AS FILED WITH THE SEC ON SEPTEMBER 30, 1998. REGISTRATION NO.______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
----------------------
PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Depositor)
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(800) 437-4016
(Address and telephone number of principal executive offices)
----------------------
THOMAS C. CASTANO
ASSISTANT SECRETARY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
----------------------
Variable Universal Life Insurance Contracts--Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, the Registrant elects to register an indefinite
amount of securities. The filing fee is $500. (Title and amount of securities
being registered; proposed maximum aggregate offering price; amount of filing
fee).
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, action pursuant to said Section 8(a), may determine.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rules 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contract described in this
Registration Statement.
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. The Prudential Variable Appreciable
Account
6. The Prudential Variable Appreciable
Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Introduction and Summary; Short-Term
Cancellation Right, or "Free Look"; Type
of Death Benefit; Changing the Type of
Death Benefit; Premiums; Contract Date;
Allocation of Premiums; Transfers; Dollar
Cost Averaging, Auto-Rebalancing; Charges
and Expenses; How a Contract's Cash
Surrender Value Will Vary; How a Type A
(Fixed) Contract's Death Benefit Will
Vary; How a Type B (Variable) Contract's
Death Benefit Will Vary; Surrender of a
Contract; Withdrawals; Increases in Basic
Insurance Amount; Decreases in Basic
Insurance Amount; Lapse and Reinstatement;
When Proceeds are Paid; Riders; Other
General Contract Provisions; Voting
Rights; Substitution of Fund Shares
11. Introduction and Summary; The Prudential
Variable Appreciable Account
12. Cover Page; Introduction and Summary; The
Funds; Sale of the Contract and Sales
Commissions
13. Introduction and Summary; The Funds;
Charges and Expenses; Sale of the Contract
and Sales Commissions
14. Introduction and Summary; Requirements for
Issuance of a Contract
15. Introduction and Summary; Allocation of
Premiums; Transfers; Dollar Cost
Averaging, Auto-Rebalancing; The Fixed-
Rate Option
16. Introduction and Summary; Detailed
Information for Prospective Contract
Owners
17. When Proceeds are Paid
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
18. The Prudential Variable Appreciable
Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. The Prudential Variable Appreciable
Account
26. Introduction and Summary; The Funds;
Charges and Expenses
27. The Prudential Insurance Company of
America; The Funds
28. The Prudential Insurance Company of
America; Directors and Officers
29. The Prudential Insurance Company of
America
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. The Prudential Insurance Company of
America
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
44. Introduction and Summary; The Funds; How a
Contract's Cash Surrender Value Will Vary;
How a Type A (Fixed) Contract's Death
Benefit Will Vary; How a Type B (Variable)
Contract's Death Benefit Will Vary
45. Not Applicable
46. Introduction and Summary; The Prudential
Variable Appreciable Account; The Funds
47. The Prudential Variable Appreciable
Account; The Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements
of the Prudential Variable Appreciable
Account; Consolidated Financial Statements
of The Prudential Insurance Company of
America and Subsidiaries
Variable Universal Life
Insurance
PROSPECTUS
The Prudential
Variable Appreciable Account
November 9, 1998
[LOGO] PRUDENTIAL
PROSPECTUS
NOVEMBER 9, 1998
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
VARIABLE UNIVERSAL LIFE
This prospectus describes a flexible premium variable universal life insurance
contract (the "Contract") offered by The Prudential Insurance Company of America
("Prudential"). The Contract provides life insurance coverage with flexible
premium payments and a variety of investment options. You must pay an initial
premium, after which you can pay premium amounts as desired, as long as
sufficient money is in the Contract Fund to cover all charges. Your Contract may
lapse without value if your Contract Fund has insufficient value. You may
select either of two death benefit types, a fixed death benefit or a variable
death benefit. The variable death benefit will vary with the performance of the
investment options you select. For each type, there are generally two death
benefit guarantees, each of which can be secured by a certain level of premium
payments.
You may choose to invest your Contract's premiums and their earnings in the
following ways:
. Invest in one or more of 15 available subaccounts of The Prudential Variable
Appreciable Account, each of which invests in a corresponding portfolio of the
Funds indicated below:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")
Money Market High Yield Bond Equity
Diversified Bond Stock Index Prudential Jennison
Conservative Balanced Equity Income Global
Flexible Managed
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AIM V.I. Value Fund American Century VP Value Fund
JANUS ASPEN SERIES MFS(R) VARIABLE INSURANCE TRUST/SM/
Growth Portfolio Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
. Invest in the fixed-rate option, which pays a guaranteed interest rate.
Prudential will credit interest daily on any portion of the premium payment
that you have allocated to the fixed-rate option at rates periodically
declared by Prudential, in its sole discretion. Any such interest rate will
never be less than an effective annual rate of 4%.
This prospectus describes the Contract generally and The Prudential Variable
Appreciable Account. The attached prospectuses for the Funds and their related
statements of additional information describe the investment objectives and the
risks of investing in the portfolios. Prudential may add additional investment
options in the future. Please read this prospectus and keep it for future
reference.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (800) 437-4016
PROSPECTUS CONTENTS
PAGE
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS.......................................................................... 1
INTRODUCTION AND SUMMARY...................................................................................................... 2
Brief Description of the Contract............................................................................................ 2
Charges...................................................................................................................... 2
Types of Death Benefit....................................................................................................... 4
Premium Payments............................................................................................................. 5
Refund....................................................................................................................... 5
GENERAL INFORMATION ABOUT THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, THE PRUDENTIAL
VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT................................................................................................. 6
The Prudential Insurance Company of America.................................................................................. 6
The Prudential Variable Appreciable Account.................................................................................. 6
The Funds.................................................................................................................... 7
The Fixed-Rate Option........................................................................................................ 9
Which Investment Option Should Be Selected?.................................................................................. 9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS.......................................................................... 10
Requirements For Issuance of a Contract...................................................................................... 10
Short-term Cancellation Right or "Free Look".................................................................................. 10
Type of Death Benefit........................................................................................................ 10
Changing the Type of Death Benefit........................................................................................... 11
Premiums..................................................................................................................... 11
Death Benefit Guarantee...................................................................................................... 12
Contract Date................................................................................................................ 13
Allocation of Premiums....................................................................................................... 14
Transfers.................................................................................................................... 14
Dollar Cost Averaging........................................................................................................ 15
Auto-rebalancing............................................................................................................. 15
Charges and Expenses......................................................................................................... 15
How a Contract's Cash Surrender Value Will Vary.............................................................................. 18
How a Type A (Fixed) Contract's Death Benefit Will Vary...................................................................... 19
How a Type B (Variable) Contract's Death Benefit Will Vary................................................................... 20
Surrender of a Contract...................................................................................................... 21
Withdrawals.................................................................................................................. 21
Increases in Basic Insurance Amount.......................................................................................... 21
Decreases In Basic Insurance Amount.......................................................................................... 22
When Proceeds Are Paid....................................................................................................... 22
Living Needs Benefit......................................................................................................... 23
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums............................................. 23
Contract Loans............................................................................................................... 25
Sale of the Contract and Sales Commissions................................................................................... 26
Tax Treatment of Contract Benefits........................................................................................... 26
Withholding.................................................................................................................. 27
Lapse and Reinstatement...................................................................................................... 28
Legal Considerations Relating to Sex-distinct Premiums and Benefits.......................................................... 28
Other General Contract Provisions............................................................................................ 29
Riders....................................................................................................................... 29
Participation in Divisible Surplus........................................................................................... 29
Voting Rights................................................................................................................ 30
Substitution of Fund Shares.................................................................................................. 30
Reports to Contract Owners................................................................................................... 30
State Regulation............................................................................................................. 31
Experts...................................................................................................................... 31
Litigation................................................................................................................... 31
Year 2000 Compliance......................................................................................................... 32
Additional Information....................................................................................................... 33
Financial Statements......................................................................................................... 33
DIRECTORS AND OFFICERS OF PRUDENTIAL.......................................................................................... 33
FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT ........................................................... A1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA AND SUBSIDIARIES ......................................................................................... B1
DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS
ACCUMULATED NET PAYMENTS--The actual premium payments you make, accumulated at
an effective annual rate of 4%, less any withdrawals you make, accumulated at an
effective annual rate of 4%.
ATTAINED AGE--The insured's age on the Contract date plus the number of years
since then.
BASIC INSURANCE AMOUNT--The amount of life insurance as shown in the Contract.
CASH SURRENDER VALUE--The amount payable to the
Contract owner upon surrender of the Contract. It is equal to the Contract Fund
minus any Contract debt and, during the first 10 Contract years, minus the
applicable surrender charge.
CONTRACT--The variable universal life insurance contract described in this
prospectus.
CONTRACT ANNIVERSARY--The same date as the Contract date in each later year.
CONTRACT DATE--The date the Contract is effective, as specified in the Contract.
CONTRACT DEBT--The principal amount of all outstanding loans plus any interest
we have charged that is not yet due and that we have not yet added to the loan.
CONTRACT FUND--The total amount credited to a specific Contract. On any date it
is equal to the sum of the amounts in all the subaccounts, the amount invested
under the fixed-rate option, and the principal amount of any Contract debt.
CONTRACT OWNER--Unless a different owner is named in the application, the owner
of the Contract is the insured.
CONTRACT YEAR--A year that starts on the Contract date or on a Contract
anniversary. For any portion of a Contract representing an increase (see page
21), "Contract year" is a year that starts on the effective date of the
increase.
DEATH BENEFIT--The amount we will pay upon the death of the insured before
reduction of any Contract debt and amounts needed to pay charges through the
date of death.
FACE AMOUNT--The same as the "basic insurance amount."
FIXED-RATE OPTION--An investment option under which interest is accrued daily
at a rate that Prudential declares periodically, but not less than an effective
annual rate of 4%.
FUNDS--Mutual funds with separate portfolios. One or more of the available Fund
portfolios may be chosen as an underlying investment for the Contract.
LIFETIME DEATH BENEFIT GUARANTEE PERIOD--The lifetime of the Contract, during
which time the Lifetime Death Benefit Guarantee is available if sufficient
premiums are paid. See DEATH BENEFIT GUARANTEE, page 12.
LIMITED DEATH BENEFIT GUARANTEE PERIOD--A period which is determined on a case-
by-case basis, during which time the Limited Death Benefit Guarantee is
available if sufficient premiums are paid. See DEATH BENEFIT GUARANTEE,
page 12.
MONTHLY DATE--The Contract date and the same date in each subsequent month.
SUBACCOUNT--An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Funds.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA--Us, we, Prudential. The company
offering the Contract.
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT (THE "ACCOUNT")--A separate account
of Prudential registered as a unit investment trust under the Investment Company
Act of 1940.
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 Funds are calculated, which is
generally at 4:15 p.m. Eastern time on each day during which the New York Stock
Exchange is open.
VARIABLE INVESTMENT OPTIONS--The subaccounts.
WE--The Prudential Insurance Company of America.
YOU--The owner of the Contract.
1
INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT. THE CONTRACT, INCLUDING THE APPLICATION
ATTACHED TO IT, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND PRUDENTIAL AND
YOU SHOULD RETAIN THESE DOCUMENTS.
As you read this prospectus you should keep in mind that this is a life
insurance contract. VARIABLE LIFE INSURANCE has significant investment aspects
and requires you to make investment decisions and therefore it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission. The prospectus that is a part of the
registration statement must be given to all prospective purchasers. A
substantial part of the premium pays for life insurance that will pay a benefit
to the beneficiary, in the event of the insured's death. This death benefit
generally far exceeds your total premium payments. Therefore, you should not
buy this Contract unless the major reason for the purchase is to provide life
insurance protection.
BRIEF DESCRIPTION OF THE CONTRACT
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every business day. The chart below
describes how the value of your Contract Fund changes.
You may invest premiums in one or more of the 15 available subaccounts or in the
fixed-rate option. Your Contract Fund value changes every day depending upon
the change in the value of the particular investment options that you have
selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the subaccounts you select, there is a risk that
investment performance will be unfavorable and that the value of your Contract
Fund will decrease. The risk will be different, depending upon which investment
options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?, page 9.
If you select the fixed-rate option, Prudential credits your account with a
declared rate or rates of interest but you assume the risk that the rate may
change, although it will never be lower than an effective annual rate of 4%.
CHARGES
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as well as sales and administrative expenses. The maximum charges
shown in the chart, as well as the current lower charges, are fully described
under CHARGES AND EXPENSES, page 15.
2
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| PREMIUM PAYMENT |
---------------------
|
---------------------------------------------
. less a charge of up to 7.5% of the
premiums.
. less a charge for sales expenses of up
to 4% of the premiums paid.
---------------------------------------------
|
--------------------------------------------------------------
INVESTED PREMIUM AMOUNT
To be invested in one or a combination of:
. 15 investment portfolios of the Funds
. The fixed-rate option
--------------------------------------------------------------
|
--------------------------------------------------------------
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested
premium amount minus any of the charges described below which
may be due on that date. Thereafter, the value of the Contract
Fund changes daily.
--------------------------------------------------------------
|
--------------------------------------------------------------
PRUDENTIAL ADJUSTS THE CONTRACT FUND FOR:
. Addition of any new invested premium amounts.
. Addition of any increase due to investment results of the chosen
variable investment options.
. Addition of guaranteed interest at an effective annual rate of 4%
(plus any excess interest if applicable) on the portion of the
Contract Fund allocated to the fixed-rate option.
. Addition of guaranteed interest at an effective annual rate of 4% on
the amount of any Contract loan. (Separately, interest charged on the
loan accrues at an effective annual rate of 4.5% or 5%. See CONTRACT
LOANS, page 25.)
. Subtraction of any decrease due to investment results of the chosen
variable investment options.
. Subtraction of any amount withdrawn.
. Subtraction of the charges listed below, as applicable.
--------------------------------------------------------------
|
--------------------------------------------------------------
DAILY CHARGES
. Management fees and expenses are deducted from the Fund assets.
. We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.9%, from the variable investment options
assets.
--------------------------------------------------------------
3
-----------------------------------------------------------------------
MONTHLY CHARGES
. We reduce the Contract Fund by a monthly administrative charge of up
to $10 plus $0.07 per $1,000 of the basic insurance amount; after
the first Contract year, the $0.07 per $1,000 portion of the charge
is reduced to $0.01 per $1,000 of the basic insurance amount.
. We deduct a cost of insurance ("COI") charge.
. We reduce the Contract Fund by a Death Benefit Guarantee risk charge
of $0.01 per $1,000 of the basic insurance amount.
. If the Contract includes riders, we deduct rider charges from the
Contract Fund.
. If the rating class of an insured results in an extra charge, we
will deduct that charge from the Contract Fund.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
. During the first 10 Contract years, we will assess a contingent
deferred sales charge if the Contract lapses, is surrendered, or the
basic insurance amount is decreased (including as a result of a
withdrawal or a death benefit type change). For insureds age 76 or
less at issue, the maximum contingent deferred sales charge is 26%
of the lesser of the target level premium or the actual premiums
paid (see PREMIUMS, page 11) for the Contract. The charge is level
for six years and then declines monthly to zero at the end of the
10th Contract year. For insureds age 77 or over at issue, the
maximum charge will be a lesser percentage of the target level
premium for the Contract or the actual premiums paid.
. During the first 10 Contract years, we will assess a contingent
deferred administrative charge if the Contract lapses, is
surrendered or the basic insurance amount is decreased (including as
a result of a withdrawal or a death benefit type change). This
charge equals the lesser of: (a) $5 per $1,000 of basic insurance
amount; and (b) $500. It is level for six years and then declines
monthly until it reaches zero at the end of the 10th Contract year.
. We assess an administrative charge of up to $25 for any
withdrawals.
. We assess an administrative charge of up to $25 for any change in
basic insurance amount.
. We assess an administrative charge of up to $25 for each transfer
exceeding 12 in any Contract year.
-----------------------------------------------------------------------
TYPES OF DEATH BENEFIT
There are two types of death benefit available. You may choose a Contract with
a Type A (fixed) death benefit under which the cash surrender value varies daily
with investment experience, and the death benefit generally remains at the basic
insurance amount you initially chose. However, the Contract Fund may grow to a
point where the death benefit may increase and vary with investment experience.
If you choose a Contract with a Type B (variable) death benefit, the cash
surrender value and the death benefit both vary with
4
investment experience. For either type of death benefit, as long as the Contract
is inforce, the death benefit will never be less than the basic insurance amount
shown in your Contract. See TYPE OF DEATH BENEFIT, page 10.
PREMIUM PAYMENTS
The Contract is a flexible premium contract there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, you choose the timing and amount of premium payments. The
Contract will remain inforce if the Contract Fund less any applicable surrender
charges is greater than zero and more than any Contract debt. However, if the
accumulated premiums you pay are high enough, and Contract debt does not equal
or exceed the Contract Fund less any applicable surrender charges, Prudential
guarantees that your Contract will not lapse even if investment experience is
very unfavorable and the Contract Fund drops below zero. Each Contract
generally provides two guarantees, one that lasts for the lifetime of the
Contract and another that lasts for a stated, generally lengthy period. The
guarantee for the life of the Contract requires higher premium payments. See
PREMIUMS, page 11, DEATH BENEFIT GUARANTEE, page 12 and LAPSE AND REINSTATEMENT,
page 28.
We offer and suggest regular billing of premiums even though you decide when to
make premium payments and, subject to a $25 minimum, in what amounts. You
should discuss your billing options with your Prudential representative when you
apply for the Contract. See PREMIUMS, page 11.
REFUND
For a limited time, you may return your Contract for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK," page 10.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE, IN MOST CASES, THE
BENEFITS OF THE EXISTING CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL
INSURANCE OR A SUPPLEMENTAL CONTRACT. IF YOU ARE CONSIDERING REPLACING A
CONTRACT, YOU SHOULD COMPARE THE BENEFITS AND COSTS OF SUPPLEMENTING YOUR
EXISTING CONTRACT WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT
DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD CONSULT WITH A QUALIFIED TAX
ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND THE STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
5
GENERAL INFORMATION ABOUT THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA,
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT,
AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT
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. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that could take
two years to complete. No plan of demutualization has been adopted yet
by Prudential's Board of Directors. Any plan of reorganization adopted by the
Board of Directors would have to be approved by qualified 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 is licensed to sell life insurance and annuities in the District of
Columbia, Guam, U. S. Virgin Islands, and in all states. This Contract is only
offered in New York State.
Prudential's consolidated financial statements begin on page B1 and should be
considered only as bearing upon Prudential's ability to meet its obligations
under the Contracts.
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
The Prudential Variable Appreciable Account (the "Account") was established on
August 11, 1987 under New Jersey law as a separate investment account. The
Account meets the definition of a "separate account" under federal securities
laws. The Account holds assets that are segregated from all of Prudential's
other assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Prudential. Prudential is also the legal
owner of the assets in the Account. Prudential will 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 may be withdrawn by
Prudential.
The Account is a unit investment trust, which is a type of investment company.
It is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). This does not involve any
supervision by the SEC of the management or investment Contracts or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Prudential.
Currently, you may invest in one or a combination of 15 available subaccounts
within the Account, each of which invests in a single corresponding portfolio of
the Funds. Prudential may add additional subaccounts in the future. The
Account's financial statements begin on page A1.
6
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisers:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
. MONEY MARKET PORTFOLIO: The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in high-
quality short-term debt obligations. There are no assurances that this
portfolio will maintain a stable net asset value.
. DIVERSIFIED BOND PORTFOLIO: A high level of income over the longer term while
providing reasonable safety of capital through investment primarily in readily
marketable intermediate and long-term fixed income securities that provide
attractive yields but do not involve substantial risk of loss of capital
through default.
. CONSERVATIVE BALANCED PORTFOLIO: Achievement of a favorable total investment
return consistent with a portfolio having a conservatively managed mix of
money market instruments, fixed income securities, and common stocks, in
proportions believed by the investment manager to be appropriate for an
investor desiring diversification of investment who prefers a relatively lower
risk of loss than that associated with the Flexible Managed Portfolio while
recognizing that this reduces the chances of greater appreciation.
. FLEXIBLE MANAGED PORTFOLIO: Achievement of a high total return consistent with
a portfolio having an aggressively managed mix of money market instruments,
fixed income securities, and common stocks, in proportions believed by the
investment manager to be appropriate for an investor desiring diversification
of investment who is willing to accept a relatively high level of loss in an
effort to achieve greater appreciation.
. HIGH YIELD BOND PORTFOLIO: Achievement of a high total return through
investment in high yield/high risk fixed income securities in the medium to
lower quality ranges.
. STOCK INDEX PORTFOLIO: Achievement of investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate by following a policy of attempting to duplicate the price and yield
performance of the Standard & Poor's 500 Composite Stock Price Index.
. EQUITY INCOME PORTFOLIO: Both current income and capital appreciation through
investment primarily in common stocks and convertible securities that provide
favorable prospects for investment income returns above those of the Standard
& Poor's 500 Composite Stock Price Index or the New York Stock Exchange
Composite Index.
. EQUITY PORTFOLIO: Capital appreciation through investment primarily in common
stocks of companies, including major established corporations as well as
smaller capitalization companies, that appear to offer attractive prospects of
price appreciation that are superior to broadly-based stock indices. Current
income, if any, is incidental.
. PRUDENTIAL JENNISON PORTFOLIO: Long-term growth of capital through investment
primarily in equity securities of established companies with above-average
growth prospects. Current income, if any, is incidental.
. GLOBAL PORTFOLIO: Long-term growth of capital through investment primarily in
common stock and common stock equivalents of foreign and domestic issuers.
Current income, if any, is incidental.
Prudential is the investment adviser 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, The Prudential Investment Corporation ("PIC"). The
Service Agreement 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 LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
7
AIM VARIABLE INSURANCE FUNDS, INC.:
. AIM V.I. VALUE FUND. To achieve long-term growth of capital by investing
primarily in equity securities judged by A I M Advisors, Inc. to be
undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio.
A I M Advisors, Inc. ("AIM") is the investment adviser for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
. AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income as
a secondary objective. The fund seeks to achieve its objective by investing
primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by management
to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this fund. ACIM's principal business address is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the
fund is American Century Services, Inc., located at 4500 Main Street, Kansas
City, Missouri 64111.
JANUS ASPEN SERIES:
. GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS(R) VARIABLE INSURANCE TRUST/SM/:
. EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital. Dividend
and interest income from portfolio securities, if any, is incidental to the
Series' investment objective of long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
. INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through investments
primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table in
the DEDUCTIONS FROM PORTFOLIOS section on page 15, and are more fully described
in the prospectus for each Fund.
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 funds. Although neither the companies which
8
invest in the Funds nor the Funds currently foresee any such disadvantage, the
Board of Directors for each Fund 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. 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 Funds; or (4) differences between voting instructions
given by variable life insurance and variable annuity contract owners.
Prudential may be compensated by an affiliate of each of the Funds (other than
the Prudential Series Fund) based upon an annual percentage of the average
assets held in the Fund by Prudential under the Contracts. These percentages
vary by Fund, and reflect administrative and other services provided by
Prudential.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, RESTRICTIONS, EXPENSES, INVESTMENT RISKS, AND ALL OTHER ASPECTS OF
THEIR OPERATION IS CONTAINED IN THE ATTACHED PROSPECTUSES FOR EACH FUND AND IN
THE RELATED STATEMENTS OF ADDITIONAL INFORMATION, WHICH SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES OF THE FUNDS WILL BE MET.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE 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 SEC 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.
You may choose to invest, either initially or by transfer, all or part of your
Contract Fund to a fixed-rate option. This amount becomes part of Prudential's
general account. The general account 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 general account assets. 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
4%.
Currently, the following steps are taken for crediting interest rates: (1)
declared interest rates remain in effect from the date money is allocated to the
fixed-rate option until the first day of the same month in the following year;
(2) a new crediting rate will apply to that money until the first day of the
same month in the next year; (3) a new declared crediting rate will apply to
that money for the remainder of that calendar year; (4) a new crediting rate
will be declared each year for that money and it will remain in effect for the
entire calendar year. Prudential reserves the right to change this practice.
Prudential is not obligated to credit interest at a higher rate than 4%,
although 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,
you will be advised of the interest rates that currently apply to your Contract.
Transfers from the fixed-rate option are subject to strict limits, see
TRANSFERS, page 14. The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months, see WHEN PROCEEDS ARE PAID,
page 22.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different policies and investment
risks.
9
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
Or, you may want even greater safety of principal and may prefer the Money
Market Portfolio or the fixed-rate option, recognizing that the level of short-
term rates may change rather rapidly. If you are willing to take risks and
possibly achieve a higher total return, you may prefer the High Yield Bond
Portfolio, recognizing that the risks are greater for lower quality bonds with
higher yields. You may wish to divide your invested premium among two or more
of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolio.
Your choice should take into account how willing you are to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Prudential representative from
time to time about the choices available to you under the Contract. Prudential
recommends AGAINST frequent transfers among the several options. Experience
generally indicates that "market timing" investing, particularly by non-
professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR
PROSPECTIVE CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The Contract may generally be issued on insureds below the age of 81.
Currently, the minimum basic insurance amount that can be applied for is
$100,000. Prudential requires evidence of insurability, which may include a
medical examination, before issuing any Contract. Non-smokers are offered the
most favorable cost of insurance rates. A higher cost of insurance rate and/or
an additional amount is charged if an extra mortality risk is involved. These
are the current underwriting requirements. We reserve the right to change them
on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. You can request a refund by mailing or delivering the Contract to
the representative who sold it or to the Home Office specified in the Contract.
A Contract returned according to this provision shall be deemed void from the
beginning. You will then receive a refund of all premium payments made with no
adjustment for investment experience.
TYPE OF DEATH BENEFIT
You may select either of two types of death benefit. Generally, a Contract with
a Type A (fixed) death benefit has a death benefit equal to the basic insurance
amount. This type of death benefit does not vary with the investment
performance of the investment options you selected, except in certain
circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY,
page 19. The payment of additional premiums and favorable investment results of
the variable investment options to which the assets are allocated will generally
increase the cash surrender value. See HOW A CONTRACT'S CASH SURRENDER VALUE
WILL VARY, page 18.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit as well as in the cash surrender value. Over time, however, the
increase in the cash surrender value will be less than under a Type A (fixed)
Contract. This is because, given two Contracts with the same basic insurance
amount and equal Contract Funds, generally the cost of insurance charge for a
Type B (variable) Contract will be greater. See HOW A CONTRACT'S CASH SURRENDER
VALUE WILL VARY, page 18 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT
WILL VARY, page 20. Unfavorable investment performance will result in decreases
in the death benefit and in the cash surrender value. But, as long as the
Contract is not in default, the death benefit may not fall below the basic
insurance amount stated in the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners of Type A (fixed) Contracts should
note that any withdrawal may result in a reduction of the basic insurance amount
and the deduction of any applicable surrender charges. In addition, we will not
allow
10
you to make a withdrawal that will decrease the basic insurance amount
below the minimum basic insurance amount. See WITHDRAWALS, page 21.
CHANGING THE TYPE OF DEATH BENEFIT
You may change the type of death benefit on or after the first Contract
anniversary and subject to Prudential's approval. We will increase or decrease
the basic insurance amount so that the death benefit immediately after the
change matches the death benefit immediately before the change.
If you are changing your Contract's type of death benefit from Type A (fixed) to
Type B (variable), we will reduce the basic insurance amount by the amount in
your Contract Fund on the date the change takes place. The basic insurance
amount after the change may not be lower than the minimum basic insurance amount
applicable to the Contract. If you are changing from a Type B (variable) to a
Type A (fixed) death benefit, we will increase the basic insurance amount by the
amount in your Contract Fund on the date the change takes place. This is
illustrated in the following chart.
CHANGING THE DEATH BENEFIT FROM CHANGING THE DEATH BENEFIT FROM
TYPE A . TYPE B TYPE B . TYPE A
(Fixed) (Variable) (Variable) (Fixed)
- -----------------------------------------------------------------------------------------------------
BASIC INSURANCE
AMOUNT $ 300,000 - $250,000 $ 250,000 - $ 300,000
CONTRACT FUND $ 50,000 = $ 50,000 $ 50,000 = $ 50,000
DEATH BENEFIT $300,000 = $300,000 $ 300,000 = $ 300,000
- -----------------------------------------------------------------------------------------------------
Changing your Contract's type of death benefit from Type A (fixed) to Type B
(variable) during the first 10 Contract years may result in the assessment of
surrender charges. In addition, we reserve the right to make an administrative
processing charge of up to $25 for any change in basic insurance amount,
although we do not currently do so. See CHARGES AND EXPENSES, page 15.
To request a change, fill out an application for change which can be obtained
from your Prudential representative or a Home Office. If the change is
approved, we will recompute the Contract's charges and appropriate tables and
send you new Contract data pages. We may require you to send us your Contract
before making the change.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when to make premium
payments and, subject to a $25 minimum, in what amounts. We reserve the right
to refuse to accept any payment that increases the death benefit by more than it
increases the Contract Fund. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT
WILL VARY, page 19 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL
VARY, page 20. There are circumstances under which the payment of premiums in
amounts that are too large may cause the Contract to be characterized, under the
Internal Revenue Code, as a Modified Endowment Contract, which could be
significantly disadvantageous. See TAX TREATMENT OF CONTRACT BENEFITS, page 26.
The Contract has several types of "premiums" which are described below.
Understanding them will help you understand how the Contract works.
MINIMUM INITIAL PREMIUM -- the premium needed to start the Contract. There
is no insurance under the Contract unless the minimum initial premium is
paid.
GUIDELINE PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract inforce for the lifetime of the insured
regardless of investment performance, assuming no loans or withdrawals.
These guideline premiums will be higher for a Type B (variable) Contract than
for a Type A (fixed) Contract. For a Contract with no riders or extra risk
charges, these premiums will be level. If
11
certain riders are included, the guideline premium may increase each year.
Payment of guideline premiums at the beginning of each Contract year is one
way to achieve the Lifetime Death Benefit Guarantee Values shown on the
Contract data pages. See DEATH BENEFIT GUARANTEE, below. When you purchase a
Contract, your Prudential representative can tell you the amount[s] of the
guideline premium.
TARGET PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract inforce during the Limited Death
Benefit Guarantee period regardless of investment performance, assuming no
loans or withdrawals. As is the case with the guideline premium, for a
Contract with no riders or extra risk charges, these premiums will be level.
If certain riders are included, the target premium may increase each year.
Payment of target premiums at the beginning of each Contract year is one way
to achieve the Limited Death Benefit Guarantee Values shown on the Contract
data pages. At the end of the Limited Death Benefit Guarantee period,
continuation of the Contract will depend on the Contract Fund having
sufficient money to cover all charges or meeting the conditions of the
Lifetime Death Benefit Guarantee. See DEATH BENEFIT GUARANTEE, below. When
you purchase a Contract, your Prudential representative can tell you the
amount[s] of the target premium.
TARGET LEVEL PREMIUM -- the target premium at issue minus any premiums
associated with riders or with aviation, avocation, occupational or temporary
extra insurance charges. We use the target level premium in calculating the
contingent deferred sales charges. See CHARGES AND EXPENSES, page 15.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
scheduled premium due dates. When you receive a premium notice, you are not
required to pay this amount. The Contract will remain inforce if: (1) the
Contract Fund, less any applicable surrender charges, is greater than zero and
more than any Contract debt or (2) you have paid sufficient premiums, on an
accumulated basis, to meet the Death Benefit Guarantee conditions and Contract
debt is not equal to or greater than the Contract Fund, less any applicable
surrender charges. You may also pay premiums automatically through pre-
authorized monthly transfers from a bank checking account. If you elect to use
this feature, you choose the day of the month on which premiums will be paid and
the amount of the premiums paid.
When you apply for the Contract, you should discuss with your Prudential
representative how frequently you would like to be billed (if at all) and for
what amount.
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, sufficient premium
payments, on an accumulated basis, will guarantee that your Contract will not
lapse and a death benefit will be paid upon the death of the insured. This will
be true even if, because of unfavorable investment experience, your Contract
Fund value drops to zero. However, the guarantee is contingent upon Contract
debt not being equal to or greater than the Contract Fund less any applicable
surrender charges. See CONTRACT LOANS, page 25. You should consider the
importance of the Death Benefit Guarantee to you when deciding what amounts of
premiums to pay into the Contract.
For purposes of determining this guarantee, we generally calculate, and show in
the Contract data pages, two sets of amounts the Lifetime Death Benefit
Guarantee Values and Limited Death Benefit Guarantee Values. These are not cash
---
values that you can realize by surrendering the Contract, nor are they payable
death benefits. They are values used solely to determine if a Death Benefit
Guarantee is in effect. The Lifetime Death Benefit Guarantee Values are shown
for the lifetime of the Contract. The Limited Death Benefit Guarantee Values
are lower, but only apply for the length of the Limited Death Benefit Guarantee
period.
The length of the Limited Death Benefit Guarantee period is determined on a case
by case basis depending on things like the insured's age, sex, smoker/non-smoker
status, death benefit type and extra rating class, if any. The length of the
Limited Death Benefit Guarantee period applicable to your particular Contract is
shown on the Contract data pages. For certain insureds, generally those who are
older and/or in a substandard risk classification, the Limited Death Benefit
Guarantee period may be of short duration.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
12
At each Monthly date within the Limited Death Benefit Guarantee period, we will
compare your Accumulated Net Payments to the Limited Death Benefit Guarantee
Value as of that date. At each Monthly date after the Limited Death Benefit
Guarantee period, we will compare your Accumulated Net Payments to the Lifetime
Death Benefit Guarantee Value as of that date. If your Accumulated Net Payments
equal or exceed the applicable (Lifetime or Limited) Death Benefit Guarantee
Value and Contract debt does not equal or exceed the Contract Fund less any
applicable surrender charges, then the Contract is kept inforce, regardless of
the amount in the Contract Fund.
The Contract data pages show Lifetime Death Benefit Guarantee Values and Limited
Death Benefit Guarantee Values as of Contract anniversaries. Values for non-
anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
Guideline and target premiums are premium levels that, if paid at the start of
each Contract year, correspond to the Lifetime and Limited Death Benefit
Guarantee Values, respectively (assuming no withdrawals or loans). See PREMIUMS,
page 11. They are one way of reaching the Death Benefit Guarantee Values; they
are certainly not the only way.
Here is a table of typical guideline and target premiums along with
corresponding Limited Death Benefit Guarantee periods. The examples assume the
insured is a male, non-smoker, with no extra risk or substandard ratings, and no
extra benefit riders added to the Contract.
BASIC INSURANCE AMOUNT -- $250,000
Illustrative Annual Premiums
- ----------------------------------------------------------------------------------------------------------------
AGE OF TYPE OF GUIDELINE PREMIUM TARGET PREMIUM
INSURED AT DEATH CORRESPONDING TO CORRESPONDING TO THE
ISSUE BENEFIT THE LIFETIME DEATH LIMITED DEATH BENEFIT
CHOSEN BENEFIT GUARANTEE GUARANTEE VALUES AND
VALUES NUMBER OF YEARS OF
GUARANTEE
- ----------------------------------------------------------------------------------------------------------------
35 Type A (fixed) $ 3,532.50 $ 2,007.50 for 35 years
35 Type B (variable) $ 12,037.50 $ 2,007.50 for 33 years
45 Type A (fixed) $ 5,462.50 $ 2,977.50 for 25 years
45 Type B (variable) $ 17,147.50 $ 2,977.50 for 23 years
55 Type A (fixed) $ 8,897.50 $ 5,770.00 for 20 years
55 Type B (variable) $ 25,607.50 $ 5,770.00 for 18 years
- ----------------------------------------------------------------------------------------------------------------
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Prudential representative can supply sample illustrations
of various premium amount and frequency combinations that correspond to the
Death Benefit Guarantee Values.
You should consider carefully the value of maintaining the guarantee. If you
desire the death benefit guarantee for lifetime protection, you may prefer to
pay generally higher premiums in all years, rather than trying to make such
payments on an as needed basis. For example, if you pay only enough premium to
meet the Limited Death Benefit Guarantee Values, a substantial amount may be
-----------
required to meet the Lifetime Death Benefit Guarantee Values in order to
continue the guarantee at the end of the Limited Death Benefit Guarantee period.
In addition, it is possible that the payment required to continue the guarantee
after the Limited Death Benefit Guarantee period could cause the Contract to
become a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS,
page 26.
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the application date or the
medical examination date. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the
13
Contract is delivered. Under certain circumstances, we may allow the Contract to
be backdated for the purpose of lowering the insured's issue age, but only to a
date not earlier than six months prior to the application date. This may be
advantageous for some Contract owners as a lower issue age may result in lower
current charges. For a Contract that is backdated, we will credit the initial
premium as of the date of receipt and will deduct any charges due on or before
that date.
ALLOCATION OF PREMIUMS
On the Contract date, the charge for sales expenses and the premium based
administrative charge are deducted from the initial premium. The remainder of
the initial premium will be allocated on the Contract date among the subaccounts
and/or the fixed-rate option according to your desired allocation, as specified
in the application form, and the first monthly deductions are made. If the
first premium is received before the Contract date, there will be a period
during which the Contract owner's initial premium will not be invested. See
CHARGES AND EXPENSES, page 15.
The charge for sales expenses and the premium based administrative charge also
apply to all subsequent premium payments. The remainder will be invested as of
the end of the valuation period in which it is received at a Home Office in
accordance with the allocation you previously designated. Provided the Contract
is not in default, you may change the way in which subsequent premiums are
allocated by giving written notice to a Home Office or by telephoning a Home
Office, provided you are enrolled to use the Telephone Transfer System. There
is no charge for reallocating future premiums. All percentage allocations must
be in whole numbers. For example, 33% can be selected but 33 1/3% cannot. Of
course, the total allocation to all selected investment options must equal 100%.
TRANSFERS
You may, up to 12 times each Contract year, transfer amounts from one subaccount
to another subaccount or to the fixed-rate option without charge. There is an
administrative charge of up to $25 for each transfer made exceeding 12 in any
Contract year. All or a portion of the amount credited to a subaccount may be
transferred.
Transfers will take effect as of the end of the valuation period in which a
proper transfer request is received at a Home Office. The request may be in
terms of dollars, such as a request to transfer $5,000 from one subaccount to
another, or may be in terms of a percentage reallocation among subaccounts. In
the latter case, as with premium reallocations, the percentages must be in whole
numbers. You may transfer amounts by proper written notice to a Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege.
Telephone transfers may not be available on Contracts that are assigned (see
ASSIGNMENT, page 29), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine.
Prudential cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
Only one transfer from the fixed-rate option will be permitted during each
Contract year. The maximum amount which may 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. Prudential may change these limits in the future.
We may waive these restrictions for limited periods of time in a non-
discriminatory way, (e.g., when interest rates are declining).
The Contract was not designed for professional market timing organizations,
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 subaccounts 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 under a power of attorney on behalf of more than one Contract owner.
14
DOLLAR COST AVERAGING
Under the Dollar Cost Averaging ("DCA") feature, either fixed dollar amounts or
a percentage of the amount designated for use under the DCA option will be
transferred periodically from the DCA Money Market Subaccount into other
subaccounts available under the Contract, excluding the fixed-rate option. You
may choose to have periodic transfers made monthly, quarterly, semi-annually or
annually.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate, provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the 12 free
transfers permitted each Contract year; however, we reserve the right to change
this practice.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called Auto-
Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of variable investment
options X and Y is split 40% and 60%, respectively. Then, due to investment
results, that split changes. You may instruct that those assets be rebalanced
to your original or different allocation percentages.
Auto-Rebalancing can be performed on a monthly, quarterly, semi-annual or annual
basis. Each rebalance will take effect as of the end of the valuation period on
the date coinciding with the periodic timing you designate, provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the Auto-
Rebalancing feature is not counted towards the 12 free transfers permitted each
Contract year. We reserve the right to change this practice, modify the
requirements or discontinue the feature.
CHARGES AND EXPENSES
This section provides a detailed description of each charge that is described
briefly in the chart on page 3, and an explanation of the purpose of the charge.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Prudential is entitled to make under the Contract. The "current charge" is the
lower amount that Prudential is now charging. However, if circumstances change,
Prudential reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) A charge of up to 7.5% is deducted from each premium as an administrative
charge. This charge is currently equal to 3.75% of each premium, of which
1.25% of the premium is used to cover a 1990 increase in Prudential's
federal income taxes measured by premiums.
(b) A charge of up to 4% is deducted from each premium payment for sales
expenses. This charge, often called a sales load, is deducted to compensate
us for the costs Prudential incurs in selling the Contracts, including
commissions, advertising and the printing and distribution of prospectuses
and sales literature.
Currently, the charge is equal to 4% of premiums paid in each Contract year
up to the amount of the target premium (see PREMIUMS, page 11) and 0% of
premiums paid in excess of this amount.
15
Consequently, paying more than this amount in any Contract year could reduce
your total sales load. For example, assume that a Contract with no riders or
extra insurance charges has a target premium of $2,007.50 and the Contract
owner would like to pay 10 target premiums. If the Contract owner paid $4,015
(two times the amount of the target premium in every other Contract year up
to the ninth year (i.e. in years 1, 3, 5, 7, 9), the sales load charge would
be $401.50. If the Contract owner paid $2,007.50 in each of the first 10
Contract years, the total sales load would be $803. For additional
information, see INCREASES IN BASIC INSURANCE AMOUNT, page 21.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will lapse
without value. Delaying the payment of target premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated premium
payments do not reach the accumulated values shown under your Contract's
Limited Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE, page 12
In addition, there are circumstances where payment of premiums that are too
large may cause the Contract to be characterized as a Modified Endowment
Contract, which could be significantly disadvantageous. See TAX TREATMENT OF
CONTRACT BENEFITS, page 26.
DEDUCTIONS FROM PORTFOLIOS
An investment advisory fee is deducted daily from each portfolio of the Funds at
a rate, on an annualized basis, from 0.35% for the Stock Index Portfolio to
1.05% for the T. Rowe Price International Stock Portfolio. The expenses
incurred in conducting the investment operations of the portfolios (such as
custodian fees and preparation and distribution of annual reports) are paid out
of the portfolio's income. These expenses also vary from portfolio to
portfolio.
The total expenses of each portfolio for the year 1997 expressed as a percentage
of the average assets during the year are shown below:
- ----------------------------------------------------------------------------------------------
INVESTMENT OTHER TOTAL
PORTFOLIO ADVISORY FEE EXPENSES EXPENSES
- ----------------------------------------------------------------------------------------------
SERIES FUND
Money Market 0.40% 0.03% 0.43%
Diversified Bond 0.40% 0.03% 0.43%
Conservative Balanced 0.55% 0.01% 0.56%
Flexible Managed 0.60% 0.02% 0.62%
High Yield Bond 0.55% 0.02% 0.57%
Stock Index 0.35% 0.02% 0.37%
Equity Income 0.40% 0.01% 0.41%
Equity 0.45% 0.01% 0.46%
Prudential Jennison 0.60% 0.04% 0.64%
Global 0.75% 0.10% 0.85%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund (4) 0.62% 0.08% 0.70%
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC. 1.00% 0.00% 1.00%
VP Value Portfolio (1)
Janus Aspen Series 0.65% 0.05% 0.70%
Growth Portfolio (2)
MFS(R) VARIABLE INSURANCE TRUSTSM 0.75% 0.12% 0.87%
Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC. 1.05% 0.00% 1.05%
International Stock Portfolio (3)
- ----------------------------------------------------------------------------------------------
(1) Fees are all-inclusive.
(2) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1997. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are
16
first applied against the management fee and then against other expenses.
Without such waivers or reductions, the Management Fee, Other Expenses and
Total Operating Expenses for the Portfolio would have been 0.74%, 0.04% and
0.78%, respectively. Janus Capital may modify or terminate the waivers or
reductions at any time upon at least 90 days' notice to the Trustees.
(3) The investment management fee includes the ordinary expenses of operating
the Fund.
(4) AIM may from time to time voluntarily waive or reduce its respective fees.
Effective May 1, 1998, the Fund will reimburse AIM in an amount up to 0.25%
of the average net asset value of the Fund for expenses incurred in
providing, or assuring that participating insurance companies provide,
certain administrative services. Currently, the fee only applies to the
average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1998.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUDENTIAL BY THE FUNDS. PRUDENTIAL HAS NOT INDEPENDENTLY
VERIFIED THEM.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day a charge is deducted from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.9%. Currently, we
intend to charge 0.6%. This charge is intended to compensate Prudential for
assuming mortality and expense risks under the Contract. The mortality risk
assumed is that insureds may live for shorter periods of time than Prudential
estimated when it determined what mortality charge to make. The expense risk
assumed is that expenses incurred in issuing and administering the Contract will
be greater than Prudential estimated in fixing its administrative charges. This
charge is not assessed against amounts allocated to the fixed-rate option.
MONTHLY DEDUCTIONS FROM CONTRACT FUND
Prudential deducts the following monthly charges proportionately from the dollar
amounts held in each of the subaccounts.
(a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per Contract plus $0.07 per $1,000 of basic insurance
amount in the first Contract year and $5 per Contract plus $0.01 per $1,000
of basic insurance amount in all subsequent years. Prudential reserves the
right, however to charge up to $10 per Contract plus $0.07 per $1,000 of
basic insurance amount in the first Contract year and $10 per Contract plus
$0.01 per $1,000 of basic insurance amount in all subsequent years.
For example, a Contract with a basic insurance amount of $250,000 would
currently have a charge equal to $10 plus $17.50 for a total of $27.50 per
month for the first Contract year and $5 plus $2.50 for a total of $7.50 per
month in all later years. The maximum charge for this same Contract would be
$10 plus $17.50 for a total of $27.50 per month during the first Contract
year. In later years, the maximum charge would be $10 plus $2.50 for a total
of $12.50 per month.
(b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund -- significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected from
all Contract owners enables Prudential to pay this larger death benefit.
The maximum COI charge is determined by multiplying the "net amount at risk"
under a Contract (the amount by which the Contract's death benefit exceeds
the Contract Fund) by maximum COI rates. The maximum COI rates are based
upon the 1980 Commissioners Standard Ordinary ("CSO") Tables and an
insured's current attained age, sex, smoker/non-smoker status, and extra
rating class, if any. For an increase in basic insurance amount, maximum
COI rates are based upon 1980 CSO Tables, the age at the increase effective
date and the number of years since then, sex, smoker/nonsmoker status, and
extra rating class, if any. See INCREASES IN BASIC INSURANCE AMOUNT, page
21. At most ages, Prudential's current COI rates are lower than the maximum
rates.
17
(C) A charge of $0.01 per $1,000 of basic insurance amount is made to compensate
Prudential for the risk we assume by providing the Death Benefit Guarantee
feature. See DEATH BENEFIT GUARANTEE, page 12.
(d) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
(e) If an insured is in a substandard risk classification (for example, a person
in a hazardous occupation), additional charges will be deducted.
SURRENDER CHARGES
(a) An additional sales load is charged if during the first 10 Contract years
the Contract lapses, is surrendered or if the basic insurance amount is
decreased. It is not deducted from the death benefit if the insured should
die during this period. Upon lapse or surrender, for issue ages 76 or less,
this contingent deferred charge will be 26% of the lesser of: (a) the target
level premium for the Contract; and (b) the actual premiums paid. The rate
used in the calculation of this contingent deferred charge will be 22% for
issue ages 77-79, 16% for issue ages 80-83 and 13% for issue ages 84-85.
The rate used in the calculation of this contingent deferred charge will
remain level for six years. After six years, this charge will reduce
monthly at a constant rate until it reaches zero at the end of the 10th
year. If during the first 10 Contract years the basic insurance amount is
decreased [including as a result of a withdrawal or a change in the type of
death benefit from Type A (fixed) to Type B (variable)], we will deduct a
proportionate amount of the charge from the Contract Fund. The proportion
we use will be the amount by which the new basic insurance amount is less
than the basic insurance amount at issue (but not greater than the amount of
the decrease) divided by the basic insurance amount at issue.
(b) If during the first 10 Contract years the Contract lapses, is surrendered or
if the basic insurance amount is decreased, an administrative charge is
deducted to cover the cost of processing applications, conducting medical
examinations, determining insurability and the insured's rating class, and
establishing records. The charge is equal to the lesser of: (a) $5 per
$1,000 of basic insurance amount; and (b) $500. This charge is level for
six years. After six years, this charge will be reduced monthly at a
constant rate until it reaches zero at the end of the 10th year. If the
basic insurance amount is decreased [including as a result of a withdrawal
or a change in the type of death benefit from Type A (fixed) to Type B
(variable)] during the first 10 Contract years, we will deduct a
proportionate amount of the charge from the Contract Fund. The proportion
we use will be the amount by which the new basic insurance amount is less
than the basic insurance amount at issue (but not greater than the amount of
the decrease) divided by the basic insurance amount at issue.
TRANSACTION CHARGES
(a) An administrative processing charge, which is the lesser of: (a) $25 and;
(b) 2% of the withdrawal amount, is made in connection with each withdrawal.
(b) No administrative processing charge is currently being made in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance amount.
(c) An administrative processing charge of up to $25 is made for each transfer
exceeding 12 in any Contract year.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See CONTRACT LOANS, page 25. The Contract Fund value changes
daily, reflecting: (1) increases or decreases in the value of the Fund
portfolios in which the assets of the subaccount[s] have been invested; (2)
interest credited on any amounts allocated to the fixed-rate option; (3)
interest credited on any loan; and (4) the daily asset charge for mortality and
expense risks assessed against the variable investment options. The Contract
Fund value also changes to reflect the receipt of
18
premium payments and the monthly deductions described under CHARGES AND
EXPENSES, page 15. Upon request, Prudential will tell you the cash surrender
value of your Contract. It is possible for the cash surrender value of a
Contract to decline to zero because of unfavorable investment performance or
outstanding Contract debt.
The tables on pages T1 through T4 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
target premium amounts (see PREMIUMS, page 11), assuming hypothetical uniform
investment results in the Fund portfolios. Two of the tables assume current
charges will be made throughout the lifetime of the Contract and two tables
assume maximum charges will be made. See ILLUSTRATIONS OF CASH SURRENDER
VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page 23.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are two types of death benefit available under the
Contract: Type A, a generally fixed death benefit and Type B, a variable death
benefit. A Type B (variable) death benefit varies with investment performance
while a Type A (fixed) death benefit does not, unless it must be increased to
comply with the Internal Revenue Code's definition of life insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. See CONTRACT LOANS, page 25. If the Contract is kept
inforce for several years, depending on how much premium you pay, and/or if
investment performance is reasonably favorable, the Contract Fund may grow to
the point where Prudential will increase the death benefit in order to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit under a Type A (fixed) Contract will always
be the greater of: (1) the basic insurance amount; and (2) the Contract Fund
before the deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies. A listing of attained age factors can be
found on the data pages of your Contract. The latter provision ensures that the
Contract will always have a death benefit large enough so that the Contract will
be treated as life insurance for tax purposes under current law.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table
assumes a $250,000 Type A (fixed) Contract was issued when the insured was age
35.
TYPE A (FIXED) DEATH BENEFIT
IF THEN
- ----------------------------------------------------------------------------------------------------
THE INSURED IS AND THE CONTRACT THE ATTAINED AGE THE CONTRACT FUND AND THE DEATH
AGE FUND IS FACTOR IS MULTIPLIED BY THE BENEFIT IS
ATTAINED AGE FACTOR IS
- ----------------------------------------------------------------------------------------------------
40 $ 25,000 3.64 91,000 $250,000
40 $ 75,000 3.64 273,000 $273,000*
40 $100,000 3.64 364,000 $364,000*
- ----------------------------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $250,000
60 $125,000 1.96 245,000 $250,000
60 $150,000 1.96 294,000 $294,000*
- ----------------------------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $250,000
80 $200,000 1.28 256,000 $256,000*
80 $225,000 1.28 288,000 $288,000*
- ----------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
- ----------------------------------------------------------------------------------------------------
19
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $294,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $1.96. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is inforce, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be further increased to ensure that
the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit will always be the greater of: (1) the basic
insurance amount plus the Contract Fund before the deduction of any monthly
charges due on that date; and (2) the Contract Fund before the deduction of any
monthly charges due on that date, multiplied by the attained age factor that
applies. For purposes of computing the death benefit, if the Contract Fund is
less than zero we will consider it to be zero. A listing of attained age
factors can be found on the data pages of your Contract. The latter provision
ensures that the Contract will always have a death benefit large enough so that
the Contract will be treated as life insurance for tax purposes under current
law.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was age 35.
TYPE B (VARIABLE) DEATH BENEFIT
IF THEN
- ----------------------------------------------------------------------------------------------------
THE INSURED IS AND THE CONTRACT THE ATTAINED AGE THE CONTRACT FUND AND THE DEATH
AGE FUND IS FACTOR IS MULTIPLIED BY THE BENEFIT IS
ATTAINED AGE FACTOR IS
- ----------------------------------------------------------------------------------------------------
40 $ 25,000 3.64 91,000 $275,000
40 $ 75,000 3.64 273,000 $325,000
40 $100,000 3.64 364,000 $364,000*
- ----------------------------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $325,000
60 $125,000 1.96 245,000 $375,000
60 $150,000 1.96 294,000 $400,000
- ----------------------------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $400,000
80 $200,000 1.28 256,000 $450,000
80 $225,000 1.28 288,000 $475,000
- ----------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's
definition of life insurance.
- ----------------------------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $364,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $3.64. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
20
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value or for a fixed
reduced paid-up insurance benefit while the insured is living. To surrender a
Contract, we may require you to deliver or mail the Contract with a written
request in a form that meets our needs, to a Home Office. The cash surrender
value of a surrendered Contract will be determined as of the end of the
valuation period in which such a request is received in the Home Office. Fixed
reduced paid-up insurance provides paid-up insurance, the amount of which will
be paid when the insured dies. There will be cash values and loan values. The
loan interest rate for fixed reduced paid-up insurance is 5%. Upon surrender of
the Contract, the amount of fixed reduced paid-up insurance depends upon the
cash surrender value and the insured's issue age, sex, and the length of time
since the Contract date. Surrender of a Contract may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 26.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. The withdrawal amount is
limited by the requirement that the cash surrender value after the withdrawal
may not be zero or less than zero after deducting the withdrawal charges. The
amount withdrawn must be at least $500. There is an administrative processing
fee for each withdrawal which is the lesser of: (a) $25 and; (b) 2% of the
withdrawal amount. An amount withdrawn may not be repaid except as a premium
subject to the applicable charges. Upon request, we will tell you how much you
may withdraw. Withdrawal of the cash surrender value may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 26.
Whenever a withdrawal is made, the death benefit will immediately be reduced by
at least the amount of the withdrawal. For a Type B (variable) Contract, this
will not change the basic insurance amount. However, under a Type A (fixed)
Contract, the resulting reduction in death benefit usually requires a reduction
in the basic insurance amount. If the basic insurance amount is decreased to an
amount less than the basic insurance amount at issue, a surrender charge may be
deducted. See CHARGES AND EXPENSES, page 15. No withdrawal will be permitted
under a Type A (fixed) Contract if it would result in a basic insurance amount
of less than the minimum basic insurance amount. It is important to note,
however, that if the basic insurance amount is decreased at any time during the
life of the Contract, there is a possibility that the Contract might be
classified as a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 26. Before making any withdrawal which causes a decrease in basic
insurance amount, you should consult with your tax adviser and your Prudential
representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the withdrawal fee. An amount equal to the reduction in the
Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawal of the cash surrender value increases the risk that the Contract Fund
may be insufficient to provide Contract benefits. If such a withdrawal is
followed by unfavorable investment experience, the Contract may go into default.
Withdrawals may also affect whether a Contract is kept inforce under the Death
Benefit Guarantee, since withdrawals decrease the accumulated net payments. See
DEATH BENEFIT GUARANTEE, page 12.
INCREASES IN BASIC INSURANCE AMOUNT
Subject to the underwriting requirements determined by Prudential, on or after
the first Contract anniversary, you may increase the amount of insurance by
increasing the basic insurance amount of the Contract. The following conditions
must be met: (1) you must ask for the change in a form that meets our needs; (2)
the amount of the increase must be at least equal to the minimum increase in
basic insurance amount shown under CONTRACT LIMITATIONS in the data pages of the
Contract; (3) you must prove to us that the insured is insurable for any
increase; (4) the Contract must not be in default; (5) we must not be paying
premiums into the Contract as a result of the insured's total disability; and
(6) if we ask you to do so, you must send us the Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the
21
effective date, the change will not take effect. No administrative processing
charge is currently being made in connection with an increase in basic insurance
amount. We reserve the right to make such a charge in an amount of up to $25.
For sales load purposes, the target premiums are calculated separately for the
initial basic insurance amount and each increase in basic insurance amount.
Each target premium piece also includes the premium for extra insurance charges
associated to that piece of coverage. When premiums are paid, each payment is
allocated among the initial basic insurance amount and each increase in basic
insurance amount according to the target premiums. Currently, the sales load
charge for each piece is equal to 4% of the allocated premium paid in each
Contract year up to the target premium and 0% of allocated premiums paid in
excess of the target premium. See the definition of Contract year for an
increase in DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, page 1.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the Contract Fund instead of a refund of premium. See SHORT-TERM
CANCELLATION RIGHT OR "FREE LOOK", page 10. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
An increase in basic insurance amount may impact the status of the Contract as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 26.
Therefore, before increasing the basic insurance amount, you should consult with
your tax adviser and your Prudential representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal (see WITHDRAWALS, page 21). On
or after the first Contract anniversary, you also have the option of decreasing
the basic insurance amount of your Contract without withdrawing any cash
surrender value. Contract owners who conclude that, because of changed
circumstances, the amount of insurance is greater than needed will be able to
decrease their amount of insurance protection, and the monthly deductions for
the cost of insurance. The amount of the decrease must be at least equal to the
minimum decrease in basic insurance amount shown under Contract Limitations in
the data pages of your Contract. In addition, the basic insurance amount after
the decrease must be at least equal to the minimum basic insurance amount shown
under CONTRACT LIMITATIONS in the data pages of your Contract. If the basic
insurance amount is decreased to an amount less than the basic insurance amount
at issue, a surrender charge may be deducted. No administrative processing
charge is currently being made in connection with a decrease in basic insurance
amount. We reserve the right to make such a charge in an amount of up to $25.
See CHARGES AND EXPENSES, page 15. If we ask you to, you must send us your
Contract to be endorsed. The Contract will be amended to show the new basic
insurance amount, charges, values in the appropriate tables, and the effective
date of the decrease.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. A decrease will not take effect if the insured is not living on
the effective date.
It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 26.
Before requesting any decrease in basic insurance amount, you should consult
with your tax adviser and your Prudential representative.
WHEN PROCEEDS ARE PAID
Prudential will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within seven days after all the documents required for
such a payment are received at a Home Office. Other than the death benefit,
which is determined as of the date of death, the amount will be determined as of
the end of the valuation period in which the necessary documents are received at
a Home Office. However, Prudential may delay payment of proceeds from the
subaccount[s] and the variable portion of the death benefit due under the
Contract if the disposal or valuation of the Account's assets is not reasonably
22
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC or the SEC declares
that an emergency exists.
With respect to the amount of any cash surrender value allocated to the fixed-
rate option, Prudential expects to pay the cash surrender value promptly upon
request. However, Prudential has the right to delay payment of such cash
surrender value for up to six months. Prudential will pay interest of at least
3% a year if it delays such a payment for more than 10 days.
LIVING NEEDS BENEFIT
You may elect to add the LIVING NEEDS BENEFITSM to your Contract at issue.
There is no charge for adding the benefit to the Contract. However, an
administrative charge (not to exceed $150) will be made at the time the LIVING
NEEDS BENEFIT is paid.
The LIVING NEEDS BENEFIT allows you to elect to receive an accelerated payment
of all or part of the Contract's death benefit, adjusted to reflect current
value, at a time when certain special needs exist. The adjusted death benefit
will always be less than the death benefit, but will generally be greater than
the Contract's cash surrender value. The following options are available.
Terminal Illness Option. This option is available if the insured is diagnosed
as terminally ill with a life expectancy of six months or less. When
satisfactory evidence is provided, Prudential will provide an accelerated
payment of the portion of the death benefit selected by you as a LIVING NEEDS
BENEFIT. The benefit will be paid to you in a single sum.
Organ Transplant Option. This option is available if the insured is diagnosed
as having a life expectancy of six months or less unless the insured receives a
vital organ transplant. When satisfactory evidence is provided, Prudential will
provide an accelerated payment of the portion of the death benefit selected by
you as a LIVING NEEDS BENEFIT. The benefit will be paid to you in a single sum.
All or part of the Contract's death benefit may be accelerated under the LIVING
NEEDS BENEFIT. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. Prudential reserves the right
to determine the minimum amount that may be accelerated.
No benefit will be payable if you are required to elect it in order to meet the
claims of creditors or to obtain a government benefit. Prudential can furnish
details about the amount of LIVING NEEDS BENEFIT that is available to an
eligible Contract owner, and the effect on the Contract if less than the entire
death benefit is accelerated.
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the LIVING NEEDS BENEFIT to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related Contracts, the Health Insurance Portability and Accountability
Act of 1996 excludes from income the LIVING NEEDS BENEFIT if the insured is
terminally ill or chronically ill as defined in the tax law (although the
exclusion in the latter case may be limited). You should consult a qualified
tax adviser before electing to receive this benefit. Receipt of a LIVING NEEDS
BENEFIT payment may also affect your eligibility for certain government benefits
or entitlements.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND
ACCUMULATED PREMIUMS
The following four tables show how the death benefit and cash surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, each of which is
described below. All four tables assume that a Contract with a basic insurance
amount of $250,000 has been bought by a 35 year old male, non-smoker, with no
extra risks or substandard ratings, and no extra benefit riders added to the
Contract. It is assumed that the target premium amount (see PREMIUMS, page 11)
is paid on each Contract anniversary and that no loans are taken. The first
table (page T1) assumes that a Type A (fixed) Contract has been purchased and
the second table (page T2) assumes that a Type B (variable) Contract has been
purchased. Both assume that the current charges will continue for the
indefinite future. The third and fourth tables (pages T3 and T4) are based
23
upon the same assumptions except that it is assumed that the maximum contractual
charges have been made from the beginning. See CHARGES AND EXPENSES, page 15.
Another assumption is that the Contract Fund has been invested in equal amounts
in each of the 15 portfolios of the Funds and no portion of the Contract Fund
has been allocated to the fixed-rate option. Finally, there are four
assumptions, shown separately, about the average investment performance of the
portfolios. The first is that there will be a uniform 0% gross rate of return,
that is, that the average value of the Contract Fund will uniformly be adversely
affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. These, of course, are unrealistic assumptions since
actual returns will fluctuate from year to year. Nevertheless, these
assumptions help show how the Contract values will change with investment
experience.
The first column in the following tables shows the Contract year. The second
column, to provide context, shows what the aggregate amount would be if the
premiums had been invested in a savings account paying 4% compounded interest.
Of course, if that were done, there would be no life insurance protection. The
next four columns show the death benefit payable in each of the years shown for
the four different assumed investment returns. Note that a gross return (as
well as the net return) is shown at the top of each column. The gross return
represents the combined effect of income and capital appreciation of the
portfolios before any reduction is made for investment advisory fees or other
Fund expenses. The net return reflects average total annual expenses of the 15
portfolios of 0.68%, and the daily deduction from the Contract Fund of 0.6% per
year for the tables based on current charges and 0.9% per year for the tables
based on maximum charges. Thus, assuming current charges, gross returns of 0%,
4%, 8% and 12% are the equivalent of net returns of -1.24%, 2.76%, 6.76% and
10.76%, respectively. Assuming maximum charges, gross returns of 0%, 4%, 8% and
12% are the equivalent of net returns of -1.54%, 2.46%, 6.46% and 10.46%,
respectively. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Funds and under the
Contract.
Note that under the Type B (variable) Contract the death benefit changes to
reflect investment returns. While under the Type A (fixed) Contract the death
benefit increases only if the Contract Fund becomes large enough that an
increase in the death benefit is necessary. The death benefit is increased so
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance. See TYPE OF DEATH BENEFIT, page 10.
Following these illustrations are two pages (pages T5 and T6) showing internal
rates of return (commonly referred to as IRRs) associated with the cash values
and death benefits shown on the preceding four pages. IRRs are often employed by
insurance companies to provide some indication of the rate of return that may be
thought of as earned upon your "investment" in the Contract (the aggregate
premiums paid) if the Contract were surrendered or if the insured was to die.
The IRR on the death benefit is equivalent to an interest rate (without
considering taxes) at which an amount equal to the premiums illustrated on the
preceding pages could have been invested to arrive at the death benefit of the
Contract. The IRR on the cash surrender value is equivalent to an interest rate
(without considering taxes) at which an amount equal to the illustrated premiums
could have been invested to arrive at the cash surrender value of the Contract.
The IRRs on page T5 are based on the Contract values shown on pages T1 and T2.
The IRRs on page T6 are based on the Contract values shown on pages T3 and T4.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year
old man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Prudential representative can provide you
with a hypothetical illustration for your own age, sex, and rating class. You
can obtain an illustration using premium amounts and payment patterns that you
wish to follow. You may use assumed gross returns different than those shown in
the tables, although currently they may not be higher than 12%.
24
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
- ------ -------------- -------------- -------------- -------------- --------------
1 $ 2,088 $ 250,000 $ 250,000 $ 250,000 $ 250,000
2 $ 4,259 $ 250,000 $ 250,000 $ 250,000 $ 250,000
3 $ 6,517 $ 250,000 $ 250,000 $ 250,000 $ 250,000
4 $ 8,866 $ 250,000 $ 250,000 $ 250,000 $ 250,000
5 $ 11,308 $ 250,000 $ 250,000 $ 250,000 $ 250,000
6 $ 13,848 $ 250,000 $ 250,000 $ 250,000 $ 250,000
7 $ 16,490 $ 250,000 $ 250,000 $ 250,000 $ 250,000
8 $ 19,237 $ 250,000 $ 250,000 $ 250,000 $ 250,000
9 $ 22,095 $ 250,000 $ 250,000 $ 250,000 $ 250,000
10 $ 25,066 $ 250,000 $ 250,000 $ 250,000 $ 250,000
15 $ 41,805 $ 250,000 $ 250,000 $ 250,000 $ 250,000
20 $ 62,171 $ 250,000 $ 250,000 $ 250,000 $ 250,000
25 $ 86,948 $ 250,000 $ 250,000 $ 250,000 $ 322,959
30 $ 117,094 $ 250,000 $ 250,000 $ 250,000 $ 479,220
35 $ 153,771 $ 250,000 $ 250,000 $ 267,837 $ 707,721
40 $ 198,394 $ 250,000 $ 250,000 $ 334,107 $ 1,031,251
45 $ 252,685 $ 0(2) $ 250,000 $ 417,984 $ 1,516,215
50 $ 318,738 $ 0 $ 0(2) $ 522,262 $ 2,236,837
55 $ 399,102 $ 0 $ 0 $ 649,272 $ 3,295,188
60 $ 496,877 $ 0 $ 0 $ 801,213 $ 4,831,881
65 $ 615,835 $ 0 $ 0 $ 995,275 $ 7,148,494
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
-----------------------------------------------------------
0% Gross 4% Gross 8% Gross 12% Gross
(-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
-------------- -------------- -------------- --------------
$ 103 $ 161 $ 220 $ 279
$ 1,448 $ 1,618 $ 1,792 $ 1,972
$ 2,772 $ 3,109 $ 3,465 $ 3,841
$ 4,071 $ 4,634 $ 5,244 $ 5,904
$ 5,345 $ 6,191 $ 7,133 $ 8,180
$ 6,592 $ 7,781 $ 9,140 $ 10,692
$ 8,065 $ 9,656 $ 11,525 $ 13,716
$ 9,505 $ 11,560 $ 14,038 $ 17,025
$ 10,910 $ 13,488 $ 16,684 $ 20,643
$ 12,276 $ 15,439 $ 19,470 $ 24,604
$ 17,145 $ 24,162 $ 34,467 $ 49,628
$ 21,325 $ 33,788 $ 54,997 $ 91,317
$ 24,307 $ 43,984 $ 82,976 $ 160,676
$ 24,104 $ 52,883 $ 120,060 $ 272,284
$ 19,426 $ 59,258 $ 170,597 $ 450,778
$ 5,138 $ 58,475 $ 236,955 $ 731,384
$ 0(2) $ 42,531 $ 321,526 $ 1,166,319
$ 0 $ 0(2) $ 428,083 $ 1,833,473
$ 0 $ 0 $ 559,717 $ 2,840,679
$ 0 $ 0 $ 721,814 $ 4,353,046
$ 0 $ 0 $ 947,881 $ 6,808,090
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in year
42.
Based on a gross return of 4%, the Contract would go into default in year
50.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T1
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
- ------ -------------- -------------- -------------- -------------- --------------
1 $ 2,088 $ 251,122 $ 251,181 $ 251,240 $ 251,299
2 $ 4,259 $ 252,464 $ 252,633 $ 252,807 $ 252,986
3 $ 6,517 $ 253,782 $ 254,118 $ 254,473 $ 254,847
4 $ 8,866 $ 255,074 $ 255,634 $ 256,241 $ 256,898
5 $ 11,308 $ 256,337 $ 257,178 $ 258,115 $ 259,156
6 $ 13,848 $ 257,572 $ 258,753 $ 260,103 $ 261,644
7 $ 16,490 $ 258,775 $ 260,354 $ 262,208 $ 264,381
8 $ 19,237 $ 259,943 $ 261,978 $ 264,434 $ 267,392
9 $ 22,095 $ 261,071 $ 263,622 $ 266,785 $ 270,701
10 $ 25,066 $ 262,159 $ 265,284 $ 269,266 $ 274,336
15 $ 41,805 $ 266,849 $ 273,717 $ 283,796 $ 298,614
20 $ 62,171 $ 270,772 $ 282,832 $ 303,326 $ 338,383
25 $ 86,948 $ 273,353 $ 292,094 $ 329,150 $ 403,329
30 $ 117,094 $ 272,404 $ 298,996 $ 360,887 $ 507,117
35 $ 153,771 $ 266,653 $ 301,583 $ 399,088 $ 673,789
40 $ 198,394 $ 251,285 $ 293,633 $ 440,136 $ 969,784
45 $ 252,685 $ 0(2) $ 266,416 $ 477,239 $ 1,426,734
50 $ 318,738 $ 0 $ 0(2) $ 498,085 $ 2,105,652
55 $ 399,102 $ 0 $ 0 $ 477,128 $ 3,102,704
60 $ 496,877 $ 0 $ 0 $ 372,844 $ 4,550,365
65 $ 615,835 $ 0 $ 0 $ 0(2) $ 6,732,708
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
-----------------------------------------------------------
0% Gross 4% Gross 8% Gross 12% Gross
(-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
-------------- -------------- -------------- --------------
$ 100 $ 159 $ 218 $ 277
$ 1,442 $ 1,611 $ 1,785 $ 1,964
$ 2,760 $ 3,096 $ 3,451 $ 3,825
$ 4,052 $ 4,612 $ 5,219 $ 5,876
$ 5,315 $ 6,156 $ 7,093 $ 8,134
$ 6,550 $ 7,731 $ 9,081 $ 10,622
$ 8,008 $ 9,587 $ 11,441 $ 13,615
$ 9,432 $ 11,467 $ 13,923 $ 16,881
$ 10,816 $ 13,367 $ 16,530 $ 20,445
$ 12,159 $ 15,284 $ 19,266 $ 24,336
$ 16,849 $ 23,717 $ 33,796 $ 48,614
$ 20,772 $ 32,832 $ 53,326 $ 88,383
$ 23,353 $ 42,094 $ 79,150 $ 153,329
$ 22,404 $ 48,996 $ 110,887 $ 257,117
$ 16,653 $ 51,583 $ 149,088 $ 423,789
$ 1,285 $ 43,633 $ 190,136 $ 687,790
$ 0(2) $ 16,416 $ 227,239 $ 1,097,488
$ 0 $ 0(2) $ 248,085 $ 1,725,944
$ 0 $ 0 $ 227,128 $ 2,674,745
$ 0 $ 0 $ 122,844 $ 4,099,428
$ 0 $ 0 $ 0(2) $ 6,412,103
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in year
41.
Based on a gross return of 4%, the Contract would go into default in year
47.
Based on a gross return of 8%, the Contract would go into default in year
64.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T2
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
- ------ -------------- -------------- -------------- -------------- --------------
1 $ 2,088 $ 250,000 $ 250,000 $ 250,000 $ 250,000
2 $ 4,259 $ 250,000 $ 250,000 $ 250,000 $ 250,000
3 $ 6,517 $ 250,000 $ 250,000 $ 250,000 $ 250,000
4 $ 8,866 $ 250,000 $ 250,000 $ 250,000 $ 250,000
5 $ 11,308 $ 250,000 $ 250,000 $ 250,000 $ 250,000
6 $ 13,848 $ 250,000 $ 250,000 $ 250,000 $ 250,000
7 $ 16,490 $ 250,000 $ 250,000 $ 250,000 $ 250,000
8 $ 19,237 $ 250,000 $ 250,000 $ 250,000 $ 250,000
9 $ 22,095 $ 250,000 $ 250,000 $ 250,000 $ 250,000
10 $ 25,066 $ 250,000 $ 250,000 $ 250,000 $ 250,000
15 $ 41,805 $ 250,000 $ 250,000 $ 250,000 $ 250,000
20 $ 62,171 $ 250,000 $ 250,000 $ 250,000 $ 250,000
25 $ 86,948 $ 250,000 $ 250,000 $ 250,000 $ 250,000
30 $ 117,094 $ 250,000 $ 250,000 $ 250,000 $ 298,484
35 $ 153,771 $ 250,000 $ 250,000 $ 250,000 $ 417,880
40 $ 198,394 $ 0(2) $ 0(2) $ 250,000 $ 570,258
45 $ 252,685 $ 0 $ 0 $ 0(2) $ 775,012
50 $ 318,738 $ 0 $ 0 $ 0 $ 1,047,096
55 $ 399,102 $ 0 $ 0 $ 0 $ 1,403,925
60 $ 496,877 $ 0 $ 0 $ 0 $ 1,883,587
65 $ 615,835 $ 0 $ 0 $ 0 $ 2,430,417
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
-----------------------------------------------------------
0% Gross 4% Gross 8% Gross 12% Gross
(-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
-------------- -------------- -------------- --------------
$ 0 $ 0 $ 53 $ 108
$ 1,056 $ 1,207 $ 1,364 $ 1,525
$ 2,122 $ 2,418 $ 2,731 $ 3,062
$ 3,142 $ 3,628 $ 4,156 $ 4,730
$ 4,115 $ 4,836 $ 5,642 $ 6,540
$ 5,034 $ 6,035 $ 7,184 $ 8,501
$ 6,153 $ 7,478 $ 9,041 $ 10,882
$ 7,216 $ 8,907 $ 10,959 $ 13,445
$ 8,218 $ 10,317 $ 12,938 $ 16,204
$ 9,156 $ 11,704 $ 14,978 $ 19,177
$ 11,439 $ 16,788 $ 24,779 $ 36,707
$ 11,106 $ 20,001 $ 35,702 $ 63,368
$ 6,305 $ 19,042 $ 46,429 $ 104,464
$ 0 $ 9,780 $ 54,305 $ 169,593
$ 0 $ 0 $ 53,166 $ 266,166
$ 0(2) $ 0(2) $ 28,298 $ 404,438
$ 0 $ 0 $ 0(2) $ 596,163
$ 0 $ 0 $ 0 $ 858,275
$ 0 $ 0 $ 0 $ 1,210,280
$ 0 $ 0 $ 0 $ 1,696,925
$ 0 $ 0 $ 0 $ 2,314,683
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the cash surrender value would go to zero
in year 1 and in year 29 and later, but because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 35 years. The Contract would go into default at the
beginning of year 36. Based on a gross return of 4% the cash surrender
value would go to zero in year 1 and in year 33 and later, but because the
Target Premium is being paid, the Contract is kept inforce through the
Limited Death Benefit Guarantee Period of 35 years. The Contract would go
into default at the beginning of year 36. Based on a gross return of 8%,
the Contract would go into default in year 43.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T3
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
- ------ -------------- -------------- -------------- -------------- --------------
1 $ 2,088 $ 250,965 $ 251,019 $ 251,073 $ 251,127
2 $ 4,259 $ 252,071 $ 252,222 $ 252,378 $ 252,539
3 $ 6,517 $ 253,131 $ 253,425 $ 253,737 $ 254,066
4 $ 8,866 $ 254,142 $ 254,625 $ 255,150 $ 255,720
5 $ 11,308 $ 255,103 $ 255,818 $ 256,618 $ 257,509
6 $ 13,848 $ 256,007 $ 256,999 $ 258,137 $ 259,441
7 $ 16,490 $ 256,853 $ 258,162 $ 259,708 $ 261,527
8 $ 19,237 $ 257,638 $ 259,307 $ 261,331 $ 263,782
9 $ 22,095 $ 258,360 $ 260,426 $ 263,005 $ 266,218
10 $ 25,066 $ 259,014 $ 261,516 $ 264,728 $ 268,848
15 $ 41,805 $ 261,084 $ 266,246 $ 273,949 $ 285,440
20 $ 62,171 $ 260,405 $ 268,744 $ 283,444 $ 309,317
25 $ 86,948 $ 255,176 $ 266,514 $ 290,886 $ 342,505
30 $ 117,094 $ 250,000 $ 255,524 $ 291,782 $ 386,929
35 $ 153,771 $ 0(2) $ 0(2) $ 277,178 $ 442,655
40 $ 198,394 $ 0 $ 0 $ 0(2) $ 505,686
45 $ 252,685 $ 0 $ 0 $ 0 $ 561,998
50 $ 318,738 $ 0 $ 0 $ 0 $ 585,569
55 $ 399,102 $ 0 $ 0 $ 0 $ 521,201
60 $ 496,877 $ 0 $ 0 $ 0 $ 285,625
61 $ 0 $ 0 $ 0 $ 0 $ 0(2)
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
-----------------------------------------------------------
0% Gross 4% Gross 8% Gross 12% Gross
(-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
-------------- -------------- -------------- --------------
$ 0 $ 0 $ 51 $ 105
$ 1,049 $ 1,200 $ 1,356 $ 1,517
$ 2,109 $ 2,403 $ 2,715 $ 3,045
$ 3,120 $ 3,603 $ 4,128 $ 4,698
$ 4,081 $ 4,796 $ 5,596 $ 6,487
$ 4,985 $ 5,977 $ 7,115 $ 8,419
$ 6,086 $ 7,396 $ 8,941 $ 10,761
$ 7,127 $ 8,796 $ 10,820 $ 13,271
$ 8,105 $ 10,171 $ 12,750 $ 15,962
$ 9,014 $ 11,516 $ 14,728 $ 18,848
$ 11,084 $ 16,246 $ 23,949 $ 35,440
$ 10,405 $ 18,744 $ 33,444 $ 59,317
$ 5,176 $ 16,514 $ 40,886 $ 92,505
$ 0 $ 5,524 $ 41,782 $ 136,929
$ 0(2) $ 0(2) $ 27,178 $ 192,655
$ 0 $ 0 $ 0(2) $ 255,686
$ 0 $ 0 $ 0 $ 311,998
$ 0 $ 0 $ 0 $ 335,569
$ 0 $ 0 $ 0 $ 271,201
$ 0 $ 0 $ 0 $ 35,625
$ 0 $ 0 $ 0 $ 0(2)
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the cash surrender value would go to zero
in year 1 and in year 28 and later, but because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 33 years. The Contract would go into default at the
beginning of year 34. Based on a gross return of 4% the cash surrender
value would go to zero in year 1 and in year 32 and later, but because the
Target Premium is being paid, the Contract is kept inforce through the
Limited Death Benefit Guarantee Period of 33 years. The Contract would go
into default at the beginning of year 34. Based on a gross return of 8%,
the Contract would go into default in year 39. Based on a gross return of
12%, the Contract would go into default in year 61.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T4
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
FIXED INSURANCE AMOUNT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
------------------------------------------------------ ------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ------------------------------------------------------ ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net) (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5 135.66% 135.66% 135.66% 135.66% -20.31% -15.70% -11.18% -6.75%
10 44.34% 44.34% 44.34% 44.34% -9.18% -4.84% -0.56% 3.67%
15 23.96% 23.96% 23.96% 23.96% -7.44% -2.81% 1.67% 6.02%
20 15.44% 15.44% 15.44% 15.44% -6.51% -1.67% 2.91% 7.31%
25 10.88% 10.88% 10.88% 12.46% -6.17% -1.03% 3.67% 8.09%
30 8.09% 8.09% 8.09% 11.38% -6.83% -0.85% 4.14% 8.53%
35 6.24% 6.24% 6.54% 10.70% -9.06% -0.97% 4.49% 8.80%
40 4.93% 4.93% 6.06% 10.19% -28.09% -1.62% 4.72% 8.96%
45 (2) 3.96% 5.73% 9.86% (2) -3.72% 4.84% 9.04%
50 (2) 5.50% 9.62% (2) 4.91% 9.08%
55 5.33% 9.44% 4.93% 9.07%
60 5.17% 9.28% 4.92% 9.05%
65 5.07% 9.17% 4.97% 9.07%
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 42.
Based on a gross return of 4% the Contract would go into default in policy
year 50.
VARIABLE INSURANCE AMOUNT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
------------------------------------------------------ ------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ------------------------------------------------------ ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net) (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5 137.03% 137.21% 137.41% 137.63% -20.49% -15.87% -11.36% -6.93%
10 45.20% 45.41% 45.68% 46.02% -9.37% -5.03% -0.75% 3.47%
15 24.66% 24.94% 25.33% 25.88% -7.68% -3.05% 1.43% 5.78%
20 16.06% 16.40% 16.95% 17.80% -6.81% -1.96% 2.63% 7.03%
25 11.43% 11.84% 12.57% 13.81% -6.56% -1.38% 3.34% 7.79%
30 8.54% 9.01% 9.97% 11.67% -7.49% -1.37% 3.69% 8.24%
35 6.52% 7.07% 8.28% 10.49% -10.56% -1.79% 3.85% 8.54%
40 4.95% 5.56% 7.10% 9.97% -60.97% -3.28% 3.83% 8.74%
45 (2) 4.19% 6.18% 9.67% (2) -10.84% 3.62% 8.85%
50 (2) 5.36% 9.46% (2) 3.20% 8.91%
55 4.49% 9.29% 2.36% 8.93%
60 3.26% 9.15% 0.06% 8.92%
65 (2) 9.05% (2) 8.95%
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 41.
Based on a gross return of 4% the Contract would go into default in policy
year 47.
Based on a gross return of 8% the Contract would go into default in policy
year 64.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T5
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
FIXED INSURANCE AMOUNT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
------------------------------------------------------ ------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ------------------------------------------------------ ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net) (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5 135.66% 135.66% 135.66% 135.66% -28.35% -23.42% -18.62% -13.95%
10 44.34% 44.34% 44.34% 44.34% -14.96% -10.10% -5.40% -0.83%
15 23.96% 23.96% 23.96% 23.96% -13.45% -7.73% -2.48% 2.44%
20 15.44% 15.44% 15.44% 15.44% -14.78% -7.24% -1.13% 4.17%
25 10.88% 10.88% 10.88% 10.88% -24.13% -8.62% -0.60% 5.26%
30 8.09% 8.09% 9.00% -16.98% -0.68% 6.04%
35 6.24% 8.48% -1.61% 6.52%
40 (2) (2) 4.93% 8.06% (2) (2) -6.13% 6.78%
45 (2) 7.75% (2) 6.91%
50 7.52% 6.95%
55 7.32% 6.94%
60 7.17% 6.93%
65 6.97% 6.87%
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 36.
Based on a gross return of 4% the Contract would go into default in policy
year 36.
Based on a gross return of 8% the Contract would go into default in policy
year 43.
VARIABLE INSURANCE AMOUNT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
------------------------------------------------------ ------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ------------------------------------------------------ ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net) (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5 136.77% 136.92% 137.09% 137.28% -28.61% -23.67% -18.88% -14.21%
10 44.98% 45.15% 45.37% 45.65% -15.27% -10.42% -5.72% -1.15%
15 24.43% 24.64% 24.95% 25.39% -13.95% -8.20% -2.92% 2.01%
20 15.76% 16.00% 16.42% 17.10% -15.73% -7.99% -1.77% 3.58%
25 11.01% 11.27% 11.82% 12.82% -27.94% -10.17% -1.62% 4.43%
30 8.20% 8.89% 10.32% -26.65% -2.48% 4.88%
35 (2) (2) 6.70% 8.73% (2) (2) -6.19% 5.06%
40 (2) 7.61% (2) 5.02%
45 6.71% 4.74%
50 5.84% 4.16%
55 4.74% 2.89%
60 2.56% -5.12%
65 (2) (2)
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 34.
Based on a gross return of 4% the Contract would go into default in policy
year 34.
Based on a gross return of 8% the Contract would go into default in policy
year 39.
Based on a gross return of 12% the Contract would go into default in policy
year 61.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T6
CONTRACT LOANS
You may borrow from Prudential an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to the sum of (1) 90% of the
portion of the cash value attributable to the variable investment options, and
(2) the balance of the cash value. The cash value is equal to the Contract Fund
less any surrender charge. A Contract in default has no loan value. The
minimum loan amount you may borrow is $200.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest
is not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
A portion of any amount you borrow on or after the 10th Contract anniversary may
be considered a preferred loan if the Contract has not been surrendered for
fixed reduced paid-up insurance. The maximum preferred loan amount is the total
amount you may borrow minus the total net premiums paid (net premiums equal
premiums paid less total withdrawals, if any). If the net premium amount is
less than zero, we will, for purposes of this calculation, consider it to be
zero. Only new loans borrowed after the 10th Contract anniversary may be
considered preferred loans. Standard loans will not automatically be converted
into preferred loans. Preferred loans are charged interest at an effective
annual rate of 4.5% .
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
Contract Fund less any applicable surrender charges, the Contract will go into
default. See LAPSE AND REINSTATEMENT, page 28. If the Contract debt equals or
exceeds the Contract Fund less any applicable surrender charges and you fail to
keep the Contract inforce, the amount of unpaid Contract debt will be treated as
a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 26.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the Account and/or the fixed-rate option, as applicable. Unless you ask
us to take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the value in each subaccount
and the fixed-rate option bears to the total value of the Contract. While a
loan is outstanding, the amount that was so transferred will continue to be
treated as part of the Contract Fund. It will be credited with an effective
annual rate of return of 4%. On each Monthly date, we will increase the portion
of the Contract Fund in the investment options by interest credits accrued on
the loan since the last Monthly date. The net cost of a standard loan is 1% and
the net cost of a preferred loan is 1/2%.
A loan will not affect the Death Benefit Guarantee as long as Contract debt does
not equal or exceed the Contract Fund, less any applicable surrender charges.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 26.
Any Contract debt will directly reduce a Contract's cash surrender value and
will be subtracted from the death benefit to determine the amount payable. In
addition, even if the loan is fully repaid, it may have an effect on future
death benefits because the investment results of the selected investment options
will apply only to the amount remaining invested under those options. The
longer the loan is outstanding, the greater the effect is likely to be. The
effect could be favorable or unfavorable. If investment results are greater
than the rate being credited on the amount of the loan while the loan is
outstanding, values under the Contract will not increase as rapidly as they
would have if no loan had been made. If investment results are below that rate,
Contract values will be higher than they would have been had no loan been made.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments as of the loan
payment date, plus interest credits accrued on the loan since the last
transaction date. If loan interest is paid when due, it will not change the
portion of the Contract Fund allocated to the investment options. We reserve
the right to change the manner in which we allocate loan repayments.
25
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec,
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-
dealers authorized by Prusec and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than described below.
Generally, representatives will receive a commission of no more than: (1) 50% of
the premiums received in the first year on premiums up to the target premium
(see PREMIUMS, page 11); (2) 5% of premiums received in years two through 10 on
premiums up to the target premium; and (3) 3% on premiums received in the first
10 years in excess of the target premium or received after 10 years. If the
basic insurance amount is increased, representatives will generally receive a
commission of no more than: (1) 25% of the premiums received up to the target
premium for the increase received in the first year; (2) 5% of the premiums
received up to the target premium for years two through 10; and (3) 3% on other
premiums received for the increase. Moreover, trail commissions of up to 0.025%
of the Contract Fund as of the end of each calendar quarter may be paid.
Representatives with less than 4 years of service may receive compensation on a
different basis. Representatives who meet certain productivity or persistency
standards may be eligible for additional compensation.
TAX TREATMENT OF CONTRACT BENEFITS
Prudential urges each prospective purchaser to consult a qualified tax adviser.
The following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Prudential believes
the tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
TREATMENT AS LIFE INSURANCE. The Contract will be treated as "life insurance,"
as long as it satisfies certain definitional tests set forth in Sections 7702 of
the Internal Revenue Code (the "Code") and as long as the underlying investments
for the Contract satisfy diversification requirements under Section 817(h) of
the Code. (For further detail on diversification requirements, see the
corresponding sections on Dividends, Distributions, and Taxes in the attached
prospectuses for the Funds.)
Prudential believes that it has taken adequate steps to cause the Contract to be
treated as life insurance for tax purposes. This means that: (1) except as
noted below, the Contract owner should not be taxed on any part of the Contract
Fund, including additions attributable to interest, dividends or appreciation
until amounts are distributed under the Contract; and (2) the death benefit
should be excludible from the gross income of the beneficiary under Section
101(a) of the Code.
However, Section 7702 of the Code which defines life insurance for tax purposes
gives the Secretary of the Treasury authority to prescribe regulations to carry
out the purposes of the Section. In this regard, proposed regulations governing
mortality charges were issued in 1991 and proposed regulations relating to the
definition of life insurance were issued in 1992. None of these proposed
regulations has yet been finalized. Additional regulations under Section 7702
may also be promulgated in the future. Moreover, in connection with the
issuance of temporary regulations under Section 817(h), the Treasury Department
announced that such regulations do not provide guidance concerning the extent to
which Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or rulings
under Section 817(d) relating to the definition of a variable contract.
Prudential intends to comply with final regulations or rulings issued under
Sections 7702 and 817. Therefore, it reserves the right to make such changes as
it deems necessary to assure that the Contract continues to qualify as life
insurance for tax purposes. Any such changes will apply uniformly to affected
Contract owners and will be made only after advance written notice to affected
Contract owners.
26
PRE-DEATH DISTRIBUTIONS. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.
1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value except
for the amount, if any, that exceeds the gross premiums paid less the
untaxed portion of any prior withdrawals. The amount of any unpaid
Contract debt will, upon surrender or lapse, be added to the cash surrender
value and treated, for this purpose, as if it had been received. The tax
consequences of a surrender may differ if the proceeds are received under
any income payment settlement option.
A withdrawal generally is not taxable unless it exceeds total gross premiums
paid to the date of withdrawal less the untaxed portion of any prior
withdrawals. However, under certain limited circumstances, in the first 15
Contract years all or a portion of a withdrawal may be taxable if the
Contract Fund exceeds the total premiums paid less the untaxed portions of
any prior withdrawals, even if total withdrawals do not exceed total
premiums paid to date.
Extra premiums for optional benefits and riders generally do not count in
computing gross premiums paid, which in turn determines the extent to which
a withdrawal might be taxed.
Loans received under the Contract will ordinarily be treated as indebtedness
of the owner and will not be considered to be distributions subject to tax.
However, there is some risk the Internal Revenue Service might assert that
the preferred loan should be treated as a distribution for tax purposes
because of the relatively low differential between the loan interest rate
and Contract's crediting rate. Were the Internal Revenue Service to take
this position, Prudential would take reasonable steps to avoid this result,
including modifying the Contract's loan provisions.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under Section 7702A of the Code. It is
possible for this Contract to be classified as a Modified Endowment
Contract under at least two circumstances: premiums in excess of the 7-pay
premiums allowed under Section 7702A are paid or a decrease in the basic
insurance amount is made (or a rider removed). Moreover, the addition of a
rider or the increase in the basic insurance amount after the Contract date
may have an impact on the Contract's status as a Modified Endowment
Contract. Contract owners contemplating any of these steps, particularly a
withdrawal that would reduce the basic insurance amount, should first
consult a qualified tax adviser and their Prudential representative.
If the Contract is classified as a Modified Endowment Contract, then pre-
death distributions, including loans, assignment and pledges are includible
in income to the extent that the Contract Fund prior to surrender charges
exceeds the gross premiums paid for the Contract increased by the amount of
any loans previously includible in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludible from
income. These rules may also apply to pre-death distributions, including
loans, made during the two year period prior to the Contract becoming a
Modified Endowment Contract.
In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10% of the amount includible in
income unless the amount is distributed on or after age 59 1/2, on account
of the taxpayer's disability or as a life annuity. It is presently unclear
how the penalty tax provisions apply to Contracts owned by nonnatural
persons such as corporations.
Under certain circumstances, multiple Modified Endowment Contracts issued
during any calendar year will be treated as a single contract for purposes
of applying the above rules.
WITHHOLDING
If the Contract owner fails to elect that no taxes be withheld, or in certain
other circumstances, the taxable portion of any amounts received under the
Contract will be subject to withholding to meet federal income tax obligations.
Prudential will provide the Contract owner with forms and instructions
concerning the right to elect that no taxes be withheld from the taxable portion
of any payment. All recipients may be subject to penalties under the estimated
tax payment rules if withholding and estimated tax payments are insufficient.
27
Contract owners who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Special withholding rules apply to payments to non-resident aliens.
OTHER TAX CONSIDERATIONS. Transfer of the Contract to a new owner or assignment
of the Contract may have gift, estate and/or income tax consequences depending
on the circumstances. In the case of a transfer of the Contract for a valuable
consideration, the death benefit may be subject to federal income taxes under
Section 101(a)(2) of the Code. In addition, a transfer of the Contract to or
the designation of a beneficiary who is either 37 1/2 years younger than the
Contract owner or a grandchild of the Contract owner may have Generation
Skipping Transfer tax consequences under Section 2601 of the Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under Sections 163 of the Code as personal interest or
under Section 264 of the Code. Contract owners should consult a tax adviser
regarding the application of these provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. Interest on Contract debt on a business-owned insurance contract is
generally not tax-deductible. An exemption permits the deduction of interest on
policy loans on contracts for up to 20 key persons. The interest deduction for
Contract debt on such loans is limited to a prescribed interest rate and a
maximum aggregate loan amount of $50,000 per insured key person. The Code also
imposes an indirect tax upon additions to the Contract Fund or the receipt of
death benefits under business-owned life insurance Contracts under certain
circumstances by way of the corporate alternative minimum tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
LAPSE AND REINSTATEMENT
Prudential will determine the value of the Contract Fund on each Monthly date.
If the Contract Fund less any applicable surrender charges is zero or less, the
Contract is in default unless it remains inforce under the Death Benefit
Guarantee. See DEATH BENEFIT GUARANTEE, page 12. If the Contract debt ever
grows to be equal to or more than the Contract Fund less any applicable
surrender charges, the Contract will be in default. Should this happen,
Prudential will send you a notice of default setting forth the payment which we
estimate will keep the Contract inforce for three months from the date of
default. This payment must be received at a Home Office within the 61-day grace
period after the notice of default is mailed or the Contract will end and have
no value. A Contract that lapses and ends without value with an outstanding
Contract loan may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 26.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored (if the debt with interest would
exceed the loan value of the reinstated Contract, the excess must be paid to us
before reinstatement) or paid back. The reinstatement date will be the Monthly
date that coincides with or next follows the date we approve your request. We
will deduct all the required charges from your payment and the balance will be
placed into your Contract Fund. If we approve the reinstatement, we will credit
the Contract Fund with an amount equal to the surrender charge applicable as of
the date of reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS-
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. Employers and employee
organizations considering purchase of a Contract should consult their legal
advisers to determine whether purchase of a Contract based on sex-distinct
actuarial tables is consistent with Title VII of the Civil Rights Act of 1964 or
other applicable law.
28
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Prudential's consent. Prudential assumes no
responsibility for the validity or sufficiency of any assignment. We will not
be obligated to comply with any assignment unless we received a copy at a Home
Office.
BENEFICIARY. The Contract owner designates and names the beneficiary in the
application. Thereafter, you may change the beneficiary, provided it is in
accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been inforce during the lifetime of
the insured for two years from the Contract date or, with respect to any change
in the Contract that requires Prudential's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
two years from the effective date of the change, assuming enough premium has
been paid to cover the required charges, Prudential will not contest its
liability under the Contract in accordance with its terms.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex or both are
incorrect in the Contract, Prudential will adjust each benefit and any amount to
be paid, as required by law, to reflect the correct age and sex. Any such
benefit will be based on what the most recent deductions from the Contract Fund
would have provided at the insured's correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary,
a variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Prudential representative authorized to sell this Contract can explain
these options upon request.
SUICIDE EXCLUSION. Generally, if the insured dies by suicide within two years
from the Contract date, the Contract will end and Prudential will return the
premiums paid, less any Contract debt, and less any withdrawals. Generally, if
the insured dies by suicide after two years from the issue date, but within two
years of the effective date of an increase in the basic insurance amount, we
will pay, as to the increase in amount, no more than the sum of the premiums
paid on and after the effective date of an increase.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider pays certain premiums into the Contract if the insured is totally
disabled within the meaning of the provision. Others pay an additional amount
if the insured dies within a stated number of years after issue; similar
benefits may be available if the insured's spouse or child should die. The
amounts of these benefits are fully guaranteed at issue; they do not depend on
the performance of the Account, although they will no longer be available if the
Contract should lapse. Certain restrictions may apply; they are clearly
described in the applicable rider.
Any Prudential representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from Prudential
upon written request.
PARTICIPATION IN DIVISIBLE SURPLUS
The Contract is eligible to be credited part of Prudential's divisible surplus
attributable to the Contracts, as determined by Prudential's Board of Directors.
That determination is made, with respect to the insurance Contracts issued by
Prudential, every year. However, Prudential does not expect to credit any
dividends upon these Contracts because favorable investment performance will be
reflected in Contract values and because Prudential intends, if experience
indicates that current charges will be greater than needed to cover expenses, to
reduce those charges further so that there will be no source of distributable
surplus attributable to these Contracts.
29
VOTING RIGHTS
As described earlier, all of the assets held in the subaccounts will be invested
in shares of the corresponding portfolios of the Funds. Prudential is the legal
owner of those shares and as such has the right to vote on any matter voted on
at shareholders meetings of the Funds. However, Prudential will, as required by
law, vote the shares of the Funds in accordance with voting instructions
received from Contract owners at any regular and special shareholders meetings.
A Fund may not hold annual shareholders meetings when not required to do so
under the laws of the state of its incorporation or the Investment Company Act
of 1940. 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 Funds in its own right, it may elect to
do so.
Generally, a Contract owner may give voting instructions on matters that would
result in changes in fundamental policies and any matter requiring a vote of the
shareholders of the Funds. With respect to approval of the investment advisory
agreement or any change in a portfolio's fundamental investment contract,
Contract owners participating in such portfolios will vote separately by
portfolio on the matter, pursuant to the requirements of Rule 18f-2 under the
Investment Company Act of 1940.
The number of 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 applicable 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 applicable 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.
Prudential may, if required by state insurance regulations, disregard voting
instructions if they would require shares to be voted so as to cause a change in
the sub-classification or investment objectives of one or more of a Fund's
portfolios, or to approve or disapprove an investment advisory contract for a
Fund. In addition, Prudential itself may disregard voting instructions that
would require changes in the investment policy or investment adviser of one or
more of a Fund's portfolios, provided that Prudential reasonably disapproves
such changes in accordance with applicable federal regulations. If Prudential
does disregard voting instructions, it will advise Contract owners of that
action and its reasons for such action in the next annual or semi-annual report
to Contract owners.
SUBSTITUTION OF 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 Funds 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, may be required.
Contract owners will be notified of such substitution.
REPORTS TO CONTRACT OWNERS
Once each year, Prudential will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values
and transactions made and specific Contract data that apply only to your
particular Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
30
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.
EXPERTS
The financial statements included in this prospectus for the years ended
December 31, 1997 and December 31, 1996 have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their reports
appearing herein. Prudential is relying on PricewaterhouseCoopers' reports,
which are given on their authority as accounting and auditing experts. The
financial statements included in this prospectus for the second quarter ended
June 30, 1998, are unaudited and PricewaterhouseCoopers LLP, is not expressing
an opinion on these financial statements. PricewaterhouseCoopers LLP's principal
business address is 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. Prudential is relying on Deloitte &
Touche LLP's reports, which are given on their authority as accounting and
auditing experts. 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
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make reference to
the matter in their reports.
Actuarial matters included in this prospectus have been examined by Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential whose opinion is filed as an
exhibit to the registration statement.
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. 95-4704 (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 Judgement 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 Judgement approving the
class Settlement was appealed to the United States Court of Appeals for the
Third Circuit, which upheld the district court's approval of the Stipulation of
Settlement on July 23, 1998. As of now no further appeal has been taken.
Pursuant to the Settlement, Prudential 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 Contracts. 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
31
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; Prudential
anticipates that additional suits may be filed by other policyholders.
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.
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 and Prusec 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, Prusec'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
abilities to meet its contractual 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.
32
ADDITIONAL INFORMATION
Prudential has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's principal office in Washington, D.C., upon payment of a prescribed
fee.
Further information may also be obtained from Prudential. The address and
telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Prudential and subsidiaries, which should
be considered only as bearing upon the ability of Prudential to meet its
obligations under the Contracts.
The financial statements of Prudential that we show in this prospectus are those
as of the end of the most recent fiscal year. Prudential does not currently
prepare financial statements in accordance with generally accepted accounting
principals more often than annually and believes that any incremental benefit to
prospective Contract owners that may result from the inclusion of interim
financial statements, though unaudited, does not justify the additional cost
that would be incurred. In addition, Prudential represents that there have been
no adverse changes in the financial condition or operations of Prudential
between the end of the most current fiscal year and the date of this prospectus.
33
DIRECTORS AND OFFICERS OF PRUDENTIAL
DIRECTORS OF PRUDENTIAL
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.
GILBERT F. CASELLAS -- Director since 1998 (current term expires April, 2002).
Partner, McConnell Valdes, LLP since 1998. Chairman, U.S. Equal Employment
Opportunity Commission from 1994 to 1998. General Counsel, Department of Air
Force from 1993 to 1994. Mr. Casellas is also a director of the American
Arbitration Association and the Puerto Rican Legal Defense & Education Fund.
Age 46. Address: 1717 Pennsylvania Avenue, NW, Suite 625, Washington, DC 20006.
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 A.P. Automotive Systems,
Inc., 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, 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.
34
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., Consolidated Delivery and
Logistics, and Fleet Trust and Investments Services Company, N.A. 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.
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 Company, 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, 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, Bankers Trust
New York Corporation, and Fresenius AG-Conti Financial 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
35
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., PepsiCo.,
Inc., and Regeneron Pharmaceuticals, 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.
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 74172.
PRINCIPAL OFFICERS OF PRUDENTIAL
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 -- Chief Executive Officer, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
36
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.
THOMAS W. CRAWFORD -- President and Chief Executive Officer, Prudential Property
and Casualty Company since 1996; prior to 1996, President and Chief Executive
Officer, Southern Heritage Insurance Company, Tucker, GA. Age 55.
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, Prudential Investments
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.
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.
37
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.
Prudential officers are elected annually.
38
VARIABLE UNIVERSAL LIFE
INSURANCE
[LOGO] PRUDENTIAL
The Prudential Insurance Company of America
751 Broad Street, Newark, NJ 07102-3777
Telephone 800 437-4016
PVUL-1 Ed. 11/98 CAT# ____________
39
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
The Prudential Insurance Company of America represents that the fees and charges
deducted under the Variable Universal Life Insurance Contracts registered by
this registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Prudential.
UNDERTAKING WITH RESPECT TO 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 (6)(b) of this registration statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
- -------------------------------------------------------------------------
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 49 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
None.
The following exhibits:
- -----------------------
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
A. (1) (a) Resolution of Board of Directors of The Prudential Insurance
Company of America establishing The Prudential Variable
Appreciable Account. (Note 2)
(b) Authorization for Separate Account to Invest in Unaffiliated
Mutual Funds (Note 1)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation
and The Prudential Insurance Company of America. (Note 1)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale
of the Contracts. (Note 1)
(c) Schedules of Sales Commissions. (Note 5)
(d) Participation Agreements
(i) AIM Variable Insurance Funds, Inc., AIM V.I. Value Fund.
(Note 5)
(ii) American Century Variable Portfolios, Inc., VP Value
Portfolio. (Note 5)
(iii) Janus Aspen Series, Growth Portfolio. (Note 5)
(iv) MFS Variable Insurance Trust, Emerging Growth Series.
(Note 5)
(v) T. Rowe Price International Series, Inc., International
Stock Portfolio. (Note 5)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract: (Note 1)
(6) (a) Charter of The Prudential Insurance Company of America, as
amended November 14, 1995. (Note 3)
(b) By-laws of The Prudential Insurance Company of America, as
amended May 12, 1998. (Note 1)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form. (Note 1)
(b) Supplement to the Application. (Note 1)
(11) Not Applicable.
(12) Memorandum describing Prudential's issuance, transfer, and
redemption procedures for the Contracts pursuant to Rule 6e-
3(T)(b)(12)(iii) and method of computing adjustments in payments
and cash surrender values upon conversion to fixed-benefit
policies pursuant to Rule 6e-3(T)(b)(13)(v)(B). (Note 1)
II-2
(13) Available Contract Riders and Endorsements:
(a) Rider for Payment of Premium Benefit Upon Insured's Total
Disability. (Note 1)
(b) 10 Year Level PremiumTerm Rider on Insured. (Note 5)
(c) 10 Year Level PremiumTerm Rider on Spouse. (Note 5)
(d) Children's Rider
(i) The dependent child is named in the application for the
contract and on the date of the application has not
reached his or her 18th birthday. (Note 5)
(ii) The dependent child just before the contract date of
the contract was insured under the earlier contract
that was converted or changed to this contract.
(Note 5)
(iii) The dependent child is named in the application for
change. (Note 5)
(iv) After-issue. (Note 5)
(e) Living Needs Benefit Rider
(i) for use in all approved jurisdictions except Florida.
(Note 2)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the
securities being registered. (Note 5)
4. None.
5. Not Applicable.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as to actuarial matters
pertaining to the securities being registered. (Note 5)
7. Powers of Attorney.
(a) F. Agnew, F. Becker, M. Berkowitz, R.Carbone,
J.Cullen, C. Davis, R. Enrico, A. Gilmour,
W. Gray, III, J. Hanson, G. Hiner, C. Horner,
G. Kelley, B. Malkiel, A. Ryan, I. Schmertz,
C. Sitter, D. Staheli, R. Thomson, J. Unruh,
P. Vagelos, S. Van Ness, P. Volcker, J. Williams (Note 4)
(b) G. Casellas (Note 1)
27. Financial Data Schedule. (Note 5)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Post-Effective Amendment No. 15 to Form
S-6, Registration No. 33- 20000, filed May 1, 1995 on behalf of The
Prudential Variable Appreciable Account.
(Note 3) 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 4) Incorporated by reference to Post-Effective Amendment No. 10 to
Form S-1, Registration No. 33-20083, filed April 9, 1998 on behalf of
The Prudential Variable Contract Real Property Account.
(Note 5) To be filed by Pre-Effective Amendment.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Prudential Variable Appreciable Account, has duly 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 11th day of September, 1998.
(Seal) THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: /s/ Thomas C. Castano By: /s/ Esther H. Milnes
------------------------- -------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary Vice President and Actuary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on this 11th day of September, 1998.
SIGNATURE AND TITLE
- ------------------------------------------------------------
/s/ *
- ------------------------------------------------------------
Arthur F. Ryan
Chairman of the Board, President, and Chief Executive
Officer
/s/ *
- ------------------------------------------------------------
Martin A. Berkowitz
Senior Vice President and Comptroller
/s/ *
- ------------------------------------------------------------
Richard J. Carbone *By: /s/ Thomas C. Castano
Chief Financial Officer -------------------------
Thomas C. Castano
(Attorney-in-Fact)
/s/ *
- ------------------------------------------------------------
Franklin E. Agnew
Director
/s/ *
- ------------------------------------------------------------
Frederic K. Becker
Director
- ------------------------------------------------------------
/s/
- ------------------------------------------------------------
Gilbert F. Casellas
Director
/s/ *
- ------------------------------------------------------------
James G. Cullen
Director
/s/ *
- ------------------------------------------------------------
Carolyne K. Davis
Director
/s/ *
- ------------------------------------------------------------
Roger A. Enrico
Director
/s/*
- ------------------------------------------------------------
Allan D. Gilmour
Director
II-4
/s/ *
- ------------------------------------------------------------
William H. Gray, III
Director
/s/ *
- ------------------------------------------------------------
Jon F. Hanson
Director
/s/ *
- ------------------------------------------------------------
Glen H. Hiner, Jr.
Director
/s/ *
- ------------------------------------------------------------
Constance J. Horner
Director
/s/ *
- ------------------------------------------------------------
Gaynor N. Kelley
Director
/s/ *
*By: /s/ Thomas C. Castano
- ------------------------------------------------------------ ----------------------
Burton G. Malkiel Thomas C. Castano
Director (Attorney-in-Fact)
/s/*
- ------------------------------------------------------------
Ida F. S. Schmertz
Director
/s/*
- ------------------------------------------------------------
Charles R. Sitter
Director
/s/*
- ------------------------------------------------------------
Donald L. Staheli
Director
/s/ *
- ------------------------------------------------------------
Richard M. Thomson
Director
/s/ *
- ------------------------------------------------------------
James A. Unruh
Director
/s/ *
- ------------------------------------------------------------
P. Roy Vagelos, M.D.
Director
/s/ *
- ------------------------------------------------------------
Stanley C. Van Ness
Director
/s/ *
- ------------------------------------------------------------
Paul A. Volcker
Director
/s/ *
- ------------------------------------------------------------
Joseph H. Williams
Director
II-5
EXHIBIT INDEX
1.A.(1)(b) Authorization for Separate Account to Invest in
Unaffiliated Mutual Funds Page II-7
1.A.(3)(a) Distribution Agreement between Pruco Securities
Corporation and The Prudential Insurance Company of America. Page II-10
1.A.(3)(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale of Page II-15
the Contracts.
1.A.(5) Variable Universal Life Insurance Contract. Page II-22
1.A.(6)(b) By-laws of The Prudential Insurance Company of America,
as amended May 12, 1998. Page II-54
1.A.(10)(a) Application Form. Page II-63
1.A.(10)(b) Supplement to the Application. Page II-70
1.A.(12) Memorandum describing Prudential's issuance, transfer, Page II-71
and Redemption procedures for the Contracts pursuant
to Rule 6e-3(T)(b)(12)(iii) and method of computing adjustments
in payments and cash surrender values upon conversion to
fixed-benefit policies pursuant to Rule 6e- 3(T)(b)(13)(v)(B).
1.A.(13)(a) Rider for Payment of Premium Benefit Upon Insured's Total Page II-81
Disability.
7(b) Power of Attorney for G. Casellas. Page II-84
II-6