10,902
Obligations of U.S. states and
their political subdivisions...................... 1,104 29 2 1,131
Foreign government bonds............................ 2,814 137 12 2,939
Corporate securities................................ 43,593 1,737 284 45,046
Mortgage-backed securities.......................... 6,377 140 21 6,496
Other fixed maturities.............................. 39 1 1 39
--------------- -------------- -------------- ------------
Total fixed maturities available for sale........... $ 64,545 $ 2,405 $ 397 $ 66,553
=============== ============== ============== ============
EQUITY SECURITIES AVAILABLE FOR SALE................ $ 2,103 $ 659 $ 140 $ 2,622
=============== ============== ============== ============
<CAPTION>
1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- ------------
FIXED MATURITIES HELD TO MATURITY (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 309 $ 3 $ 6 $ 306
Obligations of U.S. states and
their political subdivisions...................... 7 -- -- 7
Foreign government bonds............................ 162 11 -- 173
Corporate securities................................ 19,886 1,033 82 20,837
Mortgage-backed securities.......................... 26 -- -- 26
Other fixed maturities.............................. 13 -- -- 13
--------------- -------------- -------------- ------------
Total fixed maturities held to maturity............. $ 20,403 $ 1,047 $ 88 $ 21,362
=============== ============== ============== ============
</TABLE>
14
<PAGE>
INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities by
contractual maturities at December 31, 1997, is shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- ------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------- -------------- -------------- ------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 1,991 $ 2,011 $ 686 $ 695
Due after one year through five years......... 18,916 19,226 4,496 4,659
Due after five years through ten years........ 16,776 17,494 7,161 7,551
Due after ten years........................... 26,985 29,506 6,356 6,988
Mortgage-backed securities.................... 6,828 7,033 1 1
-------------- -------------- -------------- ------------
Total......................................... $ 71,496 $ 75,270 $ 18,700 $ 19,894
============== ============== ============== ============
</TABLE>
Actual maturities may differ from contractual maturities because issuers have
the right to call or prepay obligations
Proceeds from the repayment of held to maturity fixed maturities during 1997,
1996 and 1995 were $4,042 million, $4,268 million, and $3,767 million,
respectively. Gross gains of $62 million, $78 million, and $27 million, and
gross losses of $1 million, $7 million, and $0.2 million were realized on
prepayment of held to maturity fixed maturities during 1997, 1996 and 1995,
respectively.
Proceeds from the sale of available for sale fixed maturities during 1997,
1996 and 1995 were $120,604 million, $121,910 million and $96,134 million,
respectively. Proceeds from the maturity of available for sale fixed
maturities during 1997, 1996 and 1995 were $2,946 million, $1,458 million,
and $950 million, respectively. Gross gains of $1,310 million, $1,562
million, and $2,052 million and gross losses of $639 million, $1,026 million,
and $941 million were realized on sales and prepayments of available for sale
fixed maturities during 1997, 1996 and 1995, respectively.
Write downs for impairments of fixed maturities which were deemed to be other
than temporary were $13 million, $54 million and $100 million for the years
1997, 1996 and 1995, respectively.
During the year ended December 31, 1997, there were no securities classified
as held to maturity that were sold and two securities so classified were
transferred to the available for sale portfolio. These actions were taken as
a result of a significant deterioration in credit worthiness. The aggregate
amortized cost of the securities transferred was $26 million with gross
unrealized investment gains of $0.5 million charged to "Net unrealized
investment gains."
During the year ended December 31, 1996, one security classified as held to
maturity was sold and two securities so classified were transferred to the
available for sale portfolio. These actions were taken as a result of a
significant deterioration in credit worthiness. The amortized cost of the
security sold was $35 million with a related realized investment loss of $0.7
million; the aggregate amortized cost of the securities transferred was $26
million with gross unrealized investment losses of $6 million charged to "Net
unrealized investment gains."
15
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property
types at December 31:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Office buildings............................... $ 4,692 28.5% $ 6,056 34.4%
Retail stores.................................. 3,078 18.7% 3,676 20.9%
Residential properties......................... 891 5.4% 961 5.4%
Apartment complexes............................ 3,551 21.6% 2,954 16.8%
Industrial buildings........................... 1,958 11.9% 1,807 10.3%
Agricultural properties........................ 1,666 10.1% 1,550 8.8%
Other.......................................... 618 3.8% 608 3.4%
--------------- --------- -------------- ------
Subtotal 16,454 100.0% 17,612 100.0%
========= ======
Allowance for losses........................... (450) (515)
--------------- --------------
Net carrying value............................. $ 16,004 $ 17,097
=============== ==============
</TABLE>
The mortgage loans are geographically dispersed throughout the United
States and Canada with the largest concentrations in California (25.3%) and
New York (8.3%) at December 31, 1997. Included in the above balances are
mortgage loans receivable from affiliated joint ventures of $225 million
and $461 million at December 31, 1997 and 1996, respectively.
Activity in the allowance for losses for all mortgage loans, for the years
ended December 31, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Allowance for losses, beginning of year.............. $ 515 $ 862 $ 1,004
Additions charged to operations...................... 19 9 6
Release of allowance for losses...................... (60) (256) (32)
Charge-offs, net of recoveries....................... (24) (100) (116)
--------------- ---------------- ---------------
Allowance for losses, end of year.................... $ 450 $ 515 $ 862
================ ================ ===============
</TABLE>
The $60 million, $256 million and $32 million reduction of the mortgage
loan allowance for losses in 1997, 1996 and 1995, respectively, is
primarily attributable to the improved economic climate, changes in the
nature and mix of borrowers and underlying collateral and a significant
decrease in impaired loans consistent with a general decrease in the
mortgage loan portfolio due to prepayments, sales and foreclosures.
16
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Impaired mortgage loans and related allowance for losses at December 31,
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with allowance for losses ............. $ 330 $ 941
Impaired mortgage loans with no allowance for losses .......... 1,303 1,491
Allowance for losses .......................................... (97) (189)
----------------- ------------------
Net carrying value of impaired mortgage loans ................. $ 1,536 $ 2,243
================= ==================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. The average recorded investment in impaired loans before
allowance for losses was $2,102 million, $2,842 million and $4,146 million
during 1997, 1996 and 1995, respectively. Net investment income recognized
on these loans totaled $140 million, $265 million and $415 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
INVESTMENT REAL ESTATE
The Company's "investment real estate" of $1,519 million and $2,586 million
at December 31, 1997 and 1996, respectively, is held through direct
ownership. Of the Company's real estate, $1,490 million and $406 million
consists of commercial and agricultural assets held for disposal at
December 31, 1997 and 1996, respectively. Impairment losses and the
valuation allowances aggregated $40 million, $38 million and $124 million
for the years ended December 31, 1997, 1996 and 1995, respectively, and are
included in "Realized investment gains, net."
RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets of $2,783 million and $2,453 million at December 31, 1997 and 1996,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Additionally, assets valued at $2,352
million at December 31, 1997, were held in voluntary trusts. Of this
amount, $1,801 million related to the multi-state policyholder settlement
as described in Note 14. The remainder relates to trusts established to
fund guaranteed dividends to certain policyholders. The terms of these
trusts provide that the assets are to be used for payment of the designated
settlement and dividend benefits, as the case may be. Assets valued at $741
million and $3,414 million at December 31, 1997 and 1996, respectively,
were maintained as compensating balances or pledged as collateral for bank
loans and other financing agreements. Restricted cash and securities of
$1,835 million and $1,614 million at December 31, 1997, and 1996,
respectively, were included in the consolidated financial statements. The
restricted cash represents funds deposited by clients and funds accruing to
clients as a result of trades or contracts.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $3,360 million and $2,995
million as of December 31, 1997 and 1996, respectively, are composed of
$1,349 million and $832 million in real estate related interests and $2,011
million and $2,163 million of non-real estate related interests, including
a $149 million net investment in a leveraged lease entered into in 1997.
The Company's share of net income from such entities was $411 million, $245
million, and $326 million for 1997, 1996, and 1995, respectively, and is
reported in "Net investment income."
17
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities-available for sale........................ $ 5,074 $ 4,871 $ 4,774
Fixed maturities-held to maturity.......................... 1,622 1,793 1,717
Trading account assets..................................... 504 444 588
Equity securities-available for sale ...................... 52 81 57
Mortgage loans on real estate.............................. 1,555 1,690 2,075
Real estate ............................................... 565 685 742
Policy loans............................................... 396 384 392
Securities purchased under agreements to resell............ 15 11 19
Receivables from broker-dealer clients..................... 706 579 678
Short-term investments..................................... 697 536 590
Other investment income.................................... 573 725 983
-------------- -------------- -------------
Gross investment income.................................... 11,759 11,799 12,615
Less investment expenses................................... (1,896) (2,057) (2,437)
-------------- -------------- -------------
Net investment income...................................... $ 9,863 $ 9,742 $ 10,178
============== ============== =============
</TABLE>
REALIZED INVESTMENT GAINS, NET, including changes in allowances for losses
and charges for other than temporary reductions in value, for the years
ended December 31, were from the following sources:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities....................................... $ 684 $ 513 $ 1,180
Mortgage loans on real estate ......................... 68 248 67
Investment real estate ................................ 700 76 (19)
Equity securities-available for sale .................. 363 267 400
Other gains (losses)................................... 372 34 (125)
-------------- -------------- -----------
Realized investment gains, net......................... $ 2,187 $ 1,138 $ 1,503
============== ============== ===========
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are
included in the consolidated statement of financial position as a component
of equity, net of tax. Changes in these amounts for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Balance, beginning of year................................. $ 1,136 $ 2,397
Changes in unrealized investment
gains(losses) attributable to:
Fixed maturities ....................................... 1,766 (2,892)
Equity securities....................................... (85) 254
Participating group annuity contracts................... (564) 479
Deferred policy acquisition costs....................... (154) 261
Deferred federal income taxes........................... (347) 637
----------------- -----------------
Sub-total............................................... 616 (1,261)
----------------- -----------------
Balance, end of year....................................... $ 1,752 $ 1,136
================= =================
</TABLE>
18
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Based on the carrying value, assets categorized as "non-income producing"
for the year ended December 31, 1997 included in fixed maturities available
for sale, mortgage loans on real estate and other long term investments
totaled $26 million, $93 million and $7 million, respectively.
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs as of and
for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year ............................ $ 6,291 $ 6,088 $ 6,403
Capitalization of commissions, sales and issue expenses 1,049 931 919
Amortization and other adjustments..................... (1,192) (989) (783)
Change in unrealized investment gains ................. (154) 261 (451)
-------------- -------------- -----------
Balance, end of year .................................. $ 5,994 $ 6,291 $ 6,088
============== ============== ===========
</TABLE>
5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES
FUTURE POLICY BENEFITS at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Life insurance ............................................ $ 46,712 $ 44,118
Annuities ................................................. 15,469 14,828
Other contract liabilities ................................ 3,400 5,009
----------------- -----------------
Future policy benefits .................................... $ 65,581 $ 63,955
================= =================
</TABLE>
Life insurance liabilities include reserves for death and endowment policy
benefits, terminal dividends, premium deficiency reserves and certain health
benefits. Annuity liabilities include reserves for immediate annuities and
non-participating group annuities. Other contract liabilities primarily consist
of unearned premium and benefit reserves for group health products.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD
- ------------------------- ------------------------ --------------- ------------------------
<S> <C> <C> <C>
Life insurance Generally rates 2.5% to 7.5% Net level premium
guaranteed in calculating based on non-forfeiture
cash surrender values interest rate
Individual immediate 1983 Individual 3.25% to 11.25% Present value of
annuities Annuity Mortality expected future payments
Table with certain based on historical
modifications experience
Group annuities in 1950 Group 3.75% to 17.35% Present value of
payout status Annuity Mortality expected future payments
Table with certain based on historical
modifications experience
Other contract liabilities -- 6.0% to 7.0% Present value of
expected future payments
based on historical
experience
</TABLE>
19
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES (CONTINUED)
For the above categories, premium deficiency reserves are established, if
necessary, when the liability for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for
expected future policy benefits and expenses. A premium deficiency reserve
has been recorded for the group single premium annuity business, which
consists of limited-payment, long duration, traditional non-participating
annuities. A liability of $1,645 million and $1,320 million is included in
"Future policy benefits" with respect to this deficiency for the years
ended December 31, 1997 and 1996, respectively.
POLICYHOLDERS' ACCOUNT BALANCES at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Individual annuities........................................ $ 5,695 $ 6,408
Group annuities & guaranteed investment contracts........... 19,053 21,706
Interest-sensitive life contracts........................... 3,160 2,888
Dividend accumulations...................................... 5,033 5,007
--------- ---------
Policyholders' account balances............................. $ 32,941 $ 36,009
========= =========
</TABLE>
Policyholders' account balances for interest-sensitive life and
investment-type contracts are equal to policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less withdrawals, expenses and mortality charges.
Certain contract provisions that determine the policyholder account
balances are as follows:
<TABLE>
<CAPTION>
WITHDRAWAL/
PRODUCT INTEREST RATE SURRENDER CHARGES
----------------------------------- ------------------------ -------------------------------------
<S> <C> <C>
Individual annuities 3.1% to 6.6% 0% to 8% for up to 8 years
Group annuities 5.0% to 12.7% Contractually limited or subject to
market value adjustments
Guaranteed investment contracts 3.9% to 14.34% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive and
contractual payments
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Dividend accumulations 3.0% to 4.0%
</TABLE>
20
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES (CONTINUED)
OTHER POLICYHOLDERS' LIABILITIES. The following table provides a
reconciliation of the activity in the liability for unpaid claims and claim
adjustment expense for property and casualty and accident and health
insurance, which is included in "Other policyholder's liabilities" at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1......................................... $ 6,043 $ 5,933 $ 7,983
Less reinsurance recoverables.............................. 563 572 865
---------- ---------- ----------
Net balance at January 1..................................... 5,480 5,361 7,118
---------- ---------- ----------
Incurred related to:
Current year............................................... 10,691 10,281 10,534
Prior years................................................ 11 (91) 141
---------- ---------- ----------
Total incurred............................................... 10,702 10,190 10,675
---------- ---------- ----------
Paid related to:
Current year............................................... 7,415 7,497 7,116
Prior years................................................ 2,651 2,574 2,800
---------- ---------- ----------
Total paid................................................... 10,066 10,071 9,916
---------- ---------- ----------
Less Reinsurance
Segment.................................................... -- -- 2,516
---------- ---------- ----------
Net balance at December 31................................... 6,116 5,480 5,361
Plus reinsurance recoverables.............................. 543 563 572
---------- ---------- ----------
Balance at December 31....................................... $ 6,659 $ 6,043 $ 5,933
========== ========== ==========
</TABLE>
The changes in provision for claims and claim adjustment expenses related
to prior years of $11 million, $(91) million and $141 million in 1997, 1996
and 1995, respectively, are due to such factors as changes in claim cost
trends in healthcare, an accelerated decline in indemnity health business,
and lower than anticipated property and casualty unpaid claims and claim
adjustment expenses.
The other policyholders' liabilities presented above consist primarily of
unpaid claim liabilities which include estimates for liabilities associated
with reported claims and for incurred but not reported claims based, in
part, on the Company's experience. Changes in the estimated cost to settle
unpaid claims are charged or credited to the statement of operations
periodically as the estimates are revised. Accident and health unpaid
claims liabilities for 1997 and 1996 included above are discounted using
interest rates ranging from 6.0% to 7.5%.
21
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SHORT-TERM AND LONG-TERM DEBT
Debt consists of the following at December 31:
SHORT-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Commercial paper.......................................... $ 4,268 $ 4,511
Notes payable............................................. 2,151 1,614
Current portion of long-term debt......................... 355 437
-------------- --------------
Total short-term debt................................ $ 6,774 $ 6,562
============== ==============
</TABLE>
The weighted average interest rate on outstanding short-term debt was
approximately 6.0% and 5.6% at December 31, 1997 and 1996, respectively.
The Company issues commercial paper primarily to manage operating cash
flows and existing commitments, meet working capital needs and take
advantage of current investment opportunities. Commercial paper borrowings
are supported by various lines of credit.
LONG-TERM DEBT
<TABLE>
<CAPTION>
DESCRIPTION MATURITY DATES RATE 1997 1996
------------------------------------ ----------------- -------------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Floating rate notes ("FRN") 1998 6.5% $ 40 $ 128
Long term notes 1998 - 2023 4% - 12% 1,194 1,023
Zero coupon notes 1998 - 1999 8.6% (a) 334 365
Australian dollar notes 1997 9% -- 55
Canadian dollar notes 1997 - 1998 7.0% - 9.125% 117 320
Japanese yen notes 1998 - 2000 0.5% - 4.6% 178 90
Swiss francs notes 1998 3.875% 120 103
Canadian dollar FRN 2003 5.89% 96 96
Surplus notes 2003 - 2025 6.875% - 8.3% 986 985
Commercial paper backed by long-term
credit agreements 1,500 1,000
Other notes payable 1998 - 2017 4% - 7.5% 63 32
---------- ----------
Sub-total............................................................................. 4,628 4,197
Less: current portion of long-term debt............................................ (355) (437)
---------- ----------
Total long-term debt.................................................................. $ 4,273 $ 3,760
========== ==========
</TABLE>
(a) The rate shown for zero coupon notes, which do not bear interest,
represents a level yield to maturity.
Payment of interest and principal on the surplus notes of $686 million
issued after 1993 may be made only with the prior approval of the
Commissioner of Insurance of the State of New Jersey.
In order to modify exposure to interest rate and currency exchange rate
movements, the Company utilizes derivative instruments, primarily interest
rate swaps, in conjunction with some of its debt issues. The effect of
these derivative instruments is included in the calculation of the interest
expense on the associated debt, and as a result, the effective interest
rates on the debt may differ from the rates reflected in the tables above.
Floating rates are determined by formulas and may be subject to certain
minimum or maximum rates.
Scheduled principal repayments of long-term debt as of December 31, 1997,
are as follows: $357 million in 1998, $808 million in 1999, $260 million in
2000, $32 million in 2001, $1,814 million in 2002 and $1,379 million
thereafter.
At December 31, 1997, the Company had $8,257 million in lines of credit
from numerous financial institutions of which $5,160 million were unused.
These lines of credit generally have terms ranging from 1 to 5 years.
22
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has one funded non-contributory defined benefit pension plan,
which covers substantially all of its employees. The Company also has
several non-contributory non-funded defined benefit plans covering certain
executives. Benefits are generally based on career average earnings and
credited length of service. The Company's funding policy is to contribute
annually an amount necessary to satisfy the Internal Revenue Service
contribution guidelines.
Prepaid and accrued pension costs are included in "Other assets" and "Other
liabilities," respectively, in the Company's consolidated statements of
financial position. The status of these plans as of September 30, adjusted
for fourth quarter activity related to funding activity and contractual
termination benefits is summarized below:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- -------------- -------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested benefit obligation.............. $ (4,129) $ (205) $ (3,826) $ (180)
============ ============ =========== =============
Accumulated benefit obligation......... $ (4,434) $ (226) $ (4,121) $ (198)
============ ============ =========== =============
Projected benefit obligation............. $ (5,238) $ (319) $ (4,873) $ (274)
Plan assets at fair value................ 8,489 -- 7,306 --
------------ ------------ ----------- -------------
Plan assets in excess of (less than)
projected benefit obligation........... 3,251 (319) 2,433 (274)
Unrecognized transition amount........... (662) 1 (769) 1
Unrecognized prior service cost.......... 317 10 356 11
Unrecognized net (gain) loss............. (1,689) 45 (916) 16
Additional minimum liability............. -- (11) -- (10)
Effect of fourth quarter activity........ (67) 4 (98) 4
------------ ------------ ----------- -------------
Prepaid (accrued) pension cost
at December 31......................... $ 1,150 $ (270) $ 1,006 $ (252)
============ ============ =========== =============
</TABLE>
Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $6,022 million and $5,668 million are
included in Separate Account assets and liabilities at December 31, 1997
and 1996, respectively.
Effective December 31, 1996, The Prudential Securities Incorporated Cash
Balance Plan (the "PSI Plan") was merged into The Retirement System for
United States Employees and Special Agents of The Prudential Insurance
Company of America (the "Prudential Plan"). The name of the merged plan is
The Prudential Merged Retirement Plan ("Merged Retirement Plan"). All of
the assets of the Merged Retirement Plan are available to pay benefits to
participants and their beneficiaries who are covered by the Merged
Retirement Plan. The merger of the plans had no effect on the December 31,
1996 consolidated financial position or results of operations.
During 1996, the Prudential Plan was amended to provide cost of living
adjustments for retirees. The effect of this plan amendment increased
benefit obligations and unrecognized prior service cost by $170 million at
September 30, 1996. In addition, the Prudential Plan was amended to provide
contractual termination benefits to certain plan participants who were
notified between September 15, 1996 and December 31, 1997 that their
employment had been terminated. During 1997, the Prudential Retirement Plan
Document, a component of the Merged Retirement Plan was amended to extend
the contractual termination benefits to December 31, 1998. Costs related to
these amendments are reflected below in contractual termination benefits.
23
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic pension income included in "General and administrative
expenses" in the Company's consolidated statement of operations for the
years ended December 31, 1997, 1996 and 1995 include the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits earned during the year......... $ 127 $ 140 $ 133
Interest cost on projected benefit obligation........ 376 354 392
Actual return on plan assets......................... (1,693) (748) (1,288)
Net amortization and deferral........................ 1,012 73 629
Contractual termination benefits..................... 30 63 --
-------------- ------------- --------------
Net periodic pension income.......................... $ (148) $ (118) $ (134)
============== ============= ==============
</TABLE>
The assumptions at September 30 used by the Company are to calculate the
projected benefit obligations as of that date and determine the pension
expense for the following fiscal year:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Discount rate.......................................... 7.25% 7.75% 7.50%
Rate of increase in compensation levels................ 4.50% 4.50% 4.50%
Expected long-term rate of return on plan assets....... 9.50% 9.50% 9.00%
</TABLE>
OTHER POSTRETIREMENT BENEFITS
The Company provides certain life insurance and health care benefits for
its retired employees, their beneficiaries and covered dependents.
Substantially all of the Company's employees may become eligible to receive
benefits if they retire after age 55 with at least 10 years of service, or
under circumstances after age 50 with at least 20 years of continuous
service.
The Company has elected to amortize its transition obligation over 20
years. Post-retirement benefits are funded as considered necessary by
Company management. The Company's funding of its postretirement benefit
obligations totaled $43 million, $38 million and $94 million in 1997, 1996
and 1995, respectively.
In 1995 the Company modified the restrictions on certain post-retirement
plan assets to allow these assets to be used for benefits related to both
active and retired employees. Formerly, these benefits were available only
for retired employees. In connection with this modification, the Company
transferred $120 million from one of these plans in 1995. Of the $120
million transferred, $45 million went to Union Post-Retirement Benefits and
$75 million went to Union Medical Benefits.
24
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The status of the plan at September 30, adjusted for assets transferred to
the plan in the fourth quarter, is provided below. Accrued post-retirement
benefit costs are included in "Other liabilities" in the Company's
consolidated statement of financial position.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees.......................................................... $ (1,516) $ (1,423)
Fully eligible active plan participants........................... (36) (35)
Other active plan participants.................................... (576) (544)
--------- ---------
Total APBO..................................................... (2,128) (2,002)
Plan assets at fair value............................................ 1,354 1,313
--------- ---------
Funded status........................................................ (774) (689)
Unrecognized transition amount....................................... 707 787
Unrecognized net gain ............................................... (364) (428)
Effects of fourth quarter activity................................... 33 28
--------- ---------
Accrued postretirement benefit cost at December 31................... $ (398) $ (302)
========= =========
</TABLE>
Plan assets with respect to this coverage consist of group and individual
variable life insurance policies, group life and health contracts, common
stocks, U.S. government securities and short-term investments. Plan assets
include $1,044 million and $1,003 million of Company insurance policies and
contracts at December 31, 1997 and 1996, respectively.
Net periodic postretirement benefit cost included in "General and
administrative expenses" for the years ended December 31, 1997, 1996 and
1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost.............................................. $ 38 $ 45 $ 44
Interest cost............................................. 149 157 169
Actual return on plan assets.............................. (120) (105) (144)
Net amortization and deferral............................. 70 53 111
----------- ----------- -----------
Net periodic postretirement benefit cost.................. $ 137 $ 150 $ 180
=========== =========== ===========
</TABLE>
The following assumptions at September 30 are used to calculate the APBO as
of that date and determine postretirement benefit expense for the following
fiscal year:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount rate............................................. 7.25% 7.75% 7.50%
Rate of increase in compensation levels................... 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets.......... 9.0% 9.0% 8.0%
Health care cost trend rates.............................. 8.2-11.8% 8.5-12.5% 8.9-13.3%
Ultimate health care cost trend rate after gradual
decrease until 2006....................................... 5.0% 5.0% 5.0%
</TABLE>
25
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The effect of a 1% increase in health care cost trend rates for each future
year on the following costs at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation............ $ (218) $ (207) $ (217)
Service and interest costs............................... 24 25 27
</TABLE>
POSTEMPLOYMENT BENEFITS
The Company accrues 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, 1997 and 1996
was $144 million and $156 million, respectively, and is included in "Other
liabilities."
OTHER EMPLOYEE BENEFITS
The Company sponsors voluntary savings plans for employees (401(k) plans).
The plans provide for salary reduction contributions by employees and
matching contributions by the Company of up to three percent of annual
salary, resulting in $63 million, $57 million, and $61 million of expenses
included in "General and administrative expenses" for 1997, 1996 and 1995,
respectively.
8. INCOME TAXES
The components of income tax expense for the years ended December 31, were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Current tax expense (benefit):
U.S...................................................... $ (158) $ 255 $ 1,189
State and Iocal.......................................... 48 103 38
Foreign.................................................. 64 48 66
--------- --------- ---------
Total.................................................... $ (46) $ 406 $ 1,293
========= ========= =========
Deferred tax expense (benefit):
U.S...................................................... $ 227 $ (442) $ (166)
State and Iocal.......................................... 3 (2) (10)
Foreign.................................................. 33 54 9
--------- --------- ---------
Total.................................................... $ 263 $ (390) $ (167)
========= ========= =========
Total income tax expense................................. $ 217 $ 16 $ 1,126
========= ========= =========
</TABLE>
26
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
The Company's income tax expense for the years ended December 31, differs
from the amount computed by applying the expected federal income tax rate
of 35% to income from operations before income taxes for the following
reasons:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Expected federal income tax expense.......................... $ 290 $ 382 $ 829
Equity tax................................................... (91) (365) 163
State and local income taxes................................. 51 100 28
Tax-exempt interest and dividend received deduction.......... (67) (50) (77)
Other........................................................ 34 (51) 183
-------- -------- --------
Total income tax expense..................................... $ 217 $ 16 $ 1,126
======== ======== ========
</TABLE>
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
------- --------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Insurance reserves.......................................... $ 1,482 $ 1,316
Policyholder dividends...................................... 250 257
Net operating loss carryforwards............................ 80 268
Depreciation................................................ -- 44
Litigation related reserves................................. 178 297
Employee benefits........................................... 42 10
Other....................................................... 360 329
-------- --------
Deferred tax assets before valuation allowance.............. 2,392 2,521
Valuation allowance......................................... (18) (36)
-------- --------
Deferred tax assets after valuation allowance............... 2,374 2,485
-------- --------
Deferred tax liabilities
Investments................................................. 1,867 1,183
Deferred acquisition costs.................................. 1,525 1,707
Depreciation................................................ 36 --
Other....................................................... 73 110
-------- --------
Deferred tax liabilities.................................... 3,501 3,000
-------- --------
Net deferred tax liability.................................... $ 1,127 $ 515
======== ========
</TABLE>
The Company's income taxes payable of $500 million and $1,544 million
includes a $627 million current income tax receivable at December 31, 1997
and a $1,029 million current income taxes payable at December 31, 1996.
27
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
Management believes that based on its historical pattern of taxable income,
the Company will produce sufficient income in the future to realize its net
deferred tax asset after valuation allowance. Adjustments to the valuation
allowance will be made if there is a change in management's assessment of
the amount of the deferred tax asset that is realizable. At December 31,
1997, the Company had state non-life operating loss carryforwards for tax
purposes approximating $800 million.
The Internal Revenue Service (the "Service") has completed an examination
of the consolidated federal income tax return through 1989. The Service has
examined 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. The Service has begun their examination of the years 1993
through 1995.
9. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following
table reconciles the Company's statutory net income and surplus as of and
for the years ended December 31, determined in accordance with accounting
practices prescribed or permitted by the New Jersey Department of Banking
and Insurance with net income and equity determined using GAAP:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
STATUTORY NET INCOME........................................... $ 1,471 $ 1,402 $ 478
Adjustments to reconcile to net income on a GAAP basis:
Insurance revenues and expenses.............................. 12 (478) (496)
Income taxes................................................. 601 439 (596)
Valuation of investments..................................... (62) 121 --
Realized investment gains.................................... 702 327 1,562
Litigation and other reserves................................ (1,975) (906) --
Other, net................................................... (139) 173 295
-------- -------- --------
GAAP NET INCOME................................................ $ 610 $ 1,078 $ 1,243
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
STATUTORY SURPLUS.............................................. $ 9,242 $ 9,375
Adjustments to reconcile to equity on a GAAP basis:
Deferred policy acquisition costs............................ 5,994 6,291
Valuation of investments..................................... 8,067 5,624
Future policy benefits and policyholder account balances..... (2,906) (1,976)
Non-admitted assets.......................................... 1,643 1,285
Income taxes................................................. (1,070) (654)
Surplus notes................................................ (986) (985)
Other, net................................................... (266) (437)
-------- --------
GAAP EQUITY.................................................... $ 19,718 $ 18,523
======== ========
</TABLE>
28
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EQUITY (CONTINUED)
The New York State Insurance Department ("Department") recognizes only
statutory accounting for determining and reporting the financial condition
of an insurance company, for determining its solvency under the New York
Insurance Law and for determining whether its financial condition warrants
the payment of a dividend to its policyholders. No consideration is given
by the Department to financial statements prepared in accordance with GAAP
in making such determinations.
10. OPERATING LEASES
The Company and its subsidiaries occupy leased office space in many
locations under various long-term leases and have entered into numerous
leases covering the long-term use of computers and other equipment. At
December 31, 1997, future minimum lease payments under non-cancelable
operating leases are estimated as follows:
(IN MILLIONS)
1998........................................ $ 313
1999........................................ 277
2000........................................ 230
2001........................................ 201
2002........................................ 171
Remaining years after 2002.................. 833
-----------
Total....................................... $ 2,025
===========
Rental expense incurred for the years ended December 31, 1997 and 1996 was
approximately $352 million and $343 million, respectively.
11. DIVESTITURES
In October 1995, the Company completed the sale of its reinsurance segment,
Prudential Reinsurance Holdings, Inc., through an initial public offering
of common stock. As a result of the sale, an after-tax loss of $297 million
was recorded in 1995.
On January 26, 1996, the Company entered into a definitive agreement to
sell substantially all the assets of Prudential Home Mortgage Company, Inc.
It has also liquidated certain mortgage-backed securities and extended
warehouse losses, asset write downs, and other costs directly related to
the planned sale. The Company recorded an after-tax loss in 1995 of $98
million which includes operating gains and losses, asset write downs and
other costs directly related with the planned sale. The net assets of the
mortgage banking segment at December 31, 1995 was $78 million, comprised of
$4,293 million in assets and $4,215 million in liabilities.
On July 31, 1996, the Company sold a substantial portion of its Canadian
Branch business to the London Life Insurance Company ("London Life"). This
transaction was structured as a reinsurance transaction whereby London Life
assumed total liabilities of the Canadian Branch equal to $3,291 million as
well as a related amount of assets equal to $3,205 million. This transfer
resulted in a reduction of policy liabilities of $3,257 million and a
corresponding reduction in invested assets. The Company recognized an
after-tax gain in 1996 of $116 million as a result of this transaction,
recorded in "Realized investment gains, net."
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available
information and 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 presented in the table, the carrying value
approximates fair value).
29
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, 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 estimated fair value of certain
non-performing private placement securities is based on amounts estimated
by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future 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, the
fair value is based upon the present value of expected future cash flows
discounted at the appropriate U.S. Treasury rate adjusted for current
market spread for a similar quality mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted
cash flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of swap agreements is estimated based on the present value
of future cash flows under the agreements discounted at the applicable zero
coupon U.S. Treasury rate and swap spread. The fair value of forwards,
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 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.
POLICYHOLDERS' ACCOUNT BALANCES
Fair values of policyholders' account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
DEBT
The estimated fair value of short-term and long-term debt is derived by
using discount rates based on the borrowing rates currently available to
the Company for debt with similar terms and remaining maturities.
30
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ----------- ------------ --------------
FINANCIAL ASSETS: (IN MILLIONS)
<S> <C> <C> <C> <C>
Other than trading:
- -------------------
Fixed maturities:
Available for sale....................... $ 75,270 $ 75,270 $ 66,553 $ 66,553
Held to maturity......................... 18,700 19,894 20,403 21,362
Equity securities........................... 2,810 2,810 2,622 2,622
Mortgage loans on real estate............... 16,004 17,153 17,097 17,963
Policy loans................................ 6,827 6,994 6,692 6,613
Securities purchased under
agreements to resell .................... 8,661 8,661 5,347 5,347
Cash collateral for borrowed securities..... 5,047 5,047 2,416 2,416
Short-term investments...................... 12,106 12,106 9,294 9,294
Cash ....................................... 3,636 3,636 2,091 2,091
Separate Accounts assets.................... 74,046 74,046 63,358 63,358
Derivative financial instruments............ 24 35 16 32
Trading:
- --------
Trading account assets...................... 6,044 6,044 4,219 4,219
Receivables from broker-dealer clients...... 6,273 6,273 5,281 5,281
Derivative financial instruments............ 979 979 904 904
FINANCIAL LIABILITIES:
Other than trading:
- -------------------
Policyholders' account balances............. 32,941 33,896 36,009 37,080
Securities sold under
agreements to repurchase................. 12,347 12,347 7,503 7,503
Cash collateral for loaned securities....... 14,117 14,117 8,449 8,449
Short-term and long-term debt............... 11,047 11,020 10,322 10,350
Securities sold but not yet purchased....... 3,533 3,533 1,900 1,900
Separate Accounts liabilities............... 73,658 73,658 62,845 62,845
Derivative financial instruments............ 32 47 32 45
Trading:
- --------
Payables to broker-dealer clients........... 3,338 3,338 3,018 3,018
Derivative financial instruments ........... 1,088 1,088 1,120 1,120
</TABLE>
31
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The tables below summarize the Company's outstanding positions by
derivative instrument types as of December 31, 1997 and 1996. The amounts
presented are classified as either trading or other than trading, based on
management's intent at the time of contract inception and throughout the
life of the contract. The table includes the estimated fair values of
outstanding derivative positions only and does not include the changes in
fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair
value amounts presented also do not reflect the netting of amounts pursuant
to right of setoff, qualifying master netting agreements with
counterparties or collateral arrangements.
DERIVATIVE FINANCIAL INSTRUMENTS
DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING TOTAL
------------------------ ----------------------- ------------------------------------
ESTIMATED ESTIMATED CARRYING ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets.............. $ 7,759 $ 394 $ 61 $ -- $ 7,820 $ 395 $ 394
Liabilities......... 6,754 489 13 3 6,767 493 491
Forwards:
Assets.............. 29,511 429 1,031 23 30,542 452 452
Liabilities......... 29,894 459 647 7 30,541 466 466
Futures:
Assets.............. 4,103 51 46 -- 4,149 51 51
Liabilities......... 3,064 50 3,320 21 6,384 71 71
Options:
Assets.............. 6,893 105 239 -- 7,132 105 105
Liabilities......... 4,165 90 5 -- 4,170 90 90
Loan Commitments:
Assets.............. -- -- 317 12 317 -- 12
Liabilities......... -- -- 524 16 524 -- 16
----------- ----------- ---------- ----------- ----------- ---------- -----------
Total:
Assets.............. $ 48,266 $ 979 $ 1,694 $ 35 $ 49,960 $ 1,003 $ 1,014
=========== =========== ========== =========== =========== ========== ===========
Liabilities......... $ 43,877 $ 1,088 $ 4,509 $ 47 $ 48,386 $ 1,120 $ 1,134
=========== =========== ========== =========== =========== ========== ===========
</TABLE>
32
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING TOTAL
------------------------ ----------------------- ------------------------------------
ESTIMATED ESTIMATED CARRYING ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
----------- ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets.............. $ 8,080 $ 481 $ 398 $ 10 $ 8,478 $ 481 $ 491
Liabilities......... 8,316 756 139 17 8,455 771 773
Forwards:
Assets.............. 24,275 367 489 13 24,764 376 380
Liabilities......... 20,103 308 920 10 21,023 318 318
Futures:
Assets.............. 2,299 24 3 -- 2,302 24 24
Liabilities......... 2,573 30 1,087 6 3,660 36 36
Options:
Assets.............. 2,981 32 2,083 7 5,064 39 39
Liabilities......... 2,653 26 437 12 3,090 27 38
Loan Commitments:
Assets.............. -- -- 163 2 163 -- 2
Liabilities......... -- -- 445 -- 445 -- --
----------- ----------- ---------- ----------- ----------- ---------- -----------
Total:
Assets.............. $ 37,635 $ 904 $ 3,136 $ 32 $ 40,771 $ 920 $ 936
=========== =========== ========== =========== =========== ========== ===========
Liabilities......... $ 33,645 $ 1,120 $ 3,028 $ 45 $ 36,673 $ 1,152 $ 1,165
=========== =========== ========== =========== =========== ========== ===========
</TABLE>
CREDIT RISK
The current credit exposure of the Company's derivative contracts is
limited to the fair value at the reporting date. Credit risk is managed by
entering into transactions with creditworthy counterparties and obtaining
collateral where appropriate and customary. The Company also attempts to
minimize its exposure to credit risk through the use of various credit
monitoring techniques. Approximately 95% of the net credit exposure for the
Company from derivative contracts is with investment-grade counterparties.
Net trading revenues for the years ended December 31, 1997, 1996 and 1995
relating to forwards, futures and swaps were $54 million, $37 million, $(8)
million; $42 million, $32 million, $(11) million; and $110 million, $42
million, $3 million respectively. Net trading revenues for options were not
material. Average fair values for trading derivatives in an asset position
during the years ended December 31, 1997 and 1996 were $1,015 million and
$881 million, respectively, and for derivatives in a liability position
were $1,166 million and $1,038 million, respectively. Of those derivatives
held for trading purposes at December 31, 1997, 52% of the notional amount
consisted of interest rate derivatives, 40% consisted of foreign currency
derivatives, and 8% consisted of equity and commodity derivatives. Of those
derivatives held for purposes other than trading at December 31, 1997, 72%
of notional consisted of interest rate derivatives and 28% consisted of
foreign currency derivatives.
33
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
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, loans sold with recourse and letters of credit.
Commitments include commitments to purchase and sell mortgage loans, the
unfunded portion of commitments to fund investments in private placement
securities, and unused credit card and home equity lines. The Company also
provides financial guarantees incidental to other transactions and letters
of credit that guarantee the performance of customers to third parties.
These credit-related financial instruments have off-balance sheet credit
risk because only their origination fees, if any, and accruals for probable
losses, if any, are recognized 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 fair value of asset positions in these instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $1,014 million and $936 million at December 31, 1997
and 1996, respectively.
14. CONTINGENCIES AND LITIGATION
FINANCIAL GUARANTEE AGREEMENT
In connection with the sale in 1995 of its wholly-owned subsidiary
Prudential Reinsurance Company ("Pru Re"), the Company's subsidiary,
Gibraltar Casualty Insurance Company ("Gibraltar") entered into a stop-loss
reinsurance agreement with Pru Re whereby Gibraltar has reinsured up to
$375 million of the first $400 million of aggregate adverse loss
development on reserves recorded by Pru Re at June 30, 1995. Gibraltar also
has entered into several quota share reinsurance arrangements with Pru Re
whereby certain medical malpractice, direct insurance and casualty
reinsurance pool risks previously underwritten by Pru Re prior to June 30,
1995 were ceded to Gibraltar. The Company has guaranteed Gibraltar's
obligations arising under each of these contracts subject to a limit of
$375 million for the stop-loss agreement and $400 million for the other
agreements. Through December 31, 1997, Gibraltar has incurred $285 million
in losses under the stop-loss agreement, including $45 million in 1997.
Gibraltar has paid $165 million to Pru Re under the stop-loss agreement.
The Company has not been required to fund losses arising under the other
arrangements.
ENVIRONMENTAL AND ASBESTOS-RELATED CLAIMS
Certain of the Company's subsidiaries received 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 liability for unpaid claims for these losses, management considered the
available information. However, given the expansion of coverage and
liability by the courts and legislatures in the past, and potential for
other unfavorable trends in the future, the ultimate cost of these claims
could increase from the levels currently established.
MANAGED CARE REIMBURSEMENT
In 1997, the Company continued to review its obligations under certain
managed care arrangements for possible failure to comply with contractual
and regulatory requirements. The estimated cost to the Company for these
reimbursements increased by $115 million in 1997, bringing the total
provision to $265 million. As of December 31, 1997, $163 million has been
paid or credited to customers. It is the opinion of management that the
remaining reserves of $102 million at December 31, 1997 represent a
reasonable estimate of remaining reimbursements to customers and other
related costs.
LITIGATION
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.
Three putative class actions and approximately 677 individual actions were
pending against the Company in the United States as of January 31, 1998
brought 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
34
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CONTINGENCIES AND LITIGATION (CONTINUED)
these cases seek 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
formed in April 1995 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. The Task Force found that some sales of life
insurance policies by the Company had been improper. Based on the findings,
the Task Force recommended, and the Company agreed to, a series of fines
allocated to all 50 states and the District of Columbia. In addition, the
Task Force recommended a remediation program pursuant to which the Company
would offer relief to the policyowners who were misled when they purchased
permanent life insurance policies in the United States from 1982 to 1995.
On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in the consolidated class action lawsuit
pending in a Multi-District Litigation proceeding in the federal court in
New Jersey. The class action suit involved alleged improprieties in
connection with the Company's sale, servicing and operation of permanent
life insurance policies from 1982 through 1995. Pursuant to the settlement,
the Company agreed to provide certain enhancements and changes to the
remediation program previously accepted by the Task Force, including some
additional remedies. In addition, the Company agreed that it would incur a
minimum cost of $410 million in providing remedies to policyowners under
the program and, in specified circumstances, agreed to make certain other
payments and guarantees. Under the terms of the settlement, the Company
agreed to a minimum average cost per remedy of $2,364 for up to 330,000
claims remedied and also agreed to provide additional compensation to be
determined by formula that will range in aggregate amount from $50 million
to $300 million depending on the total number of claims remedied. At the
end of the remediation program's claim evaluation process, the Court will
determine how the additional compensation will be distributed.
The terms of the remediation program described above were enhanced again in
February 1997 pursuant to agreements reached with several states that had
not previously accepted the terms of the program. These changes were
incorporated as amendments to the above-described Stipulation of Settlement
and related settlement documents, and the amended Stipulation of Settlement
was approved as fair to class members by the United States District Court
for the District of New Jersey in March 1997. By that point in time, the
Company had entered into agreements with all 50 states and the District of
Columbia pursuant to which each jurisdiction had accepted the remediation
plan and the Company had agreed to pay approximately $65 million in fines,
penalties and related payments.
The decision of the U.S. District Court to certify a class in the
above-described litigation for settlement purposes only and to approve the
class action settlement as described in the amended Stipulation of
Settlement is presently on appeal to the U.S. Court of Appeals for the
Third Circuit. The appellants claim that the District Court erred in
certifying a class and in finding that the terms of the settlement are fair
to the class.
Pursuant to the state agreements and the amended Stipulation of Settlement,
as approved by the U.S. District Court, the Company initiated its
remediation program in 1997. The Company mailed packages and provided broad
class notice to the owners of approximately 10.7 million policies eligible
to participate in the remediation program, informing them of their rights.
Owners of approximately 21,800 policies elected to be excluded from the
class action settlement. Of those eligible to participate in the
settlement, policyowners who believed they were misled were invited to file
a claim through an Alternative Dispute Resolution ("ADR") process. The ADR
process was established to enable the company to discharge its liability to
the affected policyowners. Policyowners who did not wish to file a claim in
the ADR process were permitted to choose from options available under Basic
Claim Relief, such as preferred rate premium loans, or annuities, mutual
fund shares or life insurance policies that the Company will enhance.
The owners of approximately 1.16 million policies responded to these
notices by indicating an intent to file an ADR claim. All policyholders who
responded were provided an ADR claim form for completion and submission.
Approximately 635,000 claim forms were completed and returned as of January
31, 1998. Management does not believe the number of ADR claims that will be
completed and returned will increase significantly. In addition, the owners
of approximately 510,000 policies indicated an interest in a Basic Claim
Relief remedy. The ADR process requires that individual claim files be
reviewed by one or more independent claim evaluators. Management does not
believe costs associated with providing Basic Claim Relief will be material
to the Company's financial position or results of operations.
35
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CONTINGENCIES AND LITIGATION (CONTINUED)
In 1996, the Company recorded in its Statement of Operations, the minimum
cost of $410 million as agreed to in the settlement. Management had no
better information available at that time upon which to make a reasonable
estimate of losses. Management now has additional information which allows
for computation of a reasonable estimate of losses associated with ADR
claims. Based on this additional information, in 1997, management had
increased the estimated liability for the cost of remedying policyholder
claims in the ADR process by $1.64 billion before taxes to approximately
$2.05 billion before taxes of which $1.80 billion has been funded in a
settlement trust as described in Note 3. While management believes these
are reasonable estimates based on information currently available, the
ultimate amount of the total cost of remedied policyholder claims is
dependent on complex and varying factors, including actual claims by
eligible policyholders, the relief options chosen and the dollar value of
those options. There are also additional elements of the ADR process which
cannot be fully evaluated at this time (e.g., claims which may be
successfully appealed) which could increase this estimate.
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.
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
contract holders 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.
15. SUBSEQUENT EVENTS
On February 10, 1998, the Company's Board of Directors authorized
management to take the preliminary steps necessary to allow the Company to
demutualize and become a publicly-traded company. The Company has begun
discussions with the New Jersey Department of Banking and Insurance,
leaders in the New Jersey State Legislature, as well as other key
regulatory agencies around the country. The New Jersey State Legislature
must first pass a law permitting demutualization. The New Jersey Department
of Banking and Insurance, the Company's Board and a majority of
participating policyholders must ultimately approve the Company's plan for
demutualization.
* * * * *
36
<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 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.
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<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.
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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, 1997; the Statements of Operations for the periods ended
December 31, 1997; the Statements of Changes in Net Assets for the periods
ended December 31, 1997 and 1996; and the Notes relating thereto appear in
the statement of additional information (Part B of the Registration
Statement).
(2) Consolidated Financial Statements of The Prudential Insurance Company of
America (Depositor) and subsidiaries consisting of the Consolidated
Statements of Admitted Assets, Liabilities and Surplus as of December 31,
1997 and 1996; Consolidated Statements of Operations and Changes in Surplus
and Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995; 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 1)
(2) Agreements for custody of securities and similar investments--Not
Applicable.
(3) (a) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and The Prudential Insurance Company of America
(Depositor). (Note 1)
(b) Proposed form of Selected Broker Agreement between Pruco Securities
Corporation and brokers with respect to sale of the Contracts. (Note
1)
(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
1)
(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 1)
(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 (VIP-86) (WI) to the VIP-86 Contract for use in
Wisconsin issues. (Note 11)
(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)
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<PAGE>
(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 13)
(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 13)
(jjj) Endorsement COMB 84890-88 to the VIP-86 Contract. (Note 13)
(kkk) Waiver of Withdrawal Charges rider ORD 88753-92 to the VIP Contract
(at issue). (Note 15)
(lll) Waiver of Withdrawal Charges rider ORD 88754-92 to the VIP-86
Contract (after issue). (Note 15)
(mmm) Spousal Continuance Rider ORD 89011-93. (Note 16)
(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 16)
(f) Supplement to the Annuity application ORD 87454-92. (Note 16)
(6) (a) Charter of The Prudential Insurance Company of America, as amended
November 14, 1995. (Note 14)
(b) By-laws of The Prudential Insurance Company of America, as amended
April 8, 1997. (Note 18)
(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 1)
(10) (a) Written consent of Price Waterhouse, LLP, independent accountants.
(Note 1)
(b) Written consent of Deloitte & Touche LLP, independent auditors.
(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)
(14) Powers of Attorney.
(a) F. Agnew, F. Becker, M. Berkowitz, R. Carbone, J. Cullen, C. Davis, R.
Enrico, A. Gilmour, W. Gray, J. Hanson, G. Hiner, C. Horner, G.
Kelley, B. Malkiel, A. Ryan, I. Schmertz, C. Sitter, D. Staheli,
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<PAGE>
R. Thomson, J. Unruh, P. Vagelos, S. Van Ness, P. Volcker, J. Williams
(Note17)
(27) Financial Data Schedule. (Note 1)
(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. 13 to
this Registration Statement, filed March 3, 1989.
(Note 14) 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 15) Incorporated by reference to Post-Effective Amendment No. 19 to
the Registration Statement, filed April 28, 1993.
(Note 16) Incorporated by reference to Post-Effective Amendment No. 20 to
Form N-4, Registration No. 2-81318, filed April 28, 1994.
(Note 17) Incorporated by reference to Post-Effective Amendment No. 10 to
Form S-1, Registration No. 33-20083, filed April 8, 1998 on
behalf of the Prudential Variable Contract Real Property Account.
(Note 18) 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.
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.
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.
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 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
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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, an insurance company organized under the
laws of Arizona, is a direct wholly-owned subsidiary of Prudential.
Pruco Life of New Jersey, an insurance company 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. 34 to the Form
N-1 A Registration Statement for The Prudential Series Fund, Inc.,
Registration No. 2-80896, filed on or about April 24, 1998, the text
of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 11, 1998 there were 271,682 contract owners of
qualified Contracts by the Registrant.
ITEM 28. INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains
insurance on behalf of any person who is or was a trustee, director,
officer, employee or agent of the Registrant, or who is or was serving
at the request of the Registrant as a trustee, director, officer
employee or agent of such other affiliated trust or corporation,
against any liability asserted against and incurred by him or her
arising out of his or her position with such trust or corporation.
New Jersey, being the state of organization of Prudential
Insurance Company of America ("Prudential"), permits entities
organized under its jurisdiction to indemnify directors and officers
with certain limitations. The relevant provisions of New Jersey law
permitting indemnification can be found in Section 14A:3-5 of the New
Jersey Statutes Annotated. The text of Prudential's By-law 27 which
relates to indemnification of officers and directors, is incorporated
by reference to Exhibit (8)(ii) of Post-Effective Amendment No. 12 to
Form N-4, Registration No. 33-25434, filed April 30, 1997, on behalf
of the Prudential Individual Variable Contract 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
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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. 13
to Form N-4, Registration No. 33-25434, filed April 24, 1998, 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, 751 Broad Street, 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.
(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.
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<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 24th day of April 1998.
(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. 25 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
SIGNATURE AND TITLE
-------------------
/s/ * April 24, 1997
- -------------------------------------------
ARTHUR F. RYAN
CHAIRMAN OF THE BOARD, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
/s/ *
- -------------------------------------------
FRANKLIN E. AGNEW
DIRECTOR
/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------------- -------------------------
RICHARD J. CARBONE THOMAS C. CASTANO
CHIEF FINANCIAL OFFICER (ATTORNEY-IN-FACT)
/s/ *
- -------------------------------------------
FRANKLIN K. BECKER
DIRECTOR
/s/ *
- -------------------------------------------
JAMES G. CULLEN
DIRECTOR
/s/ *
- -------------------------------------------
CAROLYNE K. DAVIS
DIRECTOR
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<PAGE>
SIGNATURE AND TITLE
-------------------
/s/ * April 24, 1998
- -------------------------------------------
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/ *
- -------------------------------------------
ROY VAGELOS, M.D.
DIRECTOR
C-8
<PAGE>
SIGNATURE AND TITLE
-------------------
/s/ * April 24, 1998
- -------------------------------------------
STANLEY C. VAN NESS
DIRECTOR
/s/ *
- -------------------------------------------
PAUL A. VOLCKER
DIRECTOR
/s/ * By: /s/ THOMAS C. CASTANO
- ------------------------------------------- ----------------------
JOSEPH H. WILLIAMS THOMAS C. CASTANO
DIRECTOR (ATTORNEY-IN-FACT)
C-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
(1) Resolution of the Board of Directors of The Prudential Insurance Company of America
establishing The Prudential Qualified Individual Variable Contract Account.......... Page C-11
(3)(a) Distribution Agreement between Pruco Securities Corporation (Underwriter) and
The Prudential Insurance Company of America (Depositor)............................. Page C-14
(3)(b) Proposed form of Selected Broker Agreement between Pruco Securities Corporation
and brokers with respect to sale of the Contracts................................... Page C-21
(4)(t) Qualified Individual Variable Annuity Contract (Form QVIP-84)....................... Page C-32
(4)(ff) Individual Variable Annuity Contract (Form VIP-86) revised.......................... Page C-49
(9) Opinion of Counsel and consent to its use as to legality of the securities
being registered ................................................................. Page C-67
(10)(a) Written consent of Price Waterhouse, LLP, independent accountants................... Page C-68
(10)(b) Written Consent of Deloitte & Touche LLP, independent auditors...................... Page C-69
(13) Schedule of Performance Computations................................................ Page C-70
(27) Financial Data Schedule
</TABLE>
C-10
RESOLVED, that, subject to the approval of the Commissioner of Insurance of
the State of New Jersey, the Company hereby establishes, pursuant to Section
17B:28-7 of the Revised Statutes of New Jersey, a variable contract account to
be designated initially as "The Prudential Qualified Individual Variable
Contract Account" (hereinafter in these resolutions referred to as the
"Qualified Account"); and
FURTHER RESOLVED, that the Company shall receive and hold in the Qualified
Account amounts arising from (i) purchase payments received made pursuant to
certain variable annuity contracts sold by the Company as part of its variable
annuity program for (A) tax-qualified pension and profit-sharing plans, (B)
retirement plans for self-employed individuals, (C) individual retirement
accounts and annuities, (D) simplified employee pension plans, (E) public
employee deferred compensation plans, and (F) tax-deferred annuity plans, and
(ii) such assets of the Company as the proper officers of the Company may deem
prudent and appropriate to have invested in the same manner as the assets
applicable to its reserve liability under such contracts and lodged in the
Qualified Account; and such amounts and the dividends, interest and gains
produced thereby shall be invested and reinvested, subject to the rights of the
holders of such variable annuity contracts, in shares of The Prudential Series
Fund, Inc., an open-end diversified management investment company of the series
type, at the net asset value of such shares at the time of acquisition; and
C-11
<PAGE>
2
FURTHER RESOLVED, that the Qualified Account shall be registered as a unit
investment trust under the Investment Company Act of 19140, and that the proper
officers of the Company be and they hereby are authorized to sign and file, or
cause to be filed, with the Securities and Exchange Commission a registration
statement, on behalf of the Qualified Account, as registrant, under the
Investment Company Act of 1940, and to sign and file, or cause to be filed, an
application, including any amendments thereto, for an order under Section 6(c)
of the Investment Company Act of 19140 for such exemptions from the provisions
of that Act as may be necessary or desirable; and
FURTHER RESOLVED, that the Company shall, as part of its variable annuity
program for (A) tax-qualified pension and profit-sharing plans, (B) retirement
plans for self-employed individuals, (C) individual retirement accounts and
annuities, (D) simplified employee pension plans, (E) public employee deferred
compensation plans and (F) tax-deferred annuity plans, sell contracts on a
variable basis to be known as Individual Variable Annuity Contracts, and that
the proper officers of the Company be and they hereby are authorized to sign and
file, or cause to be filed, with the Securities and Exchange Commission, on
behalf of the Company, as issuer, a registration statement, including the
financial statements and schedules, exhibits and form of prospectus required as
a part thereof, for the registration of the offering and sale of such Individual
Variable Annuity Contracts, to the extent they represent participating interests
in the Qualified Account, under the Securities Act of 1933; and to pay the
registration fees required in connection therewith; and
C-12
<PAGE>
3
FURTHER RESOLVED, that the proper officers of the Company are authorized
and directed to sign and file, or cause to be filed, such amendment or
amendments of such registration statements as they may find necessary or
advisable from time to time; and
FURTHER RESOLVED, that the signature of any director or officer required by
law to affix his signature to the foregoing registration statement under the
Securities Act of 1933, or to any amendment thereof, may be affixed by said
director or officer personally, or by an attorney-in-fact duly constituted in
writing by said director or officer to sign his name thereto; and
FURTHER RESOLVED, that the Secretary of the Company is appointed agent of
the Company to receive any and all notices and communications from the
Securities and Exchange Commission relating to such registration statements and
any and all amendments thereof; and
FURTHER RESOLVED, that the proper officers of the Company be and they
hereby are authorized and directed to do all acts and things, including taking
whatever steps may be necessary or desirable to comply with such of the laws and
regulations of the several states as may be applicable, that from time to time
may become necessary, desirable or proper to be done in order to effectuate the
purposes of the foregoing resolutions or any of them.
C-13
DISTRIBUTION AGREEMENT
AGREEMENT made this 4th day of March, 1983, by and between The Prudential
Insurance Company of America, a New Jersey corporation ("Company") on its own
behalf and on behalf of The Prudential Individual Variable Contract Account and
The Prudential Qualified Individual Variable Contract Account ("Accounts"),
and Pruco Securities Corporation, a New Jersey corporation ("Distributor").
WITNESSETH:
WHEREAS, the Company has established and maintains the Accounts, separate
investment accounts, pursuant to the laws of New Jersey for the purpose of
selling variable annuity contracts ("Contracts"), to commence after the
effectiveness of the respective Registration Statement for each Account filed
with the Securities and Exchange Commission on Form S-6 pursuant to the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, each Account is registered as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the "Securities Exchange Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company and the Distributor wish to enter into an agreement to
have the Distributor act as the Company's principal underwriter for the sale of
the Contracts through the Accounts;
NOW, THEREFORE, the parties agree as follows:
C-14
<PAGE>
-2-
1. Appointment of the Distributor
The Company agrees that during the term of this agreement it will take all
action which is required to cause the Contracts to comply with all applicable
federal securities and state insurance laws and regulations. The Company
appoints the Distributor and the Distributor agrees to act as the principal
underwriter for the sale of Contracts to the public, during the term of this
Agreement, in each state and other jurisdiction in which such Contracts may
lawfully be sold. Distributor shall offer the Contracts for sale and
distribution pursuant to terms set by the Company. Applications for the
Contracts shall be solicited only by representatives duly and appropriately
licensed and otherwise qualified for the sale of such Contracts in each state or
other jurisdiction as representatives of Distributor or a Broker as defined in
paragraph 2 hereof and as agents of Company. Completed applications for
Contracts shall be transmitted directly to the Company for acceptance or
rejection in accordance with underwriting rules established by the Company.
Initial payments under the Contracts shall be made by check payable to the
Company and shall be transmitted promptly by Distributor or its representatives
to the Company, as will any other payments received by Distributor or its
representatives.
2. Sales Agreements
Distributor is hereby authorized to enter into separate written agreements,
on such terms and conditions as Distributor may determine not inconsistent with
this Agreement, with one or more organizations which agree to participate in the
distribution of Contracts. Any such organization (hereafter "Broker") shall be
both registered as a broker/dealer under the Securities Exchange Act and a
member of NASD.
C-15
<PAGE>
-3-
Broker and its agents or representatives soliciting applications for Contracts
shall be duly and appropriately licensed, registered or otherwise qualified for
the sale of such Contracts under the insurance laws and any applicable blue-sky
laws of each state or other jurisdiction in which the Company is licensed to
sell the Contracts.
Distributor shall have the responsibility for ensuring that Broker
supervises its representatives. Any agreement as described in this Section shall
provide that Broker shall assume any legal responsibilities of the Company for
the acts, commissions or defalcations of such representatives insofar as they
relate to the sale of the Contracts. Applications for Contracts solicited by
such Broker through its agents or representatives shall be transmitted directly
to the Company, and if received by Distributor, shall be forwarded to Company.
All payments under the Contracts shall be made by check to Company and remitted
promptly to Company.
3. Life Insurance Agents
Company shall be responsible for insuring that Brokers are duly qualified,
under the insurance laws of the applicable jurisdictions, to sell the Contracts.
4. Suitability
Company wishes to ensure that Contracts sold by Distributor will be issued
to purchasers for whom the Contract will be suitable. Distributor shall take
reasonable steps to ensure that the various representatives appointed by it
shall not make recommendations to an applicant to purchase a Contract in the
absence of reasonable grounds to
C-16
<PAGE>
-4-
believe that the purchase of the Contract is suitable for such applicant. While
not limited to the following, a determination of suitability shall be based on
information furnished to a representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment objectives and
financial situation and needs.
5. Promotion Materials
Company shall have the responsibility for furnishing to Distributor and its
representatives sales promotion materials and individual sales proposals related
to the sale of the Contracts. Distributor shall not use any such materials that
have not been approved by Company.
6. Compensation
Company shall arrange for the payment of commission directly to those
registered representatives of Distributor who are entitled thereto in connection
with the sale of the Contracts on behalf of Distributor, in the amounts and on
such terms and conditions as Company and Distributor shall determine; provided
that such terms, conditions and commissions shall be as are set forth in or as
are not inconsistent with the Prospectus included as part of the respective
Registration Statement for of each Account and effective under the 1933 Act.
Company shall arrange for the payments of commissions directly to those
Brokers who sell Contracts under agreements entered into pursuant to paragraph
2. hereof, in amounts as may be agreed to among the parties and specified in
such written agreements.
C-17
<PAGE>
-5-
Company shall reimburse Distributor for the costs and expenses incurred by
Distributor in furnishing or obtaining the services, materials and supplies
required by the terms of this Agreement in the initial sales efforts and the
continuing obligations hereunder.
7. Records
Distributor shall have the responsibility for maintaining the records of
representatives licensed, registered and otherwise qualified to sell the
Contracts. Distributor shall maintain such other records as are required of it
by applicable laws and regulations. The books, accounts and records of Company,
the Accounts and Distributor shall be maintained so as to clearly and accurately
disclose the nature and details of the transactions.
8. Investigation and Proceeding
(a) Distributor and Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts distributed under this Agreement. Distributor and
Company further agree to cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to Company,
Distributor, their affiliates and their agents or representatives to the extent
that such investigation or proceeding is in connection with Contracts
distributed under this Agreement.
(b) In the case of a substantive customer complaint, Distributor and
Company will cooperate in investigating such complaint and any response to such
complaint will be sent to the other party to this Agreement for approval not
less than five business days prior to its being sent to the
C-18
<PAGE>
-6-
customer or regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or telegraph.
9. Termination
This Agreement shall terminate automatically upon its assignment without
the prior written consent of both parties. This Agreement may be terminated at
any time by either party on 60 days' written notice to the other party, without
the payment of any penalty. Upon termination of the this Agreement all
authorizations, rights and obligations shall cease except the obligation to
settle accounts hereunder, including commissions on payments subsequently
received for Contracts in effect at the time of termination, and the agreements
contained in paragraph 8. hereof.
1O. Regulation
This Agreement shall be subject to the provisions of the 1940 Act and the
Securities Exchange Act and the rules, regulations, and rulings thereunder and
of the applicable rules and regulations of the NASD, from time to time in
effect, and the terms hereof shall be interpreted and construed in accordance
therewith.
11. Severability
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
C-19
<PAGE>
-7-
12. Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Attest: THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
/s/ [ILLEGIBLE] By /s/ John J. Marcus
- ----------------------------- --------------------------------
Secretary John J. Marcus
Senior Vice President
Attest: PRUCO SECURITIES CORPORATION
/s/ Janet [ILLEGIBLE] By /s/ [ILLEGIBLE]
- ----------------------------- --------------------------------
Secretary President
C-20
SELECTED BROKER AGREEMENT
Agreement dated ___________, 1983, by and between Pruco Securities
Corporation (Distributor), a New Jersey corporation, and _____________________
(Broker), a ______________________ corporation.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties
hereto agree as follows:
A. Definitions
(1) Contracts - The variable annuity contracts which The Prudential
Insurance Company of America (Company), a New Jersey corporation,
proposes to issue and for which Distributor has been appointed the
principal underwriter pursuant to a Distribution Agreement, a copy of
which has been furnished to Broker.
(2) The Prudential Individual Variable Contract Account (the Individual
Account) - The separate account established and maintained by Company
pursuant to the laws of New Jersey to fund the benefits under those
Contracts which are sold in the non-tax qualified market.
(3) The Prudential Qualified Individual Variable Contract Account (the
Qualified Account) - The separate account established and maintained
by the Company pursuant to the laws of New Jersey to fund the benefits
under those Contracts which are sold in the tax qualified market.
C-21
<PAGE>
-2-
(4) The Prudential Series Fund, Inc. (the Fund) - An open-end management
investment company registered under the 1940 Act, shares of which are
sold to the Accounts in connection with the sale of the Contracts.
(5) Registration Statement - The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Fund,
including financial statements and all exhibits.
(o) Prospectus - The prospectuses included within the Registration
Statement referred to herein.
(7) 1933 Act - The Securities Act of 1933, as amended.
(8) 1934 Act - The Securities Exchange Act of 1934, as amended.
(9) SEC - The Securities and Exchange Commission.
B. Agreements of Distributor
(1) Pursuant to the authority delegated to it by Company, Distributor
hereby authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons provided that there
is an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and
C-22
<PAGE>
-3-
of any other action or circumstance that may prevent the lawful sale
of the Contracts in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. Agreements of Broker
(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the National Association of
Securities Dealers, Inc. and that the agents or representatives of
Broker who will be soliciting applications for the Contracts also will
be duly registered representatives of Broker.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use its best efforts to find purchasers for the
Contracts acceptable to Company. In meeting its obligation to use its
best efforts to solicit applications for Contracts, Broker shall,
during the term of this Agreement, engage in the following activities:
(a) Continuously utilize training, sales and promotional materials
which have been approved by Company;
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may
be requested on the results of such inspections and the
compliance with such procedures.
C-23
<PAGE>
-4-
(c) take reasonable steps to ensure that the various representatives
appointed by it shall not make recommendations to an applicant to
Purchase a Contract in the absence of reasonable grounds to
believe that the purchase of the Contract is suitable for such
applicant.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be remitted promptly in full together with such
applications, forms and any other required documentation to an office
of the Company designated by Distributor. Checks or money orders in
payment of purchase payments shall be drawn to the order of
"Prudential." Broker acknowledges that Distributor or Company shall
have the unconditional right to reject, in whole or in part, any
application for the Contract. In the event Company or Distributor
rejects an application, Company immediately will return all payments
directly to the purchaser and Broker will be notified of such action.
In the event that any purchaser of a Contract elects to return such
Contract pursuant to any law or contractual provision, any payments
made will be refunded to the purchaser and Broker will be notified of
such action.
(4) Broker shall act as an independent contractor, and nothing herein
contained shall constitute Broker, its agents or representatives, or
any employees thereof as employees of Company or Distributor in
connection with the solicitation of applications for Contracts.
Broker, its agents or representatives and its employees shall not
C-24
<PAGE>
-5-
hold themselves out to be employees of Company or Distributor in this
connection or in any dealings with the public.
(5) Broker agrees that any material it develops, approves or uses for
sales, training, explanatory or other purposes in connection with the
solicitation of applications for Contracts hereunder (other than
generic advertising materials which do not make specific reference to
the Contracts) will not be used without the prior written consent of
Distributor and, where appropriate, the endorsement of Company to be
obtained by Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only
in accordance with applicable laws and regulations. No agent or
representative of Broker shall solicit applications for the Contracts
until duly licensed and appointed by Company as a life insurance and
variable contract broker or agent of Company in the appropriate states
or other jurisdictions. Broker shall ensure that such agents or
representatives fulfill any training requirements necessary to be
licensed. Broker understands and acknowledges that neither it nor its
agents or representatives is authorized by Distributor or Company to
give any information or make any representation in connection with
this Agreement or the offering of the Contracts other than those
contained in the Prospectus or other solicitation material authorized
in writing by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company
to: make, alter or discharge any Contract or other form; receive any
monies or payments due, or to become due, to Company,
C-25
<PAGE>
-6-
except as set forth in Section C(3) of this Agreement. Broker shall
not expend, nor contract for the expenditure of the funds of
Distributor, nor shall Broker possess or exercise any authority on
behalf of Distributor other than that expressly conferred on Broker by
this Agreement.
C-26
<PAGE>
-7-
D. Compensation
(1) Pursuant to the Distribution Agreement between Distributor and
Company, Distributor shall cause Company to arrange for the payment of
commissions to Broker as compensation for the sale of each Contract
sold by an agent or representative of Broker. The amount of such
compensation shall be based on a schedule to be determined by
agreement of Company, Distributor and Broker. Company shall identify
to Broker with each such payment the name or names of the agent(s) or
representative(s) of Broker who solicited each Contract covered by the
payment.
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any purchase payment it shall
receive for purposes of payment of commission or otherwise. Neither
Broker nor any of its agents or representatives shall have an interest
in any compensation paid by Company to Distributor, now or hereafter,
in connection with the sale of any Contracts hereunder.
E. Complaints and Investigations
(1) Broker and Distributor jointly agree to cooperate fully in any
insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the Contracts marketed under
this Agreement. Broker and Distributor further agree to cooperate
fully in any securities regulatory investigation or proceeding or
judicial proceeding with respect to Broker, Distributor, their
affiliates and their agents or representatives to the extent that
C-27
<PAGE>
-8-
such investigation or proceeding is in connection with Contracts
marketed under this Agreement.
F. Term of Agreement
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section
E hereof; (b) the indemnity set forth in Section G hereof; and (c) the
obligations to settle accounts hereunder, including purchase payments
subsequently received for Contracts in effect at the time of
termination or issued pursuant to applications received by Broker
prior to termination.
G. Indemnity
(1) Distributor agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims, damages or
liabilities, joint or several, to which Broker or such officer or
director become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact, required to be stated
therein or necessary to make the statements therein not misleading,
contained in any Registration Statement or any
C-28
<PAGE>
-9-
post-effective amendment thereof or in the Prospectus or any amendment
or supplement to the Prospectus.
(2) Broker agrees to indemnify and hold harmless Company and Distributor
and each of their current and former directors and officers and each
person, if any, who controls or has controlled Company or Distributor
within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages or liabilities to which Company or Distributor
and any such director or officer or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other
compensation or remuneration of any type;
(c) The failure of Broker, its officers, employees, or agents to
comply with the provisions of this Agreement;
and Broker will reimburse Company and Distributor and any director or
officer or controlling person of either for any legal or other
expenses reasonably incurred by Company, Distributor, such director or
controlling person in connection with investigating or defending any
such loss, claims, damage, liability or action.
C-29
<PAGE>
-10-
This indemnity agreement will be in addition to any liability which
Dealer may otherwise have.
H. Assignability
This Agreement shall not be assigned by either party without the written
consent of the other.
I. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey.
In Witness Whereof, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PRUCO SECURITIES CORPORATION
(Distributor)
By __________________________
(Broker)
By __________________________
C-30
<PAGE>
Commissions
3% to selling agent, .6% management override for the first $2,000 of purchase
payment per contract; 2% to selling agent, .4% management override for all
purchase payments made after first $2,000 per contract.
C-31
APPROVED
AUG 28, 1984
INSURANCE COMMISSIONER
STATE OF ARKANSAS
PRUDENTIAL The Prudential Insurance Company of America
Corporate Office
Newark, New Jersey
ANNUITANT JOHN DOE XX XXX XXX CONTRACT NUMBER
ANNUITY DATE JUL. 1, 2014 JULY 1, 1984 CONTRACT DATE
We will make monthly payments starting on the annuity date we show in the window
of this page. We make this promise subject to all the provisions of this
contract.
Please read this contract with care. A guide to its contents is on the last
page. A summary is on page 2. If there is ever a question about it, or there is
a claim, just see one of our representatives or get in touch with one of our
offices.
EXCEPT WITH RESPECT TO ANY FIXED-DOLLAR PAYOUT WHICH YOU MAY ELECT THE BENEFITS,
PAYMENTS AND VALUES UNDER THIS CONTRACT ARE ON A VARIABLE BASIS. THEY WILL
REFLECT THE INVESTMENT EXPERIENCE OR THE SEPARATE ACCOUNT TO WHICH THE CONTRACT
IS RELATED; THEY ARE SUBJECT TO CHANGE BOTH UP AND DOWN AND ARE NOT GUARANTEED
AS TO DOLLAR AMOUNT EXCEPT AS PROVIDED UNDER THE DEATH OF ANNUITANT AND
SETTLEMENT PROVISIONS FOR THE BENEFICIARY SECTIONS.
We make this contract available in connection with pension, profit-sharing and
annuity purchase plans and Individual Retirement Annuities intended to qualify
for special Federal Income Tax treatment under the Internal Revenue Code of
1954, as amended. In order to obtain or retain that tax treatment the exercise
of rights and privileges under the contract by the Annuitant may be restricted.
We assume no responsibility for determining that a particular plan or Individual
Retirement Annuity is so qualified, that a particular Annuitant is eligible
under the plan or Individual Retirement Annuity or that the exercise of such
rights and privileges complies with the restrictions.
RIGHT TO CANCEL CONTRACT.--Not later than ten days after you get this contract,
you may return it to us. All you have to do is take it or mail it to one of our
offices or to the agent who sold it to you. We will cancel the contract and
promptly give you its net asset value, determined as of the date your request is
received, without redemption charge.
The provisions on this and the following pages of this contract comprise the
entire contract. The contract was signed for Prudential on the contract date,
which is the date of issue.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------- -----------
Secretary President
SPECIMEN SPECIMEN
VARIABLE ANNUITY CONTRACT WITH FLEXIBLE PURCHASE PAYMENTS--MONTHLY ANNUITY
PAYMENTS STARTING ON ANNUITY DATE. PAYMENT AS STATED UPON DEATH BEFORE ANNUITY
DATE. PURCHASE PAYMENTS PAYABLE DURING ANNUITANT'S LIFETIME UNTIL ANNUITY DATE.
QVIP--84
C-32
<PAGE>
CONTRACT SUMMARY
We offer this summary to help you understand this contract. We do not intend
that it change any of the provisions of the contract.
This is a contract to provide variable or fixed dollar income or both to begin
on the Annuity Date. If on the Annuity Date the Annuitant is entitled to payment
and no other settlement has been chosen, we will make variable monthly payments
to the Annuitant for as long as he or she lives, with 120 payments certain. But
if the amount of the initial payment would be less than $20, we will, instead,
pay the cash value in one sum. We describe other options we offer on page 10.
Purchase payments may be made at any time until the Annuity Date. Their amounts
may be restricted by the retirement arrangement that covers the Annuitant. The
purchase payments will be reduced by any state premium taxes we are required to
deduct, and the balance will be allocated as you direct to one or more of the
subaccounts of The Prudential Qualified Individual Variable Contract Account, a
variable contract account of Prudential, created under New Jersey law and
registered as a unit investment trust under the Investment Company Act of 1940.
Assets of these subaccounts are invested in shares of corresponding Portfolios
of The Prudential Series Fund, Inc. For example, assets of the Bond Subaccount
are invested in shares of the Bond Portfolio. Assets of the Money Market
Subaccount are invested in shares of the Money Market Portfolio, etc. Your
interests in subaccounts are recorded in terms of full or fractional units of
the selected subaccount(s).
On the Annuity Date, if a variable annuity option takes effect, the number of
your subaccount units that are needed to provide the option are converted to
subaccount annuity units. These units will be used to provide a variable annuity
under the Payout Provisions. We explain this on pages 11 and 12. The dollar
value of the subaccount units and the amount of the annuity payments will vary
in accord with the investment results of the subaccounts. If a fixed annuity
option takes effect, your subaccount units will be used to provide an income
which will be fixed in amount thereafter, as we explain on page 11.
We describe on page 9 the amount payable, if any, at the death of the Annuitant.
Subject to the retirement arrangement that covers the Annuitant. Proceeds which
may arise from the Annuitant's death before the Annuity Date may be paid to the
beneficiary in cash; or they may be applied by the beneficiary for any of the
payout options we offer the Annuitant under this contract.
You and we may agree on a change in the ownership of this contract. Also, unless
we endorse it to say otherwise, the contract gives you these rights, among
others:
o You may change the beneficiary under it.
o You may surrender it for its cash value.
o You may make withdrawals.
o You may transfer shares from one subaccount to another.
Page 2 (QVIP--84)
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<PAGE>
CONTRACT DATA
ANNUITANTS'S SEX AND ISSUE AGE M-35
DATE OF BIRTH MAR. 15, 1949
ANNUITANT JOHN DOE XX XXX XXX CONTRACT NUMBER
ANNUITY DATE JUL. 1, 2014 JULY 1, 1984 CONTRACT DATE
AGENCY R-NK 1
BENEFICIARY CLASS 1 MARY DOE, WIFE
CLASS 2 ROBERT DOE, SON
ALLOCATION OF INITIAL PURCHASE PAYMENT
SUBACCOUNTS
BOND XX%
MONEY MARKET XX%
COMMON STOCK XX%
AGGRESSIVELY MANAGED FLEXIBLE XX%
CONSERVATIVELY MANAGED FLEXIBLE XX%
THE MAINTENANCE CHARGE IS $30.00 ANNUALLY. WE EXPLAIN THIS ON PAGE 6.
SERVICE OFFICE - PLEASE DIRECT ANY COMMUNICATION ABOUT THIS CONTRACT TO: THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, P.O. BOX 2925, PHOENIX, ARIZONA 85062
PAGE 3 (84)
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GENERAL PROVISIONS
DEFINITIONS.--We define here some of the words and phrases used all through this
contract. We explain others, not defined here, in other parts of the text.
ACCUMULATION PERIOD.--The period of time between the Contract Date and the
Annuity Date.
ANNIVERSARY OR CONTRACT ANNIVERSARY.--The same day and month as the Contract
Date in each later year.
Example: if the contract date is March 9, 1983, the first anniversary is March
9, 1984. The second is March 9, 1985, and so on.
ANNUITANT.--The person whose name is in the window of the first page. He or she
need not be the owner.
ANNUITY DATE.--The date the first annuity payment is due.
BUSINESS DAY.--A day on which the New York Stock Exchange is open for business.
CASH VALUE.--Variable Account less any withdrawal charges that apply.
CODE.--lntemal Revenue Code of 1954, as amended.
CONTINGENT ANNUITANT.--A person to whom monthly payments under a Joint and
Survivor Life Annuity will continue for life if he or she is living after the
death of the Annuitant under that Annuity. If you choose a Joint and Survivor
Life Annuity, you will, at the time you make that choice, also name the
contingent annuitant for that annuity.
CONTRACT YEAR.--A year which starts on the Contract Date or on an anniversary.
Example: If the contract date is March 9, 1983, the first Contract Year starts
then and ends on March 8, 1984. The second starts on March 9, 1984 and ends on
March 8, 1985, and so on.
EARNINGS.--The excess, if any, of (1) variable account plus any amounts
previously withdrawn from the variable account, over (2) total purchase payments
to date.
ISSUE DATE.--The Contract Date.
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 FUND).--A mutual fund with separate
portfolios one or more of which you may choose as the underlying investment for
your contract. The Fund was established by Prudential. It is registered under
the Investment Company Act of 1940, as amended, as an open-end diversified
management investment company.
SERVICE OFFICE.--The Prudential office designated by it to service contracts
such as this. Its mailing address is the address shown on the Contract Data
page, unless Prudential specifies another address by notice to you.
SUBACCOUNT. --A division of the Account the assets of which are invested in the
shares of a corresponding portfolio of the Fund.
SUBACCOUNT ANNUITY UNIT.--A measure used to find the amount of a variable
annuity monthly payment.
SUBACCOUNT ANNUITY UNIT VALUE.--The monthly income produced by one Subaccount
Annuity Unit of a specified subaccount.
SUBACCOUNT UNIT.--A measure used to find the value of your interest in a
subaccount during the accumulation period.
SUBACCOUNT UNIT VALUE.--The dollar value of one Subaccount Unit of a specified
subaccount.
VARIABLE ACCOUNT.--During the Accumulation Period, your Variable Account for any
business day is found by multiplying your number of Subaccount Units in each
subaccount by the Subaccount Unit Value at the end of that business day and then
adding the results.
WE, OUR AND US.--Prudential.
YOU AND YOUR.--The owner of the contract.
CONTRACT MODIFICATIONS.--Only a Prudential officer may agree to modify this
contract, and then only in writing.
CHANGE OF ANNUITY DATE.--Unless the retirement arrangement that covers you
provides otherwise, not later than the present annuity date, you may ask us to
change that date to another date. We must have your request in writing at our
Service Office and in a form which meets our needs. You must send the contract
to us to be endorsed. We will change the date to the one you ask for in your
request. But, unless we consent, it may not be before the first of the next
month after the date we receive your request. And, unless we consent, it may not
be after the first of the next month after the Annuitant's 75th birthday or such
earlier date as may be required by law or the applicable retirement plan.
Further, unless we consent, you may not make more than one change in the annuity
date.
OWNERSHIP AND CONTROL.--Unless we endorse this contract to say otherwise: (1)
the owner of the contract is the Annuitant; and (2) while the Annuitant is
living the owner alone is entitled to (a) any contract benefit and value, and
(b) the exercise of any right and privilege granted by the contract or by us.
(Continued on Next page)
Page 4 (QVIP-84)
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GENERAL PROVISIONS (continued)
We will mail to the owner, at least once in each Contract Year after the first,
a statement with respect to all subaccounts in which the owner has an interest.
The statement will be as of a date not more than two months before the date of
mailing. It will show the number of Units credited and the value per Unit. We
will also send the owner a statement of the investments of the portfolios of the
Fund, the underlying investment medium for this contract.
CURRENCY.--Any money we pay, or which is paid to us, must be in United States
currency. Any amount we owe will be payable at our Service Office.
MISSTATEMENT OF AGE.--If the Annuitant's or any contingent annuitant's stated
date of birth is not correct, we will change each benefit and the amount of each
annuity payment to that which the purchase payment would have bought for the
correct date of birth. Also, we will adjust the amount of any payments we have
already made. Here is how we will do it: (1) We will deduct any overpayments,
with interest at 5% a year, from any payment(s) due then or later. (2) We will
add any underpayments, with interest at 5% a year, to the next payment we make
after we receive proof of the correct date of birth.
INCONTESTABILITY.--We will not contest this contract except for non-payment of
the purchase payment due on the contract date.
PROOF OF SURVIVAL OR DEATH.--Before we make a payment, we have the right to
require proof of the life or death of any person whose life or death determines
whether or to whom we must make the payment.
ASSIGNMENT.--We will not be deemed to know of an assignment unless we receive
it, or a copy of it, at our Service Office. We are not obliged to see that an
assignment is valid or sufficient. If the Annuitant is living on the annuity
date and an assignment is in effect on that date, we have the right to pay the
cash value in one sum.
ASSET CHARGES.--We will apply a Mortality Risk Charge and an Expense Risk Charge
daily at effective annual rates of 0.8% and 0.4%, respectively, on the value of
the net assets of each subaccount attributable to Subaccount Units and
Subaccount Annuity Units credited to contracts like this one. We guarantee that
the expense and mortality results of the Account will not adversely affect the
dollar amounts of values, benefits or payments under this contract.
CHANGES BY PRUDENTIAL.--We reserve the right, upon 90 days' notice to you, to:
(1) change the minimum amount requirements specified for purchases, withdrawals
and transfers in the Variable Accumulation Provisions;
(2) refuse to accept any request for purchase;
(3) change the number of Subaccount Units credited, change or discontinue
subaccounts, change to a different variable contract account, or substitute fund
shares in the account (see page 8);
(4) change any or all terms and provisions of Annuity Settlement Tables on pages
14 and 15, but only with respect to any portion of an annuity settlement
deriving from purchase payments made on or after the effective date of the
change and earnings on those purchase payments;
(5) make any changes required by law.
VOTING RIGHTS:
Fund.--We will send you a notice of any meeting at which Fund shares which
comprise the assets of a subaccount may be voted. We will provide a voting
instruction form for the number of Fund shares representing the proportional
interest of the Annuitant. The instruction form may be signed and returned to
us. If for any meeting there are Fund shares for which we have not received
voting instructions, this is what we will do. We will vote Fund shares on each
matter in the same proportion as we vote the Fund shares held in the subaccount
for which we did receive instructions.
Prudential.--We are a mutual life insurance company. Our principal office is in
Newark, New Jersey, and we are incorporated in that State. By law, we have 24
directors. This includes 16 elected by our policyholders (four each year for
four-year terms), two of our officers, and six public directors named by New
Jersey's Chief Justice.
The election is held on the first Tuesday in April from 10:00 A.M. to 2:00 P.M.
in our office at the Secretary's address shown here. After this contract has
been in force for one year, you may vote either in person or by mail. We will
send you a ballot if you ask for one. Just write to our Secretary at Prudential
Plaza, Newark, New Jersey 07101, at least 60 days before the election date. By
law, your request must show your name, address, contract number and date of
birth. If you are an individual, you must be at least 18 years old to vote.
PARTICIPATION (DIVIDENDS).--This contrast is eligible to participate in the
divisible surplus of Prudential. We do not expect that any dividends will be
payable during the accumulation period. While any annuity settlement is in
effect, the contract will share in our surplus to the extent and in the way we
decide.
Page 5 (QVIP--84)
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<PAGE>
VARIABLE ACCUMULATION PROVISIONS
PURCHASE PAYMENTS.--Purchase payments made through payroll deductions 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.
The initial purchase payment, reduced by any state premium taxes we may be
required to deduct, will be allocated to the subaccounts in accord with your
instructions. If, after you have made at least one purchase, we receive a
purchase payment without instructions, we will make any required deduction for
state premium taxes and allocate the balance in the same proportions as the most
recent purchase payment you made.
Example: On the Contract Date you make a $1500 purchase and allocate $500 to
each of Subaccounts A, B and C. Later in the year you send us a $900 purchase
payment, but you don't tell us how it is to be applied. Based on the most recent
purchase, the one made on the Contract Date, we would make a $300 purchase for
each of Subaccounts A, B and C.
CREDITING OF SUBACCOUNT UNITS.--This contract will be credited with the number
of Subaccount Units which results from dividing (1) the amount of any purchase
payment allocated to a subaccount by (2) that subaccount's Unit Value for the
Business Day the purchase is made. The first purchase payment will be credited
on the first Business Day which is the later of: (a) the Contract Date, (b) the
date the purchase payment is received at the Service Office, or (c) the date we
approve the request for the contract, or on a later date if you request and we
agree. For any purchase payment after the first, the shares will be credited on
the first Business Day not earlier than the day we receive it at our Service
Office or on a later day if you request and we agree.
SUBACCOUNT UNIT VALUE.--The Unit Value for a subaccount for any Business Day is
found by multiplying that subaccount's Net Investment Factor for that day by its
Unit Value for the last preceding Business Day. A subaccount's Net Investment
Factor for any Business Day equals (1) 1.00 plus the rate of net investment
income earned, after provision for taxes, for the period from the end of the
last preceding Business Day to the end of the current Business Day; plus (2) the
rate of asset value changes in the subaccount during the same period, minus (3)
the rates of the Mortality Risk Charge and the Expense Risk Charge (which we
describe on Page 5) for the number of calendar days involved. The Unit Value for
a subaccount and therefore the total value of shares of a subaccount credited to
you at any time and the number of Subaccount Units provided by a given purchase
payment will vary. They will increase or decrease in accord with the investment
results of the subaccount.
The value of each Subaccount Unit was set at $1.00 on the date the first
deposits were made in the account by Prudential.
ANNUAL MAINTENANCE CHARGE.--On each contract anniversary before the annuity date
or at the time of total withdrawal we will deduct a maintenance charge from your
variable account. The amount of the charge is shown on page 3 of this contract.
If on any contract anniversary there are Subaccount Units credited to this
contract in more than one subaccount, we will divide the charge among the
subaccounts on a pro-rata basis, according to the proportionate value of each
subaccount. We will liquidate enough of your Subaccount Units or fractions of a
Subaccount Unit to pay this charge.
WITHDRAWALS.--Unless restricted by provisions of the retirement arrangement that
covers you, you may be able to make withdrawals from your variable account on or
before the annuity date. To make a withdrawal you must ask us in writing in a
form which meets our needs. If you ask for a partial withdrawal, we will
liquidate as many full and fractional Subaccount Units as may be needed to
provide the amount asked for and any charges that apply. You must tell us the
amount and the subaccount from which it is to be withdrawn. Our consent is
needed for a partial withdrawal if (1) the amount to be withdrawn is less than
$300; or (2) it would reduce the value of your units in a subaccount to less
than $300.
If you ask for a total withdrawal you must send the contract to us. We will
liquidate all the subaccount units credited to the contract. After deducting the
Annual Maintenance Charge and the sales charges, if any, we will pay the
balance. Any amount withdrawn will be paid within seven calendar days after the
date we receive your request at our Service Office.
WITHDRAWAL CHARGES (DEFERRED CONTINGENT SALES CHARGES).--Although no sales
charges are deducted from your purchase payments when they are made, your
purchase payments may be subject to a sales charge upon withdrawal. Earnings,
defined on page 4, are not subject to sales charges. Withdrawals are considered
to consist of earnings, if any, first, then of purchase payments on a first-in,
first-out basis.
In each contract year, any purchase payments withdrawn which do not in total
exceed 10% of your variable account, valued as of the date of the first
withdrawal in that year, will not incur a sales charge. A sales charge may be
imposed on purchase payments withdrawn in excess of this 10% limitation.
(Continued on Next Page)
Page 6 (QVIP-84)
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<PAGE>
VARIABLE ACCUMULATION PROVISIONS (continued)
The amount of any sales charge imposed on the withdrawal of a purchase payment
varies with the number of contract years that have elapsed since the purchase
payment was made.
When you make a withdrawal, the rate of sales charge applied against any
purchase payments or portion of a purchase payment that is subject to a charge
is determined in accord with the following:
If the contract year of purchase payment is the same as the contract year of
withdrawal, the rate is 8%.
If the duration from the start of the contract year
of purchase payment to the start of the The charge
contract year of withdrawal is... rate is...
One year .......................................... 7%
Two years ......................................... 6%
Three years ....................................... 5%
Four years ........................................ 4%
Five year ......................................... 3%
Six years ......................................... 2%
Seven years ....................................... 1%
Eight years or more ............................... 0%
In determining the amount of sales charge, if any, we will consider that any
purchase payment withdrawn is the first purchase payment made which has not
previously been withdrawn. This is so, even if that purchase payment was to a
different subaccount than that from which withdrawal is being made or if the
shares being withdrawn are no longer subject to a withdrawal charge. Depending
on the amount of the withdrawal, one or more sales charge rates may be used if
the withdrawal is of purchase payments made in more than one contract year.
Example.--
Year Transaction
- ---- -----------
Contract year one --Payment of $300 in the
Money Market Subaccount
Contract year two --Payment of $900 in the Bond
Subaccount
Contract year three --Payment of $800 in the Common
Stock Subaccount
In contract year five the contractholder requests a partial withdrawal of $900
from his Common Stock subaccount, which has grown to $1200. The total value of
his variable account on the date of withdrawal is $2500, $500 more than the
total purchase payments made to date. Thus for purposes of determining sales
charge, the $900 withdrawal is considered to consist of $500 of earnings and
$400 of purchase payments. The $500 of earnings and $250 of purchase payments
(10% of the variable account) may be withdrawn without sales charge, A sales
charge is required on the remaining $150 of purchase payment being withdrawn.
To determine the sales charge we assume that $300 of purchase payment being
withdrawn is the payment made to the Money Market Subaccount in contract year
one. The remaining $100 of purchase payment being withdrawn is assumed to be a
part of the $900 payment made to the Bond Subaccount in contract year two. Of
the first $300 purchase payment we have seen that $250 (10% of $2500) may be
withdrawn without sales charge. A 4% sales charge is due on the withdrawal of
the other $50 of the payment (4% X $50=$2). The $100 portion being withdrawn
from the second payment requires a 5% sales charge (5% X $100=$5). Thus the
total sales charge for withdrawing $900 in year five is $7.
TRANSFERS.--You may transfer all or part of your interest in a subaccount to one
or more of the other subaccounts. To make a transfer you must ask us in writing
in a form which meets our needs. You must tell us the amount to be transferred
and the names of the subaccounts involved. Our consent is needed for the
transfer if (1) the amount to be transferred is less than the smaller of $300
and your interest in the subaccount, (2) the value of any of your Units
remaining in the subaccount after the transfer would be less than $300, or (3)
four or more transfers of Subaccount Units have been made under your contract in
the current Contract Year. The transfer will be made on the first Business Day
after we receive your request.
To make the transfer this is what we will do. First, we will liquidate, without
charge, the number of your Units in the subaccount from which the transfer is to
be made to provide the amount requested. Then, we will use that amount to
purchase Units in the subaccount to which the transfer is to be made. The result
will be that, while the contract value will not change, the total number of
Subaccount Units credited to this contract may increase or decrease depending on
the Subaccount Unit Values, The original purchase date of record used to
determine the rate of charge for any future withdrawal is not changed as a
result of a transfer.
Example.--You ask that we transfer $600 from Subaccount A to Subaccount B. The
Subaccount A Unit Value is $10 on the date of the transfer. We would liquidate
60 shares in Subaccount A to provide the $600. The share value in Subaccount B
on the date of the transfer is $5. The $600 will buy 120 shares in Subaccount B.
If the Unit Value were $20, the $600 would buy only 30 Units. While the number
of Units may have changed on the date of transfer, their value remained the
same, $600.
(Continued on Next Page)
Page 7 (QVIP-84)
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VARIABLE ACCUMULATION PROVISIONS (continued)
CHANGING THE NUMBER OF SUBACCOUNT UNITS CREDITED.--We have the right to change
the number of Subaccount Units if we deem the Subaccount Unit Value to be either
so large or so small as to not be in your best interest, or ours. If we make
such a change, the amount of the Variable Account will not change.
SUBSTITUTION OF SHARES.--Shares of another registered, open-end investment
company may be substituted for the shares held in the account or any subaccount
or to be purchased by future purchase payments or transfers if (1) shares in the
subaccount are no longer available for purchase or (2) in our judgement further
investment in such shares is no longer appropriate for the subaccount.
EFFECT OF LOSS OF TAX-QUALIFIED STATUS OR FAILURE TO QUALIFY.--If, for any
reason, you become ineligible to participate or cease to be a participant in the
pension, profit-sharing or annuity purchase plan or Individual Retirement
Annuity in connection with which this contract is issued, or if the plan is
discontinued or loses its tax-qualified status, we may refuse to accept further
purchase payments under this contract.
If we determine that an applicable pension, profit-sharing or annuity purchase
plan was not tax-qualified when this contract was issued, or, if applicable,
that you were not eligible to establish an Individual Retirement Annuity for
which this contract was issued, here is what we may do: (1) If, when we make the
determination, we then provide a similar contract for the non-tax-qualified
market, we may offer to exchange this contract for such a non-tax-qualified
contract. Any such exchange will be made without redemption charge, but will be
subject to any conditions or adjustment which we determine to be necessary. Or
(2), if we do not then offer a similar contract for the non-tax-qualified
market, we may terminate this contract and liquidate all the subaccount units
credited to it. After deducting the Annual Maintenance Charge and the sales
charge, if any, we will pay you the balance within seven days after the
termination of the contract.
ENDORSEMENTS
(Only we can endorse this contract.)
Page 8 (QVIP-84)
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DEATH OF ANNUITANT
We will pay the beneficiary the proceeds promptly if we receive due proof that
the Annuitant died before the annuity date.
If the Annuitant dies before his or her 65th birthday, proceeds will be the
greater of (a) the minimum proceeds, which we define below, or (b) the amount of
your variable account (which we define on page 4) as of the date we receive due
proof of death. Minimum proceeds if no withdrawals have been made is the sum of
all of the purchase payments paid to us. Any withdrawal reduces minimum proceeds
on the date of the withdrawal in the same proportion that it reduces your
variable account on that date. Purchase payments made after a withdrawal
increase minimum proceeds by the amounts of the purchase payments.
Example: Assume total purchase payments of $10,000 and a subsequent withdrawal
of $3000 made when your variable account amounts to $12,000. The variable
account is reduced by one-fourth ($3000/$12,000); therefore minimum proceeds,
which was $10,000, is also reduced by one-fourth, to $7,500. A subsequent
purchase of $5000 would increase minimum proceeds to $12,500.
If the Annuitant dies on or after his or her 65th birthday, the proceeds will be
your variable account as of the date we receive due proof of death.
If the Annuitant dies on or after the annuity date, the settlement then in
effect will govern whether and to whom we will make any payment(s).
ENDORSEMENTS
(Only we can endorse this contract.)
Page 9 (QVIP-84)
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PAYOUT PROVISIONS
CHOOSING AN OPTION.--Subject to the retirement arrangement that covers you, you
may be able to have the amount of your variable account on the Annuity Date paid
to the Annuitant as an annuity under one or more of the options we describe
below. But, for any annuity settlement, we may first deduct from that amount any
charge for state premium taxes. And under some conditions we may also deduct
an Annuitization Charge as described below.
CONDITIONS.--With respect to each option you select your right to make the
choice is subject to all these conditions: (1) You must ask for the option in
writing and in a form which meets our needs. (2) You must send the contract to
us to be endorsed. (3) For Type A, B or C you must give us proof of the date of
birth of the Annuitant and of any contingent annuitant. (4) We must have your
request, the contract and the proof(s) of the date(s) of birth before the
Annuity Date.
Your choice of an option will take effect on the Annuity Date but only if: (1)
the Annuitant is living on that date; (2) the contingent annuitant, if any, is
living on that date; (3) the first payment under the option will be at least
$20; and (4) you do not void the choice by making a later choice before the
Annuity Date.
WHEN NO OPTION CHOSEN.--If no choice of a variable or fixed-dollar annuity of
Type A, C or D, or of a fixed-dollar annuity of Type B, which types we describe
below, takes effect on the annuity date, settlement under a variable annuity of
Type B will become effective. But the conditions described in the preceding
paragraph will apply. And we have the right to require proof of the date of
birth of the Annuitant before we make payment.
OPTIONS DESCRIBED.--Variable annuities and fixed-dollar annuities of the
following types may be chosen. The first payment under these options is due on
the annuity date.
TYPE A (LIFE ANNUITY).--We will make monthly payments for as long as the
Annuitant lives. They will end with the last one due before the Annuitant's
death.
TYPE B (LIFE ANNUITY, 10-YEAR MINIMUM PERIOD).--We will make monthly payments
for as long as the Annuitant lives, with 120 monthly payments certain. Unless
otherwise stated, if the Annuitant dies before the 120th payment is payable, we
will pay the residue in one sum to the Annuitant's beneficiary if one is
designated, otherwise to the Annuitants estate. We will compute the residue as
of the first Business Day on or after the date the Annuitant died. If the
annuity is a variable annuity, we will adjust the amount for the change in the
Subaccount Annuity Unit Value between that Business Day and the first Business
Day on or after which we receive at our Service Office the items we need for
settlement. But if the Annuitant dies after the due date of the last payment
certain, no further payments will be due.
TYPE C (JOINT AND SURVIVOR LIFE ANNUITY).--We will make monthly payments for as
long as the Annuitant or the contingent annuitant lives. Unless otherwise
stated, we will make them to the Annuitant while he or she is living. After the
Annuitant dies, we will make them to the contingent annuitant if he or she is
living. The payments will end with the last one due before the death of the
second to die of the Annuitant and the contingent annuitant.
TYPE D (ANNUITY FOR SPECIFIED PERIOD).--We will make monthly payments for the
period you elect. The period may be 5, 10, 15 or 20 years. It may be a different
number of years if you request it and we agree. Unless otherwise stated, if the
Annuitant dies when one or more payments remain unpaid in the period elected, we
will pay the residue in one sum to the Annuitant's beneficiary if one is
designated, otherwise to the Annuitant's estate. We will compute the residue as
of the first Business Day on or after the date the Annuitant died. If the
annuity is a variable annuity, we will adjust the amount for the change in the
Subaccount Annuity Unit Value between that Business Day and the first Business
Day on or after which we receive at our Service Office the items we need for
settlement.
RESIDUE DESCRIBED.--For annuity Type B, residue on any Business Day means the
then present value of such of the 120 payments as may remain unpaid. Residue
does not include the value of any payments which may become due after the 120th
payment.
For annuity Type D, residue on any Business Day means the then present value of
any unpaid payments for the specified period of the annuity.
For variable annuities of Types B and D, for the purpose of computing the
present value, we assume that the Annuity Unit Value for the Business Day as of
which the calculation is made will not change after that date. We will compute
residue at an effective interest rate of 3 1/2% a year.
RIGHT OF WITHDRAWAL.--Unless otherwise stated when a Type D annuity is chosen,
all, or any part not less than $300 of the residue may be withdrawn. After a
withdrawal, monthly payments will stop if all the residue was withdrawn or be
reduced if part was withdrawn. If the first reduced monthly payment after a
partial withdrawal would be less than $20, we have the right to pay the residue
in one sum.
(Continued on Next Page)
Page 10 (QVIP--84)
C-41
<PAGE>
PAYOUT PROVISIONS (Continued)
ANNUITIZATION CHARGE.--We may deduct an Annuitization Charge from your variable
account on the last Business Day on or before the annuity date. We determine the
Annuitization Charge the same way we would determine the charge for a total
withdrawal made on the Annuity Date. (This calculation is described on pages 6
and 7.) However, as described below, a special schedule of lower charge rates
applies for certain annuitizations.
Annuitization charge rate schedules A and B are shown below. Schedule A is the
same schedule we use in calculating charges on withdrawals. In calculating
annuitization charges: we apply Schedule A rates if either (1) an Annuity of
Type A, B or C is effected less than three years after the Contract Date, or (2)
an annuity Type D is effected at any time; we apply Schedule B rates if an
annuity of Type A, B or C is effected three years or more after the Contract
Date.
Under certain conditions, if you select a Type D annuity and one or more other
types, the above provisions will require Schedule A to be applied for the Type D
annuity and may require Schedule B to be applied for the other type(s). In that
event, we will determine the portion of annuitization charge applicable to the
Type D annuity first and the portion applicable to the other annuity(ies) last.
Since withdrawals, including withdrawals to effect an annuity, are considered to
consist of earnings, if any, first, then of purchase payments on a first-in
first-out basis, this order of computation will result in a total annuitization
charge that will be less than or the same as the charge that would be produced
if the order of computation were reversed.
Annuitization
Charge Rate Schedules
---------------------
Duration* A B
- --------- - -
0 8% 4%
1 7 3
2 6 2
3 5 1
4 4 0
5 3 0
6 2 0
7 1 0
8 or more 0 0
* Duration is determined for each purchase payment included in the amount used
to provide an annuity. Duration is measured in years from start of Contract Year
of purchase to start of Contract Year of annuitization.
TABULAR MONTHLY ANNUITY.--Your Variable Account on the last Business Day on or
before the Annuity Date will be reduced by any Annuitization Charge and any
premium taxes that may apply. The balance will be used to determine the Tabular
Monthly Annuity(ies) (first monthly annuity payment(s)) based on the type(s) of
annuity chosen and in accord with the annuity settlement tables.
AMOUNT OF FIXED-DOLLAR ANNUITY.--The amount of each monthly payment will be at
least equal to the Tabular Monthly Annuity. But if we are offering greater
monthly incomes for fixed-dollar annuities on the Annuity Date, the amount of
each monthly payment will be greater than the Tabular Monthly Annuity.
DETERMINATION OF THE AMOUNT OF A VARIABLE ANNUITY.--The number of Annuity Units
that will be used to determine the amount of monthly income for each subaccount
is found by dividing the amount of the Tabular Monthly Annuity attributable to
your investment in that subaccount by the Subaccount Annuity Unit Value on the
last Business Day on or preceding the Annuity Date. After that the number of
Annuity Units for each subaccount will remain fixed unless a transfer is made as
we describe below. The dollar amount of annuity payments will change from month
to month and may increase or decrease to reflect the investment experience of
the subaccounts involved. The actual amount of any annuity payments after the
first will be determined by multiplying the number of Annuity Units for each
subaccount by the Annuity Unit Value for that subaccount at the end of the last
Business Day which is at least five days before the annuity payment is due, and
then adding the resulting values.
Example.--The Contract Value is $10,000. Of that amount, $3000 is in Subaccount
A and $7000 is in Subaccount B. The annuity type is B and the Annuitant is age
65 on the Annuity Date. The first annuity payment equals $52.00 ($5.20 per $1000
of Contract Value). (The rate per $1000 may change as provided under Changes by
Prudential on page 5 but only for any portion of Contract Value arising from
purchases made after the date of change.) Subaccount A provides $15.60 of that
payment, and Subaccount B provides $36.40. To find the number of Annuity Units
used to determine monthly income for each Subaccount we divide each of these
amounts by the respective Annuity Unit Value for the subaccount on the Annuity
Date.
For this example assume that the Annuity Unit Value is $3 for Subaccount A, and
$2 for Subaccount B. Dividing these into the respective annuity payments
provides the number of Annuity Units to be used for each subaccount ($15.60/$3 =
5.200 Units for Subaccount A, and $36.40/$2 = 18.200 Units for Subaccount B). To
find the amount of each subsequent annuity payment we multiply the number of
Annuity Units for each subaccount by the Annuity Unit Value for that subaccount
and add the results.
(Continued on Next Page)
Page 11 (QVIP-84)
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<PAGE>
PAYOUT PROVISIONS (Continued)
SUBACCOUNT ANNUITY UNIT VALUE.--The value of an Annuity Unit for each subaccount
was set at $1.00 on the date the first deposits were made in the Account by
Prudential. The value for any subsequent Business Day is determined by
multiplying the subaccount's Net Investment Factor for that day by its Annuity
Share Value for the last preceding Business Day.
The Net Investment Factor for each subaccount for any Business Day equals (a)
1.00 plus the rate of net investment income earned by the subaccount, after
providing for taxes, for the period from the end of the last preceding Business
Day to the end of the current Business Day, plus the rate of asset value changes
in the subaccount during the same period, minus the rate of the Asset Charge
(which we explain on page 5) for the number of calendar days involved, divided
by (b) 1.00 plus the interest rate for the number of days involved, at the
effective annual rate assumed in the calculation of the annuity rates. (See page
14.)
TRANSFERS DURING THE ANNUITY PERIOD.--During the annuity period the person who
has the right to receive variable annuity payments may choose to have the
payments reflect the investment results of different subaccounts. Part or all of
the Annuity Units for any subaccount may be converted to a number of Annuity
Units for one or more other subaccounts. Our consent is needed if: (1) four or
more transfers between subaccounts have been made under this contract in the
current Contract Year, or (2) for any partial transfers between subaccounts,
either the number of Subaccount Annuity Units determined for each new subaccount
or the number remaining as a measure of income for each old subaccount,
multiplied by the corresponding Subaccount Annuity Unit Value on the transfer
effective date is less than $20.
The transfer between subaccounts will be made effective for the first Business
Day after the date we receive the request for transfer except that if the
request is received within seven days before an annuity payment date, it will be
made effective on the first Business Day after the annuity payment date. To find
the number of units for the new subaccount(s) this is what we do. For the
subaccount from which the transfer is to be made we multiply the number of
Annuity Units being converted by the Annuity Unit Value of that subaccount. We
divide the result by the Annuity Unit Value for the subaccount to which the
transfer is being made. The result is the number of Annuity Units for the new
subaccount.
Example.--This is to be a transfer from Subaccount A to Subaccount B for future
annuity payments. There are 1000 Annuity Units being used as a measure of income
for Subaccount A and the Annuity Unit Value for that subaccount is $2.00 on the
date of transfer. We multiply the number of Annuity Units (1000) by the Annuity
Unit Value ($2.00) and arrive at the figure $2000. The number of Units to be
used for Subaccount B is found by dividing this figure by the Annuity Unit Value
for Subaccount B. The Annuity Unit Value for Subaccount B is $1.00. In this case
the number of Units to be used for Subaccount B would be 2000 ($2000/$1.00). On
the other hand, if the Annuity Unit Value of Subaccount B were $4.00, only 500
Units would have been added ($2000/$4.00).
We may stop, suspend or modify the transfer provisions. If we do, we will give
you 30 days' notice.
CONVERSION OF VARIABLE ANNUITY TO FIXED-DOLLAR ANNUITY DURING THE ANNUITY
PERIOD.--The person who has the right to receive variable annuity payments may
ask us, during the annuity period, to convert all or part of a variable annuity
to a fixed-dollar annuity. We must have the request in writing at our Service
Office and in a form which meets our needs. We will make the conversion
requested subject to the conditions given below. The effective date of the
conversion will be the first of the next month which is at least one week after
the date we receive the request, unless a different date is requested and we
consent.
Conversion is subject to these conditions: (1) the fixed-dollar annuity must be
of the same type as the variable annuity and have remaining on the conversion
date the same number of minimum or specified payments as remained under the
variable annuity on that date; (2) the present value on the conversion date of
the variable annuity, or portion of variable annuity, to be converted must be
sufficient to produce a monthly income of at least $20 under the fixed-dollar
annuity; (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.
For the purpose of computing present value of the variable annuity, or portion
of it, being converted, we assume that the Annuity Unit Value(s) for the
Business Day as of which the calculation is made will not change after that
date. We will compute present value taking into account the remaining minimum or
specified payment period, if any, using the same interest rate(s), and, for
annuities of Types A, B and C, the same mortality table(s) that were used to
determine the Tabular Monthly Annuity on the Annuity Date. (See Annuity
Settlement Tables on page 14.) If more than one Annuity Settlement Table was
used in determining the Tabular Monthly Annuity on the Annuity Date,
corresponding rate bases will be used in determining the present value of the
variable annuity being converted. The proportion of future monthly payments
discounted on a particular basis will be equal to the proportion of the Tabular
Monthly Annuity that was determined on that basis.
(Continued on Next Page)
Page 12 (QVIP--84)
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<PAGE>
PAYOUT PROVISIONS (Continued)
We will apply the present value so computed to provide a fixed-dollar annuity on
the life of the Annuitant. Monthly payments under the fixed-dollar annuity will
be at least as great as payments determined in accord with provisions of Annuity
Settlement Tables guaranteed for fixed-dollar annuity settlements under this
contract on the Annuity Date, and will take into account the number of minimum
or specified payments, if any, to be made, But the monthly payment will be
greater if we are offering greater monthly incomes for fixed-dollar annuities on
the conversion date.
Conversions may not be made from fixed-dollar annuities to variable annuities.
ENDORSEMENTS
(Only we can endorse this contract.)
Page 13 (QVlP-84)
C-44
<PAGE>
ANNUITY SETTLEMENT TABLES
AMOUNTS PAYABLE.--If the annuity date is a contract anniversary, for Annuity
Types A, B and C we will use the tables below to compute the amount of the
Tabular Monthly Annuity payment. The amounts we show for Types A and B are based
on the Annuitant's age last birthday on the annuity date. The amounts we show
for Type C are based on both the Annuitant's and the contingent annuitant's age
last birthday on the annuity date.
If the annuity date is not a contract anniversary, for each completed quarter
year after the most recent anniversary we will adjust the amounts.
When we computed the amounts we show in the tables we adjusted the 1983 Table a
to an age last birthday basis, less three years; we used an interest rate of 3
1/2% a year. For combinations of ages which we do not show, we will compute the
Tabular Monthly Annuity on the same basis, except that if the age is over 80,
the rate for age 80 will be used. We will let you know the amounts if you ask
for them. Settlements under Annuity Types A, B and C will share in our surplus
to the extent and in the way we decide.
We computed the amounts of the Tabular Monthly Annuity we show in Table D using
an interest rate of 3 1/2%. Those amounts are not based on the age of the
annuitant.
Other forms of annuity may be provided, subject to Prudential's consent, or as
may be required by any applicable law or regulation.
TABLE A
Amount of Tabular Monthly Annuity under Annuity Type A
for each $1000 applied on the annuity date.
--------------------------------------------
AGE AMOUNT
============================================
41 $3.68
42 3.71
43 3.75
44 3.79
45 3.83
46 3.87
47 3.91
48 3.96
49 4.00
50 4.06
51 4.11
52 4.17
53 4.23
54 4.29
55 4.36
56 4.43
57 4.50
58 4.58
59 4.67
60 4.75
61 4.85
62 4.95
63 5.06
64 5.17
65 5.29
66 5.42
67 5.56
68 5.71
69 5.87
70 6.04
71 6.22
72 6.42
73 6.64
74 6.87
75 7.12
76 7.39
77 7.69
78 8.01
79 8.36
80 and over 8.73
-------------------------------------------
TABLE B
Amount of Tabular Monthly Annuity under Annuity Type B
for each $1000 applied on the annuity date.
--------------------------------------------
AGE AMOUNT
============================================
41 $3.67
42 3.70
43 3.74
44 3.78
45 3.82
46 3.86
47 3.90
48 3.94
49 3.99
50 4.04
51 4.09
52 4.15
53 4.21
54 4.27
55 4.33
56 4.40
57 4.47
58 4.54
59 4.62
60 4.71
61 4.79
62 4.89
63 4.98
64 5.09
65 5.20
66 5.31
67 5.43
68 5.56
69 5.70
70 5.84
71 5.99
72 6.15
73 6.31
74 6.49
75 6.67
76 6.85
77 7.04
78 7.24
79 7.44
80 and over 7.64
--------------------------------------------
(Continued on Next Page)
Page 14 (QVIP-84)
C-45
<PAGE>
ANNUITY SETTLEMENT TABLES (Continued)
TABLE C
Amount of Tabular Monthly Annuity under Annuity Type C for each
$1000 applied on the annuity date.
<TABLE>
<CAPTION>
OLDER AGE
----------------------------------------------------------------------------------------------------------------
YOUNGER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGE 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74
=================================================================================================================
55 $4.03 $4.05 $4.07 $4.09 $4.11 $4.13 $4.15 $4.16 $4.18 $4.19 $4.21 $4.22 $4.23 $4.24 $4.25
56 4.07 4.09 4.11 4.13 4.15 4.17 4.19 4.21 4.23 4.24 4.26 4.27 4.28 4.30 4.31
57 4.10 4.13 4.15 4.17 4.20 4.22 4.24 4.26 4.28 4.29 4.31 4.33 4.34 4.35 4.37
58 4.13 4.16 4.19 4.21 4.24 4.26 4.28 4.31 4.33 4.35 4.36 4.38 4.40 4.41 4.43
59 4.17 4.20 4.22 4.25 4.28 4.31 4.33 4.35 4.38 4.40 4.42 4.44 4.46 4.48 4.49
60 4.20 4.23 4.26 4.29 4.32 4.35 4.38 4.40 4.43 4.45 4.48 4.50 4.52 4.54 4.56
61 4.26 4.30 4.33 4.36 4.40 4.43 4.45 4.48 4.51 4.54 4.56 4.58 4.61 4.63
62 4.33 4.37 4.41 4.44 4.47 4.51 4.54 4.57 4.60 4.62 4.65 4.67 4.70
63 4.41 4.45 4.48 4.52 4.56 4.59 4.62 4.66 4.69 4.72 4.74 4.77
64 4.49 4.53 4.57 4.61 4.65 4.68 4.72 4.75 4.78 4.82 4.85
65 4.57 4.62 4.66 4.70 4.74 4.78 4.82 4.85 4.89 4.92
66 4.66 4.71 4.75 4.80 4.84 4.88 4.92 4.96 5.00
67 4.76 4.81 4.86 4.90 4.95 5.00 5.04 5.08
68 4.86 4.92 4.97 5.02 5.07 5.11 5.16
69 4.97 5.03 5.08 5.14 5.19 5.24
70 5.09 5.15 5.21 5.27 5.32
71 5.22 5.28 5.35 5.41
72 5.35 5.42 5.49
73 5.50 5.57
74 5.66
</TABLE>
TABLE D
Amount of Tabular Monthly Annuity under Annuity Type D for each
$1000 applied on the annuity date.
------------------------------------
NUMBER OF YEARS MONTHLY PAYMENT
------------------------------------
5 $18.12
10 9.83
15 7.10
20 5.75
------------------------------------
Page 15 (QVIP-84)
C-46
<PAGE>
BENEFICIARY
Unless the retirement arrangement under which the contract is purchased provides
otherwise, you may designate or change a beneficiary. Your request must be in
writing and in a form which meets our needs. It will take effect only when we
file it at our Service Office; this will be after you send the contract to us to
be endorsed, if we ask you to do so. Then any previous beneficiary's interest
will end as of the date of the request. It will end then even if the Annuitant
is not living when we file the request. Unless otherwise stated, we will make
payment to the beneficiary only if the Annuitant dies before the annuity date.
Any beneficiary's interest is subject to the rights of any assignee of whom we
know.
When a beneficiary is designated, any relationship shown is to the Annuitant,
unless otherwise stated. To show priority, we may use numbered classes, so that
the class with first priority is called class 1, the class with next priority is
called class 2, and so on. When we use numbered classes, these statements apply
to beneficiaries unless the form states otherwise:
1. One who survives the Annuitant will have the right to be paid only if no one
in a prior class survives the Annuitant.
2. One who has the right to be paid will be the only one paid if no one else in
the same class survives the Annuitant.
3. Two or more in the same class who have the right to be paid will be paid in
equal shares.
4. If none survives the Annuitant, we will pay in one sum to the Annuitant's
estate.
Example: Suppose the class 1 beneficiary is Jane and the class 2 beneficiaries
are Paul and John. If the Annuitant dies before the Annuity Date, we owe Jane
the proceeds if she is living at the Annuitant's death. We owe Paul and John the
proceeds if they are living then but Jane is not. But if only one of them is
living, we owe him the proceeds. If none of them is living, we owe the
Annuitant's estate.
If you choose a Type B or Type D annuity for the Annuitant, the Annuitant may
designate and may subsequently change the designation of, a beneficiary to
receive any residue that may become payable under the annuity on death of the
Annuitant after the Annuity Date but before the end of the annuity's minimum or
specified period. (See Options Described and Residue Described on page 10.)
Before we make a payment, we have the right to decide what proof we need of the
identity, age or any other facts about any persons designated as beneficiaries.
If beneficiaries are not designated by name and we make payment(s) based on that
proof, we will not have to make the payment(s) again.
SETTLEMENT PROVISIONS FOR THE BENEFICIARY
PAYEE DEFINED.--In these provisions the word Payee means a beneficiary or a
contingent payee who has a right to receive a settlement under the contract.
CHOOSING AN OPTION.--Unless the retirement arrangement that covered you provides
otherwise, a Payee may choose an annuity option for all or part of any proceeds,
residue or the then present value of any unpaid payments which become payable to
him or her in one sum. We explain residue under Residue Described on page 10.
In some cases a Payee will need our consent to choose an option. We describe
these cases under Conditions.
OPTIONS DESCRIBED.--Here are the options we offer. We may also consent to other
arrangements.
We offer the same annuity options to the Payee that we offer to an Annuitant.
And we determine monthly payments for the Payee in the same way we do for an
Annuitant, except that we do not deduct any premium tax or annuitization charge
from the amount payable to the Payee. (See Options Described, Amount of
Fixed-Dollar Annuity and Determination of the Amount of a Variable Annuity on
pages 10 and 11.) If an annuity of Type A, B, or C is selected, we must have
proof of the date of birth of each person on whose life the settlement is based.
FIRST PAYMENT DUE DATE.--Unless a later date is requested when the option is
chosen, the first payment will be due on the first day of the earliest calendar
month on or after the day the Service Office has received the request for the
settlement and due proof of the Annuitant's death and such claim forms and other
evidence as may be satisfactory to us.
CONDITIONS.--Our permission is needed for an option to be used for any person
under any of these conditions:
1. The person is not a natural person who will be paid in his or her own right.
2. The person will be paid as assignee.
3. The first payment to the person under the option would be less than $20.
DEATH OF PAYEE.--lf a Payee under an option dies and if no other distribution is
shown, we will pay any residue under that option in one sum to the Payee's
estate.
Page 16 (QVIP--84)
C-47
<PAGE>
GUIDE TO CONTENTS
Page
Contract Summary ........................................................... 2
General Provisions ......................................................... 4
Definitions; Contract Modifications;
Change of Annuity Date;
Ownership and Control;
Currency; Misstatement of Age;
Incontestability;
Proof of Survival or Death; Assignment;
Asset Charges; Changes by Prudential;
Voting Rights; Participation
Variable Accumulation Provisions .......................................... 6
Purchase Payments; Crediting
of Subaccount Units; Subaccount Unit Value;
Annual Maintenance Charge;
Withdrawals;
Withdrawal Charges; Transfers;
Changing the Number of Subaccount
Units Credited; Substitution of Shares;
Effect of Loss of Tax-Qualified
Status or Failure to Qualify
Death of Annuitant ........................................................ 9
Payout Provisions ......................................................... 10
Choosing an Option; Conditions;
When No Option Chosen;
Options Described; Residue
Described; Right of Withdrawal; Annuitization
Charge; Tabular Monthly Annuity;
Amount of Fixed-Dollar Annuity;
Determination of Amount of Variable Annuity;
Subaccount Annuity Unit Value;
Transfers During the Annuity Period; Conversion of
Variable Annuity to Fixed-Dollar Annuity During the
Annuity Period
Annuity Settlement Tables .................................................. 14
Beneficiary ................................................................ 16
Settlement Provisions for the Beneficiary .................................. 16
Page 17
Variable Annuity Contract with Flexible Purchase Payments--Monthly annuity
payments Starting on Annuity Date. Payment as stated upon death before Annuity
Date. Purchase payments payable during Annuitant's lifetime until Annuity Date.
QVIP--84
C-48
The Prudential Insurance Company of America
Corporate Office
Newark, New Jersey
Annuitant(s) Honey Comb 3 C0000609 Contract Number
Annuity Date August 31, 1998 August 31, 1992 Contract Date
Agency N/A
We will make monthly annuity payments starting on the Annuity Date we show
above. We make this promise subject to all the provisions of this contract.
Please read this contract with care. A guide to its contents is on the last page
before the back cover. A summary is on page 5. If there is ever a question about
it, or if there is a claim, just see one of our representatives or get in touch
with one of our offices.
Benefits and values under this contract may be on a variable basis. Amounts
directed into one or more of the variable subaccounts will reflect the
investment experience of those subaccounts. They are subject to change both up
and down and are not guaranteed as to dollar amount except as provided under the
Death of Annuitant and Payout Provisions sections.
Right to Cancel Contract--Not later than ten days after you get this contract,
you may return it to us. All you have to do is take it or mail it to one of our
offices or to the agent who sold it to you. We will cancel the contract and
promptly give you its net asset value, less the net asset value of any amount we
add to the contract fund (see page 8) determined as of the date your request is
received, without redemption charge.
The provisions on this and the following pages of this contract comprise the
entire contract. The contract was signed for Prudential on the contract date,
which is the date of issue.
Signed for Prudential.
/S/[ILLEGIBLE] /S/ ARTHUR F. RYAN
- ----------- ------------------
Secretary President
Variable Annuity Contract with Flexible Purchase Payments--Monthly annuity
payments starting on Annuity Date. Payment as stated upon death before Annuity
Date. Purchase payments payable during lifetime(s) of annuitant(s) until Annuity
Date. Cash value reflect investment results.
VIP--86
C-49
<PAGE>
ENDORSEMENTS
(Only we can endorse this contract.)
Page 2 (VIP--86)
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<PAGE>
CONTRACT DATA
ANNUITANT (S) Honey Comb 3 CO000609 CONTRACT NUMBER
ANNUITANT DATE August 31, 1998 August 31, 1992 CONTRACT DATE
AGENCY N/A
FIRST ANNUITANT:
NAME Honey Comb 3
SEX AND ISSUE AGE F-84
DATE OF BIRTH December 1, 1907
CO-ANNUITANT:
NAME
SEX AND ISSUE AGE
DATE OF BIRTH
BENEFICIARY: Class 1 Sara Mountain, SISTER
ALLOCATION OF INITIAL PURCHASE PAYMENT
Prudential Money Market 33.0%
Prudential Stock Index 33.0%
Prudential Small Capitalization Stock 34.0%
THE MAINTENANCE CHARGE IS UP TO $30.00 ANNUALLY. WE EXPLAIN THIS ON PAGE 12.
SERVICE OFFICE - PLEASE DIRECT ANY COMMUNICATION ABOUT THIS CONTRACT TO:
PRUDENTIAL ANNUITY SERVICE CENTER, P.O. BOX 14230, NEW BRUNSWICK, NEW JERSEY
08906-4230.
Page 3 (VIP-86)
C-51
<PAGE>
ENDORSEMENTS
(Only we can endorse this contract)
Page 4 (VIP-86)
C-52
<PAGE>
CONTRACT SUMMARY
We offer this summary to help you understand this contract. We do not intend
that it change any of the provisions of the contract.
Beginning on the Annuity Date we will use your contract fund to provide an
income, as we explain on page 13, to the Annuitant named on page 3 (the First
Annuitant named there if two annuitants are named) if he or she is then living
and entitled to payment. But if two annuitants are named on page 3 and (1) the
First Annuitant is not living on the Annuity Date or (2) both annuitants are
living and you ask us to do so, we will make payment to the Co-Annuitant named
on page 3 if he or she is then living. If, on the Annuity Date, no other
settlement has been chosen, we will make monthly payments under the Interest
Payment Option. But if the amount of the initial payment would be less than $50,
the Company reserves the right to, instead, pay the cash value in one sum. We
describe the other options we offer on page 13.
Purchase payments may be made at any time until the Annuity Date. There are no
scheduled amounts or due dates. We explain this on page 8. The purchase
payments, minus any deductions for state and/or local premium taxes, will be
allocated as you direct to one or more of the subaccounts of The Prudential
Individual Variable Contract Account and/or the fixed account.
Additional amounts may also be credited to your contract fund as we described on
page 8.
We describe on page 10 the amount payable, if any; at the death of an annuitant.
If there are two annuitants and one annuitant dies before the Annuity Date, here
is what we will do. We will use any excess of minimum proceeds (the sum of all
purchase payments minus any withdrawals made) over the contract fund to increase
the value of the contract for the surviving annuitant. Otherwise, it may be paid
to the beneficiary in cash; or it may be applied by the beneficiary to either of
the payout options we offer an annuitant under this contract.
You and we may agree on a change in the ownership of this contract. Also, unless
we endorse it to say otherwise. The contract gives you these rights, among
others:
o You may change the beneficiary(ies) under it.
o You may surrender it for its cash value.
o You may make withdrawals.
o You may transfer amounts among the subaccounts and the fixed account.
o You may remove one annuitant if two are named.
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GENERAL PROVISIONS
Definitions.-- We define here some of the words and phrases used all through
this contract. We explain others, not defined here, in other parts of the text.
We, Our and Us.--Prudential.
You and Your.--The owner of the contract.
Annuitant(s).--The person or persons named on the first page. If more than one
person is so named, one of the two is named on Page 3 as First Annuitant, the
other as Co-Annuitant. And, in this case, the Beneficiary provisions of the
contract will be based on the death of the last survivor of the persons so
named. The owner need not be an annuitant.
Payee.--A beneficiary who has a right to receive a settlement under this
contract.
SEC.--The Securities and Exchange Commission.
PIVCA.--The Prudential Individual Variable Contract Account.
Contract Date.--The date we receive the purchase payment at our Service Office.
We show the Contract Date on page 3.
Issue Date.--The Contract Date.
Annuity Date.--The date the first annuity payment is due. We show the Annuity
Date on page 3.
Anniversary or Contract Anniversary.--The same day and month as the Contract
Date in each later year.
Example: If the contract date is June 10, 1986, the first anniversary is June
10, 1987. The second is June 10, 1988, and so on.
Contract Year.--A year which starts on the Contract Date or on an Anniversary.
Example: If the contract date is June 10, 1986, the first Contract Year starts
then and ends on June 9, 1987. The second starts on June 10, 1987 and ends on
June 9, 1988.
Attained Age.--An annuitant's attained age at any time is his or her issue age
plus the length of time since the contract date. You will find the issue age(s)
on page 3.
Earnings.--The excess, if any, of (1) the contract fund plus any amounts
previously withdrawn, over (2) total purchase payments to date plus any
additional amounts credited by the Company as a result of such purchase
payments.
Service Office.--The office designated by Prudential to service contracts such
as this. Its mailing address is the address shown on the Contract Data page,
unless Prudential specifies another address by notice to you.
Annual Report-- Once each contract year after the first and before the Annuity
Date we will send you a report. It will show (1) the amount of the contract
fund; (2) the investment amount in each subaccount; (3) the amount in the fixed
account; (4) interest credited during the year, and (5) the interest rate that
will be credited until further notice to the amount in the fixed account. The
report will include any other data that may be currently required where this
contract is delivered. You may ask for a report like this at any time. But,
except for the report we send you once a year, we have the right to charge a fee
for each report.
Contract Modifications.-- Only a Prudential officer may agree to modify this
contract, and then only in writing.
Change of Annuity Date.-- Not later than the present Annuity Date, you may ask
us to change that date to another date. We must have your request in writing at
our Service Office and in a form which meets our needs. You must send the
contract to us to be endorsed if we ask you to do so. We will change the date to
the one you ask for in your request. But, unless we consent, it may not be
before the later of (1) the third contract anniversary and (2) the first of the
next month after the date we receive your request. Also, unless we consent, it
may not be after the first of the next month after the 80th birthday of the
younger of the annuitants. Further, unless we consent, you may not make more
than one change in the Annuity Date.
Removal of an Annuitant.-- If a First Annuitant and a Co-Annuitant are named, we
will remove one from the contract upon: (1) receipt of your written request to
remove that annuitant; or (2) receipt of due proof that the Annuitant has died.
Ownership and Control.-- Unless we endorse this contract to say otherwise: (1)
the owner of the contract is the Annuitant (the First Annuitant, if two are
named); (2) while any annuitant is living the owner alone is entitled to (a) any
contract benefit and value, and (b) the exercise of any right and privilege
granted by the contract or by us; and (3) if two annuitants are named and the
First Annuitant dies while the Co-Annuitant is living, the Co-Annuitant will
become the Owner.
Currency.-- Any money we pay, or which is paid to us, must be in United States
currency. Any amount we owe will be payable at our Service Office.
(Continued on Next Page)
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GENERAL PROVISIONS (Continued)
Misstatement of Age or Sex.-- If any annuitants stated date of birth or sex or
both are not correct, we will change each benefit and the amount of each annuity
payment to that which the purchase payment would have bought for the correct
date of birth and sex. Also, we will adjust the amount of any payments we have
already made. Here is how we will do it: (1) We will deduct any overpayments,
with interest at 5% a year, from any payment(s) due then or later. (2) We will
add any underpayments, with interest at 5% a year, to the next payment we make
after we receive proof of the correct date of birth and sex.
Incontestability.-- We will not contest this contract except for non-payment of
the purchase payment due on the contract date.
Proof of Survival or Death.-- Before we make a payment, we have the right to
require proof of the life or death of any person whose life or death determines
whether or to whom we must make the payment.
Changes by Prudential.-- We reserve the right, upon 90 days notice to you to:
(1) change the minimum amount requirements specified for purchases, withdrawals
and transfers in the Contract Fund and Contract Value Options Provision;
(2) refuse to accept any request for purchase;
(3) add, change or discontinue subaccounts, change to or add a different
variable contract account, or substitute fund shares in the account (see page
9);
(4) change any or all terms and provisions of the Annuity Settlement Table on
page 15, but only with respect to any portion of an annuity settlement deriving
from purchase payments made on or after the effective date of the change and
earnings on those purchase payments; and
(5) make any changes required by law.
Voting Rights:
Fund.--We will send you a notice of any meeting at which Fund shares which
comprise the assets of a subaccount may be voted. We will provide a voting
instruction form for the number of Fund shares representing your proportional
interest. The instruction form may be signed and returned to us. If for any
meeting there are Fund shares for which we have not received voting
instructions, this is what we will do. We will vote Fund shares on each matter
in the same proportion as we vote the Fund shares held in the subaccount for
which we did receive instructions.
Prudential.--We are a mutual life insurance company. Our principal office is in
Newark, New Jersey, and we are incorporated in that State. By law, we have 24
directors. This includes 16 elected by our policyholders (four each year for
four year terms), two of our officers, and six public directors named by New
Jersey's Chief Justice.
The election is held on the first Tuesday in April from 10:00 a.m. to 2:00 p.m.
in our office at the Secretary's address shown here. After this contract has
been in force for one year, you may vote either in person or by mail. We will
send you a ballot if you ask for one. Just write to our Secretary at Prudential
Plaza, Newark, New Jersey 07102, at least 60 days before the election date. By
law, your request must show your name, address, contract number and date of
birth. If you are an individual, you must be at least 18 years old to vote.
Participation (Dividends).--This contract is eligible to participate in the
divisible surplus of Prudential. We do not expect that any dividends will be
payable on or before the Annuity Date. While any annuity settlement is in
effect, the contract will share in our surplus to the extent and in the way we
decide.
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PURCHASE PAYMENTS
Purchase Payments.-- An initial purchase payment of at least $1,000 is payable
on the Contract Date. Further purchase payments may be made at any time while an
annuitant is living and before the Annuity Date. The amount of each payment
after the first must be at least $100. We reserve the right to establish a
maximum amount.
The initial purchase payment, minus any deduction for state and/or local premium
taxes, will be allocated to the subaccounts and/or to the fixed account as you
instruct. The minimum amount of a first allocation to a subaccount and/or to the
fixed account is $300; the minimum for subsequent allocations is $100 unless we
consent to a smaller amount. If, after you have made at least one purchase, we
receive a purchase payment without instructions, we will make any deduction for
state and/or local premium taxes and allocate the balance in the same
proportions as the most recent purchase payment you made.
Additional Amounts.-- During the first three contract years, and in contract
years thereafter at the discretion of the Company, we will credit an additional
1% to the amount of every purchase payment you make, The Company reserves the
right to limit such additional amounts to $1,000 in each contract year.
This additional amount will not be subject to state and/or local premium taxes.
The amount will be allocated to the subaccounts and/or to the fixed account in
the same proportions as the corresponding purchase payment.
Example 1: On the Contract Date you make a $1,500 purchase to be allocated
equally to subaccounts A, B and C. We will increase that amount by 1%, or $15,
and allocate $505 to each of Subaccounts A, B, and C. Later in the year you send
us a $900 purchase payment, but you don't tell us how it is to be applied. We
will increase that amount by 1% or $9 and, based on the most recent purchase,
the one made on the Contract Date, we would make a $303 purchase for each of
Subaccounts A, B, and C.
Example 2: If in the example above your second purchase payment had been $200
instead of $900, we would have the right not to make the purchase without first
contacting you to find out how the purchase payment is to be applied. This is
because the $200 purchase payment was not enough to make a minimum purchase of
$100 for each of the three subaccounts. The purchase would be made when we
receive your instructions at our Service Office.
BENEFICIARY
You may designate or change a beneficiary. Your request must be in writing and
in a form which meets our needs. It will take effect only when we file it at our
Service Office; this will be after you send the contract to us to be endorsed,
if we ask you to do so. Then any previous beneficiary's interest will end as of
the date of the request. It will end then even if no annuitant is living when we
file the request. Unless otherwise stated, we will make payment to the
beneficiary only if the last surviving or sole annuitant dies before the Annuity
Date. Any beneficiary's interest is subject to the rights of any assignee of
whom we know.
When a beneficiary is designated, any relationship shown is to the Annuitant
(First Annuitant if two annuitants are named on page 3) unless otherwise stated.
To show priority, we may use numbered classes, so that the class with first
priority is called class 1, the class with next priority is called class 2, and
so on. When we use numbered classes, these statements apply to beneficiaries
unless the form states otherwise: (In these provisions and in the Example, the
term annuitant refers, where two annuitants are named, to the last surviving
annuitant.)
1. One who survives the annuitant will have the right to be paid only if no one
in a prior class survives the annuitant.
2. One who has the right to be paid will be the only one paid if no one else in
the same class survives the annuitant.
3. Two or more in the same class who have the right to be paid will be paid in
equal shares.
4. If none survives the annuitant, we will pay in one sum to the annuitants
estate.
Example: Suppose the class 1 beneficiary is Jane and the class 2 beneficiaries
are Paul and John. If the annuitant dies before the Annuity Date, we owe Jane
the proceeds if she is living at the annuitant's death. We owe Paul and John the
proceeds if they are living then but Jane is not. But if only one of them is
living, we owe him the proceeds. If none of them is living, we owe the
annuitant's estate.
Before we make a payment, we have the right to decide what proof we need of the
identity, age or any other facts about any persons designated as beneficiaries.
If beneficiaries are not designated by name and we make payment(s) based on that
proof, we will not have to make the payment(s) again.
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SEPARATE ACCOUNT
The Account-- The word Account, where we use it in this contract without
qualification, means the Prudential Individual Variable Contract Account (PIVCA)
and any other separate accounts that we establish. PIVCA is a unit investment
trust registered with the SEC under the Investment Company Act of 1940. It is
also subject to the laws of New Jersey. We own the assets of the Account; we
keep them separate from the assets of our general investment account. We
established the Account to support variable annuity contracts.
Subaccounts.-- The PIVCA has several subaccounts. We list them on the Contract
Data page(s). You determine, using percentages, how the invested purchase amount
will be allocated among the subaccounts and/or to the fixed account. You may
choose to allocate nothing to a particular subaccount. But any allocation you
make must be at least 10%; you may not choose a fractional percent.
Example: You may choose a percentage of 0, or 100, or 10, 11, 12, and so on, up
to 90. But you may not choose a percentage of 1 through 9, or 91 through 99, or
any percent that is not a whole number.
The Fund.-- The word fund, where we use it in this contract without
qualification, means the fund we identify in the Contract Data pages. The fund
is registered with the SEC under the Investment Company Act of 1940 as an
open-end diversified management investment company. The fund has several
portfolios; there is a portfolio that corresponds to each of the subaccounts of
the PIVCA. We list these portfolios in the Contract Data pages.
Account Investments.-- We use the assets of the PIVCA to buy shares in the fund.
Each subaccount is invested in a corresponding specific portfolio. Income and
realized and unrealized gains and losses from assets in each subaccount are
credited to, or charged against, the subaccount. This is without regard to
income, gains, or losses in our other investment accounts.
We will determine the value of the assets in the PIVCA at the end of each
business day. When we use the term business day, we mean a day when the New York
Stock Exchange is open for trading. We might need to know the value of an asset
on a day that is not a business day or on which trading in that asset does not
take place. In this case, we will use the value of that asset as of the end of
the last prior business day on which trading took place.
Example: If we need to know the value of an asset on a Sunday, we will normally
use the value of the asset as of the end of business on Friday.
We will always keep assets in the Account with a total value at least equal to
the amount of the investment amounts under contracts like this one. (See page
11.) To the extent those assets do not exceed this amount, we use them only to
support those contracts; we do not use those assets to support any other
business we conduct. We may use any excess over this amount in any way we
choose.
Change in Investment Policy.-- A portfolio of the fund might make a material
change in its investment policy. In that case, we will send you a notice of the
change.
Change of Fund.-- A portfolio might, in our judgment, become unsuitable for
investment by a subaccount. This might happen because of a change in investment
policy, or a change in the laws or regulations, or because the shares are no
longer available for investment, or for some other reason. If that occurs, we
have the right to substitute another portfolio of the fund, or to invest in a
fund other than the one we show on the Contract Data page(s). But we would first
seek approval from the SEC and, where required, the insurance regulator where
this contract is delivered.
FIXED ACCOUNT
The Fixed Account.-- In addition to the subaccounts described above, there is a
fixed account to which you may direct all or part of your invested purchase
amount(s). The fixed account is funded by the general account of Prudential. The
fixed account is credited with interest as described under Guaranteed Interest
on page 12 and Excess Interest on page 12.
Fixed Account Options. --We may have more than one fixed account option. We list
the fixed account option(s) in the Contract Data pages.
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TRANSFERS
Transfers Among Subaccounts and into the Fixed Account.-- You may transfer
amounts among subaccounts of PIVCA and into the fixed account as often as four
times in a contract year. In addition, the entire amount in all subaccounts may
be transferred to the fixed account at any time. If we establish new separate
accounts, transfers into or out of these separate accounts will be allowed only
with our consent. To make a transfer, you must notify us in writing in a form
that meets our needs. The transfer will take effect on the date we receive your
notice at our Service Office.
Transfers Among Fixed Account Options and into the Subaccounts.-- You may
transfer amounts among the available Fixed Account Options and into the
subaccounts only with our consent.
DEATH OF ANNUITANT
Sole Annuitant.--lf we receive proof that an annuitant, who was the last
surviving or only annuitant named in the contract, died before the Annuity Date,
we will pay the beneficiary the proceeds promptly.
If the Annuitant dies before his or her 65th birthday, the proceeds will be the
greater of (a) minimum proceeds, which we define below, and (b) the contract
fund (which we define on page 11) as of the date we receive due proof of death.
Minimum proceeds if no withdrawals have been made is the sum of all of the
purchase payments paid to us plus any additional percentage amounts of purchase
payments we credit. Any withdrawal reduces minimum proceeds on the date of the
withdrawal in the same proportion that it reduces your contract fund on that
date. Purchase payments made after a withdrawal increase minimum proceeds by the
amount of the purchase payments plus any additional percentage amounts of
purchase payments we credit.
Example: Assume a total of purchase payments and additional amounts of $10,000
and a subsequent withdrawal of $3,000 made when your contract fund amounts to
$12,000. The contract fund is reduced by one-fourth ($3,000 divided by $12,000);
therefore minimum proceeds, which was $10,000, is also reduced by one-fourth, to
$7,500. A subsequent purchase of $5,000 with an additional amount credited of
$50 would increase minimum proceeds to $12,550.
If the Annuitant dies on or after his or her 65th birthday, the proceeds will be
the contract fund as of the date we receive due proof of death.
If the Annuitant dies on or after the Annuity Date, the settlement then in
effect will govern whether and to whom we will make any payment(s).
Multiple Annuitants.--If two annuitants are named in the contract and we receive
due proof that one of them died before his or her 65th birthday and before the
Annuity Date, here is what we will do. We will compare minimum proceeds,
determined as described above for death of a sole annuitant, with the amount of
your contract fund. If minimum proceeds is greater than the amount of the
contract fund, we will credit the difference to the contract fund as a death
benefit. The death benefit, if any, will be distributed among the subaccounts
and/or the fixed account in the same proportions as the contract fund was
distributed before the crediting of the death benefit.
No death benefit is payable if the Annuitant who died did so before the Annuity
Date and either: (1) the Annuitant had reached his or her 65th birthday on or
before the date of his or her death; or (2) the amount of the contract fund on
the date we received due proof of the Annuitant's death was greater than or
equal to minimum proceeds determined as described above.
The surviving annuitant may withdraw all of the contract fund, within 30 days
following the date we receive due proof of the first annuitant's death, without
paying any sales charge that might otherwise be required for a withdrawal (see
Withdrawal Charges on page 11).
When only one of the annuitants named in the contract survives, the above
provisions for Sole Annuitant will apply to that surviving annuitant.
Where two annuitants named in the contract have died and there is not sufficient
evidence that they have died otherwise than simultaneously, the proceeds of the
contract will be distributed as if the First Annuitant had survived the
Co-Annuitant.
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CONTRACT FUND AND CONTRACT VALUE OPTIONS
Before the annuity date, you may be able to make withdrawals from the contract
fund and you may surrender this contract for its cash value.
Contract Fund. --On the contract date the contract fund is equal to the invested
purchase amount (see below) minus any of the charges described in items (f)
through (i) below which may have been due on that date. On any day after that
the contract fund is equal to what it was on the previous day, plus these items:
(a) any increase due to investment results in the value of the subaccounts
to which that portion of the contract fund that is in the investment amount
is allocated (we explain investment amount below);
(b) guaranteed interest at 3% on that portion of the contract fund that is
in the fixed account;
(c) any excess interest on that portion of the contract fund that is in the
fixed account (see page 12); and
(d) any invested purchase amount resulting from additional purchase
payments
minus these items:
(e) any decrease due to investment results in the value of the subaccounts
to which that portion of the contract fund that is in the investment amount
is allocated;
(f) a charge against the investment amount at a rate of up to .00326816% a
day (1.20% a year) for mortality and expense risks that we assume;
(g) any annual maintenance charge that we deduct (see page 12);
(h) any amount charged against that contract fund for Federal or State
income taxes; and
(i) any withdrawals, withdrawal charges, and recapture of additional
amounts.
Invested Purchase Amount. --This is the portion of the purchase payments that we
add to the contract fund. It is equal to the purchase payments, plus any
additional amounts we have credited, minus any applicable deduction for state
and/or local premium taxes.
Investment Amount --The investment amount for this contract is the amount we use
to compute the investment results. The investment amount is allocated among the
subaccounts. The amount of the investment amount and its allocation to
subaccounts depend on (1) how you choose to allocate the invested purchase
amount; (2) whether or not you transfer amounts among subaccounts; (3) the
investment performance of the subaccounts to which amounts are allocated or
transferred; and (4) whether or not you make any withdrawals. The account,
subaccounts, and account investments are described on page 9. The investment
amount at any time is equal to the contract fund, minus the portion of the
contract fund that is in the fixed account.
Cash Value. --The cash value of the contract at any time is the contract fund,
minus any withdrawal charges that apply, minus any Additional Amount which is
subject to recapture. See Withdrawal Charges below for the period of time during
which there may be a withdrawal charge.
Withdrawal Charges (Deferred Contingent Sales Charges). --Although no sales
charges are deducted from your purchase payments when they are made, your
purchase payments may be subject to a sales charge upon withdrawal or upon
surrender of this contract for its cash value. Earnings, defined on page 6, are
not subject to sales charges. Withdrawals are considered to consist of earnings,
if any, first, then of purchase payments on a first-in, first-out basis.
In each contract year, any purchase payments withdrawn which do not in total
exceed 10% of your contract fund valued as of the date of the first withdrawal
in that year, will not incur a sales charge. A sales charge may be imposed on
purchase payments withdrawn in excess of this 10% limitation.
The amount of any sales charge imposed on the withdrawal of a purchase payment
varies with the number of contract years that have elapsed since the purchase
payment was made.
When you make a withdrawal, the rate of sales charge applied against any
purchase payments or portion of a purchase payment that is subject to a charge
is determined in accord with the following:
If the contract year of purchase payment is the same as the contract year of
withdrawal, the rate is 8%.
If the duration from the start of the
contract year of purchase payment to the
start of the contract year of withdrawal is... The rate is...
One year .............................................................. 7%
Two years ............................................................. 6%
Three years ........................................................... 5%
Four years ............................................................ 4%
Five years ............................................................ 3%
Six years ............................................................. 2%
Seven years ........................................................... 1%
Eight years or more .................................................. 0%
In determining the amount of sales charge, if any, we will consider that any
purchase payment withdrawn is the first purchase payment made which has not
previously been withdrawn. This is so even if that purchase payment was
(Continued on Next Page)
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CONTRACT FUND AND CONTRACT VALUE OPTIONS (Continued)
allocated to a different subaccount (and/or the fixed account) than that from
which withdrawal is being made or if the amount being withdrawn is no longer
subject to a withdrawal charge. Depending on the amount of the withdrawal, one
or more sales charge rates may be used if the withdrawal is of purchase payments
made in more than one contract year.
Recapture of Additional Amount.-- When you make a withdrawal which consists
partially or fully of purchase payments, we may recapture additional amounts
(see page 8) which we credited to your contract fund. If the duration from the
start of the contract year of purchase payment to the start of the contract year
of withdrawal is less than eight years, we will recapture the exact amount of
any additional amounts credited as a result of such purchase payments. 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, we will not recapture
any additional amounts credited as a result of such purchase payments.
Example.--
Year Transaction
- ---- -----------
Contract year one --Payment of $1,000 (plus crediting of $10 additional)
in Subaccount A
Contract year two --Payment of $900 (plus crediting of $9 additional) in
Subaccount B
Contract year three --Payment of $1,500 (plus crediting of $15 additional)
in Subaccount C.
In contract year five the contractholder requests a partial withdrawal of $1,600
from Subaccount C which has grown to $1,900. The amount of the contract fund on
the date of withdrawal is $3,900, $466 more than the total of the purchase
payments made to date, plus the additional amounts credited to date. Thus, for
purposes of determining sales charges, the $1,600 withdrawal is considered to
consist of $466 of earnings and $390 of purchase payments (10% of the contract
fund) may be withdrawn without sales charge. A sales charge is required on the
remaining $744 of purchase payment being withdrawn.
To determine the sales charge we assume that $1,000 of purchase payment being
withdrawn is the payment made to Subaccount A in contract year one. The
remaining $134 of purchase payment being withdrawn is assumed to be a part of
the $900 payment made to Subaccount B in contract year two. Of the first $1,000
purchase payment we have seen that $390 (10% of $3,900) may be withdrawn without
sales charge. A 4% sales charge is due on the withdrawal of the other $610 of
the payment (4% multiplied by $610 equals $24.40). The $134 portion being
withdrawn from the second payment requires a 5% sales charge (5% multiplied by
$134 equals $6.70). Thus the total sales charge for withdrawing $1,600 in year
five is $31.10.
In addition, since $1,134 of purchase payments is being withdrawn and the
durations from the start of the contract years of these purchase payments to the
contract year of withdrawal is less than eight years, we will recapture
additional amounts equal to $11.34 (1% of $1,134).
Annual Maintenance Charge.-- On each contract anniversary before the Annuity
Date or at the time of total withdrawal we will deduct a maintenance charge from
your contract fund. The maximum amount we will deduct is shown on page 3 of this
contract. If on any contract anniversary the contract fund is allocated to more
than one subaccount and/or to the fixed account, we will divide the charge on a
pro-rata basis, according to the value of each subaccount and/or the fixed
account.
Conditions for Withdrawal or Surrender.-- Our consent is needed for a withdrawal
if (1) its amount is less than $300; (2) it would reduce the contract fund to
less than $300; or (3) a withdrawal was made earlier in the same contract year.
To make a withdrawal or to surrender this contract for its cash value, you must
ask us in writing in a form that meets our needs. Also, to surrender the
contract, you must send it to us. Unless we consent, any amount withdrawn will
be taken from the subaccounts and/or the fixed account in proportion to the
amount in each as of the date of the withdrawal. After deducting the Annual
Maintenance Charge and the sales charges, and recaptures of Additional Amounts,
if any, we will pay the balance.
Guaranteed Interest-- The guaranteed interest rate credited on that portion of
the contract fund in the fixed account is an effective rate of 3% a year.
Excess Interest-- Excess interest on that portion of the contract fund in the
fixed account may be credited in addition to the 3% guaranteed interest rate.
The rate of any excess interest is not guaranteed. It will be determined from
time to time and will continue thereafter until a new rate is determined. We may
use different rates of excess interest for different portions of the contract
fund that are in the fixed account.
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PAYOUT PROVISIONS
Choosing an Option.-- You may have the amount of your contract fund on the
Annuity Date paid to the Annuitant(s) under one of the options we describe
below. If two annuitants are named in the contract, and both are living, you may
choose to have payments made to either. But, for any annuity settlement, we will
first deduct from your contract fund any charge for state and/or local premium
taxes, any recapture of additional amounts, and any withdrawal charges. We offer
the same annuity options to the Payee that we offer to an annuitant. And we
determine monthly payments for the Payee in the same way we do for an annuitant.
Conditions.-- With respect to the option(s) you select, your right to make the
choice is subject to all these conditions: (1) You must ask for the option in
writing and in a form which meets our needs. (2) You must send the contract to
us to be endorsed. (3) If we require it, you must give us proof of the date of
birth of the person on whose age an annuity payment is based. (4) We must have
your request, the contract and any required proof(s) of the date(s) of birth
before the Annuity Date.
Your choice of an option will take effect on the Annuity Date but only if: (1)
the person on whose life the annuity is to be based is living on that date; (2)
the first payment under the option will be at least $50; and (3) you do not void
the choice by making a later choice before the Annuity Date.
If two annuitants are named in the Contract and both are living, settlement will
be made on the life of the First Annuitant, as named on page 3.
When No Option Chosen.-- If no choice takes effect on the Annuity Date,
settlement under the Interest Payment Option will become effective.
Options Described.-- When we use the word annuitant in the following paragraphs
we mean the annuitant for whom the annuity described was chosen and who is to
receive settlement under the annuity.
For an annuitant, the first payment under these options is due on the Annuity
Date.
For a Payee, unless a later date is requested, the first payment will be due on
the first day of the earliest calendar month on or after the day the Service
Office has received the request for the settlement and due proof of the
annuitant's death and such claim forms and other evidence as may be satisfactory
to us. Here are the options we offer. We may also consent to other arrangements.
Life Income Option.-- You may choose monthly payments for as long as the
annuitant lives, with 120 monthly payments certain.
Interest Payment Option.-- We will hold an amount at interest. We will pay
interest at an effective rate of at least 3% a year ($30.00 annually, $14.89
semi-annually, $7.42 quarterly or $2.47 monthly per $1,000). We may pay more
interest.
Supplemental Life Annuity Option.-- You may choose to receive the proceeds of
this contract in the form of payments like those of any annuity or life annuity
we then regularly issue 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. For purposes of this option
only, the words we, our and us include our subsidiary company, Pruco Life
Insurance Company, which has agreed to make settlements under this option.
The proceeds of this contract might be subject to a withdrawal charge if paid as
a lump sum. If so, we will apply that charge pro-rata to any portion of the
proceeds not placed under this option. For the amount placed under this option
on any date, any annuity payment will be at least 100% of what we would pay
under the chosen kind of annuity with its first payment due on its contract
date. The phrase regularly issue does not include contracts that are used to
qualify for special federal income tax treatment as a retirement plan unless
this contract has been issued as part of such a plan. At least one of the
persons on whose life this option is based must be a Payee. This option cannot
be chosen more than 30 days before the due date of the first payment. On
request, we will quote the payment that would apply for any amount placed under
the option at that time.
Residue Described.-- For the Life Income Option and the Supplemental Life
Annuity Option, residue on any date means the then present value of any unpaid
payments certain. It does not include the value of any payment that may become
due after the certain period. For the Life Income Option, we will compute it at
an effective interest rate of 3 1/2% a year. But we will use the interest rate
we used to compute the actual Life Income Option payments if they were not based
on the table in this contract. For the Supplemental Life Annuity Option, we will
use the interest rate we would use for the chosen kind of annuity with the same
provisions as to withdrawal.
Page 13 (VIP-86)
C-61
<PAGE>
PAYOUT PROVISIONS (Continued)
For the Interest Payment Option, residue on any date means any unpaid balance
with interest to that date.
Withdrawal of Residue.-- Unless otherwise stated when the option is chosen: (1)
under the Life Income Option and the Supplemental Life Annuity Option the
residue may be withdrawn; and (2) under the Interest Payment Option all, or any
part not less than $100, of the residue may be withdrawn. If the Interest
Payment Option residue is reduced to less than $1,000, we have the right to pay
it in one sum. Under the Life Income Option and the Supplemental Life Annuity
Option, withdrawal of the residue will not affect any payments that may become
due after the certain period; the value of those payments cannot be withdrawn.
Instead, the payments will start again if they were based on the life of a
person who lives past the certain period.
Recapture of Additional Amounts.-- Before we make payments under any of the
above options, we will reduce the contract fund by the recapture of additional
amounts in the same way as we would if you had surrendered the contract for its
cash value (see page 12).
Withdrawal Charges.-- Before we make payments, under either the Life Income
Option or the Interest Payment Option, we will also reduce the contract fund by
a withdrawal charge in the same way as we would if you had surrendered the
contract for its cash value (see page 11).
ENDORSEMENTS
(Only we can endorse this contract.)
Page 14 (VIP--86)
C-62
<PAGE>
ANNUITY SETTLEMENT TABLE
Amounts Payable. --If the Annuity Date is a contract anniversary, for the Life
Income Option we will use the table below to compute the amount of the annuity
payment. The amounts we show are based on the Annuitant's sex and age last
birthday on the Annuity Date.
If the Annuity Date is not a contract anniversary, for each completed quarter
year after the most recent anniversary we will adjust the amounts.
When we computed the amounts we show in the tables, we adjusted the 1983 Table A
to an age last birthday basis, less three years; we used an interest rate of
3 1/2% a year. If the age is over 80, the rate for age 80 will be used. We will
let you know the amounts if you ask for them. Settlements under the Life Income
Option will share in our surplus to the extent and in the way we decide.
Other forms of annuity may be provided, subject to Prudential's consent, or as
may be required by any applicable law or regulation.
Amount of Annuity Payment for under the Life Income Option for each
$1,000 applied on the Annuity Date
- --------------------------------------------------------------------------------
AGE MALE FEMALE AGE MALE FEMALE
- --------------------------------------------------------------------------------
41 $3.88 $3.67 61 $5.25 $4.79
42 3.92 3.70 62 5.36 4.89
43 3.97 3.74 63 5.48 4.98
44 4.01 3.78 64 5.60 5.09
45 4.06 3.82 65 5.73 5.20
46 4.12 3.86 66 5.87 5.31
47 4.17 3.90 67 6.01 5.43
48 4.23 3.94 68 6.15 5.56
49 4.28 3.99 69 6.30 5.70
50 4.35 4.04 70 6.46 5.84
51 4.41 4.09 71 6.62 5.99
52 4.48 4.15 72 6.79 6.15
53 4.55 4.21 73 6.96 6.31
54 4.62 4.27 74 7.13 6.49
55 4.70 4.33 75 7.30 6.67
56 4.78 4.40 76 7.48 6.85
57 4.86 4.47 77 7.66 7.04
58 4.95 4.54 78 7.83 7.24
59 5.05 4.62 79 8.00 7.44
60 5.15 4.71 80 8.17 7.64
- --------------------------------------------------------------------------------
ENDORSEMENTS
(Only we can endorse this contract.)
Page 15 (VIP--86)
C-63
<PAGE>
GUIDE TO CONTENTS
Page
Contract Data ........................................................ 3
Contract Summary ..................................................... 5
General Provisions ................................................... 6
Definitions; Annual Report; Contract
Modifications; Change of Annuity Date;
Removal of an Annuitant;
Ownership and Control;
Currency; Misstatement of Age or Sex;
Incontestability; Proof of Survival or Death;
Assignment; Changes by Prudential;
Voting Rights
Purchase Payments .................................................... 8
Additional Amounts
Beneficiary .......................................................... 3 & 8
Separate Account ..................................................... 9
The Account; Subaccounts; The Fund; Account
Investments; Change in
Investment Policy; Change of Fund
Fixed Account ........................................................ 9
The Fixed Account; Fixed Account Options
Death of Annuitant ................................................... 10
Transfers ............................................................ 10
Transfers among Subaccounts and into
the Fixed Account; Transfers Among Fixed
Account Options and into the Subaccounts
Contract Fund and Contract Value Options .............................11 & 12
Contract Fund; Invested Purchase Amount;
Investment Amount; Cash Value;
Withdrawal Charges (Deferred Contingent Sales
Charges); Recapture of Additional Amount;
Annual Maintenance Charge; Conditions
for Withdrawal or Surrender; Guaranteed
Interest; Excess Interest
Payout Provisions .................................................... 13
Choosing an Option; Conditions;
When No Option Chosen; Options Described;
Life Income Option; Interest Payment Option;
Supplemental Life Annuity Option;
Residue Described; Withdrawal of Residue;
Recapture of Additional Amounts;
Withdrawal Charges
Annuity Settlement Table ............................................. 15
Page 16 (VIP--86)
C-64
<PAGE>
Page 18
Variable Annuity Contract with Flexible Purchase Payments--Monthly annuity
payments starting on Annuity Date. Payment as stated upon death before Annuity
Date. Purchase payments payable during lifetime(s) of annuitant(s) until Annuity
Date. Cash values reflect investment results.
(VIP--86)
C-65
<PAGE>
Page 17 (VIP--86)
C-66
EXHIBIT 9
April 24, 1998
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Gentlemen:
In my capacity as Chief Counsel, Variable Products, Law Department of The
Prudential Insurance Company of America, I have reviewed the establishment of
The Prudential Qualified Individual Variable Contract Account (the "Account") on
October 12, 1982, by the Board of Directors of The Prudential Insurance Company
of America ("Prudential") as a separate account for assets applicable to certain
qualified variable annuity contracts, pursuant to the provisions of Section
17B:28-7 of the Revised Statutes of New Jersey. I was responsible for oversight
of the preparation and review of the Registration Statement of Form N-4, as
amended, filed by Prudential with the Securities and Exchange Commission
(Registration No. 2-81318) under the Securities Act of 1933 for the registration
of certain qualified variable annuity contracts issued with respect to the
Account.
I am of the following opinion:
(1) Prudential was duly organized under the laws of New Jersey and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of New
Jersey law.
(3) The portion of the assets held in the Account equal to the
reserve and other liabilities for variable benefits under the
qualified variable annuity contracts is not chargeable with
liabilities arising out of any other business Prudential may
conduct.
(4) The qualified variable annuity contracts are legal and binding
obligations of Prudential in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Clifford E. Kirsch, Esq.
C-67
EXHIBIT 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated March
20, 1998, relating to the financial statements of The 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 the Registration Statement of our report dated March 5,
1998, relating to the consolidated financial statements of The 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
New York, New York
April 24, 1998
C-68
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 25 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 June 4, 1997 relating to the consolidated financial
statements of The Prudential Insurance Company of America and subsidiaries in
the Statement of Additional Information, which is a part of such Registration
Statement, and to the Reference to us under the heading "Experts", also
appearing in the Statement of Additional Information.
/s/ DELOITTE & TOUCHE
Parsippany, New Jersey
April 24, 1998
C-69
<TABLE>
ANNUALIZED RATES OF RETURN 30/9999*1000 = $3.00
AVG POLICY SIZE 1000
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- ------------------------------------------------------------------------------------------------------------------------------
5 YR RATE OF RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
92 (OR INCEPT) TO '93 ROR 1.73% 8.83% 20.43% 14.21% 10.87% 20.84% 4.84% 17.85%
92 TO '93 ERV 1017.32 1088.33 1204.29 1142.13 1108.75 1208.39 1048.37 1178.52
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
92 TO '93 ERV LESS ADMIN CHG 1014.32 1085.33 1201.29 1139.13 1105.75 1205.39 1045.36 1175.52
93 (OR INCEPT) TO '94 ROR 2.82% -4.38% 1.56% -4.31% -2.14% 0.23% 7.11% -3.88%
93 TO '94 ERV 1042.88 1037.82 1220.03 1089.99 1082.07 1208.18 1119.68 1129.97
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
93 TO '94 ERV LESS ADMIN CHG 1039.88 1034.82 1217.03 1086.99 1079.07 1205.18 1116.68 1126.97
94 (OR INCEPT) TO '95 ROR 4.57% 19.31% 29.74% 22.66% 15.89% 20.26% 7.52% 16.17%
94 TO '95 ERV 1087.40 1234.60 1578.99 1333.33 1250.51 1449.40 1200.64 1309.18
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
94 TO '95 ERV LESS ADMIN CHG 1084.40 1231.60 1575.99 1330.33 1247.51 1446.40 1197.64 1306.18
95 (OR INCEPT) TO '96 ROR 3.99% 3.15% 17.11% 12.29% 11.29% 20.29% 4.41% 10.06%
95 TO '96 ERV 1127.63 1270.44 1845.66 1493.78 1388.33 1739.95 1250.48 1437.64
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
95 TO '96 ERV LESS ADMIN CHG 1124.63 1267.44 1842.66 1490.78 1385.33 1736.95 1247.48 1434.64
96 (OR INCEPT) TO '97 ROR 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
96 TO '97 ERV 1171.51 1359.72 2269.80 1737.70 1552.99 2344.67 1371.80 1613.11
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
96 TO '97 ERV LESS ADMIN CHG 1168.51 1356.72 2266.80 1734.70 1549.99 2341.67 1368.80 1610.11
ANNUALIZED ROR BEFORE LOAD 3.16% 6.29% 17.78% 11.65% 9.16% 18.55% 6.48% 9.99%
AMT SUBJ TO LOAD IF + RETURN 883.15 864.33 773.32 826.53 845.00 765.83 863.12 838.99
AMT SUBJ TO LOAD IF - RETURN 1051.66 1221.05 2040.12 1561.23 1394.99 2107.51 1231.92 1449.10
AMT SUBJ TO LOAD 883.15 864.33 773.32 826.53 845.00 765.83 863.12 838.99
5TH (OR INCEPTION) SALE CHARGE 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
AMT OF LOAD 26.49 25.93 23.20 24.80 25.35 22.97 25.89 25.17
ERV LESS LOAD 1142.02 1330.79 2243.60 1709.90 1524.64 2318.70 1342.90 1584.94
- ------------------------------------------------------------------------------------------------------------------------------
ANN. 5YR RET W/LOAD AND ADM CHG 2.69% 5.88% 17.54% 11.33% 8.80% 18.32% 6.07% 9.65%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- -----------------------------------------------------------------------------------------------
5 YR RATE OF RETURN
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 N/A N/A
92 (OR INCEPT) TO '93 ROR 23.67% 8.37% 41.45% 11.23% N/A N/A
92 TO '93 ERV 1236.72 1083.66 1414.46 1112.28 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
92 TO '93 ERV LESS ADMIN CHG 1233.72 1080.66 1411.46 1109.27 N/A N/A
93 (OR INCEPT) TO '94 ROR -5.43% -0.19% -6.02% -6.29% N/A N/A
93 TO '94 ERV 1166.71 1078.60 1326.53 1039.45 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
93 TO '94 ERV LESS ADMIN CHG 1163.71 1075.60 1323.53 1036.45 N/A N/A
94 (OR INCEPT) TO '95 ROR 25.42% 35.45% 14.51% 18.06% N/A N/A
94 TO '95 ERV 1459.53 1456.87 1515.58 1223.65 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
94 TO '95 ERV LESS ADMIN CHG 1456.53 1453.87 1512.58 1220.65 N/A N/A
95 (OR INCEPT) TO '96 ROR 29.32% 21.11% 18.27% 1.00% N/A N/A
95 TO '96 ERV 1883.54 1760.77 1788.93 1232.90 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
95 TO '96 ERV LESS ADMIN CHG 1880.54 1757.77 1785.93 1229.90 N/A N/A
96 (OR INCEPT) TO '97 ROR -12.64% 31.26% 5.71% 8.37% N/A N/A
96 TO '97 ERV 1642.87 2307.22 1887.94 1332.83 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
96 TO '97 ERV LESS ADMIN CHG 1639.87 2304.22 1884.94 1329.83 N/A N/A
ANNUALIZED ROR BEFORE LOAD 10.40% 18.17% 13.52% 5.87% N/A N/A 131.W/OUT
AMT SUBJ TO LOAD IF + RETURN 836.01 769.58 811.51 867.02 N/A N/A
AMT SUBJ TO LOAD IF - RETURN 1475.88 2073.80 1696.45 1196.84 N/A N/A
AMT SUBJ TO LOAD 836.01 769.58 811.51 867.02 N/A N/A
5TH (OR INCEPTION) SALE CHARGE 3.00% 3.00% 3.00% 3.00% N/A N/A
AMT OF LOAD 25.08 23.09 24.35 26.01 N/A N/A
ERV LESS LOAD 1614.79 2281.14 1860.60 1303.81 N/A N/A
- --------------------------------------------------------------------------------------------------------
ANN. 5YR RET W/LOAD AND ADM CHG 10.06% 17.93% 13.22% 5.45% N/A N/A 126.WITH
</TABLE>
C-70
<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU VIP/QVIP PRODUCTS
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-Jun-83 08-Jun-83 06-Jun-83 27-May-83 02-Jun-83 19-Feb-88 02-May-88 23-Feb-87
WHOLE YEARS SINCE
INCEPTION 14.00 14.00 14.00 14.00 14.00 9.00 9.00 10.00
INCEPTION
UNIT VALUE 1.00018 0.99692 1.00243 1.00055 1.00433 0.99731 1.00345 0.99968
30-Jun-83 1.00530 1.00272 1.02693 1.01753 1.01314 N/A N/A N/A
30-Sep-83 1.02378 1.00281 0.99493 1.00086 1.01412 N/A N/A N/A
31-Dec-83 1.04235 1.01629 0.98158 0.99072 1.01744 N/A N/A N/A
1984 31-Mar-84 1.06224 1.02641 0.94082 0.95477 1.01202 N/A N/A N/A
30-Jun-84 1.08491 1.01686 0.94069 0.94290 1.01601 N/A N/A N/A
30-Sep-84 1.11094 1.07968 1.02073 1.01900 1.06862 N/A N/A N/A
31-Dec-84 1.13500 1.13678 1.04475 1.05536 1.11031 N/A N/A N/A
1985 31-Mar-85 1.15381 1.15086 1.13787 1.11869 1.15299 N/A N/A N/A
30-Jun-85 1.17327 1.23024 1.21202 1.19396 1.22381 N/A N/A N/A
30-Sep-85 1.19150 1.25129 1.15091 1.16127 1.21222 N/A N/A N/A
31-Dec-85 1.21015 1.33247 1.37157 1.31311 1.32837 N/A N/A N/A
1986 31-Mar-86 1.22814 1.40367 1.57422 1.50095 1.46075 N/A N/A N/A
30-Jun-86 1.24479 1.42443 1.61918 1.52792 1.48853 N/A N/A N/A
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-May-88 19-Oct-87 01-May-89 01-May-89 01-May-95 01-May-95
WHOLE YEARS SINCE
INCEPTION 9.00 10.00 8.00 8.00 2.00 2.00
INCEPTION
UNIT VALUE 0.98753 0.80241 1.01099 1.00062 1.00870 1.00160 13.81670
30-Jun-83 N/A N/A N/A N/A N/A N/A 5.06563
30-Sep-83 N/A N/A N/A N/A N/A N/A 5.03651
31-Dec-83 N/A N/A N/A N/A N/A N/A 5.04839
1984 31-Mar-84 N/A N/A N/A N/A N/A N/A 4.99628
30-Jun-84 N/A N/A N/A N/A N/A N/A 5.00136
30-Sep-84 N/A N/A N/A N/A N/A N/A 5.29897
31-Dec-84 N/A N/A N/A N/A N/A N/A 5.48221
1985 31-Mar-85 N/A N/A N/A N/A N/A N/A 5.71422
30-Jun-85 N/A N/A N/A N/A N/A N/A 6.03329
30-Sep-85 N/A N/A N/A N/A N/A N/A 5.96718
31-Dec-85 N/A N/A N/A N/A N/A N/A 6.55566
1986 31-Mar-86 N/A N/A N/A N/A N/A N/A 7.16773
30-Jun-86 N/A N/A N/A N/A N/A N/A 7.30484
</TABLE>
Page 1
C-71
<PAGE>
<TABLE>
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-Sep-86 1.26020 1.45293 1.49957 1.43418 1.45031 N/A N/A N/A
31-Dec-86 1.27393 1.50690 1.55982 1.49834 1.49851 N/A N/A N/A
1987 31-Mar-87 1.28845 1.52078 1.89171 1.67720 1.61707 N/A N/A 1.01388
30-Jun-87 1.30457 1.48402 1.95230 1.67787 1.62673 N/A N/A 1.00209
30-Sep-87 1.32190 1.42835 2.05180 1.71478 1.65695 N/A N/A 0.97156
31-Dec-87 1.34087 1.49322 1.56684 1.45340 1.50337 N/A N/A 0.94096
1988 31-Mar-88 1.35917 1.54477 1.71753 1.54476 1.57127 1.00283 N/A 1.00277
30-Jun-88 1.37746 1.55993 1.82741 1.60152 1.61545 1.06131 1.00567 1.01443
30-Sep-88 1.39893 1.58964 1.76701 1.59446 1.61699 1.07484 1.06071 1.03300
31-Dec-88 1.42268 1.59635 1.81228 1.62049 1.63683 1.09874 1.04699 1.05227
1989 31-Mar-89 1.44979 1.60677 1.91512 1.67575 1.68042 1.15617 1.00801 1.06878
30-Jun-89 1.47974 1.72914 2.07947 1.80804 1.76639 1.25045 1.03733 1.09308
30-Sep-89 1.50774 1.73731 2.27225 1.89836 1.83900 1.32945 1.04684 1.06706
31-Dec-89 1.53581 1.79017 2.32328 1.94994 1.89226 1.33181 1.06798 1.01855
1990 31-Mar-90 1.56157 1.76305 2.26411 1.89201 1.87649 1.27764 1.07731 0.97265
30-Jun-90 1.58799 1.81856 2.31918 1.97655 1.94414 1.31537 1.09102 1.02401
30-Sep-90 1.61429 1.83157 1.95179 1.82538 1.88034 1.17152 1.10563 0.92218
31-Dec-90 1.64133 1.91594 2.17588 1.96344 1.96812 1.26685 1.11478 0.88724
1991 31-Mar-91 1.66497 1.96084 2.58450 2.12974 2.09088 1.40599 1.10959 1.02526
28-Jun-91 1.68544 1.99025 2.60830 2.12168 2.11635 1.43223 1.11762 1.10641
30-Sep-91 1.70425 2.09827 2.60343 2.25339 2.19644 1.50276 1.11776 1.16647
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30-Sep-86 N/A N/A N/A N/A N/A N/A 7.09719
31-Dec-86 N/A N/A N/A N/A N/A N/A 7.33751
1987 31-Mar-87 N/A N/A N/A N/A N/A N/A 9.00908
30-Jun-87 N/A N/A N/A N/A N/A N/A 9.04758
30-Sep-87 N/A N/A N/A N/A N/A N/A 9.14533
31-Dec-87 N/A 0.85935 N/A N/A N/A N/A 9.15801
1988 31-Mar-88 N/A 0.90033 N/A N/A N/A N/A 10.64343
30-Jun-88 1.03564 0.95325 N/A N/A N/A N/A 13.05207
30-Sep-88 0.99000 0.95374 N/A N/A N/A N/A 13.07932
31-Dec-88 1.03792 0.98031 N/A N/A N/A N/A 13.30486
1989 31-Mar-89 1.14595 1.04491 N/A N/A N/A N/A 13.75167
30-Jun-89 1.20265 1.13189 0.98864 1.07011 N/A N/A 16.63693
30-Sep-89 1.30914 1.24716 1.08647 1.07178 N/A N/A 17.41256
31-Dec-89 1.39112 1.26833 1.11445 1.10787 N/A N/A 17.79157
1990 31-Mar-90 1.36906 1.22524 1.02194 1.07736 N/A N/A 17.37843
30-Jun-90 1.34845 1.29438 1.06702 1.11388 N/A N/A 17.90055
30-Sep-90 1.32540 1.11345 0.92869 1.09998 N/A N/A 16.77022
31-Dec-90 1.29539 1.20765 0.95902 1.16389 N/A N/A 17.55953
1991 31-Mar-91 1.35148 1.37708 1.00150 1.17717 N/A N/A 18.87900
28-Jun-91 1.38324 1.36795 0.99418 1.18160 N/A N/A 19.10525
30-Sep-91 1.43378 1.43459 1.04325 1.25997 N/A N/A 19.81436
</TABLE>
Page 2
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<PAGE>
<TABLE>
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1.72182 2.20438 2.70927 2.43353 2.31570 1.59617 1.10861 1.22019
1992 31-Mar-92 1.73586 2.16912 2.85556 2.34998 2.29284 1.57543 1.09354 1.30324
30-Jun-92 1.74730 2.25069 2.87122 2.36693 2.32268 1.60774 1.05510 1.34331
30-Sep-92 1.75701 2.33922 2.89727 2.47154 2.37266 1.67452 1.06000 1.39449
31-Dec-92 1.76575 2.33452 3.05622 2.58742 2.44709 1.73693 1.07040 1.41713
1993 31-Mar-93 1.77362 2.42875 3.32862 2.72488 2.56017 1.92882 1.07877 1.49992
30-Jun-93 1.78090 2.48888 3.42357 2.80169 2.62331 1.99606 1.09458 1.56897
30-Sep-93 1.78846 2.56012 3.54449 2.94155 2.70625 2.06034 1.11619 1.58829
31-Dec-93 1.79633 2.54072 3.68057 2.95516 2.71321 2.09889 1.12217 1.67012
1994 31-Mar-94 1.80430 2.46157 3.57550 2.80289 2.63248 2.05769 1.12660 1.66214
30-Jun-94 1.81484 2.42965 3.58857 2.77774 2.63448 2.06517 1.14052 1.64217
30-Sep-94 1.82928 2.43504 3.78210 2.86672 2.68727 2.18204 1.15929 1.63973
30-Dec-94 1.84692 2.42952 3.73800 2.82770 2.65511 2.10375 1.20195 1.60540
1995 31-Mar-95 1.86773 2.52991 4.05731 2.95141 2.76933 2.22908 1.20958 1.68499
30-Jun-95 1.88943 2.70702 4.33227 3.15285 2.89912 2.38653 1.23749 1.74803
30-Sep-95 1.91033 2.76447 4.70277 3.34246 2.99686 2.51048 1.27929 1.79379
31-Dec-95 1.93131 2.89855 4.84971 3.46853 3.07694 2.53006 1.29232 1.86497
1996 31-Mar-96 1.95034 2.83333 5.09322 3.54782 3.17730 2.67539 1.31111 1.92154
30-Jun-96 1.96919 2.83716 5.17367 3.62417 3.21302 2.69254 1.32409 1.94263
30-Sep-96 1.98847 2.89272 5.23847 3.72708 3.25693 2.75868 1.33385 2.02568
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-91 1.41184 1.54800 1.05559 1.33535 N/A N/A 20.66045
1992 31-Mar-92 1.42913 1.50315 1.00468 1.28604 N/A N/A 20.59857
30-Jun-92 1.50681 1.52522 1.05137 1.33707 N/A N/A 20.98544
30-Sep-92 1.54098 1.56677 0.99736 1.40185 N/A N/A 21.47367
31-Dec-92 1.49691 1.63861 1.00733 1.39657 N/A N/A 21.95488
1993 31-Mar-93 1.65960 1.70368 1.09493 1.46481 N/A N/A 23.24657
30-Jun-93 1.81109 1.70478 1.13849 1.51447 N/A N/A 23.94679
30-Sep-93 1.81080 1.74178 1.27875 1.57474 N/A N/A 24.71176
31-Dec-93 1.85126 1.77569 1.42483 1.55337 N/A N/A 25.18232
1994 31-Mar-94 1.79392 1.70182 1.36480 1.48787 N/A N/A 24.47158
30-Jun-94 1.79521 1.70292 1.36149 1.45766 N/A N/A 24.41042
30-Sep-94 1.98188 1.77910 1.41950 1.45439 N/A N/A 25.21634
30-Dec-94 1.75071 1.77231 1.33909 1.45559 N/A N/A 24.72605
1995 31-Mar-95 1.91776 1.93725 1.32967 1.52275 N/A N/A 26.00677
30-Jun-95 2.01860 2.11369 1.45705 1.62031 1.12504 1.06572 29.75315
30-Sep-95 2.10210 2.27331 1.56772 1.64504 1.22835 1.18958 31.30655
31-Dec-95 2.19574 2.40054 1.53340 1.71849 1.24506 1.18974 32.19536
1996 31-Mar-96 2.52219 2.52124 1.62629 1.66881 1.28628 1.24683 33.38169
30-Jun-96 2.60714 2.62380 1.68061 1.66687 1.33056 1.30382 33.98927
30-Sep-96 2.64028 2.69421 1.71720 1.69021 1.35656 1.34006 34.66040
31-Dec-96 2.83947 2.90729 1.81356 1.73574 1.40755 1.40807 36.55399
</TABLE>
Page 3
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<PAGE>
<TABLE>
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXM CO EQINC RPA HIYLD
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 31-Mar-97 2.02785 2.97297 5.74831 3.85675 3.41989 3.05903 1.37463 2.05429
30-Jun-97 2.04847 3.09448 6.39521 4.26399 3.66957 3.55431 1.40169 2.16052
30-Sep-97 2.06983 3.19572 7.10653 4.61139 3.86452 4.10719 1.45336 2.28379
31-Dec-97 2.09203 3.20766 6.99611 4.53976 3.83869 4.10841 1.48380 2.30802
<CAPTION>
PRU VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 31-Mar-97 2.74960 2.97296 1.79889 1.71698 1.37160 1.32916 36.45291
30-Jun-97 2.78093 3.47745 2.02810 1.77095 1.63692 1.56100 39.84359
30-Sep-97 3.17386 3.72370 2.10160 1.82623 1.88408 1.80011 43.20191
31-Dec-97 2.48061 3.81606 1.91715 1.88100 1.83193 1.74162 42.24285
</TABLE>
Page 4
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<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU VIP/QVIP PRODUCTS
<CAPTION>
PRU VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD NATR
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-Jun-83 08-Jun-83 06-Jun-83 27-May-83 02-Jun-83 19-Feb-88 02-May-88 23-Feb-87 02-May-88
WHOLE YEARS SINCE
INCEPTION 14.00 14.00 14.00 14.00 14.00 9.00 9.00 10.00 9.00
INCEPTION UNIT VALUE 1.00018 0.99692 1.00243 1.00055 1.00433 0.99731 1.00345 0.99968 0.98753
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267 2.83947
31-Dec-83 1.04235 1.01629 0.98158 0.99072 1.01744 N/A N/A N/A N/A
31-Dec-84 1.13500 1.13678 1.04475 1.05536 1.11031 N/A N/A N/A N/A
31-Dec-85 1.21015 1.33247 1.37157 1.31311 1.32837 N/A N/A N/A N/A
31-Dec-86 1.27393 1.50690 1.55982 1.49834 1.49851 N/A N/A N/A N/A
31-Dec-87 1.34087 1.49322 1.56684 1.45340 1.50337 N/A N/A 0.94096 N/A
31-Dec-88 1.42268 1.59635 1.81228 1.62049 1.63683 1.09874 1.04699 1.05227 1.03792
31-Dec-89 1.53581 1.79017 2.32328 1.94994 1.89226 1.33181 1.06798 1.01855 1.39112
31-Dec-90 1.64133 1.91594 2.17588 1.96344 1.96812 1.26685 1.11478 0.88724 1.29539
31-Dec-91 1.72182 2.20438 2.70927 2.43353 2.31570 1.59617 1.10861 1.22019 1.41184
31-Dec-92 1.76575 2.33452 3.05622 2.58742 2.44709 1.73693 1.07040 1.41713 1.49691
31-Dec-93 1.79633 2.54072 3.68057 2.95516 2.71321 2.09889 1.12217 1.67012 1.85126
30-Dec-94 1.84692 2.42952 3.73800 2.82770 2.65511 2.10375 1.20195 1.60540 1.75071
31-Dec-95 1.93131 2.89855 4.84971 3.46853 3.07694 2.53006 1.29232 1.86497 2.19574
31-Dec-96 2.00831 2.98995 5.67957 3.89468 3.42427 3.04353 1.34933 2.05267 2.83947
31-Dec-97 2.09203 3.20766 6.99611 4.53976 3.83869 4.10841 1.48380 2.30802 2.48061
<CAPTION>
PRU VIP/QVIP STIX GLOBAL GVTINC PRUJEN SMCAP TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 19-Oct-87 01-May-89 01-May-89 01-May-95 01-May-95
WHOLE YEARS SINCE
INCEPTION 10.00 8.00 8.00 2.00 2.00
INCEPTION UNIT VALUE 0.80241 1.01099 1.00062 1.00870 1.00160 13.81670
31-Dec-96 2.90729 1.81356 1.73574 1.40755 1.40807
31-Dec-83 N/A N/A N/A N/A N/A 5.04839
31-Dec-84 N/A N/A N/A N/A N/A 5.48221
31-Dec-85 N/A N/A N/A N/A N/A 6.55566
31-Dec-86 N/A N/A N/A N/A N/A 7.33751
31-Dec-87 0.85935 N/A N/A N/A N/A 9.15801
31-Dec-88 0.98031 N/A N/A N/A N/A 13.30486
31-Dec-89 1.26833 1.11445 1.10787 N/A N/A 17.79157
31-Dec-90 1.20765 0.95902 1.16389 N/A N/A 17.55953
31-Dec-91 1.54800 1.05559 1.33535 N/A N/A 20.66045
31-Dec-92 1.63861 1.00733 1.39657 N/A N/A 21.95488
31-Dec-93 1.77569 1.42483 1.55337 N/A N/A 25.18232
30-Dec-94 1.77231 1.33909 1.45559 N/A N/A 24.72605
31-Dec-95 2.40054 1.53340 1.71849 1.24506 1.18974 32.19536
31-Dec-96 2.90729 1.81356 1.73574 1.40755 1.40807 36.55399
31-Dec-97 3.81606 1.91715 1.88100 1.83193 1.74162 42.24285
PREPARED BY:
REVIEWED BY:
APPROVED BY:
</TABLE>
C-75
<PAGE>
<TABLE>
ANNUALIZED RATES OF RETURN
SINCE INCEPTION RATE OF RETURN
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 14.58 14.57 14.57 14.60 14.58 9.86 9.66 10.85
INCEPT. TO '83 ROR 4.22% 1.94% -2.08% -0.98% 1.31% N/A N/A N/A
INCEPT. TO 'ERV 1042.17 1019.43 979.20 990.17 1013.05 N/A N/A N/A
ANNUAL ADMIN CHARGE 1.74 1.69 1.71 1.79 1.74 N/A N/A N/A
INCEPT TO '83 ERV LESS ADMIN CHG 1040.42 1017.74 977.49 988.38 1011.31 N/A N/A N/A
83 (OR INCEPT) TO '84 ROR 8.89% 11.86% 6.44% 6.53% 9.13% N/A N/A N/A
INCEPT. TO '84 ERV 1132.90 1138.40 1040.40 1052.87 1103.62 N/A N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A
INCEPT. TO 84 ERV LESS ADMIN CHG 1129.89 1135.40 1037.40 1049.87 1100.62 N/A N/A N/A
'84 TO '85 ROR 6.62% 17.21% 31.28% 24.42% 19.64% N/A N/A N/A
'84 TO '85 ERV 1204.71 1330.85 1361.92 1306.28 1316.77 N/A N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A
'84 TO '85 ERV LESS ADMIN CHG 1201.71 1327.85 1358.92 1303.28 1313.77 N/A N/A N/A
'85 TO '86 ROR 5.27% 13.09% 13.73% 14.11% 12.81% N/A N/A N/A
'85 TO '86 ERV 1265.04 1501.68 1545.43 1487.12 1482.05 N/A N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A N/A
'85 TO '86 ERV LESS ADMIN CHG 1262.04 1498.68 1542.43 1484.12 1479.05 N/A N/A N/A
'86 TO '87 ROR 5.25% -0.91% 0.45% -3.00% 0.32% N/A N/A -5.87%
'86 TO '87 ERV 1328.36 1485.07 1549.37 1439.61 1483.85 N/A N/A 941.26
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 2.56
'86 TO '87 ERV LESS ADMIN CHG 1325.36 1482.07 1546.37 1436.61 1480.85 N/A N/A 938.70
'87(OR INCEPT) TO '88 ROR 6.10% 6.91% 15.66% 11.50% 8.88% 10.17% 4.34% 11.83%
'87 TO '88 ERV 1406.22 1584.43 1788.61 1601.77 1612.31 1101.70 1043.39 1049.75
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 2.60 2.00 3.00
'87 TO '88 ERV LESS ADMIN CHG 1403.22 1581.43 1785.60 1598.77 1609.31 1099.11 1041.39 1046.75
'88(OR INCEPT) TO '89 ROR 7.95% 12.14% 28.20% 20.33% 15.61% 21.21% 2.00% -3.20%
'88 TO '89 ERV 1514.81 1773.44 2289.08 1923.80 1860.44 1332.25 1062.27 1013.20
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'88 TO '89 ERV LESS ADMIN CHG 1511.81 1770.44 2286.08 1920.80 1857.44 1329.25 1059.27 1010.20
'89(OR INCEPT) TO 90 ROR 6.87% 7.03% -6.34% 0.69% 4.01% -4.88% 4.38% -12.89%
'89 TO '90 ERV 1615.68 1894.82 2141.04 1934.10 1931.90 1264.42 1105.69 879.97
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'89 TO '90 ERV LESS ADMIN CHG 1612.68 1891.82 2138.04 1931.10 1928.90 1261.42 1102.69 876.97
'90(OR INCEPT) TO '91 ROR 4.90% 15.05% 24.51% 23.94% 17.66% 26.00% -0.55% 37.53%
'90 TO '91 ERV 1691.76 2176.63 2662.16 2393.45 2269.56 1589.33 1096.59 1206.07
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'90 TO '91 ERV LESS ADMIN CHG 1,688.76 2,173.63 2,659.16 2,390.45 2,266.56 1,586.33 1,093.58 1,203.07
'91(OR INCEPT) TO '92 ROR 2.55% 5.90% 12.81% 6.32% 5.67% 8.82% -3.45% 16.14%
'91 TO '92 ERV 1,731.85 2,301.95 2,999.69 2,541.61 2,395.16 1,726.22 1,055.89 1,397.24
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'91 TO '92 ERV LESS ADMIN CHG 1,728.85 2,298.95 2,996.69 2,538.61 2,392.16 1,723.22 1,052.89 1,394.24
'92(OR INCEPT) TO '93 ROR 1.73% 8.83% 20.43% 14.21% 10.87% 20.84% 4.84% 17.85%
'92 TO '93 ERV 1,758.79 2,502.01 3,608.88 2,899.41 2,652.31 2,082.32 1,103.82 1,643.15
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'92 TO '93 ERV LESS ADMIN CHG 1,755.79 2,499.01 3,605.88 2,896.41 2,649.30 2,079.32 1,100.82 1,640.15
'93(OR INCEPT) TO '94 ROR 2.82% -4.38% 1.56% -4.31% -2.14% 0.23% 7.11% -3.88%
'93 TO '94 ERV 1,805.24 2,389.64 3,662.14 2,771.49 2,592.57 2,084.13 1,179.08 1,576.59
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'93 TO '94 ERV LESS ADMIN CHG 1,802.24 2,386.64 3,659.14 2,768.49 2,589.57 2,081.13 1,176.08 1,573.59
'94(OR INCEPT) TO '95 ROR 4.57% 19.31% 29.74% 22.66% 15.89% 20.26% 7.52% 16.17%
'94 TO '95 ERV 1,884.58 2,847.39 4,747.40 3,395.90 3,000.99 2,502.86 1,264.50 1,828.01
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'94 TO '95 ERV LESS ADMIN CHG 1,881.58 2,844.39 4,744.40 3,392.90 2,997.99 2,499.86 1,261.50 1,825.01
'95(OR INCEPT) TO '96 ROR 3.99% 3.15% 17.11% 12.29% 11.29% 20.29% 4.41% 10.06%
'95 TO '96 ERV 1,956.60 2,934.08 5,556.24 3,809.76 3,336.41 3,007.20 1,317.15 2,008.69
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 1,953.60 2,931.08 5,553.24 3,806.76 3,333.41 3,004.20 1,314.15 2,005.69
96(OR INCEPT) TO '97 ROR 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
96 TO '97 ERV 2,035.04 3,144.50 6,840.49 4,437.27 3,736.83 4,055.32 1,445.12 2,255.20
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
96 TO '97 ERV LESS ADMIN CHG 2,032.04 3,141.50 6,837.49 4,434.27 3,733.83 4,052.32 1,442.12 2,252.20
ANNUALIZED ROR BEFORE LOAD 4.98% 8.18% 14.10% 10.74% 9.46% 15.24% 3.86% 7.77%
AMT SUBJ TO LOAD IF + RETURN 796.80 685.85 316.25 556.57 626.62 594.77 855.79 774.78
AMT SUBJ TO LOAD IF - RETURN 1,828.84 2,827.35 6,153.74 3,990.85 3,360.45 3,647.09 1,297.90 2,026.98
AMT SUBJ TO LOAD 796.80 685.85 316.25 556.57 626.62 594.77 855.79 774.78
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
ERV LESS LOAD 2,032.04 3,141.50 6,837.49 4,434.27 3,733.83 4,052.32 1,442.12 2,252.20
- --------------------------------------------------------------------------------------------------------------------------------
ANN. RET W/LOAD AND ADM CHG 4.98% 8.18% 14.10% 10.74% 9.46% 15.24% 3.86% 7.77%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 9.66 10.20 8.67 8.67 2.67 2.67
INCEPT. TO '83 ROR N/A N/A N/A N/A N/A N/A
INCEPT. TO '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
INCEPT TO '83 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
83 (OR INCEPT) TO '84 ROR N/A N/A N/A N/A N/A N/A
INCEPT. TO '84 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
INCEPT. TO 84 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'84 TO '85 ROR N/A N/A N/A N/A N/A N/A
'84 TO '85 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
'84 TO '85 ERV LESS ADMIN CHG N/A N/A N/A N/A N/A N/A
'85 TO '86 ROR N/A N/A N/A N/A N/A N/A
'85 TO '86 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
'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 7.10% N/A N/A N/A N/A
'86 TO '87 ERV N/A 1070.96 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 0.60 N/A N/A N/A N/A
'86 TO '87 ERV LESS ADMIN CHG N/A 1070.36 N/A N/A N/A N/A
'87(OR INCEPT) TO '88 ROR 5.10% 14.08% N/A N/A N/A N/A
'87 TO '88 ERV 1051.03 1221.02 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 2.00 3.00 N/A N/A N/A N/A
'87 TO '88 ERV LESS ADMIN CHG 1049.03 1218.02 N/A N/A N/A N/A
'88(OR INCEPT) TO '89 ROR 34.03% 29.38% 10.23% 10.72% N/A N/A
'88 TO '89 ERV 1406.01 1575.88 1102.34 1107.18 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 2.01 2.01 N/A N/A
'88 TO '89 ERV LESS ADMIN CHG 1403.01 1572.88 1100.33 1105.18 N/A N/A
'89(OR INCEPT) TO 90 ROR -6.88% -4.78% -13.95% 5.06% N/A N/A
'89 TO '90 ERV 1306.46 1497.63 946.87 1161.06 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'89 TO '90 ERV LESS ADMIN CHG 1303.46 1494.63 943.87 1158.06 N/A N/A
'90(OR INCEPT) TO '91 ROR 8.99% 28.18% 10.07% 14.73% N/A N/A
'90 TO '91 ERV 1420.64 1915.86 1038.91 1328.66 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'90 TO '91 ERV LESS ADMIN CHG 1,417.64 1,912.86 1,035.91 1,325.66 N/A N/A
'91(OR INCEPT) TO '92 ROR 6.03% 5.85% -4.57% 4.58% N/A N/A
'91 TO '92 ERV 1,503.05 2,024.83 988.55 1,386.44 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'91 TO '92 ERV LESS ADMIN CHG 1,500.05 2,021.83 985.55 1,383.44 N/A N/A
'92(OR INCEPT) TO '93 ROR 23.67% 8.37% 41.45% 11.23% N/A N/A
'92 TO '93 ERV 1,855.15 2,190.97 1,394.03 1,538.76 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'92 TO '93 ERV LESS ADMIN CHG 1,852.15 2,187.97 1,391.03 1,535.76 N/A N/A
'93(OR INCEPT) TO '94 ROR -5.43% -0.19% -6.02% -6.29% N/A N/A
'93 TO '94 ERV 1,751.55 2,183.80 1,307.32 1,439.09 N/A N/A
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 N/A N/A
'93 TO '94 ERV LESS ADMIN CHG 1,748.55 2,180.80 1,304.32 1,436.09 N/A N/A
'94(OR INCEPT) TO '95 ROR 25.42% 35.45% 14.51% 18.06% 23.43% 18.78%
'94 TO '95 ERV 2,193.03 2,953.83 1,493.58 1,695.47 1,234.32 1,187.84
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 2.01 2.01
'94 TO '95 ERV LESS ADMIN CHG 2,190.03 2,950.83 1,490.58 1,692.47 1,232.32 1,185.83
'95(OR INCEPT) TO '96 ROR 29.32% 21.11% 18.27% 1.00% 13.05% 18.35%
'95 TO '96 ERV 2,832.09 3,573.74 1,762.92 1,709.46 1,393.14 1,403.45
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
'95 TO '96 ERV LESS ADMIN CHG 2,829.09 3,570.74 1,759.92 1,706.46 1,390.14 1,400.45
96(OR INCEPT) TO '97 ROR -12.64% 31.26% 5.71% 8.37% 30.15% 23.69%
96 TO '97 ERV 2,471.54 4,686.90 1,860.45 1,849.27 1,809.27 1,732.19
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
96 TO '97 ERV LESS ADMIN CHG 2,468.54 4,683.90 1,857.45 1,846.27 1,806.27 1,729.19
ANNUALIZED ROR BEFORE LOAD 9.80% 16.34% 7.40% 7.33% 24.79% 22.77% W/OUT 162.77%
AMT SUBJ TO LOAD IF + RETURN 753.15 531.61 814.26 815.37 819.37 827.08
AMT SUBJ TO LOAD IF - RETURN 2,221.68 4,215.51 1,671.70 1,661.64 1,625.65 1,556.27
AMT SUBJ TO LOAD 753.15 531.61 814.26 815.37 819.37 827.08
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00% 6.00% 6.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 49.16 49.62
ERV LESS LOAD 2,468.54 4,683.90 1,857.45 1,846.27 1,757.11 1,679.57
- ------------------------------------------------------------------------------------------------------
ANN. RET W/LOAD AND ADM CHG 9.80% 16.34% 7.40% 7.33% 23.51% 21.44% WITH 160.16%
</TABLE>
C-76
<PAGE>
<TABLE>
ANNUALIZED RATES OF RETURN
10 YR RATE OF RETURN
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 10.00 10.00 10.00 10.00 10.00 9.86 9.66 10.00
1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 N/A N/A 1,000.00
87 TO '88 ROR 6.10% 6.91% 15.66% 11.50% 8.88% N/A N/A 11.83%
87 TO '88 ERV 1,061.01 1,069.07 1,156.65 1,114.96 1,088.77 N/A N/A 1,118.29
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
87 TO '88 ERV LESS ADMIN CHG 1,058.01 1,066.07 1,153.65 1,111.96 1,085.77 N/A N/A 1,115.29
88 TO '89 ROR 7.95% 12.14% 28.20% 20.33% 15.61% N/A N/A -3.20%
88 TO '89 ERV 1,142.14 1,195.50 1,478.93 1,338.03 1,255.21 N/A N/A 1,079.55
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
88 TO '89 ERV LESS ADMIN CHG 1,139.14 1,192.50 1,475.93 1,335.03 1,252.21 N/A N/A 1,076.55
89 (OR INCEPT) TO '90 ROR 6.87% 7.03% -6.34% 0.69% 4.01% N/A N/A -12.89%
89 TO '90 ERV 1,217.41 1,276.28 1,382.29 1,344.27 1,302.41 N/A N/A 937.77
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
89 TO '90 ERV LESS ADMIN CHG 1,214.41 1,273.28 1,379.29 1,341.27 1,299.41 N/A N/A 934.77
90 (OR INCEPT) TO '91 ROR 4.90% 15.05% 24.51% 23.94% 17.66% N/A N/A 37.53%
90 TO '91 ERV 1,273.96 1,464.97 1,717.41 1,662.40 1,528.89 N/A N/A 1,285.55
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
90 TO '91 ERV LESS ADMIN CHG 1,270.96 1,461.97 1,714.41 1,659.40 1,525.89 N/A N/A 1,282.55
91 (OR INCEPT) TO '92 ROR 2.55% 5.90% 12.81% 6.32% 5.67% N/A N/A 16.14%
91 TO '92 ERV 1,303.39 1,548.28 1,933.96 1,764.34 1,612.47 N/A N/A 1,489.56
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
91 TO '92 ERV LESS ADMIN CHG 1,300.39 1,545.28 1,930.96 1,761.34 1,609.47 N/A N/A 1,486.55
92 (OR INCEPT) TO '93 ROR 1.73% 8.83% 20.43% 14.21% 10.87% N/A N/A 17.85%
92 TO '93 ERV 1,322.91 1,681.77 2,325.43 2,011.67 1,784.50 N/A N/A 1,751.94
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
92 TO '93 ERV LESS ADMIN CHG 1,319.91 1,678.77 2,322.43 2,008.67 1,781.50 N/A N/A 1,748.94
93 (OR INCEPT) TO '94 ROR 2.82% -4.38% 1.56% -4.31% -2.14% N/A N/A -3.88%
93 TO '94 ERV 1,357.08 1,605.29 2,358.67 1,922.03 1,743.35 N/A N/A 1,681.16
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
93 TO '94 ERV LESS ADMIN CHG 1,354.08 1,602.29 2,355.67 1,919.03 1,740.35 N/A N/A 1,678.16
94 (OR INCEPT) TO '95 ROR 4.57% 19.31% 29.74% 22.66% 15.89% N/A N/A 16.17%
94 TO '95 ERV 1,415.95 1,911.62 3,056.26 2,353.93 2,016.85 N/A N/A 1,949.50
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
94 TO '95 ERV LESS ADMIN CHG 1,412.95 1,908.62 3,053.26 2,350.93 2,013.85 N/A N/A 1,946.50
95 (OR INCEPT) TO '96 ROR 3.99% 3.15% 17.11% 12.29% 11.29% N/A N/A 10.06%
95 TO '96 ERV 1,469.29 1,968.81 3,575.72 2,639.77 2,241.17 N/A N/A 2,142.40
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
95 TO '96 ERV LESS ADMIN CHG 1,466.29 1,965.81 3,572.72 2,636.77 2,238.17 N/A N/A 2,139.40
96 (OR INCEPT) TO '97 ROR 4.17% 7.28% 23.18% 16.56% 12.10% N/A N/A 12.44%
96 TO '97 ERV 1,527.41 2,108.95 4,400.89 3,073.51 2,509.05 N/A N/A 2,405.54
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 N/A N/A 3.00
96 TO '97 ERV LESS ADMIN CHG 1,524.41 2,105.95 4,397.89 3,070.51 2,506.05 N/A N/A 2,402.54
ANNUALIZED ROR BEFORE LOAD 4.31% 7.73% 15.96% 11.87% 9.62% N/A N/A 9.16%
AMT SUBJ TO LOAD IF + RETURN 847.56 789.41 560.21 692.95 749.40 N/A N/A 759.75
AMT SUBJ TO LOAD IF - RETURN 1,371.97 1,895.35 3,958.10 2,763.46 2,255.44 N/A N/A 2,162.29
AMT SUBJ TO LOAD 847.56 789.41 560.21 692.95 749.40 N/A N/A 759.75
10TH (OR INCEPTION) SALE CHARGE 0.00% 0.00% 0.00% 0.00% 0.00% N/A N/A 0.00%
AMT OF LOAD 0.00 0.00 0.00 0.00 0.00 N/A N/A 0.00
ERV LESS LOAD 1,524.41 2,105.95 4,397.89 3,070.51 2,506.05 N/A N/A 2,402.54
- --------------------------------------------------------------------------------------------------------------------------------
ANN. 10YR RET W/LOAD AND ADM CHG 4.31% 7.73% 15.96% 11.87% 9.62% N/A N/A 9.16%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEARS IN EXISTENCE 9.66 10.00 8.67 8.67 2.67 2.67
N/A 1,000.00 N/A N/A N/A N/A
87 TO '88 ROR N/A 14.08% N/A N/A N/A N/A
87 TO '88 ERV N/A 1,140.76 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
87 TO '88 ERV LESS ADMIN CHG N/A 1,137.76 N/A N/A N/A N/A
88 TO '89 ROR N/A 29.38% N/A N/A N/A N/A
88 TO '89 ERV N/A 1,472.04 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
88 TO '89 ERV LESS ADMIN CHG N/A 1,469.04 N/A N/A N/A N/A
89 (OR INCEPT) TO '90 ROR N/A -4.78% N/A N/A N/A N/A
89 TO '90 ERV N/A 1,398.75 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
89 TO '90 ERV LESS ADMIN CHG N/A 1,395.75 N/A N/A N/A N/A
90 (OR INCEPT) TO '91 ROR N/A 28.18% N/A N/A N/A N/A
90 TO '91 ERV N/A 1,789.12 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
90 TO '91 ERV LESS ADMIN CHG N/A 1,786.12 N/A N/A N/A N/A
91 (OR INCEPT) TO '92 ROR N/A 5.85% N/A N/A N/A N/A
91 TO '92 ERV N/A 1,890.66 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
91 TO '92 ERV LESS ADMIN CHG N/A 1,887.66 N/A N/A N/A N/A
92 (OR INCEPT) TO '93 ROR N/A 8.37% N/A N/A N/A N/A
92 TO '93 ERV N/A 2,045.58 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
92 TO '93 ERV LESS ADMIN CHG N/A 2,042.58 N/A N/A N/A N/A
93 (OR INCEPT) TO '94 ROR N/A -0.19% N/A N/A N/A N/A
93 TO '94 ERV N/A 2,038.69 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
93 TO '94 ERV LESS ADMIN CHG N/A 2,035.69 N/A N/A N/A N/A
94 (OR INCEPT) TO '95 ROR N/A 35.45% N/A N/A N/A N/A
94 TO '95 ERV N/A 2,757.28 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
94 TO '95 ERV LESS ADMIN CHG N/A 2,754.28 N/A N/A N/A N/A
95 (OR INCEPT) TO '96 ROR N/A 21.11% N/A N/A N/A N/A
95 TO '96 ERV N/A 3,335.70 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
95 TO '96 ERV LESS ADMIN CHG N/A 3,332.70 N/A N/A N/A N/A
96 (OR INCEPT) TO '97 ROR N/A 31.26% N/A N/A N/A N/A
96 TO '97 ERV N/A 4,374.45 N/A N/A N/A N/A
ANNUAL ADMIN CHARGE N/A 3.00 N/A N/A N/A N/A
96 TO '97 ERV LESS ADMIN CHG N/A 4,371.45 N/A N/A N/A N/A
ANNUALIZED ROR BEFORE LOAD N/A 15.89% N/A N/A N/A N/A W/OUT 74.55%
AMT SUBJ TO LOAD IF + RETURN N/A 562.86 N/A N/A N/A N/A
AMT SUBJ TO LOAD IF - RETURN N/A 3,934.30 N/A N/A N/A N/A
AMT SUBJ TO LOAD N/A 562.86 N/A N/A N/A N/A
10TH (OR INCEPTION) SALE CHARGE N/A 0.00% N/A N/A N/A N/A
AMT OF LOAD N/A 0.00 N/A N/A N/A N/A
ERV LESS LOAD N/A 4,371.45 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
ANN .10YR RET W/LOAD AND ADM CHG N/A 15.89% N/A N/A N/A N/A WITH 74.55%
</TABLE>
C-77
<PAGE>
<TABLE>
ANNUALIZED RATES OF RETURN QUARTER 4
AVG POLICY SIZE 1000 30/9999*1000 = $3.00 ANNUAL CHG Quarter Charge 3.00000
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YTD % OF RETURN 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
ERV (ENDING REDEEMABLE VALUE) 1041.69 1072.81 1231.80 1165.63 1121.02 1349.88 1099.66 1124.40
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1038.69 1069.81 1228.80 1162.63 1118.02 1346.88 1096.66 1121.40
ROR BEFORE LOAD 3.87% 6.98% 22.88% 16.26% 11.80% 34.69% 9.67% 12.14%
AMT SUBJ TO LOAD IF + RETURN 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
AMT SUBJ TO LOAD IF - RETURN 934.82 962.83 1105.92 1046.37 1006.22 1212.19 986.99 1009.26
AMT SUBJ TO LOAD 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.73 62.51 61.40 61.86 62.17 60.57 62.32 62.15
ERV LESS ADMIN CHG & LOAD 975.96 1007.30 1167.40 1100.77 1055.85 1286.31 1034.33 1059.25
- -----------------------------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -2.40% 0.73% 16.74% 10.08% 5.59% 28.63% 3.43% 5.92%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YTD % OF RETURN -12.64% 31.26% 5.71% 8.37% 30.15% 23.69%
ERV (ENDING REDEEMABLE VALUE) 873.62 1312.58 1057.12 1083.69 1301.50 1236.88
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 870.62 1309.58 1054.12 1080.69 1298.50 1233.88
ROR BEFORE LOAD -12.94% 30.96% 5.41% 8.07% 29.85% 23.39% 203.03% W/OUT
AMT SUBJ TO LOAD IF + RETURN 912.94 869.04 894.59 891.93 870.15 876.61
AMT SUBJ TO LOAD IF - RETURN 783.56 1178.62 948.71 972.62 1168.65 1110.50
AMT SUBJ TO LOAD 783.56 869.04 894.59 891.93 870.15 876.61
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 54.85 60.83 62.62 62.44 60.91 61.36
ERV LESS ADMIN CHG & LOAD 815.77 1248.75 991.50 1018.25 1237.59 1172.52
- -------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -18.42% 24.88% -0.85% 1.83% 23.76% 17.25% 117.16% WITH
</TABLE>
<TABLE>
ANNUALIZED RATES OF RETURN
AVG POLICY SIZE 1000 30/9999*1000 = $3.00 ANNUAL CHG
<CAPTION>
VIP/QVIP MMKT DIBOND EQUITY FLXMGD CONS EQINC RPA HIYLD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN 4.17% 7.28% 23.18% 16.56% 12.10% 34.99% 9.97% 12.44%
ERV (ENDING REDEEMABLE VALUE) 1041.69 1072.81 1231.80 1165.63 1121.02 1349.88 1099.66 1124.40
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 1038.69 1069.81 1228.80 1162.63 1118.02 1346.88 1096.66 1121.40
ROR BEFORE LOAD 3.87% 6.98% 22.88% 16.26% 11.80% 34.69% 9.67% 12.14%
AMT SUBJ TO LOAD IF + RETURN 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
AMT SUBJ TO LOAD IF - RETURN 934.82 962.83 1105.92 1046.37 1006.22 1212.19 986.99 1009.26
AMT SUBJ TO LOAD 896.13 893.02 877.12 883.74 888.20 865.31 890.33 887.86
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 62.73 62.51 61.40 61.86 62.17 60.57 62.32 62.15
ERV LESS ADMIN CHG & LOAD 975.96 1007.30 1167.40 1100.77 1055.85 1286.31 1034.33 1059.25
- -----------------------------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -2.40% 0.73% 16.74% 10.08% 5.59% 28.63% 3.43% 5.92%
<CAPTION>
VIP/QVIP NATR STIX GLOBAL GVTINC PRUJEN SMCAP
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR % OF RETURN -12.64% 31.26% 5.71% 8.37% 30.15% 23.69%
ERV (ENDING REDEEMABLE VALUE) 873.62 1312.58 1057.12 1083.69 1301.50 1236.88
ANNUAL ADMIN CHARGE 3.00 3.00 3.00 3.00 3.00 3.00
ERV LESS ADMIN CHARGE 870.62 1309.58 1054.12 1080.69 1298.50 1233.88
ROR BEFORE LOAD -12.94% 30.96% 5.41% 8.07% 29.85% 23.39% 203.03% W/OUT
AMT SUBJ TO LOAD IF + RETURN 912.94 869.04 894.59 891.93 870.15 876.61
AMT SUBJ TO LOAD IF - RETURN 783.56 1178.62 948.71 972.62 1168.65 1110.50
AMT SUBJ TO LOAD 783.56 869.04 894.59 891.93 870.15 876.61
1ST YEAR SALE CHARGE 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%
AMT OF LOAD 54.85 60.83 62.62 62.44 60.91 61.36
ERV LESS ADMIN CHG & LOAD 815.77 1248.75 991.50 1018.25 1237.59 1172.52
- -------------------------------------------------------------------------------------------------
RETURN W/SALES LOAD AND ADM CHG -18.42% 24.87% -0.85% 1.83% 23.76% 17.25% 117.16% WITH
</TABLE>
C-78
<PAGE>
<TABLE>
VIP/QVIP 31-DEC-97 SAPDU 1 TABLE 1
ASSUMING NO LOAD
<CAPTION>
YTD 1YR 5YR 10YR SINCE ICPT INCPT DATE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MMKT 3.87% 3.87% 3.16% 4.31% 4.98% 02-Jun-83
DIBOND 6.98% 6.98% 6.29% 7.73% 8.18% 08-Jun-83
GVTINC 8.07% 8.07% 5.87% N/A 7.33% 01-May-89
CONS 11.80% 11.80% 9.16% 9.62% 9.46% 02-Jun-83
FLXMGD 16.26% 16.26% 11.65% 11.87% 10.74% 27-May-83
HIYLD 12.14% 12.14% 9.99% 9.16% 7.77% 23-Feb-87
STIX 30.96% 30.96% 18.17% 15.89% 16.34% 19-Oct-87
EQINC 34.69% 34.69% 18.55% N/A 15.24% 19-Feb-88
EQUITY 22.88% 22.88% 17.78% 15.96% 14.10% 06-Jun-83
PRUJEN 29.85% 29.85% N/A N/A 24.79% 01-May-95
SMCAP 23.39% 23.39% N/A N/A 22.77% 01-May-95
GLOBAL 5.41% 5.41% 13.52% N/A 7.40% 01-May-89
NATR -12.94% -12.94% 10.40% N/A 9.80% 02-May-88
RPA 9.67% 9.67% 6.48% N/A 3.86% 02-May-88
- -------------------------------------------------------------------------------------------------------
TOTAL 203.03% 203.03% 131.02% 74.55% 162.77%
</TABLE>
C-79
<PAGE>
<TABLE>
VIP/QVIP 31-DEC-97 SAPDU 1 TABLE 2
ASSUMING CHARGES
<CAPTION>
YTD 1YR 5YR 10YR SINCE ICPT INCPT DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MMKT -2.40% -2.40% 2.69% 4.31% 4.98% 02-Jun-83
DIBOND 0.73% 0.73% 5.88% 7.73% 8.18% 08-Jun-83
GVTINC 1.83% 1.83% 5.45% N/A 7.33% 01-May-89
CONS 5.59% 5.59% 8.80% 9.62% 9.46% 02-Jun-83
FLXMGD 10.08% 10.08% 11.33% 11.87% 10.74% 27-May-83
HIYLD 5.92% 5.92% 9.65% 9.16% 7.77% 23-Feb-87
STIX 24.88% 24.87% 17.93% 15.89% 16.34% 19-Oct-87
EQINC 28.63% 28.63% 18.32% N/A 15.24% 19-Feb-88
EQUITY 16.74% 16.74% 17.54% 15.96% 14.10% 06-Jun-83
PRUJEN 23.76% 23.76% N/A N/A 23.51% 01-May-95
SMCAP 17.25% 17.25% N/A N/A 21.44% 01-May-95
GLOBAL -0.85% -0.85% 13.22% N/A 7.40% 01-May-89
NATR -18.42% -18.42% 10.06% N/A 9.80% 02-May-88
RPA 3.43% 3.43% 6.07% N/A 3.86% 02-May-88
- -------------------------------------------------------------------------------------------------------
TOTAL 117.16% 117.16% 126.94% 74.55% 160.16%
</TABLE>
C-80
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Exhibit 27
FINANCIAL DATA SCHEDULE
Article 6 of Regulation S-X
The Prudential Qualified Individual Variable Investment Plan
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,446,560
<INVESTMENTS-AT-VALUE> 4,127,296
<RECEIVABLES> 2,523
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</TABLE>
