-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, n/H8EcLZw6xxcQoUzGw9qoLcSsSl7240E69Y48nsITCRWg74QAMindKCLSUwy+lq aSjpi+2Es/+BG0D2sBHl3A== 0000950110-95-000303.txt : 19950502 0000950110-95-000303.hdr.sgml : 19950502 ACCESSION NUMBER: 0000950110-95-000303 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19950501 EFFECTIVENESS DATE: 19950501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT CENTRAL INDEX KEY: 0000828972 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 221121670 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-25372 FILM NUMBER: 95533074 BUSINESS ADDRESS: STREET 1: PRUDENTIAL INSURANCE CO OF AMERICA STREET 2: 213 WASHINGTON STREET CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2018026000 MAIL ADDRESS: STREET 1: PRUDENTIAL INSURANCE CO OF AMERICA STREET 2: 751 BROAD STREET CITY: NEWARK STATE: NJ ZIP: 07102 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL VARIABLE LIFE INSURANCE ACCOUNT DATE OF NAME CHANGE: 19880606 485BPOS 1 REGISTRATION STATEMENT As filed with the SEC on ________________. Registration No. 33-25372 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM S-6 Post-Effective Amendment No. 12 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 -------------- THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT (Exact Name of Trust) THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Name of Depositor) Prudential Plaza Newark, New Jersey 07102-3777 (800) 437-4016, Ext. 46 (Address and telephone number of principal executive offices) -------------- Thomas C. Castano Assistant Secretary The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 (Name and address of agent for service) Copy to: Jeffrey C. Martin Shea & Gardner 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 -------------- Custom VAL Life Insurance Contracts--The Registrant has registered an indefinite amount of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 notice for fiscal year 1994 was filed on February 27, 1995. It is proposed that this filing will become effective (check appropriate space): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on May 1, 1995 pursuant to paragraph (b) of Rule 485 --------------- (date) [ ] 60 days after filing pursuant to paragraph (a) of Rule 485 [ ] on pursuant to paragraph (a) of Rule 485 ------------------- (date) CROSS REFERENCE SHEET (as required by Form N-8B-2) N-8B-2 Item Number Location - ------------------ -------- 1. Cover Page 2. Cover Page 3. Not Applicable 4. Sale of the Contract and Sales Commissions 5. The Prudential Variable Appreciable Account 6. The Prudential Variable Appreciable Account 7. Not Applicable 8. Not Applicable 9. Litigation 10. Brief Description of the Contract; Short-Term Cancellation Right, or "Free Look"; Contract Forms; Premiums; Contract Date; Allocation of Premiums; Transfers; Charges and Expenses; How a Contract's Cash Surrender Value Will Vary; How a Form A Contract's Death Benefit Will Vary; How a Form B Contract's Death Benefit Will Vary; Surrender of a Contract; Withdrawal of Excess Cash Surrender Value; Increases in Face Amount; Decreases in Face Amount; Lapse and Reinstatement; When Proceeds are Paid; Options on Lapse; Riders; Other General Contract Provisions; Voting Rights; Substitution of Series Fund Shares 11. Brief Description of the Contract; The Prudential Variable Appreciable Account 12. Cover Page; Brief Description of the Contract; The Prudential Series Fund, Inc.; Sale of the Contract and Sales Commissions 13. Brief Description of the Contract; The Prudential Series Fund, Inc.; Charges and Expenses; Sale of the Contract and Sales Commissions; Reduction of Charges for Concurrent Sales to Several Individuals 14. Brief Description of the Contract; Requirements for Issuance of a Contract 15. Brief Description of the Contract; Allocation of Premiums; Transfers; The Fixed-Rate Option 16. Brief Description of the Contract; Detailed Information for Prospective Contract Owners 17. When Proceeds are Paid 18. The Prudential Variable Appreciable Account 19. Reports to Contract Owners 20. Not Applicable 21. Contract Loans N-8B-2 Item Number Location - ----------------- -------- 22. Not Applicable 23. Not Applicable 24. Other General Contract Provisions 25. The Prudential Insurance Company of America 26. Brief Description of the Contract; The Prudential Series Fund, Inc.; Charges and Expenses 27. The Prudential Insurance Company of America; The Prudential Series Fund, Inc. 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 44. Brief Description of the Contract; The Prudential Series Fund, Inc.; How a Contract's Cash Surrender Value Will Vary; How a Form A Contract's Death Benefit Will Vary; How a Form B Contract's Death Benefit Will Vary 45. Not Applicable 46. Brief Description of the Contract; The Prudential Variable Appreciable Account; The Prudential Series Fund, Inc. 47. The Prudential Variable Appreciable Account; The Prudential Series Fund, Inc. 48. Not Applicable 49. Not Applicable 50. Not Applicable 51. Not Applicable 52. Substitution of Series Fund Shares N-8B-2 Item Number Location - ----------------- -------- 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 PART I INFORMATION REQUIRED IN PROSPECTUS PROSPECTUS May 1, 1995 THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT CUSTOM VAL(SM) LIFE_____________ INSURANCE CONTRACTS This prospectus describes two forms of a variable life insurance contract offered by The Prudential Insurance Company of America ("The Prudential") under the name Custom VAL(SM) (the "Contract").* As of December 14, 1992, these Contracts are no longer available for sale. These Contracts provide lifetime insurance protection as long as certain minimum scheduled premiums are paid or are provided for by favorable investment experience. Purchasers have considerable flexibility as to when and in what amount they pay premiums. One form of the Contract provides a death benefit that generally remains fixed in the amount initially selected. A second form provides a death benefit that may vary daily with the investment performance of one or more of several investment options selected by the Contract owner. Under both forms, the death benefit will not be less than a guaranteed minimum amount (generally the face amount stated in the Contract). Both forms of the Contract have cash surrender values which increase with the payment of each premium and which vary in amount to reflect the investment results of the investment options selected by the owner. The cash surrender value also decreases to reflect charges made by The Prudential. There is no guaranteed minimum cash surrender value. A portion of the Contract's premiums and the earnings on those premiums will be held in one or more of the following ways. They can be invested in one or more of sixteen current subaccounts of The Prudential Variable Appreciable Account (the "Account"). They can be allocated to a fixed-rate option. Or, they can be invested in The Prudential Variable Contract Real Property Account (the "Real Property Account") which is described in a prospectus that is attached to this one. If one or more of the subaccounts is chosen, the assets of each subaccount will be invested in a corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The attached prospectus for the Series Fund, and the Series Fund's statement of additional information describe the investment objectives of and the risks of investing in the sixteen portfolios of the Series Fund currently available to Contract owners: the Money Market Portfolio, the Bond Portfolio, the three Zero Coupon Bond Portfolios with different liquidation dates--1995 (not available for investment after November 14, 1995), 2000, and 2005, the Conservatively Managed Flexible Portfolio, the Aggressively Managed Flexible Portfolio, the High Yield Bond Portfolio, the Stock Index Portfolio, the High Dividend Stock Portfolio, the Common Stock Portfolio, the Growth Stock Portfolio, the Small Capitalization Stock Portfolio, the Global Equity Portfolio, and the Natural Resources Portfolio. Other subaccounts and portfolios may be added in the future. Interest is credited daily upon any portion of the premium payment allocated to the fixed-rate option at rates periodically declared by The Prudential in its sole discretion but never less than 4%. This prospectus describes the Contracts generally and The Prudential Variable Appreciable Account. REPLACING EXISTING INSURANCE WITH A CONTRACT DESCRIBED IN THIS PROSPECTUS MAY NOT BE TO YOUR ADVANTAGE. IF YOU CURRENTLY OWN A LIFE INSURANCE CONTRACT, THE BENEFITS AND COSTS OF PURCHASING ADDITIONAL INSURANCE UNDER THE EXISTING POLICY SHOULD BE COMPARED WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS. IN MAKING THIS COMPARISON, YOU SHOULD CONSULT WITH A QUALIFIED TAX ADVISOR. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC. IT IS ALSO ATTACHED TO A CURRENT PROSPECTUS FOR THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 Telephone: (800) 437-4016, Ext. 46 *VAL is a service mark of The Prudential. PCVAL-1 Ed 5-95 Catalog #646677J PROSPECTUS CONTENTS Page ---- DEFINITIONS OF SPECIAL TERMS USED........................................... 1 BRIEF DESCRIPTION OF THE CONTRACT........................................... 2 GENERAL INFORMATION ABOUT THE PRUDENTIAL, THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT.............................................. 4 The Prudential Insurance Company of America.............................. 4 The Prudential Variable Appreciable Account.............................. 4 The Prudential Series Fund, Inc.......................................... 4 The Prudential Variable Contract Real Property Account................... 6 DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS........................ 6 Requirements for Issuance of a Contract.................................. 6 Short-Term Cancellation Right or "Free Look"............................. 6 Contract Forms........................................................... 6 Premiums................................................................. 7 Contract Date............................................................ 8 Allocation of Premiums................................................... 8 Transfers................................................................ 9 Charges and Expenses..................................................... 9 Reduction of Charges for Concurrent Sales to Several Individuals......... 12 How a Contract's Cash Surrender Value Will Vary.......................... 12 How a Form A Contract's Death Benefit Will Vary.......................... 12 How a Form B Contract's Death Benefit Will Vary.......................... 13 Flexibility as to Payment of Premiums.................................... 13 Participation in Divisible Surplus....................................... 14 Surrender of a Contract.................................................. 14 Withdrawal of Excess Cash Surrender Value................................ 14 Increases in Face Amount................................................. 15 Decreases in Face Amount................................................. 16 When Proceeds Are Paid................................................... 16 Living Needs Benefit..................................................... 16 Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums ............................................... 17 Contract Loans........................................................... 19 Sale of the Contract and Sales Commissions............................... 19 Tax Treatment of Contract Benefits....................................... 20 Withholding.............................................................. 21 Lapse and Reinstatement.................................................. 21 Options on Lapse......................................................... 22 Legal Considerations Relating to Sex-Distinct Premiums and Benefits...... 23 Other General Contract Provisions........................................ 23 Riders................................................................... 23 The Fixed-Rate Option.................................................... 23 Voting Rights............................................................ 24 Substitution of Series Fund Shares....................................... 24 Reports to Contract Owners............................................... 25 State Regulation......................................................... 25 Experts.................................................................. 25 Litigation............................................................... 25 Additional Information................................................... 25 Financial Statements..................................................... 25 DIRECTORS AND OFFICERS OF THE PRUDENTIAL.................................... 26 FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT......... A1 CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES ................................................. B1 THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE SERIES FUND, AND THE PROSPECTUS FOR THE REAL PROPERTY ACCOUNT. DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS attained age--The insured's age on the Contract date plus the number of years since then. cash surrender value--The amount payable to the Contract owner upon surrender of the Contract. It is equal to the Contract fund minus any applicable contingent deferred sales and administrative charges and any Contract debt. Contract anniversary--The same date as the Contract date in each later year. Contract date--The date the Contract is issued, as specified in the Contract. Contract debt--The principal amount of all outstanding loans plus any interest accrued thereon. 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 or other variable investment options, the amount invested under the fixed-rate option, and the principal amount of any Contract loan plus interest credited on that amount. Contract owner--The person who purchases the Contract and is entitled to exercise the rights described therein. Contract year--A year that starts on the Contract date or on a Contract anniversary. death benefit--The amount payable to the beneficiary upon the death of the insured before the deduction of any outstanding Contract debt. face amount--The initial amount of life insurance as shown on the cover page of the Contract, or as shown in revised cover pages of the Contract following an increase or decrease in face amount. fixed-rate option--An investment option under which The Prudential guarantees that interest will be added to the amount deposited at a rate declared periodically in advance. guaranteed minimum death benefit--The guaranteed minimum amount (generally the face amount) payable to the beneficiary upon the death of the insured, before the deduction of any outstanding Contract debt, if scheduled premiums are paid on or before the due date or during the grace period. Withdrawals of excess cash surrender value may reduce the guaranteed minimum death benefit. Guideline Annual Premium ("GAP")--The level annual premium payment necessary to provide the future benefits under the Contract through maturity, based on certain assumptions specified in an SEC rule. These assumptions include mortality charges based on the 1980 CSO Table, an assumed annual net rate of return of 5% per year, and deduction of the fees and charges specified in the Contract. For purposes of this Contract, the guideline annual premium is used only in limiting sales charges. issue age--The insured's age as of the Contract date. loan value--The maximum amount that a Contract owner may borrow. Monthly date--The Contract date and the same date in each subsequent month. primary premium--The scheduled premium that a Contract owner would pay if premiums were paid annually minus the charge for taxes attributable to premiums, $38 and any extra premiums for riders or substandard risks. subaccount--An investment division of the Account, the assets of which are invested in the shares of the corresponding portfolio of the Series Fund. tabular Contract fund value--The tabular Contract fund value for each Contract year is an amount that is slightly less than the Contract fund value that would result as of the end of such year if only scheduled premiums were paid when due, the selected investment options earned a net return at a uniform rate of 4% per year, full mortality charges based upon the 1980 CSO Table were deducted, maximum sales load and expense charges were deducted, and there was no Contract debt. The Prudential Series Fund, Inc. (the "Series Fund")--A mutual fund with separate portfolios, one or more of which may be chosen as an underlying investment for the Contract. The Prudential Variable Appreciable Account (the "Account")--A separate account of The Prudential registered as a unit investment trust under the Investment Company Act of 1940. The Prudential Variable Contract Real Property Account (the "Real Property Account")--A separate account of The Prudential which invests, through a partnership, primarily in income-producing real property. valuation period--The period of time from one determination of the value of the amount invested in a subaccount to the next. Such determinations are made when the net asset values of the portfolios of the Series Fund are calculated, which is generally at 4:15 p.m. New York City time on each day during which the New York Stock Exchange is open. 1 BRIEF DESCRIPTION OF THE CONTRACT This variable life insurance contract (the "Contract") provides features that differ from those of other life insurance contracts offered by The Prudential Insurance Company of America ("The Prudential") that may make it attractive to and suitable for certain purchasers. It is a variable contract, which means that the cash surrender value it provides and, in some cases, the amount payable upon the death of the insured, will depend upon the investment performance of the variable investment options selected by the Contract owner in which the amounts credited under the Contract are invested. The Contract sets forth an initial face amount of insurance and a schedule of premiums which, if paid when due or in advance, guarantees that at least that amount of insurance will be payable upon the death of the insured. As of December 14, 1992, these Contracts are no longer available for sale. The Contract is available only to persons who choose an initial face amount of insurance of $200,000 or more and who wish to provide for a schedule of increasing premiums instead of a schedule of premiums that stays at the same or "level" amount, as they do under most "whole life" insurance Contracts. For Contracts that provide an initial face-amount of insurance of over $200,000, a purchaser has a choice, within specified limits, of what that increasing schedule of premiums will be. This choice should be made only after careful discussion with a Prudential representative. There are advantages to fixing the first year's premium at the low end of the permissible range, with succeeding premiums increasing more rapidly, over a choice of a higher initial premium with succeeding premiums still increasing, but more slowly. There are also disadvantages and both are discussed more fully in the body of this prospectus. At the time the Contract is purchased, the Contract owner decides in which of the many available investment options the amounts held under the Contract--derived from the payment of premiums and the earnings thereon--will be invested. The cash surrender value of the Contract will increase with favorable investment experience and decrease with unfavorable investment experience. The cash surrender value of a Contract also reflects the imposition of the various Contract charges. The Contract owner may, from time to time, change the way in which future premiums will be allocated and transfer amounts already invested under the Contract among the various investment options. The owner may choose either of the two Contract Forms. Under Contract Form A, the cash surrender value will vary with investment experience but the death benefit generally will not change, except under certain circumstances described later. Under Contract Form B, both the death benefit and the cash surrender value will vary with investment experience, but the death benefit will never be less than the face amount regardless of investment experience. See How a Form A Contract's Death Benefit Will Vary, page 12 and How a Form B Contract's Death Benefit Will Vary, page 13. There is no minimum cash surrender value under either form of the Contract. Throughout this prospectus, unless specifically stated otherwise, all descriptions of and references to the "Contract" apply to both Form A and Form B Contracts. The owner of a Contract has the right under certain conditions to increase or decrease the face amount of insurance. In the case of an increase in face amount, one of the conditions is the provision of evidence of insurability satisfactory to The Prudential. See Increases in Face Amount, page 15 and Decreases in Face Amount, page 16. If the scheduled premiums are paid by their due dates or within a 61-day grace period the Contract will not lapse, even if investment experience is unfavorable. Thus, the payment of scheduled premiums guarantees insurance protection at least equal to the face amount of the Contract. A Contract owner, however, is not required to adhere precisely to the schedule. The owner may, within very broad limits, pay greater than scheduled premiums and the net portion of such payments will promptly be invested in the manner previously selected by the owner. Cash surrender values will increase whenever premiums are paid. The failure to pay a scheduled premium, on the other hand, will not necessarily result in lapse of the Contract. If the net investment experience has been sufficiently favorable, with a consequent increase in the amount credited under the Contract, and the Contract owner then fails to pay a premium when due, The Prudential will use the "excess" amount to pay the charges due under the Contract and thus keep the Contract in force. So long as the excess amount is sufficient, the Contract will not lapse despite the owner's failure to pay scheduled premiums. See Lapse and Reinstatement, page 21. The premium schedule, which will be set forth in the Contract, depends on the Contract's face amount, the insured's sex (except where unisex rates apply) and age at issue, the insured's risk classification, the rate for taxes attributable to premiums, the frequency with which premium payments are made and, for Contracts providing more than $200,000 of insurance, the initial premium selected by the purchaser. That initial premium, however, may not, in any event, be less than a minimum amount fixed by The Prudential. The scheduled premiums will increase in each year until the Contract anniversary after the insured's 65th birthday, or, if later, 7 years from the date the Contract is issued, at which time the scheduled premium will increase more significantly and then will not change for the remainder of the insured's life. The actual amount that will be payable after that Contract anniversary may and often will, however, be lower than that maximum amount. See Premiums, page 7. 2 There are circumstances, such as the payment of premiums substantially in excess of scheduled premiums, under which the Contract may become a Modified Endowment Contract under federal tax law. If it does, loans and other pre-death distributions are includible in gross income on an income-first basis. A 10% penalty tax may be imposed on income distributed before the insured attains age 59 1/2. Prospective purchasers and Contract owners are advised to consult a qualified tax advisor before taking steps that may affect whether the Contract becomes a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 20. The owner of a Contract may choose to have the premiums (after deduction of an amount needed to pay taxes attributable to premiums, and a $2 administrative charge) invested in one or more of sixteen subaccounts of The Prudential Variable Appreciable Account (the "Account"). Each subaccount is invested in a corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"), a series mutual fund for which The Prudential is the investment advisor. The Money Market Portfolio is invested in short-term debt obligations similar to those purchased by money market funds; the Bond Portfolio is invested primarily in high quality medium-term corporate and government debt securities; the Government Securities Portfolio is invested primarily in U.S. Government Securities including intermediate and long-term U.S. Treasury securities and debt obligations issued by agencies of or instrumentalities established, sponsored or guaranteed by the U.S. Government; the Zero Coupon Bond Portfolios--1995 (not available for investment after November 14, 1995), 2000, and 2005 are invested primarily in debt obligations of the United States Treasury and investment grade corporations that have been issued without interest coupons or stripped of their unmatured interest coupons, interest coupons that have been stripped from such debt obligations, and receipts and certificates for such stripped debt obligations and stripped coupons; the Conservatively Managed Flexible Portfolio is invested in a mix of money market instruments, fixed income securities, and common stocks, in proportions believed by the investment manager to be appropriate for an investor who desires diversification of investment who prefers a relatively lower risk of loss and a correspondingly reduced chance of high appreciation; the Aggressively Managed Flexible Portfolio is invested in a mix of money market instruments, fixed income securities, and common stocks, in proportions believed by the investment manager to be appropriate for an investor desiring diversification of investment who is willing to accept a relatively high level of loss in an effort to achieve greater appreciation; the High Yield Bond Portfolio is invested primarily in high yield fixed income securities of medium to lower quality, also known as high risk bonds; the Stock Index Portfolio is invested in common stocks selected to duplicate the price and yield performance of the Standard & Poor's 500 Composite Stock Price Index; the High Dividend Stock Portfolio is invested primarily in common stocks and convertible securities that provide favorable prospects for investment income returns above those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index; the Common Stock Portfolio is invested primarily in common stocks; the Growth Stock Portfolio is invested primarily in equity securities of established companies with above-average growth prospects; the Small Capitalization Stock Portfolio is invested primarily in equity securities of publicly-traded companies with small market capitalization; the Global Equity Portfolio is invested in common stocks and common stock equivalents (such as convertible debt securities) of foreign and domestic insurers; and the Natural Resources Portfolio is invested primarily in common stocks and convertible securities of natural resource companies, and in securities (typically debt securities or preferred stock) the terms of which are related to the market value of a natural resource. Further information about the Series Fund portfolios can be found under The Prudential Series Fund, Inc. on page 4. The Contract owner may also choose to invest part of his or her net premiums in The Prudential Variable Contract Real Property Account ("Real Property Account"), which through a partnership invests primarily in income-producing real property. The investment objectives of the Real Property Account and the partnership are described briefly under The Prudential Variable Contract Real Property Account on page 6. Because the assets that relate to the Contract may be invested in these various investment options, the Contract offers an opportunity for the cash surrender value to appreciate more rapidly than it would under comparable fixed-benefit insurance. The owner, however, must accept the risk that if investment performance is unfavorable the cash surrender value may not appreciate as rapidly and, indeed, may decrease in value. Contract owners who prefer to avoid this risk may elect to allocate part or all of the net premiums in a fixed-rate option under which a stated interest rate is credited to the amount invested under that option. See The Fixed-Rate Option, page 23. The Prudential deducts certain charges from each premium payment and from the amounts held in the designated investment options. In addition, The Prudential makes certain additional charges if a Contract lapses or is surrendered during the first 10 Contract years. All these charges, which are largely designed to cover insurance costs and risks as well as sales and administrative expenses, are fully described under Charges and Expenses on page 9. In brief, and subject to that fuller description, the following charges may be made: (1) $2 is deducted from each premium payment to cover premium collection and processing costs; (2) a charge for taxes attributable to premiums; (3) each month, the Contract fund is reduced by an administrative charge of $6 per Contract plus $0.01 per $1,000 for face amounts exceeding $100,000; (4) each month, a sales charge is deducted from the Contract fund in the amount of 1/2 of 1% of the primary annual premium; The Prudential now intends to make this charge only for the first 5 Contract years; in addition, a contingent deferred sales charge is assessed if the Contract lapses or is surrendered during the first 10 years; the charge is 25% of the primary premium for Contracts that terminate 3 in the first year and it increases by 5% each year for 5 years after which it decreases uniformly until it becomes zero after the tenth year; (5) each month, the Contract fund is reduced by a guaranteed minimum death benefit risk charge of not more than $0.01 per $1,000 of the face amount of insurance; (6) each month, a charge for anticipated mortality is deducted, with the maximum charge based on the non-smoker/smoker 1980 CSO Tables; (7) a daily charge equivalent to an annual rate of up to 0.6% is deducted from the assets of the subaccounts for mortality and expense risks; (8) if the Contract lapses or is surrendered during the first 10 years, a contingent deferred administrative charge is assessed; during the first 5 years, this charge equals $5 per $1,000 of face amount and it begins to decline uniformly after the fifth Contract year so that it disappears on the tenth Contract anniversary; (9) an administrative processing charge equal to the lesser of $15 or 2% of the amount withdrawn will be made in connection with each withdrawal of excess cash surrender value; (10) an administrative processing charge of $15 may be made in connection with each decrease in face amount; (11) if the Contract includes riders, a monthly deduction from the Contract fund will be made for charges applicable to those riders; and (12) certain fees and expenses are deducted from the assets of the Series Fund and Real Property Account. Because of these charges, and in particular because of the significant charges deducted upon early surrender or lapse, prospective purchasers should purchase a Contract only if they intend and have the financial capability to keep it in force for a substantial period. For a limited time, a Contract may be returned for a refund in accordance with the terms of its "free look" provision. See Short-Term Cancellation Right or "Free Look," page 6. This Summary provides only a brief overview of the more significant aspects of the Contract. Further detail is provided in the subsequent sections of this prospectus and in the Contract document. That document, together with the application attached to it, constitutes the entire agreement between the owner and The Prudential and should be retained. For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1. GENERAL INFORMATION ABOUT THE PRUDENTIAL, 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 ("The Prudential") is a mutual insurance company, founded in 1875 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in the District of Columbia, Guam, and in all states. These Contracts are not offered in any state in which the necessary approvals have not yet been obtained. The Prudential's consolidated financial statements begin on page B1 and should be considered only as bearing upon The 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 the federal securities laws. The Account holds assets that are segregated from all of The Prudential's other assets. The obligations to Contract owners and beneficiaries arising under the Contract are general corporate obligations of The Prudential. The Prudential is also the legal owner of the assets in the Account. The Prudential will at all times maintain assets in the Account with a total market value at least equal to the reserve and other liabilities relating to the variable benefits attributable to the Account. These assets may not be charged with liabilities which arise from any other business The Prudential conducts. In addition to these assets, the Account's assets may include funds contributed by The Prudential to commence operation of the Account and may include accumulations of the charges The Prudential makes against the Account. From time to time these additional assets will be transferred to The Prudential's general account. Before making any such transfer, The Prudential will consider any possible adverse impact the transfer might have on the Account. The Account is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the management or investment policies or practices of the Account. For state law purposes, the Account is treated as a part or division of The Prudential. There are currently sixteen subaccounts within the Account, each of which invests in a single corresponding portfolio of The Prudential Series Fund, Inc. Additional subaccounts may be added in the future. The Account's financial statements begin on page A1. The Prudential Series Fund, Inc. The Prudential Series Fund, Inc. (the "Series Fund") is registered under the 1940 Act as an open-end diversified management investment company. Its shares are currently sold only to separate accounts of The Prudential and certain other insurers that offer variable life insurance and variable annuity 4 contracts. The Account will purchase and redeem shares from the Series Fund at net asset value. Shares will be redeemed to the extent necessary for The Prudential to provide benefits under the Contract and to transfer assets from one subaccount to another, as requested by Contract owners. Any dividend or capital gain distribution received from a portfolio of the Series Fund will be reinvested immediately at net asset value in shares of that portfolio and retained as assets of the corresponding subaccount. The Prudential is the investment advisor for the assets of each of the portfolios of the Series Fund. The Prudential's principal business address is Prudential Plaza, Newark, New Jersey 07102-3777. The Prudential has a Service Agreement with its wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which provides that, subject to The Prudential's supervision, PIC will furnish investment advisory services in connection with the management of the Series Fund. In addition, The Prudential has entered into a Subadvisory Agreement with its wholly-owned subsidiary Jennison Associates Capital Corporation ("Jennison"), under which Jennison furnishes investment advisory services in connection with the management of the Growth Stock Portfolio. Further detail is provided in the prospectus and statement of additional information for the Series Fund. The Prudential, PIC, and Jennison are registered as investment advisors under the Investment Advisers Act of 1940. As an investment advisor, The Prudential charges the Series Fund a daily investment management fee as compensation for its services. The following table shows the investment management fee charged for each portfolio of the Series Fund available for investment by Contract owners. Annual Investment Management Fee as a Percentage of Average Daily Portfolio Net Assets --------- ----------------- Stock Index Portfolio 0.35% Money Market Portfolio 0.40% Bond Portfolio 0.40% Government Securities Portfolio 0.40% Zero Coupon Bond Portfolios 0.40% High Dividend Stock Portfolio 0.40% Small Capitalization Stock Portfolio 0.40% Common Stock Portfolio 0.45% Natural Resources Portfolio 0.45% High Yield Bond Portfolio 0.55% Conservatively Managed Flexible Portfolio 0.55% Aggressively Managed Flexible Portfolio 0.60% Growth Stock Portfolio 0.60% Global Equity Portfolio 0.75% In addition to the investment management fee, each portfolio incurs certain expenses, such as accounting and custodian fees. The Prudential, on a non-guaranteed basis, makes daily adjustments that will offset the effect on Contract owners of some of these expenses incurred by certain portfolios. The Prudential currently makes such adjustments to ensure that the portfolio expenses indirectly borne by a Contract owner investing in: (1) the Zero Coupon Bond Portfolios will not exceed the investment management fee; and: (2) the High Yield Bond, Stock Index, High Dividend Stock, and Natural Resources Portfolios will not exceed the investment management fee plus 0.1% of the average daily net assets of the portfolio. Without such adjustments the portfolio expenses indirectly borne by a Contract owner, expressed as a percentage of the average daily net assets by portfolio, would have been 0.60% for the Zero Coupon Bond Portfolio, 0.60% for the Natural Resources Portfolio, 0.63% for the Zero Coupon Bond Portfolio 1995, 0.51% for the Zero Coupon Bond Portfolio 2000, 0.60% for the Zero Coupon Bond Portfolio 2005, 0.52% for the High Dividend Stock Portfolio, and 0.61% for the Natural Resources Portfolio during 1994. The Prudential does not intend to discontinue these adjustments in the future, although it retains the right to do so. No such adjustments were necessary for the High Yield and Natural Resources Portfolios in 1994. It is conceivable that in the future it may become disadvantageous for both variable life insurance and variable annuity contract separate accounts to invest in the same underlying mutual fund. Although neither the companies which invest in the Series Fund, nor the Series Fund currently foresees any such disadvantage, the Series Fund's Board of Directors intends to monitor events in order to identify any material conflict between variable life insurance and variable annuity contract owners and to determine what action, if any, should be taken in response thereto. Material conflicts could result from such things as: (1) changes in state insurance law; (2) changes in federal income tax law; (3) changes in the investment management of any portfolio of the Series Fund; or (4) differences between voting instructions given by variable life insurance and variable annuity contract owners. A full description of the Series Fund, its investment objectives, management, policies, and restrictions, its expenses, the risks attendant to investment therein--including any risks associated with investment in the High 5 Yield Bond Portfolio, and all other aspects of its operation is contained in the attached prospectus for the Series Fund and in its statement of additional information, which should be read in conjunction with this prospectus. There is no assurance that the investment objectives will be met. The Prudential Variable Contract Real Property Account. The Prudential Variable Contract Real Property Account (the "Real Property Account") is a separate account of The Prudential that, through a general partnership formed by The Prudential and two of its subsidiaries, invests primarily in income-producing real property such as office buildings, shopping centers, agricultural land, hotels, apartments or industrial properties. It also invests in mortgage loans and other real estate-related investments, including sale-leaseback transactions. The objectives of the Real Property Account and the partnership are to preserve and protect capital, provide for compounding of income as a result of reinvestment of cash flow from investments, and provide for increases over time in the amount of such income through appreciation in the value of assets. The partnership has entered into an investment management agreement with The Prudential, under which The Prudential selects the properties and other investments held by the partnership. The Prudential charges the partnership a daily fee for investment management which amounts to 1.25% per year of the average daily gross assets of the partnership. A full description of the Real Property Account, its management, policies, and restrictions, its charges and expenses, the risks attendant to investment therein, the partnership's investment objectives, and all other aspects of the Real Property Account's and the partnership's operations is contained in the attached prospectus for the Real Property Account, which should be read together with this prospectus by any Contract owner considering the real estate investment option. There is no assurance that the investment objectives will be met. DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS Requirements for Issuance of a Contract. As of December 14, 1992, these Contracts are no longer available for sale. The minimum initial guaranteed death benefit that can be applied for is $200,000. The Contract may generally be issued on insureds between the ages of 20 and 79. Before issuing any Contract, The Prudential requires evidence of insurability which will include a medical examination. Non-smokers who meet preferred underwriting requirements are offered the most favorable premium rate. A higher premium is charged if an extra mortality risk is involved. These are the current underwriting requirements. The Company reserves the right to change them on a non-discriminatory basis. Short-Term Cancellation Right or "Free Look". Generally, a Contract may be returned for a refund within 10 days after it is received by the Contract owner, within 45 days after Part I of the application for insurance is signed or within 10 days after The Prudential mails or delivers a Notice of Withdrawal Right, whichever is latest. Some states allow a longer period of time during which a Contract may be returned for a refund. A refund can be requested by mailing or delivering the Contract to the representative who sold it or to The Prudential Home Office specified in the Contract. A Contract returned according to this provision shall be deemed void from the beginning. The Contract owner will then receive a refund of all premium payments made, plus or minus any change due to investment experience in the value of the invested portion of the premiums, calculated as if no charges had been made against the Account or the Series Fund. However, if applicable law so requires, the Contract owner who exercises his or her short-term cancellation right will receive a refund of all premium payments made, with no adjustment for investment experience. Contract Forms. A purchaser may select either of two forms of the Contract. Contract Form A has a death benefit equal to the initial face amount of insurance. The death benefit of a Form A Contract does not vary with the investment performance of the investment options selected by the owner, except in certain circumstances. See How a Form A Contract's Death Benefit Will Vary, page 12. Favorable investment results of the variable investment options to which the assets related to the Contract are allocated and payment of greater than scheduled premiums will generally result in increases in the cash surrender value. See How a Contract's Cash Surrender Value Will Vary, page 12. Contract Form B also has an initial face amount of insurance but favorable investment performance and payment of greater than scheduled premiums generally result in an increase in the death benefit as well as in the cash surrender value. Over time, however, the increase in the cash surrender value will be less than under the Form A Contract. See How a Contract's Cash Surrender Value Will Vary, page 12 and How a Form B Contract's Death Benefit Will Vary, page 13. Unfavorable investment performance will result in decreases in the death benefit (but never below the face amount stated in the Contract) and in the cash surrender value. Purchasers should select the Form that best meets their needs and objectives. Purchasers who prefer to have favorable investment results and the payment of greater than scheduled premiums emerge partly in the form of an increased death benefit and partly in the form of increased cash surrender values should choose Contract Form B. Purchasers who are satisfied with the amount of their insurance coverage and wish to have favorable 6 investment results and additional premiums reflected to the maximum extent in increasing cash surrender values should choose Contract Form A. See How a Contract's Cash Surrender Value Will Vary, page 12. In choosing a Contract Form, purchasers should also consider whether they intend to use the withdrawal feature. Purchasers of Form A Contracts should note that an early withdrawal may result in a portion of the surrender charge being deducted from the Contract fund. Furthermore, a purchaser of a minimum face amount Form A Contract cannot make withdrawals unless the Contract's death benefit has been increased to an amount in excess of the initial face amount. Purchasers of Form B Contracts will not incur a surrender charge for a withdrawal and are not precluded from making withdrawals if they purchase a minimum size Contract. See Withdrawal of Excess Cash Surrender Value, page 14. Premiums. Although Contract owners have the right to decide when to make premium payments and in what amounts (see Flexibility as to Payment of Premiums, page 13), each Contract sets forth a premium schedule which, if paid, ensures that the Contract will not lapse. The initial scheduled premium amount is payable on the Contract date (the date the Contract is issued, as noted in each individual Contract) and subsequent premiums, which will be in increasing amounts, are payable on each subsequent due date. These due dates will be annual, semi-annual, quarterly or monthly, as selected by the purchaser. Contract owners who pay premiums other than on a monthly basis will receive notice that a premium is due about 3 weeks before each due date. Contract owners who pay premiums monthly will receive each year a book with twelve coupons that will serve as a reminder. With The Prudential's consent, an owner may change the frequency of premium payments. As stated in the Summary, for Contracts with an initial face-amount of insurance of exactly $200,000, the Contract will set forth a schedule of premiums determined by The Prudential. For Contracts with higher initial face amounts, each Contract owner may choose what the initial premium will be, as long as it is greater than a minimum amount that depends upon the Contract's face amount, the insured's sex (except where unisex rates apply) and age at issue, the insured's risk classification, the rate for taxes attributable to premiums, and the selected frequency of premium payments. Your Prudential representative will inform you what that minimum amount is for any specified insured person. Subsequent scheduled premiums will be in increasing amounts (with the rate of increase dependent upon the amount of the initial premium--a lower initial premium results in a higher rate of increase in the amounts of subsequent premiums) until the Contract anniversary following the insured's 65th birthday, or the seventh anniversary if later, after which the amount of the scheduled premium will not change. The Contract will set forth the schedule of premiums chosen by the purchaser as well as the maximum scheduled premium amount (excluding the charge for taxes attributable to premiums) that will be due on and after that anniversary. This maximum amount will generally be significantly higher than the premium for the preceding year. However, if the amount invested under the Contract is higher than it would have been if only scheduled premiums had been paid, if maximum mortality and expense charges had been deducted, and if a uniform net rate of return of 4% had been earned by the selected investment options, The Prudential will recompute the premium amount payable after that anniversary and the new premium can be expected to be less than the maximum premium amount stated in the Contract. The tables at pages T1 through T8 show what the maximum premium will be after age 65 and what the actual premium would be for certain hypothetical investment results and if lower than maximum charges are made, as is currently contemplated. To illustrate the range of premium schedules available, the following table shows what the scheduled premiums might be for a 40 year old male in the preferred rating class. One column shows the result of choosing the lowest permissible initial premium; the second column shows what premium schedule would result if a relatively high initial premium were to be chosen. Face Amount of Insurance--$300,000 Illustrative Premiums Male Age Example No. 1 Example No. 2 -------- ------------- ------------- 40 $ 1,713.27 $ 2,472.45 45 $ 1,941.84 $ 2,586.73 50 $ 2,301.02 $ 2,766.33 55 $ 2,962.24 $ 3,096.94 60 $ 4,052.04 $ 3,641.84 64 $ 5,515.31 $ 4,373.47 65 and over $16,980.61 $15,411.22 The Prudential designed this Contract in order to accommodate the needs of a class of persons who wish and are able to purchase a substantial amount of life insurance but whose current financial situations may vary considerably. Establishing a premium schedule with the lowest permissible initial premium is suitable only for those 7 persons who can confidently predict that their incomes will increase as they grow older and that they will be able to pay the significantly larger scheduled premiums that result from the choice of a low initial premium. Although failure to pay scheduled premiums when due does not mean that the Contract will necessarily lapse, (see Lapse and Reinstatement, page 21), The Prudential does guarantee that the Contract will not lapse if the scheduled premiums are paid when due. The payment of lower premiums during the early years of a Contract means that there will be a smaller Contract fund credited to the Contract so that there is a reduced possibility that there will be an "excess amount" available to prevent the lapse of the Contract if a scheduled premium is not paid. The purchase of a Contract and payment of premiums for several years followed by the lapse of the Contract because of the inability to pay the increased premiums would be imprudent and wasteful. A high price would have been paid and the purchaser would have received only a small part of the benefits available under the Contract. If a Contract owner wishes, he or she may select a higher contemplated premium schedule than the premium schedule set forth in the Contract. The Prudential will bill the owner for the chosen higher premiums. In general, the regular payment of higher premiums will result in higher cash surrender values and, at least under Form B, in higher death benefits. The payment of premiums substantially in excess of scheduled premiums may cause the Contract to be classified as a Modified Endowment Contract for federal income tax purposes. See Tax Treatment of Contract Benefits, page 20. Certain term riders on term policies issued by The Prudential may provide for a conversion premium credit if the rider or policy is converted to a Prudential whole-life policy, including the Contracts described in this prospectus. If a Contract is purchased through exercise of such a conversion privilege, the first year's scheduled premium will be reduced by the amount of the premium credit. The Prudential will add to first year scheduled premiums paid by the Contract owner the pro rata portion of the premium credit. Contract Date. When the first premium payment is paid with the application for a Contract, the Contract date will ordinarily be the later of the date of the application or the date of the medical examination. If the first premium is not paid with the application, the Contract date will ordinarily be 2 or 3 days after the application is approved by The Prudential so that it will coincide with or be shortly prior to the date on which the first premium is paid. Under certain circumstances, The Prudential will permit a Contract to be back-dated but only to a date not earlier than 6 months prior to the date of the application. It may be advantageous for a Contract owner to have an earlier Contract date since that may result in the use by The Prudential of a lower issue age in determining the amount of the scheduled premium. The Prudential will require the payment of all premiums that would have been due had the application date coincided with the back-dated Contract date. The death benefit and cash surrender value under the Contract will be equal to what they would have been had the Contract been issued on the Contract date, all scheduled premiums been received on their due dates, and all Contract charges been made. See Charges and Expenses, page 9. Allocation of Premiums. On the Contract date, a $2 processing charge and the charge for taxes attributable to premiums are deducted from the initial premium, and the first monthly deductions are made. See Charges and Expenses, page 9. The remainder of the initial scheduled premium will be allocated on the Contract date among the subaccounts, the fixed-rate option or the Real Property Account according to the desired allocation specified in the application form. The invested portion of any part of the first premium in excess of the scheduled initial premium, as well as the invested portion of all subsequent premiums, are placed in the selected investment option[s] on the date of receipt, but not earlier than the Contract date. Thus, to the extent that the receipt of the first premium precedes the Contract date, there will be a period during which the Contract owner's initial premium will not be invested. The $2 per payment charge and the charge for taxes attributable to premiums also apply to all subsequent premium payments; the remainder will be placed when received by The Prudential in the subaccount[s], the fixed-rate option or the Real Property Account in accordance with the allocation previously designated by the Contract owner. Provided the Contract is not in default, Contract owners may change the way in which subsequent premiums are allocated by giving written notice to The Prudential Home Office stated in the Contract or by telephoning their Prudential Home Office, once they have completed a written telephone transfer authorization form. There is no charge for reallocating future premiums. If any part of the invested portion of a premium is allocated to a particular investment option, that portion must be at least 10% on the date the allocation takes effect. All percentage allocations must be in whole numbers. For example, 33% can be selected but 33 1/3% cannot. Of course, the total allocation of all selected investment options must equal 100%. Additionally, a feature called Dollar Cost Averaging is available to Contract owners who make an allocation to the Money Market Subaccount. Under this feature, automatic flat dollar amounts will be transferred monthly from the Money Market Subaccount into other investment options available under the Contract, excluding the fixed-rate option, but including the Real Property Account. Currently, the amount initially designated for transfer under this feature must be at least $2,000. After issue, The Prudential will accept an amount less than $2,000 provided it brings the balance in any current Dollar Cost Averaging account up to $2,000. Monthly transfers must be at least 3% of the amount allocated to the Dollar Cost Averaging account, with a minimum of $20 transferred into any one 8 investment option. These amounts are subject to change at The Prudential's discretion. The minimum transfer amount will only be recalculated upon an increase in the amount allocated to the feature. Each automatic monthly transfer will take effect as of the end of the valuation period on the Monthly date, provided the New York Stock Exchange is open on that date. If the New York Stock Exchange is not open on that date, or if the Monthly date does not occur in that particular month, the transfer will take effect as of the end of the last valuation period which immediately precedes that Monthly date. Automatic monthly transfers will continue until the amount designated for Dollar Cost Averaging has been transferred, or until the Contract owner gives notification of a change in allocation or cancellation of the feature. Currently, there is no charge for using the Dollar Cost Averaging feature. Transfers. If the Contract is not in default, or if the Contract is in force as variable reduced paid-up insurance (see Options on Lapse, page 22), the owner may, up to four times in each Contract year, transfer amounts from one subaccount to another subaccount, to the fixed-rate option or to the Real Property Account. All or a portion of the amount credited to a subaccount may be transferred. A Contract owner who wishes to convert his or her variable Contract to a fixed-benefit Contract may do so by requesting a transfer of the entire amount held under the Contract to the fixed-rate option and by changing his or her allocation instructions regarding future premiums. Transfers among subaccounts will take effect as of the end of the valuation period in which a proper transfer request is received at a Prudential Home Office. The request may be in terms of dollars, such as a request to transfer $10,000 from one subaccount to another, or may be in terms of a percentage reallocation among subaccounts. In the latter case, as with premium reallocations, the percentages must be in whole numbers. The Contract owner may transfer amounts by proper written notice to a Prudential Home Office, or by telephone, provided the Contract owner is enrolled to use the Telephone Transfer System. The Prudential cannot guarantee that owners will be able to get through to complete a telephone transfer during peak periods such as periods of drastic economic or market change. On the liquidation date of a Zero Coupon Bond Subaccount, all the shares held by it in the corresponding portfolio of the Series Fund will be redeemed and the proceeds of the redemption applicable to each Contract will be transferred to the Money Market Subaccount unless the Contract owner directs that it be transferred to another subaccount. Affected Contract owners will be notified in writing and given the opportunity to transfer their proceeds to another subaccount prior to the liquidation date. A transfer that occurs upon the liquidation date of a Zero Coupon Bond Subaccount will not be counted as one of the four permissible transfers in a Contract year. Transfers from the fixed-rate option to the subaccounts or the Real Property Account are currently permitted once each Contract year and only during the 30-day period beginning on the Contract anniversary. The maximum amount which may be transferred out of the fixed-rate option each year is currently the greater of: (a) 25% of the amount in the fixed-rate option, or (b) $2,000. Such transfer requests prior to the Contract anniversary will be effected on the Contract anniversary. Transfer requests received within the 30-day period beginning on the Contract anniversary will be effected as of the end of the valuation period in which a proper transfer request is received at a Prudential Home Office. These limits are subject to change in the future. Transfers from the Real Property Account are also subject to restrictions, and these restrictions are described in the attached prospectus for that investment option. The Prudential may, on a non-discriminatory basis, permit the owner of a Custom Appreciable Life insurance policy issued by The Prudential (a Custom Appreciable Life policy is a general account, universal life type policy with guaranteed minimum values) to exchange his or her policy for a comparable Custom VAL Contract with the same Contract date, scheduled premiums, and Contract fund. No charge will be made for the exchange. There is no new "free look" right when a Custom Appreciable Life contract owner elects to exchange his or her policy for a comparable Custom VAL Contract. Although The Prudential does not give tax advice, The Prudential does believe, based on its understanding of federal income tax laws as currently interpreted, that the original date exchange of a Custom Appreciable Life contract for a Custom VAL Contract should be considered to be a tax-free exchange under the Internal Revenue Code of 1986 as amended. It should be noted, however, that the exchange of a Custom Appreciable Life contract for a Custom VAL Contract may impact the status of the Contract as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 20. A contract owner should consult with his or her tax advisor and Prudential representative before making an exchange. Charges and Expenses. The total amount invested at any time under the Contract (the "Contract fund") consists of the sum of the amount credited to the subaccounts, the amount held in the Real Property Account, the amount allocated to the fixed-rate option, and the principal amount of any Contract loan plus the amount of interest credited to the Contract upon that loan. See Contract Loans, page 19. Most charges, although not all, are made by reducing the Contract fund. 9 Every charge made by The Prudential under the Contract is described below. 1. A charge is deducted from each premium payment for taxes attributable to premiums. For these purposes, "taxes attributable to premiums" shall include any federal, state or local income, premium, excise, business or any other type of tax (or component thereof) measured by or based upon the amount of premium received by The Prudential. The state premium tax rates currently in effect range from 75% to 5%. A charge, currently in the amount of 1.25% of premiums is deducted for the purpose of recovering a portion of The Prudential's federal income tax burden that is determined solely by the amount of premiums received; this charge is not imposed on Contracts issued in connection with tax-qualified pension plans. The Prudential believes that this charge is a reasonable estimate of an increase in its federal income taxes resulting from a 1990 change in the Internal Revenue Code. It is intended to recover this increased tax. The charge for taxes attributable to premiums the first Contract year is determined by the state and locality shown on the insured's address in the application. Thereafter, in preparing the billing notice sent out before each Contract anniversary, The Prudential will determine the applicable charge for taxes attributable to premiums based on The Prudential's records of the insured's address. That charge will apply to all premium payments for the following Contract year. During 1994 and 1993, The Prudential received a total of approximately $116,000 and $140,000, respectively, in charges for payment of premium taxes. 2. There is an administrative charge of $2 deducted from each premium payment to cover the cost of collecting and processing premiums. Thus, Contract owners who pay premiums annually will incur lower aggregate processing charges than those who pay premiums more frequently. During 1994 and 1993, The Prudential received a total of approximately $31,000 and $33,000, respectively, in processing charges. 3. On each Monthly date, the Contract fund is reduced by $6 per Contract plus $0.01 per $1,000 for face amounts exceeding $100,000, to compensate The Prudential for administrative expenses incurred, among other things, in processing claims, paying cash surrender values and death benefits, making Contract changes, keeping records, and communicating with Contract owners. The Prudential currently intends to cap this charge at $15. The Prudential does not expect to make a profit from this administrative charge or from the $2 premium processing charge mentioned in item 2 above. This monthly administrative charge will not be made if the Contract has been continued in force pursuant to an option on lapse. During 1994 and 1993, The Prudential received a total of approximately $67,000 and $70,000, respectively, in monthly administrative charges. The Prudential reserves the right to increase this charge to no greater than $3 plus $0.03 per $1,000 of face amount of insurance, but it will not be increased to any amount greater than actually needed to recover the expenses described above. 4. There is a charge to compensate The Prudential for the cost of selling the Contract. This cost includes sales commissions, advertising, and the printing of prospectuses and sales literature. This charge is called the "sales load" and consists of two parts: (1) a charge deducted monthly from the Contract fund, which The Prudential currently intends to make only during the first 5 Contract years; and (2) a charge assessed upon lapse or surrender if that occurs during the first 10 Contract years. Subject to the limitations discussed below, on each Monthly date, The Prudential reduces the Contract fund by an amount equal to 0.5% of the Contract's "primary annual premium," which is the gross annual scheduled premium that would be payable if the Contract owner had elected to pay premiums annually, reduced by the sum of the charges for taxes attributable to premiums and $38 as well as by any extra premiums for riders or because the insured is classified as high-risk. This deduction is made without regard to whether the Contract owner is paying premiums annually or more frequently. The deduction is lower for Contracts issued on insureds over 60 years of age. The Prudential does not intend to make this monthly charge after the Contract has been in force for 5 years, but it reserves the right to do so. The second part of the sales load is made only if the Contract lapses or is surrendered during the first 10 Contract years, or if a withdrawal is made under a Form A Contract during that 10-year period. Moreover, this charge will be reduced in the manner described below for Contracts that are in force for more than 5 years. For this reason this charge is sometimes described as a "contingent deferred sales load" and its amount is determined as follows. Every Contract has associated with it a Guideline Annual Premium ("GAP"). That is an amount, generally significantly larger than the initial annual scheduled premium for the Contract, which is determined actuarially in accordance with a definition set forth in a regulation of the Securities and Exchange Commission ("SEC"). The maximum aggregate sales load that The Prudential will charge (that is, the sum of the first part of the charge, the monthly sales load deduction, and the second part, the sales charge payable upon surrender or lapse) will not be more than 30% of the premiums actually paid until those premiums total one guideline annual premium, plus no more than 9% of the next premiums paid until total premiums are equal to five guideline annual premiums. During 1994 and 1993, The Prudential received a total of approximately $504,000 and $452,000, respectively, in sales load charges. 5. On each Monthly date, the Contract fund is reduced by a charge of not more than $0.01 per $1,000 of face amount of insurance to compensate The Prudential for the risk it assumes by guaranteeing that, no matter 10 how unfavorable investment experience may be, the death benefit will never be less than the guaranteed minimum death benefit so long as scheduled premiums are paid on or before the due date or during the grace period. This charge will not be made if the Contract has been continued in force pursuant to an option on lapse. During 1994 and 1993, The Prudential received a total of approximately $56,000 and $57,000, respectively, for this risk charge. 6. The Prudential deducts a mortality charge from the Contract fund on each Monthly date. When an insured dies, the amount paid to the beneficiary is larger than the Contract fund, significantly larger if the insured dies in the early years of a Contract. The mortality charges are designed to enable The Prudential to pay this larger death benefit. The charge is determined by multiplying the "net amount at risk" under a Contract (the amount by which the Contract's death benefit, computed as if there were neither riders nor Contract debt, exceeds the Contract fund) by a rate based upon the insured's sex (except where unisex rates apply) and current attained age, and the anticipated mortality for that class of persons. The maximum rate that The Prudential may charge is based upon the non-smoker/smoker 1980 CSO Tables. However, The Prudential has determined that a lesser amount than that called for by these mortality tables will be adequate to defray anticipated death benefits for insureds of particular ages and is now making a lower mortality charge for such persons. The Prudential reserves the right to charge full mortality charges that are no higher than those based on the 1980 CSO Tables described above. Persons who are in a substandard risk classification will be assessed an additional charge. The current lower mortality charges are not applicable to Contracts in force pursuant to an option on lapse. See Options on Lapse, page 22. 7. A charge is made to compensate The Prudential for assuming mortality and expense risks. This is done by deducting daily, from the assets of each of the subaccounts and/or the Real Property Account (the "variable investment options"), a percentage of those assets equivalent to an effective annual rate of up to 0.6%. The Prudential has reserved the right, however, to increase this charge to 0.9%. The mortality risk assumed is that insureds may live for a shorter period of time than The Prudential estimated when it determined what mortality charge to make. The expense risk assumed is that expenses incurred in issuing and administering the Contract will be greater than The Prudential estimated in fixing its administrative charges. Should either of these developments occur, The Prudential has guaranteed that the death benefits and cash surrender values promised by the Contract will not be reduced. The Prudential will realize a gain from this risk charge to the extent it is not needed to provide benefits and pay expenses under the Contracts. During 1994 and 1993, The Prudential received a total of approximately $126,000 and $98,000, respectively, in mortality and expense risk charges. This charge is not assessed against amounts allocated to the fixed-rate option. 8. There is an administrative charge to compensate The Prudential for expenses incurred in connection with the issuance of the Contract, other than sales expenses. This charge is equal to $5 for each $1,000 of face amount of insurance. This charge is made to cover the costs of processing applications, conducting medical examinations, determining insurability and the insured's risk class, and establishing records relating to the Contract. However, this charge will not be made unless the Contract lapses or is surrendered within the first 10 Contract years. In addition, the charge will be reduced for Contracts that lapse or are surrendered before the Contract's tenth anniversary but after the fifth anniversary, declining daily at a constant rate so that the charge disappears on the tenth anniversary. During 1994 and 1993, The Prudential received a total of approximately $47,000 and $41,000, respectively, from surrendered or lapsed Contracts. The Prudential does not expect to make a profit on this charge. The charge made upon lapse or surrender during the first 10 Contract years may, under certain circumstances, be less than the sum of the charge described above and the second part of the sales load described in item 4. The Contract sets forth the maximum surrender charges that will be made during the first 10 Contract years and that maximum will control if it is less than the sum of those two charges. 9. An administrative processing charge equal to the lesser of $15 or 2% of the amount withdrawn will be made in connection with each withdrawal of excess cash surrender value of a Contract. See Withdrawal of Excess Cash Surrender Value, page 14. The Prudential currently waives this charge if the withdrawal is used to pay premiums on an automatic basis but reserves the right to make this charge even in that situation. 10. An administrative processing charge of $15 may be made in connection with each decrease in face amount. See Decreases in Face Amount, page 16. This charge and the charge in item 9 are intended to recover only the actual cost of processing these transactions. 11. If the Contract includes riders, The Prudential deducts any charges applicable to those riders from the Contract fund on each Monthly date. In addition, The Prudential will deduct on each Monthly date any extra charge incurred because of the rating class of the insured. 12. A charge is deducted for federal, state or local taxes attributable to the Account (other than "taxes attributable to premiums" previously deducted from the premium payment). Currently, there is no charge against the Contract for these taxes. A change in the applicable federal, state or local tax laws that impose 11 tax upon The Prudential (other than "taxes attributable to premiums") may result in a charge against the Contract. 13. The Account purchases shares of the Series Fund at net asset value. The net asset value of those shares reflects management fees and expenses already deducted from the assets of the Series Fund. The fees and expenses for the Series Fund are briefly described under The Prudential Series Fund, Inc. on page 4 in connection with the general description of the Series Fund. More detailed information is contained in the attached Series Fund prospectus. The investment management fee and other expenses charged against the Real Property Account are described in the attached prospectus for that investment option. The maximum deductions and charges described above will not be increased by The Prudential with respect to any Contract in effect regardless of any changes in longevity or increases in expenses. Where current charges are lower than maximum charges, The Prudential reserves the right to increase the current charges on a uniform basis, although it has no present intention to do so. Reduction of Charges for Concurrent Sales to Several Individuals. The Prudential may reduce the sales charges and/or other charges on individual Contracts sold to members of a class of associated individuals, or to a trustee, employer or other entity representing such a class, where it is expected that such multiple sales will result in savings of sales or administrative expenses. The Prudential determines both the eligibility for such reduced charges, as well as the amount of such reductions, by considering the following factors: (1) the number of individuals; (2) the total amount of premium payments expected to be received from these Contracts; (3) the nature of the association between these individuals, and the expected persistency of the individual Contracts; (4) the purpose for which the individual Contracts are purchased and whether that purpose makes it likely that expenses will be reduced; and (5) any other circumstances which The Prudential believes to be relevant in determining whether reduced sales or administrative expenses may be expected. Some of the reductions in charges for these sales may be contractually guaranteed; other reductions may be withdrawn or modified by The Prudential on a uniform basis. The Prudential's reductions in charges for these sales will not be unfairly discriminatory to the interests of any individual Contract owners. How a Contract's Cash Surrender Value Will Vary. The Contract's cash surrender value on any date will be the Contract fund, defined under Charges and Expenses on page 9, reduced by the deferred sales and administrative charges, if any, and by any Contract debt. The Contract fund value changes daily, reflecting increases or decreases in the value of the Series Fund portfolios in which the assets of the subaccount[s] have been invested, the performance of the Real Property Account if that option has been selected, interest credited on any amounts allocated to the fixed-rate option, and by 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 additional premium payments and the monthly deductions described in the preceding section. Upon request, The Prudential will tell a Contract owner the cash surrender value of his or her Contract. It is possible for the cash surrender value of a Contract to decline to zero because of unfavorable investment performance, even if a Contract owner continues to pay scheduled premiums when due. The tables on pages T1 through T8 of this prospectus illustrate approximately what the cash surrender values would be for representative Contracts with typical premium schedules, assuming uniform hypothetical investment results in the selected Series Fund portfolio[s]. The tables also show the maximum scheduled premium for the period following the anniversary after the insured's 65th birthday, for each illustrated Contract under each of the assumed investment returns. How a Form A Contract's Death Benefit Will Vary. As noted above, there are two Forms of the Contract, Form A and Form B. The death benefit under a Form B Contract varies with investment performance while the death benefit under a Form A Contract does not, unless it must be increased to comply with the Internal Revenue Code. Under a Form A Contract, the guaranteed minimum death benefit is equal to the face amount of insurance, reduced by any Contract debt. See Contract Loans, page 19. If the Contract is kept in force for several years and if investment performance is reasonably favorable, the Contract fund value may grow to the point where The 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 Form A Contract will always be the greater of (1) the guaranteed minimum death benefit; and (2) the Contract fund divided by the "net single premium" per $1 of death benefit at the insured's attained age on that date. The latter provision ensures that the Contract will always have a death benefit large enough to be treated as life insurance for tax purposes under current law. The following table of illustrative net single premiums for $1 of death benefit under Contracts issued on insureds in the preferred rating class shows, for insureds of several ages, how much the death benefit will be affected by a $1 change in the value of the Contract fund, at a time when the death benefit becomes greater than the guaranteed minimum. 12 Increase in Increase in Male Net Insurance Amount Female Net Insurance Amount Attained Single Per $1 Increase Attained Single Per $1 Increase Age Premium in Contract Fund Age Premium in Contract Fund - -------- ------- ------------------ -------- ------- ---------------- 25 .17000 $5.88 25 .15112 $6.62 35 .23700 $4.22 35 .21127 $4.73 55 .45209 $2.21 55 .40090 $2.49 65 .59468 $1.68 65 .53639 $1.86 This means, for example, that if the Contract of a man who has reached the age of 55 has a Contract fund of $100,000, the death benefit will be $221,000, even though the original face amount was $200,000. Whenever the death benefit is determined in this way, The Prudential reserves the right to refuse to accept further premium payments, although in practice the payment of the lesser of 2 years' scheduled premiums or the average of all premiums paid over the last 5 years will generally be allowed. How a Form B Contract's Death Benefit Will Vary. Under a Form B Contract, the death benefit, if premiums are paid when due or in advance, will never be less than the initial face amount but will also vary, immediately after it is issued, with the investment results of the selected investment options. Generally speaking, a net investment return of 4% or more will cause the death benefit to increase and a lower return will cause it to decrease, but not lower than the guaranteed minimum. More specifically, each Contract contains a table that sets forth a "tabular Contract fund value" as of the end of each of the first 20 years of the Contract. Tabular Contract fund values between Contract anniversaries are determined by interpolation. The "tabular Contract fund value" for each Contract year is an amount that is slightly less than the Contract fund value that would result as of the end of such year if only scheduled premiums were paid, they were paid when due, the selected investment options earned a net return at a uniform rate of 4% per year, full mortality charges based upon the 1980 CSO Table were deducted, maximum sales load and expense charges were deducted, and there were no Contract debt. The death benefit under a Form B Contract with no withdrawals will be equal to the face amount whenever the Contract fund is equal to or less than the tabular Contract fund value. If, because investment results are greater than a net return of 4%, or greater than scheduled premiums are paid, or smaller than maximum charges are made (reflecting The Prudential's current practice), the Contract fund value is greater than the tabular Contract fund value, then the death benefit will be the face amount plus the amount of the difference. If, because investment results are less favorable than a net return of 4%, the Contract fund value is less than the tabular Contract fund value, the death benefit will not fall below the initial face amount stated in the Contract; however, this unfavorable investment experience must first be offset by favorable performance or by lower charges or additional payments that bring the Contract fund up to the tabular Contract fund level before subsequent favorable investment results or additional payments will increase the death benefit. The death benefit does reflect a deduction for the amount of any Contract debt. See Contract Loans, page 19. As is the case under a Form A Contract, the Contract fund of a Form B Contract could grow to the point where it is necessary to increase the death benefit by an even greater amount in order to ensure that the Contract will satisfy the Internal Revenue Code's definition of life insurance. Thus, the death benefit under a Form B Contract will always be the greatest of (1) the face amount plus the Contract fund minus the tabular Contract fund value; (2) the guaranteed minimum death benefit; and (3) the Contract fund divided by the net single premium per $1 of death benefit at the insured's attained age on that date. If the net investment return in the selected investment option[s] is greater than 4%, the Contract fund and cash surrender value for a Form B Contract can be expected to be less than the Contract fund and cash surrender value for a Form A Contract with identical premiums and investment experience. This is because the monthly mortality charges under the Form B Contract will be higher to compensate for the higher amount of insurance. Flexibility as to Payment of Premiums. In addition to being able to establish the premium schedule under the Contract, the Contract owner enjoys considerable flexibility with respect to the payment of premiums. The owner may, if desired, pay greater than scheduled premiums. Conversely, payment of a scheduled premium need not be made if the Contract fund is sufficiently large to enable the charges due under the Contract to be made without causing the Contract to lapse. See Lapse and Reinstatement, page 21. In general, The Prudential will accept any premium payment if the payment is at least $25. The Prudential does reserve the right, however, to limit unscheduled premiums to a total of $10,000 in any Contract year, and to refuse to accept premiums that would immediately result in more than a dollar-for-dollar increase in the death benefit. The privilege of making large or additional premium payments offers a way of investing amounts which accumulate without current income taxation. There may, however, be a disadvantage if substantial premium payments are made. The federal income tax laws, discussed more fully under Tax Treatment of Contract Benefits on page 20, may impose an income tax, as well as a penalty tax, upon distributions to contract owners under life insurance contracts that are classified 13 as Modified Endowment Contracts. This Contract will not be so classified if scheduled premiums are paid or even if additional premiums are paid that are not substantially higher. It is possible, however, to make premium payments that are high enough to cause the Contract to fall into that classification. A Contract owner should consult with his or her Prudential representative before making a large premium payment. Participation in Divisible Surplus. Because the Contract is issued by The Prudential, a mutual life insurance company, it is a participating policy. This means that the Contract is eligible to be credited with part of The Prudential's divisible surplus attributable to the Contracts ("dividends"), as determined annually by The Prudential's Board of Directors. However, The Prudential does not expect to pay any dividends to Contract owners of the Contracts while they remain in force because it intends instead, if experience indicates that charges actually made are greater than needed to cover expenses, or if mortality experience turns out to be more favorable than expected, to distribute the portion of the divisible surplus attributable to the Contract by reducing the charges. No dividends will be paid, as such, but the Contract fund and cash surrender values will be increased. If a Contract is kept in force for a number of years, there may be a termination dividend added to the proceeds payable upon death or surrender. Surrender of a Contract. A Contract may be surrendered for its cash surrender value while the insured is living. In addition, a partial surrender may also be available. The Contract will set forth, in addition to the initial face amount of insurance, a minimum face amount to which the face amount may be reduced. That minimum face amount will depend upon the premium schedule selected initially by the Contract owner, but it will never be less than $200,000. A partial surrender involves splitting the Contract into two Contracts. One Contract is surrendered for its cash surrender value; the other is continued in force on the same terms as in the original Contract, except that the premium schedule, the cash surrender value and the guaranteed minimum death benefit will all be proportionately reduced based upon the reduction in the face amount of insurance. The Contract continued in force will be amended to show the new face-amount, premium schedule, tabular values, monthly charges and, if applicable, the new deferred sales and administrative charges. To surrender a Contract in whole or in part, the owner must deliver or mail it, together with a written request, to a Prudential Home Office. The cash surrender value of a surrendered or partially surrendered Contract (which will take into account the deferred sales and administrative charges, if any) will be determined as of the end of the valuation period in which such a request is received in the Home Office. Surrender of all or part of a Contract may have tax consequences. See Tax Treatment of Contract Benefits, page 20. Withdrawal of Excess Cash Surrender Value. Under certain circumstances, a Contract owner may withdraw a portion of the Contract's cash surrender value without surrendering the Contract in whole or in part. The amount that a Contract owner may withdraw is limited by the requirement that the Contract fund after withdrawal must not be less than the tabular Contract fund value and, if there is any Contract debt outstanding, the requested withdrawal must not reduce the cash surrender value to zero. The amount withdrawn must be at least $2,000 under a Form A Contract and at least $500 under a Form B Contract. An owner may make no more than four such withdrawals in each Contract year, and there is an administrative processing fee for each withdrawal equal to the lesser of $15 or 2% of the amount withdrawn. An amount withdrawn may not be repaid except as a scheduled or unscheduled premium subject to the applicable charges. Upon request, The Prudential will tell a Contract owner how much he or she may withdraw. Withdrawal of part of the cash surrender value may have tax consequences. See Tax Treatment of Contract Benefits, page 20. Under a Form A Contract, the face amount of insurance will be reduced, but not by more than the amount of the withdrawal. No partial withdrawal will be permitted under a Form A Contract if it would result in a new face amount of less than a minimum amount, which will be set forth in the Contract. It is important to note, however, that if the face amount is decreased at any time during the first 7 Contract years, there is danger that the Contract might be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 20. Before making any withdrawal which causes a decrease in face amount, a Contract owner should consult with his or her Prudential representative. Also, if a withdrawal under a Form A Contract is made before the end of the tenth year, the Contract fund may be reduced not only by the amount withdrawn but also by a proportionate amount of any surrender charges that would be made if the Contract were surrendered. The proportion is based on the percentage reduction in face amount. Form A Contract owners who make a partial withdrawal will be sent replacement Contract pages showing the new face amount, new premium schedule, maximum surrender charges, tabular values, and monthly deductions. Under a Form B Contract, the cash surrender value and Contract fund value are reduced by the amount of the withdrawal, and the death benefit is, accordingly, also reduced. Neither the guaranteed face amount of insurance nor the amount of scheduled premiums will be changed due to a withdrawal of excess cash surrender value under a Form B Contract. No surrender charges will be assessed upon a withdrawal under a Form B Contract. 14 Withdrawal of part of the cash surrender value increases the risk that the Contract fund may be insufficient to provide for benefits under the Contract. If such a withdrawal is followed by unfavorable investment experience, the Contract may lapse even if scheduled premiums continue to be paid when due. This is because, for purposes of determining whether a lapse has occurred, The Prudential treats withdrawals as a return of premium. Increases in Face Amount. Another attractive feature of this Contract is that an owner who wishes to increase the amount of his or her insurance may do so by increasing the face amount of the Contract (which is also the guaranteed minimum death benefit), subject to state approval and underwriting requirements determined by The Prudential. An increase in face amount is in many ways similar to the purchase of a second Contract, but it differs in the following respects: the minimum permissible increase is $100,000, while the minimum for a new Contract is $200,000; monthly fees are lower because only a single $6 per month administrative charge is made rather than two; a combined premium payment results in deduction of a single $2 per premium processing charge while separate premium payments for separate Contracts would involve two charges; and the Contract will lapse as a unit, unlike the case if two separate Contracts are purchased. These differences aside, the decision to increase face amount is comparable to the purchase of a second Contract in that it involves a commitment to higher scheduled premiums in exchange for greater insurance benefits. A Contract owner may elect to increase the face amount of his or her Contract no earlier than the first anniversary of the Contract. The following conditions must be met: (1) the owner must ask for the increase in writing on an appropriate form; (2) the amount of the increase in face amount must be at least $100,000; (3) the insured must supply evidence of insurability for the increase satisfactory to The Prudential; (4) if The Prudential requests, the owner must send in the Contract to be suitably endorsed; (5) the Contract must not be in default on the date the increase takes effect; (6) the owner must pay an appropriate premium at the time of the increase; (7) The Prudential has the right to deny more than one increase in a Contract year; and (8) if The Prudential has, between the Contract date and the date that any requested increase in face amount will take effect, changed any of the bases on which benefits and charges are calculated under newly issued Contracts, The Prudential has the right to deny the increase. Upon an increase in face amount, The Prudential will, after consulting with the Contract owner, establish a new premium schedule, and new tabular values. Subsequent monthly deductions from the Contract fund will reflect the fact that the face amount has been increased. The Contract owner has a choice, limited only by applicable state law, as to whether these changes will be made as of the prior or next Contract anniversary. There will be a payment required on the date of increase; the amount of the payment will depend, in part, on which Contract anniversary the Contract owner selects for the recomputation. The Prudential will tell the owner the amount of the required payment. It should also be noted that an increase in face amount may impact the status of the Contract as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 20. Therefore, before increasing the face amount, a Contract owner should consult with his or her Prudential representative. The effective date of the increase in the amount of insurance will be determined by the same rules that apply when a new Contract is purchased. Generally speaking, an increase will take effect on the latest of the date the owner applies for it, the date satisfactory evidence of insurability is provided to The Prudential, or the date designated by the Contract owner, provided the necessary payment is made on or before that date. For the purpose of determining the sales load that will be charged after the increase and upon any subsequent lapse or surrender, the Contract is treated as if there were two separate Contracts, a "base Contract" representing the Contract before the increase and an "incremental Contract" representing the increase viewed as a separate Contract. At the time of the increase, a certain portion of the Contract fund is allocated to the incremental Contract as a prepayment of premiums for purposes of the sales load limit. That portion is equal to the Guideline Annual Premium ("GAP") of the incremental Contract divided by the GAP of the entire Contract after the increase. Premium payments made after the increase are also allocated between the base Contract and the incremental Contract for purposes of the sales load limit. A portion of each premium payment after the increase is allocated to the increase based on the GAP for the incremental Contract divided by the GAP for the entire Contract. A monthly deduction equal to 0.5% of the primary annual premium for each part of the Contract (i.e., the base and incremental Contracts, respectively) will be made until each part of the Contract has been in force for 5 years, although The Prudential reserves the right to continue to make this deduction thereafter. Similarly, the amount, if any, of sales charges upon lapse or surrender and the application of the overall limitation upon sales load, described under Charges and Expenses on page 9, will be determined as explained in that section as if there were two Contracts rather than one. Moreover, the contingent deferred administrative charge is also determined as if there were two separate Contracts. Thus, an owner considering an increase in face amount should be aware that such an increase will entail charges, including periodic sales load deductions and possible sales and administrative charges on a subsequent surrender or lapse, comparable to the purchase of a new Contract. Each Contract owner who elects to increase the face amount of his or her Contract will be granted a "free-look" right which will apply only to the increase in face amount, not the entire Contract. The right is comparable to the right afforded to a purchaser of a new Contract. See Short-Term Cancellation Right or "Free Look," page 6. The 15 "free-look" right has to be exercised no later than 45 days after execution of the application for the increase or, if later, within 10 days after either receipt of the Contract as increased, or receipt of the withdrawal right notice by the owner. Upon exercise of the "free-look" right, the owner will receive a refund in the amount of the aggregate premiums paid since the increase was requested and attributable to the increase, not the base Contract, as determined pursuant to the proportional premium allocation rule described above. There will be no adjustment for investment experience. All charges deducted after the increase will be reduced to what they would have been had no increase been effected. A Contract owner may transfer the total amount attributable to the increase in face amount from the subaccounts or the Real Property Account to the fixed-rate option. The Prudential will supply the Contract owner with pages which show the increased face amount, the effective date of the increase, and the items described two paragraphs above that have changed. The pages will also describe how the increase in face amount affects the various provisions of the Contract, including a statement that, for the amount of the increase in face amount, the period stated in the Incontestability and Suicide provisions (see Other General Contract Provisions, page 23) will run from the effective date of the increase. Decreases in Face Amount. As explained earlier, a Contract owner may effect a partial surrender of a Contract, (see Surrender of a Contract, page 14), or a partial withdrawal of excess cash surrender value, (see Withdrawal of Excess Cash Surrender Value, page 14). A Contract owner also has the additional option of decreasing the face amount (which is also the guaranteed minimum death benefit) of his or her Contract without withdrawing any cash surrender value. Contract owners who conclude that, because of changed circumstances, the amount of insurance is greater than needed will thus be able to decrease their amount of insurance protection, and the monthly deductions for the cost of insurance, without decreasing their current cash surrender value. The cash surrender value of the Contract on the date of the decrease will not change, except that an administrative processing fee of $15 may be deducted from that value (unless that fee is separately paid at the time the decrease in face amount is requested). The Contract's Contract fund value, however, will be reduced by a proportionate part of any sales and administrative charges that would be payable if the Contract had been surrendered, that is, if this withdrawal is made before the Contract's tenth anniversary or, if the face amount had previously been increased, before the tenth anniversary after that increase. The premium schedule for the Contract will also be revised and reduced. The Contracts of owners who exercise the right to reduce the face amount will be amended to show the new face amount, tabular values, scheduled premiums, monthly charges and, if applicable, the remaining deferred sales and administrative charges. No decreases in face amount will be permitted in the first Contract year. The minimum permissible decrease is $10,000. The minimum amount to which the face amount may be decreased is set forth in the Contract and it may be possible in some cases, after discussion with The Prudential Home Office, to reduce the face amount even further. If such a decrease is made, the new premium schedule and tabular values will not be reduced in the same proportion as that the reduced face amount bears to the initial face amount. No reduction will be permitted if it would cause the Contract to fail to qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue Code. A decrease in face amount will be effected as of the Monthly date immediately preceding receipt of a proper request to decrease face amount. Monthly charges previously deducted on that date and attributed to the decreased portion of the face amount will be credited to the Contract fund as of that date. It is important to note, however, that if the face amount is decreased at any time during the first 7 Contract years, there is a danger that the Contract might be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 20. Before requesting any decrease in face amount, a Contract owner should consult with his or her Prudential representative. When Proceeds Are Paid. The Prudential will generally pay any death benefit, cash surrender value, loan proceeds or withdrawal within 7 days after receipt at a Prudential Home Office of all the documents required for such a payment. Other than the death benefit, which is determined as of the date of death, the amount will be determined as of the end of the valuation period in which the necessary documents are received. However, The Prudential may delay payment of proceeds from the subaccount[s] and the variable portion of the death benefit due under the Contract if the disposal or valuation of the Account's assets is not reasonably practicable because the New York Stock Exchange is closed for other than a regular holiday or weekend, trading is restricted by the SEC or the SEC declares that an emergency exists. With respect to the amount of any cash surrender value allocated to the fixed-rate option, and with respect to a Contract in force as fixed reduced paid-up insurance or as extended term insurance, The Prudential expects to pay the cash surrender value promptly upon request. However, The Prudential has the right to delay payment of such cash surrender value for up to 6 months (or a shorter period if required by applicable law). The Prudential will pay interest of at least 3% a year if it delays such a payment for more than 30 days (or a shorter period if required by applicable law). Living Needs Benefit. Contract applicants may elect to add the Living Needs Benefit(SM) to their Contracts at issue, subject to The Prudential's receipt of satisfactory evidence of insurability. The benefit may vary state-by-state 16 where it is available, and a Prudential representative should be consulted as to whether and to what extent the benefit is available in a particular state and on any particular Contract. The Living Needs Benefit allows the Contract owner to elect to receive an accelerated payment of all or part of the Contract's death benefit, adjusted to reflect current value, at a time when certain special needs exist. The adjusted death benefit will always be less than the death benefit, but will generally be greater than the Contract's cash surrender value. Depending upon state regulatory approval, one or both of the following options may be available. A Prudential representative should be consulted as to whether additional options may be available. Terminal Illness Option. This option is available if the insured is diagnosed as terminally ill with a life expectancy of 6 months or less. When satisfactory evidence is provided, The Prudential will provide an accelerated payment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. The Contract owner may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for 6 months. If the insured dies before all of the payments have been made, the present value of the remaining payments will be paid to the beneficiary designated in the Living Needs Benefit claim form in a single sum. Nursing Home Option. This option is available after the insured has been confined to an eligible nursing home for 6 months or more. When satisfactory evidence is provided, including certification by a licensed physician, that the insured is expected to remain in the nursing home until death, The Prudential will provide an accelerated payment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. The Contract owner may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for a specified number of years (not more than 10 nor less than 2), depending upon the age of the insured. If the insured dies before all of the payments have been made, the present value of the remaining payments will be paid to the beneficiary designated in the Living Needs Benefit claim form in a single sum. All or part of the Contract's death benefit may be accelerated under the Living Needs Benefit. If the benefit is only partially accelerated, a death benefit of at least $25,000 must remain under the Contract. The Prudential reserves the right to determine the minimum amount that may be accelerated. The Living Needs Benefit is available only in jurisdictions where and to the extent regulatory approval has been obtained. If desired by a Contract owner, the benefit must be requested on the Contract's application. 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. No benefit will be payable if the Contract owner is required to elect it in order to meet the claims of creditors or to obtain a government benefit. The Prudential can furnish details about the amount of Living Needs Benefit that is available to an eligible Contract owner under a particular Contract, and the adjusted premium payments that would be in effect if less than the entire death benefit is accelerated. The Contract owner should consider whether adding this settlement option is appropriate in his or her given situation. Adding the Living Needs Benefit to the Contract has no adverse consequences; however, electing to use it could. Contract owners should consult a qualified tax advisor before electing to receive this benefit. Unlike a death benefit received by a beneficiary after the death of an insured, receipt of a Living Needs Benefit payment may give rise to a federal or state income tax. Receipt of a Living Needs Benefit payment may also affect a Contract owner's eligibility for certain government benefits or entitlements. Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums. The following tables have been prepared to help show how values under the Contract change with investment performance of the Account. It is assumed that no portion of the Contract fund is allocated to the fixed-rate option or the Real Property Account. The tables illustrate how cash surrender values (reflecting the deduction of deferred sales load and administrative charges, if any) and death benefits of Contracts issued on an insured of a given age would vary over time if the gross investment return on the assets held in the Series Fund portfolios were at uniform, after tax, annual rates of 0%, 6%, and 12% and if exactly the premiums under differing premium schedules were paid. The death benefits and cash surrender values would be different from those shown if the returns averaged 0%, 6%, and 12% but fluctuated over and under those averages throughout the years. The tables also provide information about premiums payable on and after the anniversary following the insured's 65th birthday. The death benefits and cash surrender values shown in the first four tables on pages T1 through T4 are approximately those likely to be provided under the Contract for the uniform hypothetical rates of return shown in these tables upon the assumption that The Prudential continues to make the insurance and administrative charges that it is currently making. They also assume that termination dividends will be paid and that the Contract fund will reflect a reduction of charges in accordance with The Prudential's dividend scale that The Prudential currently applies to existing contracts and expects to apply to this Contract. See Participation in Divisible Surplus, page 14. However, there is no guarantee as to the amount, if any, of termination dividends that will be paid under a Contract. The death benefits and cash surrender values shown in the next four tables on pages T5 through T8 are calculated upon the assumption that the maximum mortality charges specified by the 1980 CSO Table and 17 maximum expense charges will be made throughout the life of the Contract, and that no termination dividends are paid and no reduction of charges will be made. The amounts shown for the death benefit and cash surrender value as of each Contract year reflect the fact that the net investment return of the assets held in the subaccounts is lower than the gross, after-tax return of the Series Fund's portfolios. Rather than including a separate table for each portfolio, it is assumed that the investment management fee and other estimated Series Fund expenses total 0.58%. The 0.58% figure is based on an average of the current management fees of the sixteen available portfolios and an analysis of historical operating expenses other than management fees, taking into account applicable expense offsets described earlier in this prospectus. Actual fees and expenses of the portfolios associated with a Contract may be more or less than 0.58%, will vary from year to year, and, for any particular Contract owner, will depend on how the Contract fund is allocated. In addition, the tables reflect the daily charge to the Account for assuming mortality and expense risks, which, is equivalent to an effective annual charge of 0.6% and on a maximum basis is 0.9%. The tables show in the headings both the gross and the corresponding net return. It is assumed that no charges for federal or state income taxes are made against the Account (other than "taxes attributable to premiums"). The tables assume that the insured is in the preferred rating class, and the charge for federal, state and local taxes attributable to premiums is 3.25%. Upon request, The Prudential will furnish a comparable hypothetical illustration based on the proposed insured's age and sex (except where unisex rates apply), and on the requested face amount and selected premium schedules. The illustrations can be prepared upon the assumptions that the insured is in the preferred or standard rating class or in a different risk classification, and can assume that annual, semi-annual, quarterly or monthly premiums are paid. 18 ILLUSTRATIONS ------------- CUSTOM VAL LIFE INSURANCE CONTRACT FORM A -- FIXED DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH HIGH INITIAL ANNUAL PREMIUM OF $1,987.60 RISING TO $3,983.46 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $15,664.08(1) USING CURRENT CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.18% Net) (4.82% Net) (10.82% Net) (-1.18% Net) (4.82% Net) (10.82% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,988 $ 2,067 $300,000 $300,000 $ 300,000 $ 0 $ 0 $ 0 2 $ 1,997 $ 4,227 $300,000 $300,000 $ 300,000 $ 0 $ 256 $ 529 3 $ 2,010 $ 6,486 $300,000 $300,000 $ 300,000 $ 1,062 $ 1,571 $ 2,124 4 $ 2,025 $ 8,852 $300,000 $300,000 $ 300,000 $ 2,096 $ 2,932 $ 3,880 5 $ 2,039 $ 11,327 $300,000 $300,000 $ 300,000 $ 3,095 $ 4,341 $ 5,811 6 $ 2,058 $ 13,920 $300,000 $300,000 $ 300,000 $ 4,577 $ 6,320 $ 8,463 7 $ 2,078 $ 16,637 $300,000 $300,000 $ 300,000 $ 6,189 $ 8,520 $ 11,506 8 $ 2,098 $ 19,485 $300,000 $300,000 $ 300,000 $ 7,756 $ 10,769 $ 14,791 9 $ 2,121 $ 22,470 $300,000 $300,000 $ 300,000 $ 9,280 $ 13,072 $ 18,348 10 $ 2,146 $ 25,600 $300,000 $300,000 $ 300,000 $ 10,757 $ 15,427 $ 22,202 15 $ 2,311 $ 43,745 $300,000 $300,000 $ 300,000 $ 14,580 $ 25,218 $ 44,428 20 $ 2,607 $ 67,124 $303,230 $303,230 $ 303,230 $ 20,391 $ 40,303 $ 85,721 25 $ 3,107 $ 97,892 $306,458 $306,458 $ 306,458 $ 26,914 $ 60,221 $ 157,085 30 (Age 65) $ 3,983 $139,242 $306,450 $306,450 $ 459,129 $ 29,288 $ 82,386 $ 275,649 35 $15,664 $257,645 $307,180 $307,180 $ 680,787 $ 83,756 $150,809 $ 456,907 40 $15,664 $401,699 $307,870 $322,494 $1,009,306 $131,250 $239,719 $ 745,838 45 $15,664 $576,964 $308,476 $436,151 $1,504,735 $170,839 $349,534 $1,201,698 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $15,664.08. For a gross return of 6%, the premium after age 65 will be $11,158.67. For a gross return of 12%, the premium after age 65 will be $1,987.60. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T1 CUSTOM VAL LIFE INSURANCE CONTRACT FORM B -- VARIABLE DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH HIGH INITIAL ANNUAL PREMIUM OF $1,987.60 RISING TO $3,983.46 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $15,664.08(1) USING CURRENT CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.18% Net) (4.82% Net) (10.82% Net) (-1.18% Net) (4.82% Net) (10.82% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,988 $ 2,067 $300,026 $300,119 $ 300,211 $ 0 $ 0 $ 0 2 $ 1,997 $ 4,227 $300,000 $300,256 $ 300,528 $ 0 $ 153 $ 426 3 $ 2,010 $ 6,486 $300,000 $300,408 $ 300,960 $ 858 $ 1,365 $ 1,917 4 $ 2,025 $ 8,852 $300,000 $300,584 $ 301,527 $ 1,891 $ 2,723 $ 3,666 5 $ 2,039 $ 11,327 $300,000 $300,781 $ 302,244 $ 2,915 $ 4,155 $ 5,618 6 $ 2,058 $ 13,920 $300,000 $301,080 $ 303,209 $ 4,567 $ 6,299 $ 8,428 7 $ 2,078 $ 16,637 $300,000 $301,408 $ 304,371 $ 6,178 $ 8,492 $ 11,455 8 $ 2,098 $ 19,485 $300,000 $301,769 $ 305,753 $ 7,744 $ 10,733 $ 14,717 9 $ 2,121 $ 22,470 $300,000 $302,162 $ 307,380 $ 9,268 $ 13,025 $ 18,243 10 $ 2,146 $ 25,600 $300,000 $302,590 $ 309,279 $ 10,745 $ 15,366 $ 22,055 15 $ 2,311 $ 43,745 $300,000 $305,351 $ 324,078 $ 14,568 $ 25,029 $ 43,756 20 $ 2,607 $ 67,124 $303,230 $313,958 $ 357,705 $ 20,534 $ 40,086 $ 83,833 25 $ 3,107 $ 97,892 $306,458 $329,211 $ 421,003 $ 27,237 $ 59,751 $ 151,543 30 (Age 65) $ 3,983 $139,242 $306,450 $350,497 $ 531,781 $ 29,831 $ 80,497 $ 261,781 35 $15,664 $257,645 $307,180 $377,670 $ 665,483 $ 84,436 $156,273 $ 444,086 40 $15,664 $401,699 $307,870 $423,637 $1,004,833 $132,018 $248,382 $ 742,542 45 $15,664 $576,964 $308,476 $495,311 $1,525,179 $171,624 $360,397 $1,218,001 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $15,664.08. For a gross return of 6%, the premium after age 65 will be $13,318.69. For a gross return of 12%, the premium after age 65 will be $3,665.83. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T2 CUSTOM VAL LIFE INSURANCE CONTRACT FORM A -- FIXED DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH LOW INITIAL ANNUAL PREMIUM OF $1,371.58 RISING TO $5,363.31 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $17,226.87(1) USING CURRENT CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.18% Net) (4.82% Net) (10.82% Net) (-1.18% Net) (4.82% Net) (10.82% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,372 $ 1,426 $300,000 $300,000 $300,000 $ 0 $ 0 $ 0 2 $ 1,390 $ 2,929 $300,000 $300,000 $300,000 $ 0 $ 0 $ 0 3 $ 1,417 $ 4,520 $300,000 $300,000 $300,000 $ 0 $ 0 $ 181 4 $ 1,446 $ 6,205 $300,000 $300,000 $300,000 $ 107 $ 601 $ 1,164 5 $ 1,475 $ 7,987 $300,000 $300,000 $300,000 $ 651 $ 1,383 $ 2,250 6 $ 1,512 $ 9,879 $300,000 $300,000 $300,000 $ 1,539 $ 2,557 $ 3,814 7 $ 1,551 $ 11,888 $300,000 $300,000 $300,000 $ 2,674 $ 4,030 $ 5,775 8 $ 1,593 $ 14,020 $300,000 $300,000 $300,000 $ 3,788 $ 5,536 $ 7,879 9 $ 1,638 $ 16,284 $300,000 $300,000 $300,000 $ 4,885 $ 7,080 $ 10,147 10 $ 1,688 $ 18,691 $300,000 $300,000 $300,000 $ 5,960 $ 8,659 $ 12,593 15 $ 2,019 $ 33,270 $300,000 $300,000 $300,000 $ 8,248 $ 14,403 $ 25,543 20 $ 2,610 $ 53,615 $303,115 $303,115 $303,115 $ 13,396 $ 25,058 $ 51,547 25 $ 3,610 $ 83,017 $306,229 $306,229 $306,229 $ 21,239 $ 41,425 $ 98,765 30 (Age 65) $ 5,363 $126,619 $306,225 $306,225 $306,225 $ 28,397 $ 62,702 $182,548 35 $16,523 $247,128 $306,995 $306,995 $449,059 $ 87,193 $135,416 $302,135 40 $16,523 $393,745 $307,724 $309,394 $665,742 $139,515 $230,027 $492,624 45 $16,523 $572,127 $308,363 $435,276 $992,246 $185,344 $348,813 $792,980 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $16,523.43. For a gross return of 6%, the premium after age 65 will be $13,158.83. For a gross return of 12%, the premium after age 65 will be $1,404.31. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T3 CUSTOM VAL LIFE INSURANCE CONTRACT FORM B -- VARIABLE DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH LOW INITIAL ANNUAL PREMIUM OF $1,371.58 RISING TO $5,363.31 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $17,226.87(1) USING CURRENT CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.18% Net) (4.82% Net) (10.82% Net) (-1.18% Net) (4.82% Net) (10.82% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,372 $ 1,426 $300,070 $300,128 $ 300,186 $ 0 $ 0 $ 0 2 $ 1,390 $ 2,929 $300,111 $300,270 $ 300,436 $ 0 $ 0 $ 0 3 $ 1,417 $ 4,520 $300,122 $300,425 $ 300,756 $ 0 $ 0 $ 34 4 $ 1,446 $ 6,205 $300,107 $300,599 $ 301,159 $ 0 $ 358 $ 917 5 $ 1,475 $ 7,987 $300,062 $300,789 $ 301,651 $ 408 $ 1,135 $ 1,998 6 $ 1,512 $ 9,879 $300,016 $301,027 $ 302,275 $ 1,529 $ 2,540 $ 3,788 7 $ 1,551 $ 11,888 $300,000 $301,288 $ 303,018 $ 2,663 $ 4,008 $ 5,738 8 $ 1,593 $ 14,020 $300,000 $301,574 $ 303,893 $ 3,775 $ 5,507 $ 7,826 9 $ 1,638 $ 16,284 $300,000 $301,884 $ 304,915 $ 4,870 $ 7,041 $ 10,072 10 $ 1,688 $ 18,691 $300,000 $302,222 $ 306,101 $ 5,944 $ 8,610 $ 12,489 15 $ 2,019 $ 33,270 $300,000 $304,407 $ 315,250 $ 8,227 $ 14,246 $ 25,089 20 $ 2,610 $ 53,615 $303,115 $311,736 $ 337,196 $ 13,469 $ 24,800 $ 50,260 25 $ 3,610 $ 83,017 $306,229 $325,554 $ 379,758 $ 21,423 $ 40,824 $ 95,028 30 (Age 65) $ 5,363 $126,619 $313,487 $345,634 $ 455,373 $ 28,487 $ 60,634 $170,373 35 $16,840 $248,912 $321,431 $373,339 $ 557,692 $ 87,734 $139,642 $323,995 40 $16,840 $397,700 $324,506 $420,607 $ 783,423 $139,515 $235,616 $579,345 45 $16,840 $578,723 $325,262 $494,662 $1,240,918 $182,853 $352,253 $991,289 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $16,840.16. For a gross return of 6%, the premium after age 65 will be $15,128.45. For a gross return of 12%, the premium after age 65 will be $9,285.17. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T4 CUSTOM VAL LIFE INSURANCE CONTRACT FORM A -- FIXED DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH HIGH INITIAL ANNUAL PREMIUM OF $1,987.60 RISING TO $3,983.46 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $15,664.08(1) USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.48% Net) (4.52% Net) (10.52% Net) (-1.48% Net) (4.52% Net) (10.52% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,988 $ 2,067 $300,000 $300,000 $300,000 $ 0 $ 0 $ 0 2 $ 1,997 $ 4,227 $300,000 $300,000 $300,000 $ 0 $ 28 $ 288 3 $ 2,010 $ 6,486 $300,000 $300,000 $300,000 $ 736 $ 1,214 $ 1,734 4 $ 2,025 $ 8,852 $300,000 $300,000 $300,000 $ 1,653 $ 2,432 $ 3,317 5 $ 2,039 $ 11,327 $300,000 $300,000 $300,000 $ 2,529 $ 3,683 $ 5,048 6 $ 2,058 $ 13,920 $300,000 $300,000 $300,000 $ 3,807 $ 5,409 $ 7,385 7 $ 2,078 $ 16,637 $300,000 $300,000 $300,000 $ 5,209 $ 7,335 $ 10,069 8 $ 2,098 $ 19,485 $300,000 $300,000 $300,000 $ 6,562 $ 9,288 $ 12,944 9 $ 2,121 $ 22,470 $300,000 $300,000 $300,000 $ 7,867 $ 11,271 $ 16,034 10 $ 2,146 $ 25,600 $300,000 $300,000 $300,000 $ 9,120 $ 13,280 $ 19,357 15 $ 2,311 $ 43,745 $300,000 $300,000 $300,000 $11,711 $ 20,860 $ 37,588 20 $ 2,607 $ 67,124 $300,000 $300,000 $300,000 $12,184 $ 28,422 $ 66,269 25 $ 3,107 $ 97,892 $300,000 $300,000 $300,000 $ 9,084 $ 34,571 $112,370 30 (Age 65) $ 3,983 $139,242 $300,000 $300,000 $319,662 $ 0 $ 36,750 $190,097 35 $15,664 $257,645 $300,000 $300,000 $447,385 $31,499 $ 88,595 $298,692 40 $15,664 $401,699 $300,000 $300,000 $622,867 $41,663 $143,948 $458,997 45 $15,664 $576,964 $300,000 $300,000 $861,521 $11,384 $208,324 $687,037 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $15,664.08. For a gross return of 6%, the premium after age 65 will be $15,002.04. For a gross return of 12%, the premium after age 65 will be $1,987.60. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T5 CUSTOM VAL LIFE INSURANCE CONTRACT FORM B -- VARIABLE DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH HIGH INITIAL ANNUAL PREMIUM OF $1,987.60 RISING TO $3,983.46 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $15,664.08(1) USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.48% Net) (4.52% Net) (10.52% Net) (-1.48% Net) (4.52% Net) (10.52% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,988 $ 2,067 $300,000 $300,011 $300,101 $ 0 $ 0 $ 0 2 $ 1,997 $ 4,227 $300,000 $300,029 $300,288 $ 0 $ 0 $ 185 3 $ 2,010 $ 6,486 $300,000 $300,052 $300,571 $ 533 $ 1,009 $ 1,527 4 $ 2,025 $ 8,852 $300,000 $300,085 $300,966 $ 1,449 $ 2,224 $ 3,105 5 $ 2,039 $ 11,327 $300,000 $300,126 $301,483 $ 2,352 $ 3,500 $ 4,857 6 $ 2,058 $ 13,920 $300,000 $300,174 $302,137 $ 3,800 $ 5,393 $ 7,355 7 $ 2,078 $ 16,637 $300,000 $300,231 $302,942 $ 5,202 $ 7,315 $ 10,026 8 $ 2,098 $ 19,485 $300,000 $300,299 $303,920 $ 6,554 $ 9,263 $ 12,884 9 $ 2,121 $ 22,470 $300,000 $300,378 $305,087 $ 7,860 $ 11,241 $ 15,950 10 $ 2,146 $ 25,600 $300,000 $300,467 $306,465 $ 9,113 $ 13,243 $ 19,241 15 $ 2,311 $ 43,745 $300,000 $301,091 $317,393 $11,704 $ 20,769 $ 37,071 20 $ 2,607 $ 67,124 $300,000 $302,076 $338,141 $12,178 $ 28,204 $ 64,269 25 $ 3,107 $ 97,892 $300,000 $303,500 $374,692 $ 9,078 $ 34,040 $105,232 30 (Age 65) $ 3,983 $139,242 $300,000 $305,425 $436,136 $ 0 $ 35,425 $166,136 35 $15,664 $257,645 $300,000 $307,964 $501,679 $31,492 $ 86,567 $280,282 40 $15,664 $401,699 $300,000 $313,182 $631,774 $41,655 $137,927 $456,519 45 $15,664 $576,964 $300,000 $322,075 $902,844 $11,373 $187,161 $719,991 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $15,664.08. For a gross return of 6%, the premium after age 65 will be $15,375.22. For a gross return of 12%, the premium after age 65 will be $8,415.25. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T6 CUSTOM VAL LIFE INSURANCE CONTRACT FORM A -- FIXED DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH LOW INITIAL ANNUAL PREMIUM OF $1,371.58 RISING TO $5,363.31 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $17,226.87(1) USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.48% Net) (4.52% Net) (10.52% Net) (-1.48% Net) (4.52% Net) (10.52% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,372 $ 1,426 $300,000 $300,000 $300,000 $ 0 $ 0 $ 0 2 $ 1,390 $ 2,929 $300,000 $300,000 $300,000 $ 0 $ 0 $ 0 3 $ 1,417 $ 4,520 $300,000 $300,000 $300,000 $ 0 $ 0 $ 0 4 $ 1,446 $ 6,205 $300,000 $300,000 $300,000 $ 0 $ 53 $ 547 5 $ 1,475 $ 7,987 $300,000 $300,000 $300,000 $ 35 $ 666 $ 1,419 6 $ 1,512 $ 9,879 $300,000 $300,000 $300,000 $ 759 $ 1,627 $ 2,707 7 $ 1,551 $ 11,888 $300,000 $300,000 $300,000 $ 1,725 $ 2,870 $ 4,353 8 $ 1,593 $ 14,020 $300,000 $300,000 $300,000 $ 2,665 $ 4,125 $ 6,098 9 $ 1,638 $ 16,284 $300,000 $300,000 $300,000 $ 3,583 $ 5,397 $ 7,956 10 $ 1,688 $ 18,691 $300,000 $300,000 $300,000 $ 4,473 $ 6,682 $ 9,937 15 $ 2,019 $ 33,270 $300,000 $300,000 $300,000 $ 5,705 $ 10,517 $ 19,391 20 $ 2,610 $ 53,615 $300,000 $300,000 $300,000 $ 5,855 $ 14,380 $ 34,398 25 $ 3,610 $ 83,017 $300,000 $300,000 $300,000 $ 4,196 $ 17,634 $ 58,807 30 (Age 65) $ 5,363 $126,619 $300,000 $300,000 $300,000 $ 0 $ 19,153 $100,664 35 $17,227 $251,090 $300,000 $300,000 $300,000 $38,595 $ 73,983 $191,290 40 $17,227 $402,528 $300,000 $300,000 $458,591 $57,922 $132,345 $337,940 45 $17,227 $586,776 $300,000 $300,000 $687,557 $42,183 $199,767 $548,306 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $17,226.87. For a gross return of 6%, the premium after age 65 will be $16,819.55. For a gross return of 12%, the premium after age 65 will be $8,824.90. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T7 CUSTOM VAL LIFE INSURANCE CONTRACT FORM B -- VARIABLE DEATH BENEFIT MALE PREFERRED ISSUE AGE 35 $300,000 GUARANTEED DEATH BENEFIT RATE SCHEDULE WITH LOW INITIAL ANNUAL PREMIUM OF $1,371.58 RISING TO $5,363.31 AT AGE 64, MAXIMUM PREMIUM AGE 65 AND LATER -- $17,226.87(1) USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (2) Cash Surrender Value (2) --------------------------------------- --------------------------------------- Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net) Premiums Annual Investment Return of Annual Investment Return of End of Accumulated at --------------------------------------- --------------------------------------- Policy Annual 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross Year Premium Per Year (1) (-1.48% Net) (4.52% Net) (10.52% Net) (-1.48% Net) (4.52% Net) (10.52% Net) ------ ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------ 1 $ 1,372 $ 1,426 $300,000 $300,008 $300,063 $ 0 $ 0 $ 0 2 $ 1,390 $ 2,929 $300,000 $300,018 $300,170 $ 0 $ 0 $ 0 3 $ 1,417 $ 4,520 $300,000 $300,033 $300,327 $ 0 $ 0 $ 0 4 $ 1,446 $ 6,205 $300,000 $300,053 $300,544 $ 0 $ 0 $ 303 5 $ 1,475 $ 7,987 $300,000 $300,076 $300,824 $ 0 $ 422 $ 1,170 6 $ 1,512 $ 9,879 $300,000 $300,103 $301,175 $ 753 $ 1,616 $ 2,688 7 $ 1,551 $ 11,888 $300,000 $300,136 $301,606 $ 1,719 $ 2,856 $ 4,326 8 $ 1,593 $ 14,020 $300,000 $300,174 $302,127 $ 2,659 $ 4,107 $ 6,060 9 $ 1,638 $ 16,284 $300,000 $300,218 $302,747 $ 3,576 $ 5,375 $ 7,904 10 $ 1,688 $ 18,691 $300,000 $300,268 $303,478 $ 4,467 $ 6,656 $ 9,866 15 $ 2,019 $ 33,270 $300,000 $300,612 $309,250 $ 5,699 $ 10,451 $ 19,089 20 $ 2,610 $ 53,615 $300,000 $301,157 $320,204 $ 5,850 $ 14,221 $ 33,268 25 $ 3,610 $ 83,017 $300,000 $301,970 $339,575 $ 4,190 $ 17,240 $ 54,845 30 (Age 65) $ 5,363 $126,619 $300,000 $303,144 $372,372 $ 0 $ 18,144 $ 87,372 35 $17,227 $251,090 $300,000 $305,537 $413,735 $38,586 $ 71,840 $180,038 40 $17,227 $402,528 $300,000 $310,717 $502,797 $57,912 $125,726 $317,806 45 $17,227 $586,776 $300,000 $319,752 $670,364 $42,170 $177,343 $527,955 (1) For a hypothetical gross investment return of 0%, the premium after age 65 will be $17,226.87. For a gross return of 6%, the premium after age 65 will be $17,059.44. For a gross return of 12%, the premium after age 65 will be $13,373.28. The premiums accumulated in column 3 are those payable if the gross investment return is 0%. For an explanation of why the scheduled premium may significantly increase after age 65, see Premiums. (2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. T8 Contract Loans. The owner may borrow from The Prudential up to the "loan value" of the Contract, using the Contract as the only security for the loan. The loan value is equal to the sum of (1) 90% of an amount equal to the portion of the Contract fund value attributable to the variable investment options and to any prior loan[s] supported by the variable investment options, minus the portion of any charges attributable to variable investment options that would be payable upon an immediate surrender; plus (2) 100% of an amount equal to the portion of the Contract fund value attributable to the fixed-rate option and to any prior loan[s] supported by the fixed-rate option, minus the portion of any charges attributable to the fixed-rate option that would be payable upon an immediate surrender. The minimum amount that may be borrowed at any one time is $200 unless the proceeds are used to pay premiums on the Contract. Under one of the loan provisions available under this Contract, interest charged on a loan accrues daily at a fixed effective annual rate of 5.5%. Alternatively, the Contract owner may elect a different loan provision available under the Contract under which the interest rate will vary from time to time. The Contract owner may switch from the fixed to variable interest loan provision, or vice-versa, with The Prudential's consent. If an owner elects the variable loan interest rate provision, interest charged on any loan will accrue daily at an annual rate The Prudential determines at the start of each Contract year (instead of at the fixed 5.5% rate). This interest rate will not exceed the greater of (1) the "Published Monthly Average" for the calendar month ending 2 months before the calendar month of the Contract anniversary; or (2) 5%. And, it will never be greater than is permitted by law in the state of issue of the Contract. The "Published Monthly Average" means Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc. or any successor to that service, or if that average is no longer published, a substantially similar average established by the insurance regulator where the Contract is issued. The Published Monthly Average in 1994 ranged from 7.25% to 8.94%. Interest payments on any loan are due at the end of each Contract year. If interest is not paid when due, it is added to the principal amount of the loan. The term "Contract debt" means the amount of all outstanding loans plus any interest accrued but not yet due. If at any time the Contract debt exceeds what the cash surrender value would be if there were no Contract debt, The Prudential will notify the Contract owner of its intent to terminate the Contract in 61 days, within which time the owner may repay all or enough of the loan to obtain a positive cash surrender value and thus keep the Contract in force for a limited time. When a loan is made, an amount equal to the loan proceeds will be transferred out of the Account, the fixed-rate option and/or the Real Property Account, as applicable. The reduction will normally be made in the same proportions as the value in each subaccount, the fixed-rate option, and the Real Property Account bears to the total value of the Contract. 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 a rate of return of 4% if the loan is a fixed-rate loan (5.5%) and with a rate of return of 1% lower than the interest rate if it is a variable rate loan, rather than with the actual rate of return of the subaccount[s], fixed-rate option or Real Property Account. A loan will not affect the amount of the premiums due. Should the death benefit become payable while a loan is outstanding, or should the Contract be surrendered, any Contract debt will be deducted from the death benefit or the cash surrender value. Loans from Modified Endowment Contracts may be treated for tax purposes as distributions of income. See Tax Treatment of Contract Benefits, page 20. A loan will have an effect on a Contract's cash surrender value and may have an effect on the death benefit, even if the loan is fully repaid, because the investment results of the selected investment options will apply only to the amount remaining invested under those options. The longer the loan is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If investment results are greater than the rate being credited upon 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. A loan that is repaid will not have any effect upon the guaranteed minimum death benefit. Consider the Contract issued on a 35 year old male insured illustrated in the table on page T3 with a 12% gross investment return. Assume a $5,000 fixed-rate (5.5%) loan was made under this Contract at the end of Contract year 8 and repaid at the end of Contract year 10 and loan interest was paid when due. Upon repayment, the cash surrender value would be $11,884.77. This amount is lower than the cash surrender value shown on that page for the end of Contract year 10 because the loan amount was credited with the 4% assumed rate of return rather than the 10.82% net return for the designated subaccount[s] resulting from the 12% gross return in the underlying Series Fund. If a variable interest rate option had been chosen, the cash surrender value would have been higher. Sale of the Contract and Sales Commissions. Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of The Prudential, acts as the principal underwriter of the Contract. Prusec, organized in 1971 under New Jersey law, is registered as a broker and dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Prusec's principal business address is 1111 Durham Avenue, 19 South Plainfield, New Jersey 07080. The Contract is sold by registered representatives of Prusec who are also authorized by state insurance departments to do so. The Contract may also be sold through other broker-dealers authorized by Prusec and applicable law to do so. Registered representatives of such other broker-dealers may be paid on a different basis than described below. Where the insured is less than 60 years of age, the representative will generally receive a commission of no more than 50% of the scheduled premiums for the first year, no more than 12% of the scheduled premiums for the second, third, and fourth years, no more than 3% of the scheduled premiums for the fifth through tenth years, and no more than 2% of the scheduled premiums thereafter. For insureds over 59 years of age, the commission will be lower. The representative may be required to return all or part of the first year commission if the Contract is not continued through the second year. Representatives with less than 3 years of service may be paid on a different basis. Representatives who meet certain productivity, profitability, and persistency standards with regard to the sale of the Contract will be eligible for additional compensation. Sales expenses in any year are not equal to the deduction for sales load in that year. The Prudential expects to recover its total sales expenses over the periods the Contracts are in effect. To the extent that the sales charges are insufficient to cover total sales expenses, the sales expenses will be recovered from The Prudential's surplus, which may include amounts derived from the mortality and expense risk charge and the guaranteed minimum death benefit risk charge described in items 5 and 7 under Charges and Expenses, page 9. Tax Treatment of Contract Benefits. Each prospective purchaser is urged to consult a qualified tax advisor. The following discussion is not intended as tax advice, and it is not a complete statement of what the effect of federal income taxes will be under all circumstances. Rather, it provides information about how The Prudential believes the tax laws apply in the most commonly occurring circumstances. There is no guarantee, however, that the current federal income tax laws and regulations or interpretations will not change. Treatment as Life Insurance. The Contract will be treated as "life insurance," as long as it satisfies certain definitional tests set forth in 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 DIVIDENDS, DISTRIBUTIONS, AND TAXES in the attached prospectus for the Series Fund.) The Prudential believes that it has taken adequate steps to cause the Contract to be treated as life insurance for tax purposes. This means that (1) except as noted below, the Contract owner should not be taxed on any part of the Contract fund, including additions attributable to interest, dividends or appreciation; and (2) the death benefit should be excludible from the gross income of the beneficiary under Section 101(a) of the Code. However, Section 7702 of the Code which defines life insurance for tax purposes gives the Secretary of the Treasury authority to prescribe regulations to carry out the purposes of the Section. In this regard, proposed regulations governing mortality charges were issued in 1991 and proposed regulations under Sections 101, 7702 and 7702A governing the treatment of life insurance policies that provide accelerated death benefits were issued in 1992. None of these proposed regulations has yet been finalized. Additional regulations under Section 7702 may also be promulgated in the future. Moreover, in connection with the issuance of temporary regulations under Section 817(h), the Treasury Department announced that such regulations do not provide guidance concerning the extent to which Contract owners may direct their investments to particular divisions of a separate account. Such guidance will be included in regulations or rulings under Section 817(d) relating to the definition of a variable contract. The Prudential intends to comply with final regulations issued under sections 7702 and 817. Therefore, it reserves the right to make such changes as it deems necessary to assure that the Contract continues to qualify as life insurance for tax purposes. Any such changes will apply uniformly to affected Contract owners and will be made only after advance written notice to affected Contract owners. Pre-Death Distributions. The taxation of pre-death distributions depends on whether the Contract is classified as a Modified Endowment Contract. The following discussion first deals with distributions under Contracts not so classified, and then with Modified Endowment Contracts. 1. A surrender or lapse of the Contract may have tax consequences. Upon surrender, the owner will not be taxed on the cash surrender value except for the amount, if any, that exceeds the gross premiums paid less the untaxed portion of any prior withdrawals. The amount of any unpaid Contract debt will, upon surrender or lapse, be added to the cash surrender value and treated, for this purpose, as if it had been received. Any loss incurred upon surrender is generally not deductible. The tax consequences of a surrender may differ if the proceeds are received under any income payment settlement option. A withdrawal generally is not taxable unless it exceeds total premiums paid to the date of withdrawal less the untaxed portion of any prior withdrawals. However, under certain limited circumstances, in the first 15 Contract years all or a portion of a withdrawal may be taxable if the Contract fund exceeds the total 20 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. 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 substantially in excess of scheduled premiums are paid or a decrease in the face amount of insurance is made (or a rider removed) during the first 7 Contract years. Moreover, the addition of a rider or the increase in the face amount of insurance after the Contract date may have an impact on the Contract's status as a Modified Endowment Contract. Contract owners contemplating any of these steps should first consult a qualified tax advisor and their Prudential representative. If the Contract is classified as a Modified Endowment Contract, then pre-death distributions, including loans, are includible in income to the extent that the Contract fund prior to surrender charges exceeds the gross premiums paid for the Contract increased by the amount of any loans previously includible in income and reduced by any untaxed amounts previously received other than the amount of any loans excludible from income. These rules may also apply to pre-death distributions, including loans, made during the 2 year period prior to the Contract becoming a Modified Endowment Contract. In addition, pre-death distributions from such Contracts (including full surrenders) will be subject to a penalty of 10 per cent of the amount includible in income unless the amount is distributed on or after age 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, Modified Endowment Contracts issued during any calendar year will be treated as a single contract for purposes of applying the above rules. Withholding. The taxable portion of any amounts received under the Contract will be subject to withholding to meet federal income tax obligations. If the contract owner fails to elect that no taxes be withheld, The 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 not sufficient. Contract owners who do not provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding. Other Tax Considerations. Transfer of the Contract to a new owner or assignment of the Contract may have tax consequences depending on the circumstances. In the case of a transfer of the Contract for a valuable consideration, the death benefit may be subject to federal income taxes under Section 101(a)(2) of the Code. In addition, a transfer of the Contract to or the designation of a beneficiary who is either 37 1/2 years younger than the Contract owner or a grandchild of the Contract owner may have Generation Skipping Transfer tax consequences under Section 2601 of the Code. In certain circumstances, deductions for interest paid or accrued on Contract debt or on other loans that are incurred or continued to purchase or carry the Contract may be denied under sections 163 of the Code as personal interest or under section 264 of the Code. Contract owners should consult a tax advisor regarding the application of these provisions to their circumstances. Business-owned life insurance is subject to additional rules. Section 264(a)(1) of the Code generally precludes business Contract owners from deducting premium payments. Under section 264(a)(4) of the Code, a deduction is not allowed for any interest paid or accrued on any Contract debt on an insurance policy to the extent the indebtedness exceeds $50,000 per officer, employee or financially interested person. The Code also imposes an indirect tax upon additions to the Contract fund or the receipt of death benefits under business-owned life insurance policies under certain circumstances by way of the corporate alternative minimum tax. The individual situation of each Contract owner or beneficiary will determine the federal estate taxes and the state and local estate, inheritance and other taxes due if the owner or insured dies. Lapse and Reinstatement. The Contract has an advantageous feature that is not typically found in similar types of life insurance contracts. If scheduled premiums are paid on or before each due date, or within the grace period after each due date, and there are no withdrawals, a Contract will remain in force even if the investment results of that Contract's variable investment option[s] have been so unfavorable that the Contract fund has decreased to zero or less. Therefore, unlike most similar types of life insurance contracts that lapse when the cash surrender value decreases to zero even if premiums are paid, this Contract ensures that as long as scheduled premiums are paid, insurance protection remains in effect. 21 In fact, even if a scheduled premium is not paid, the Contract will remain in force as long as the Contract fund on any Monthly date is equal to or greater than the tabular Contract fund value on the next Monthly date. This could occur because of such factors as favorable investment experience, deduction of less than the maximum permissible mortality and expense risk charges, or the previous payment of greater than scheduled premiums. However, if a scheduled premium is not paid, and the Contract fund is insufficient to keep the Contract in force, the Contract will go into default. Should this happen, The Prudential will send the Contract owner a notice of default setting forth the payment necessary to keep the Contract in force on a premium paying basis. This payment must be received at The Prudential Home Office within the 61 day grace period after the notice of default is mailed or the Contract will lapse. A Contract that lapses with an outstanding Contract loan may have tax consequences. See Tax Treatment of Contract Benefits on page 20. A Contract that has lapsed may be reinstated within 5 years after the date of default unless the Contract has been surrendered for its cash surrender value. To reinstate a lapsed Contract, The Prudential requires renewed evidence of insurability, and submission of certain payments due under the Contract. If a Contract does lapse, it may still provide some benefits. Those benefits are described below under Options on Lapse. Options on Lapse. If a Contract lapses, some life insurance coverage may continue in effect, or the owner may choose to surrender the Contract for its cash surrender value. 1. Fixed Extended Term Insurance. With one exception, explained below, if the owner does not communicate at all with The Prudential, life insurance coverage will continue for a length of time that depends on the cash surrender value on the date of default, the amount of insurance, the rating classification, and the age and sex (except where unisex rates apply) of the insured. The insurance amount will be what it would have been on the date of default, taking into account any Contract debt on that date. The amount will not change while the insurance stays in force. This benefit is known as fixed extended term insurance. The owner will be told in writing how long the insurance will be in effect. Fixed extended term insurance has a cash surrender value, but no loan value. Contracts issued on the lives of certain insureds in high risk rating classes will include a statement that fixed extended term insurance will not be provided. Under those Contracts, fixed reduced paid-up insurance (as described in item 2 below) will generally be the automatic option provided on lapse. However, if variable reduced paid-up insurance (as described in item 3 below) is available and the amount of that insurance is at least as great as the amount of fixed extended term insurance, then variable reduced paid-up insurance will be the automatic option provided on lapse. 2. Fixed Reduced Paid-Up Insurance. The owner may choose to have insurance coverage provided for the lifetime of the insured. The insurance amount will generally be lower than what fixed extended term insurance would provide. This is known as fixed reduced paid-up insurance. The insurance amount will depend on the cash surrender value on the date of default, the rating classification, and the age and sex of the insured. The amount will not be less thereafter unless a loan is taken against the fixed reduced paid-up insurance. The amount may increase if any dividends are paid. Apart from the case described above in which fixed reduced paid-up insurance is the automatic benefit provided on lapse, the owner who wants fixed reduced paid-up insurance must ask for it in writing, in a form that meets The Prudential's needs, within three months of the date of default. The Prudential will, if asked, tell the owner what the amount of fixed reduced paid-up insurance will be. Fixed reduced paid-up insurance has a cash surrender value and a loan value. Acquisition of reduced paid-up insurance within the first 7 Contract years may result in the Contract becoming a Modified Endowment Contract. See Tax Treatment Of Contract Benefits, page 20. 3. Variable Reduced Paid-Up Insurance. Variable reduced paid-up insurance provides insurance coverage for the lifetime of the insured. The initial insurance amount will depend upon the cash surrender value on the date of default, the rating classification, and the age and sex (except where unisex rates apply) of the insured. This initial insurance amount will be the same as the amount of fixed reduced paid-up insurance that would have been provided had that option been selected. This will be a new guaranteed minimum death benefit. Aside from this guarantee, the cash surrender value and the amount of insurance will vary with investment performance. Variable reduced paid-up insurance has a loan privilege identical to that available on premium paying Contracts. See Contract Loans, page 19. Acquisition of reduced paid-up insurance within the first 7 Contract years may result in the Contract becoming a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 20. Except for the case described above in which variable reduced paid-up insurance is the automatic option provided upon lapse, the owner who wants variable reduced paid-up insurance must ask for it in writing, in a form that meets The Prudential's needs, within 3 months of the date of default. Variable reduced paid-up insurance will be available only if the initial amount of insurance would be at least $5,000 and the insured is not in one of the high risk rating classes for which The Prudential does not offer fixed extended term insurance. 22 4. Payment of Cash Surrender Value. The owner can receive the cash surrender value by surrendering the Contract and making a proper written request. If The Prudential receives the request after the grace period expires, the cash surrender value will be the net value of any fixed extended term insurance then in force, or the net value of any reduced paid-up insurance then in force (either fixed or variable), less any Contract debt. Surrender of the Contract may have tax consequences. See Tax Treatment of Contract Benefits, page 20. 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. However, in those states that have adopted regulations prohibiting sex-distinct insurance rates, premiums and cost of insurance charges will be based on a blended unisex rate whether the insured is male or female. In addition, employers and employee organizations considering purchase of a Contract should consult their legal advisors to determine whether purchase of a Contract based on sex-distinct actuarial tables is consistent with Title VII of the Civil Rights Act of 1964 or other applicable law. The Prudential may offer the Contract with unisex mortality rates to such prospective purchasers. Other General Contract Provisions. Beneficiary. The beneficiary is designated and named in the application by the Contract owner. Thereafter, the owner may change the beneficiary, provided it is in accordance with the terms of the Contract. Should the insured die with no surviving beneficiary, the insured's estate will become the beneficiary. Incontestability. After the Contract has been in force during the insured's lifetime for 2 years from the Contract date or, with respect to any change in the Contract that requires The Prudential's approval and could increase its liability, after the change has been in effect during the insured's lifetime for 2 years from the effective date of the change, The Prudential will not contest its liability under the Contract in accordance with its terms. Misstatement of Age or Sex. If the insured's stated age or sex (except where unisex rates apply) or both are incorrect in the Contract, The Prudential will adjust the death benefits payable, as required by law, to reflect the correct age and sex. Any death benefit will be based on what the most recent charge for mortality would have provided at the correct age and sex. Suicide Exclusion. Generally, if the insured, whether sane or insane, dies by suicide within 2 years from the Contract date, The Prudential will pay no more under the Contract than the sum of the premiums paid. If the insured, whether sane or insane, dies by suicide within 2 years from the effective date of an increase in the face amount of insurance, The Prudential will pay, with respect to the amount of the increase, no more than the sum of the scheduled premiums attributable to the increase. Assignment. This Contract may not be assigned if such assignment would violate any federal, state or local law or regulation. Generally, the Contract may not be assigned to an employee benefit plan or program without The Prudential's consent. The Prudential assumes no responsibility for the validity or sufficiency of any assignment, and it will not be obligated to comply with any assignment unless it has received a copy at one of its Home Offices. Settlement Options. The Contract grants to most owners, or to the beneficiary, a variety of optional ways of receiving Contract proceeds, other than in a lump sum. Any Prudential representative authorized to sell this Contract can explain these options upon request. Riders. When the Contract is first issued, the owner 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 for the riders will be deducted from the Contract fund on each Monthly date. One rider pays an additional amount if the insured dies in an accident. Another waives certain premiums if the insured is disabled within the meaning of the provision. 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. 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 The Prudential upon written request. 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 The Prudential has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosure in this prospectus relating to the fixed-rate option. 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. 23 As explained earlier, a Contract owner may elect to allocate, either initially or by transfer, all or part of the amount credited under the Contract to a fixed-rate option, and the amount so allocated or transferred becomes part of The Prudential's general assets. Sometimes this is referred to as The Prudential's general account, which consists of all assets owned by The Prudential other than those in the Account and in other separate accounts that have been or may be established by The Prudential. Subject to applicable law, The Prudential has sole discretion over the investment of the assets of the general account, and Contract owners do not share in the investment experience of those assets. Instead, The Prudential guarantees that the part of the Contract fund allocated to the fixed-rate option will accrue interest daily at an effective annual rate that The Prudential declares periodically, but not less than an effective annual rate of 4%. Currently, declared interest rates remain in effect from the date money is allocated to the fixed-rate option until the Monthly date in the same month in the following year. Thereafter, a new crediting rate will be declared each year and will remain in effect for the calendar year. The Prudential reserves the right to change this practice. The Prudential is not obligated to credit interest at a higher rate than 4%, although in its sole discretion it may do so. Different crediting rates may be declared for different portions of the Contract fund allocated to the fixed-rate option. On request, a Contract owner will be advised of the interest rates that currently apply to his or her Contract. Transfers from the fixed-rate option are subject to strict limits. (See Transfers, page 9). The payment of any cash surrender value attributable to the fixed-rate option may be delayed up to 6 months (see When Proceeds are Paid, page 16). Voting Rights. As stated above, all of the assets held in the subaccounts of the Account will be invested in shares of the corresponding portfolios of the Series Fund. The Prudential is the legal owner of those shares and as such has the right to vote on any matter voted on at Series Fund shareholders meetings. However, The Prudential will, as required by law, vote the shares of the Series Fund at any regular and special shareholders meetings it is required to hold in accordance with voting instructions received from Contract owners. The Series Fund will not hold annual shareholders meetings when not required to do so under Maryland law or the Investment Company Act of 1940. Series Fund shares for which no timely instructions from Contract owners are received, and any shares attributable to general account investments of The 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 The Prudential to vote shares of the Series Fund in its own right, it may elect to do so. Matters on which Contract owners may give voting instructions include the following: (1) election of the Board of Directors of the Series Fund; (2) ratification of the independent accountant of the Series Fund; (3) approval of the investment advisory agreement for a portfolio of the Series Fund corresponding to the Contract owner's selected subaccount[s]; (4) any change in the fundamental investment policy of a portfolio corresponding to the Contract owner's selected subaccount[s]; and (5) any other matter requiring a vote of the shareholders of the Series Fund. With respect to approval of the investment advisory agreement or any change in a portfolio's fundamental investment policy, Contract owners participating in such portfolios will vote separately on the matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act. The number of Series Fund shares for which instructions may be given by a Contract owner is determined by dividing the portion of the value of the Contract derived from participation in a subaccount, by the value of one share in the corresponding portfolio of the Series Fund. The number of votes for which each Contract owner may give The Prudential instructions will be determined as of the record date chosen by the Board of Directors of the Series Fund. The Prudential will furnish Contract owners with proper forms and proxies to enable them to give these instructions. The Prudential reserves the right to modify the manner in which the weight to be given voting instructions is calculated where such a change is necessary to comply with current federal regulations or interpretations of those regulations. The Prudential may, if required by state insurance regulations, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment objectives of one or more of the Series Fund's portfolios, or to approve or disapprove an investment advisory contract for the Series Fund. In addition, The Prudential itself may disregard voting instructions that would require changes in the investment policy or investment advisor of one or more of the Series Fund's portfolios, provided that The Prudential reasonably disapproves such changes in accordance with applicable federal regulations. If The Prudential does disregard voting instructions, it will advise Contract owners of that action and its reasons for such action in the next annual or semi-annual report to Contract owners. Contract owners also share with the owners of all Prudential Contracts and policies the right to vote in elections for members of the Board of Directors of The Prudential. Substitution of Series Fund Shares. Although The Prudential believes it to be unlikely, it is possible that in the judgment of its management, one or more of the portfolios of the Series Fund may become unsuitable for investment by Contract owners because of investment policy changes, tax law changes, or the unavailability of shares for investment. In that event, The Prudential may seek to substitute the shares of another portfolio or of 24 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 Contract year (except where the Contract is in force as fixed extended term insurance or fixed reduced paid-up insurance), Contract owners will be sent statements that provide certain information pertinent to their own Contract. These statements detail values and transactions made and specific Contract data that apply only to each particular Contract. On request, a Contract owner will be sent a current statement in a form similar to that of the annual statement described above, but The Prudential may limit the number of such requests or impose a reasonable charge if such requests are made too frequently. Each Contract owner will also be sent an annual report for the Account. Contract owners will also be sent annual and semi-annual reports of the Series Fund showing the financial condition of the portfolios and the investments held in each. State Regulation. The Prudential is subject to regulation and supervision by the Department of Insurance of the State of New Jersey, which periodically examines its operations and financial condition. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Prudential is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business to determine solvency and compliance with local insurance laws and regulations. In addition to the annual statements referred to above, The Prudential is required to file with New Jersey and other jurisdictions a separate statement with respect to the operations of all its variable contract accounts, in a form promulgated by the National Association of Insurance Commissioners. Experts. The financial statements included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP's principal business address is Two Hilton Court, Parsippany, New Jersey 07054-0319. Actuarial matters included in this prospectus have been examined by Nancy D. Davis, FSA, MAAA, whose opinion is filed as an exhibit to the registration statement. Litigation. No litigation is pending that would have a material effect upon the Account or the Series Fund. Additional Information. A registration statement has been filed with the SEC under the Securities Act of 1933, relating to the offering described in this prospectus. This prospectus does not include all of the information set forth in the registration statement. Certain portions have been omitted pursuant to the rules and regulations of the SEC. The omitted information may, however, be obtained from the SEC's principal office in Washington, D.C., upon payment of a prescribed fee. Further information may also be obtained from The Prudential's office. The address and telephone number are set forth on the cover of this prospectus. Financial Statements. The consolidated financial statements of The Prudential and subsidiaries included herein should be distinguished from the financial statements of the Account, and should be considered only as bearing upon the ability of The Prudential to meet its obligations under the Contracts. 25 DIRECTORS AND OFFICERS OF THE PRUDENTIAL The directors and certain officers of The Prudential, listed with their principal occupations during the past 5 years, are shown below. DIRECTORS OF THE PRUDENTIAL FRANKLIN E. AGNEW. Director.--Business Consultant and former Senior Vice President of H.J. Heinz. Address: One Mellon Bank Center, Suite 2120, Pittsburgh, PA 15219. FREDERIC K. BECKER, Director.--President of Wilentz, Goldman, and Spitzer (law firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095. WILLIAM W. BOESCHENSTEIN, Director.--Director, Owens-Corning Fiberglas Corporation. Address: Fiberglas Tower, Toledo, OH 43659. LISLE C. CARTER, JR., Director.--Former Senior Vice President and General Counsel, United Way of America. Address: 1307 Fourth Street, S.W., Washington, DC 20024. JAMES G. CULLEN, Director.--President, Bell Atlantic Corporation since 1993; Prior to 1993: President, New Jersey Bell. Address: 1301 North Court House Road, 11th floor, Alexandria, VA 22201. CAROLYNE K. DAVIS, Director.--Health Care Advisor, Ernst & Young. Address: 1200 Nineteenth Street, N.W., 4th floor, Washington, DC 20024. ROGER A. ENRICO, Director.--Vice Chairman, Pepsi Co. Inc. since 1993; 1991 to 1993: Chairman and Chief Executive Officer, Pepsi Co. Worldwide Foods; Prior to 1991: President and Chief Executive Officer, Pepsi Co. Worldwide Beverages. Address: 7701 Legacy Drive, Plano, TX 75024. ALLAN D. GILMOUR, Director.--Former Vice Chairman, Ford Motor Company. Address: Prudential Plaza, Newark, NJ 07102-3777. WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, United Negro College Fund, Inc. since 1991; Prior to 1991: United States Representative for Pennsylvania's 2nd District. Address: 500 East 62nd Street, New York, NY 10021. JON F. HANSON, Director.--Chairman, Hampshire Management Co. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601. CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since 1993; 1991 to 1992 Assistant to the President and Director of Presidential Personnel, U.S. Government; Prior to 1991: Deputy Secretary, Department of Health and Human Services. Address: 1775 Massachusetts Avenue, N.W., Washington, DC 20036-2188. ALLEN F. JACOBSON, Director.--Former Chairman and Chief Executive Officer, Minnesota Mining & Manufacturing Co. Address: 30 Seventh Street East, St. Paul, MN 55101-4901. GARNETT L. KEITH, JR., Director and Vice Chairman.--Vice Chairman of The Prudential. Address: Prudential Plaza, Newark, NJ 07102-3777. BURTON G. MALKIEL, Director.--Chemical Bank Chairman's Professor of Economics, Princeton University. Address: Princeton University, Department of Economics, 110 Fisher Hall, Prospect Avenue, Princeton, NJ 08544-1021. JOHN R. OPEL, Director.--Prior to 1994, Chairman of the Executive Committee, International Business Machines Corporation. Address: 590 Madison Avenue, New York, NY 10022. ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer. - --Chairman of the Board, President, and Chief Executive Officer, The Prudential since 1994; Prior to 1994, President and Chief Operating Officer, Chase Manhattan Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777. CHARLES R. SITTER, Director.--President and Director, Exxon Corporation since 1993; Prior to 1993; Director, Exxon Corporation. Address: 225 John W. Carpenter Freeway, Irving, TX 75062. DONALD L. STAHELI, Director.--Chairman and Chief Executive Officer, Continental Grain Company since 1994; Prior to 1994; Chairman, Continental Grain Company. Address: 277 Park Avenue, New York, NY 10172. RICHARD M. THOMSON, Director.--Chairman of the Board and Chief Executive Officer, The Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K 1A2, Canada. 26 P. ROY VAGELOS, M.D., Director.--Chairman, Regeneron Pharmaceuticals since 1995; Prior to 1995, Chairman, President and Chief Executive Officer, Merck & Co., Inc. Address: 126 East Lincoln Avenue, Rahway, NJ 07065. STANLEY C. VAN NESS, Director.--Attorney, Picco Mack Herbert Kennedy Jaffe Perrella and Yoskin (law firm). Address: One State Street Square, Suite 1000, Trenton, NJ 08607-1388. PAUL A. VOLCKER, Director.--Chairman, James D. Wolfensohn, Inc. Address: 599 Lexington Avenue, New York, NY 10022. JOSEPH H. WILLIAMS, Director.--Chairman of the Board, The Williams Companies since 1994; Prior to 1994: Chairman and Chief Executive Officer, The Williams Companies. Address: P.O. Box 2400, Tulsa, OK 74102. OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS DOROTHY K. LIGHT, Vice President and Secretary.--Vice President and Secretary of The Prudential. EUGENE M. O'HARA, Senior Vice President and Comptroller.--Senior Vice President and Comptroller of The Prudential. MARTIN PFINSGRAFF, Vice President and Treasurer.--Vice President and Treasurer of The Prudential since 1991; Prior to 1991: Senior Vice President, Mellon Bank. 27 FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT STATEMENTS OF NET ASSETS December 31, 1994
SUBACCOUNTS -------------------------------------------------------------- AGGRESSIVELY MONEY COMMON MANAGED TOTAL MARKET BOND STOCK FLEXIBLE -------------- -------------- -------------- -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $2,587,138,095 $ 78,169,861 $ 76,194,412 $ 500,113,200 $ 699,836,622 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- NET ASSETS, representing: Equity of Contract owners....................... $2,568,337,051 $ 77,928,559 $ 76,018,846 $ 495,997,636 $ 695,664,623 Equity of The Prudential Insurance Company of America....................................... 18,801,044 241,302 175,566 4,115,564 4,171,999 -------------- -------------- -------------- -------------- -------------- $2,587,138,095 $ 78,169,861 $ 76,194,412 $ 500,113,200 $ 699,836,622 ============== ============== ============== ============== ==============
STATEMENTS OF OPERATIONS For the year ended December 31, 1994
SUBACCOUNTS -------------------------------------------------------------- AGGRESSIVELY MONEY COMMON MANAGED TOTAL MARKET BOND STOCK FLEXIBLE -------------- -------------- -------------- -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 79,801,099 $ 2,906,404 $ 4,745,723 $ 10,458,080 $ 18,588,518 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 16,768,066 504,103 518,852 3,134,155 4,527,520 Reimbursement for excess expenses [Note 3D]..... (53,999) 0 0 0 0 -------------- -------------- -------------- -------------- -------------- NET EXPENSES...................................... 16,714,067 504,103 518,852 3,134,155 4,527,520 -------------- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 63,087,032 2,402,301 4,226,871 7,323,925 14,060,998 -------------- -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 54,709,623 0 158,594 19,666,506 18,931,168 Realized gain (loss) on shares redeemed [average cost basis].......................... 167,179 0 4,403 86,672 0 Net unrealized loss on investments.............. (155,373,175) 0 (7,162,380) (18,362,891) (56,779,739) -------------- -------------- -------------- -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (100,496,373) 0 (6,999,383) 1,390,287 (37,848,571) -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (37,409,341) $ 2,402,301 $ (2,772,512) $ 8,714,212 $ (23,787,573) ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A1 STATEMENTS OF NET ASSETS (CONTINUED) December 31, 1994
SUBACCOUNTS (CONTINUED) ------------------------------------------------------------------------------ ZERO ZERO CONSERVATIVELY COUPON COUPON HIGH MANAGED BOND BOND YIELD STOCK FLEXIBLE 1995 2000 BOND INDEX -------------- -------------- -------------- -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $ 637,504,119 $ 4,804,597 $ 16,786,627 $ 54,538,773 $ 190,760,024 ============== ============== ============== ============== ============== NET ASSETS, representing: Equity of Contract owners....................... $ 633,504,352 $ 4,788,369 $ 16,177,407 $ 54,364,432 $ 190,028,325 Equity of The Prudential Insurance Company of America....................................... 3,999,767 16,228 609,220 174,341 731,699 -------------- -------------- -------------- -------------- -------------- $ 637,504,119 $ 4,804,597 $ 16,786,627 $ 54,538,773 $ 190,760,024 ============== ============== ============== ============== ============== HIGH DIVIDEND NATURAL GLOBAL STOCK RESOURCES EQUITY -------------- -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $ 150,687,304 $ 72,147,168 $ 29,938,696 ============== ============== ============== NET ASSETS, representing: Equity of Contract owners....................... $ 149,277,865 $ 71,565,256 $ 27,782,691 Equity of The Prudential Insurance Company of America....................................... 1,409,439 581,912 2,156,005 -------------- -------------- -------------- $ 150,687,304 $ 72,147,168 $ 29,938,696 ============== ============== ==============
STATEMENTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1994
SUBACCOUNTS (CONTINUED) ------------------------------------------------------------------------------ ZERO ZERO CONSERVATIVELY COUPON COUPON HIGH MANAGED BOND BOND YIELD STOCK FLEXIBLE 1995 2000 BOND INDEX -------------- -------------- -------------- -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 21,289,808 $ 286,151 $ 1,133,170 $ 5,329,778 $ 4,465,133 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 4,323,507 32,534 118,731 370,924 1,283,145 Reimbursement for excess expenses [Note 3D]..... 0 (9,637) (17,971) 0 0 -------------- -------------- -------------- -------------- -------------- NET EXPENSES...................................... 4,323,507 22,897 100,760 370,924 1,283,145 -------------- -------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 16,966,301 263,254 1,032,410 4,958,854 3,181,988 -------------- -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 6,635,310 1,011 31,655 38 267,733 Realized gain (loss) on shares redeemed [average cost basis].......................... 31,649 586 1,031 5,625 58,302 Net unrealized loss on investments.............. (33,092,575) (288,227) (2,416,751) (6,827,471) (2,856,319) -------------- -------------- -------------- -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (26,425,616) (286,630) (2,384,065) (6,821,808) (2,530,284) -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (9,459,315) $ (23,376) $ (1,351,655) $ (1,862,954) $ 651,704 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- HIGH DIVIDEND NATURAL GLOBAL STOCK RESOURCES EQUITY* -------------- -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 5,001,100 $ 674,356 $ 44,201 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 893,008 470,895 55,679 Reimbursement for excess expenses [Note 3D]..... 0 (2) 0 -------------- -------------- -------------- NET EXPENSES...................................... 893,008 470,893 55,679 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 4,108,092 203,463 (11,478) -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 7,633,088 1,375,424 5,622 Realized gain (loss) on shares redeemed [average cost basis].......................... 34,607 22,045 0 Net unrealized loss on investments.............. (11,478,198) (5,314,192) (1,421,127) -------------- -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (3,810,503) (3,916,723) (1,415,505) -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ 297,589 $ (3,713,260) $ (1,426,983) -------------- -------------- -------------- -------------- -------------- -------------- *Commenced Business on 5/1/94
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A2 STATEMENTS OF NET ASSETS (CONTINUED) December 31, 1994
SUBACCOUNTS ------------------------------ ZERO COUPON GOVERNMENT BOND SECURITIES 2005 -------------- -------------- ASSETS Investment in shares of The Prudential Series Fund, Inc. Portfolios at net asset value [Note 2].......... $ 61,563,342 $ 14,093,350 ============== ============== NET ASSETS, representing: Equity of Contract owners....................... $ 61,256,996 $ 13,981,694 Equity of The Prudential Insurance Company of America....................................... 306,346 111,656 -------------- -------------- $ 61,563,342 $ 14,093,350 ============== ==============
STATEMENTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1994
SUBACCOUNTS ------------------------------ ZERO COUPON GOVERNMENT BOND SECURITIES 2005 -------------- -------------- INVESTMENT INCOME Dividend distributions received................. $ 4,032,941 $ 845,736 EXPENSES Charges to Contract owners for assuming mortality risk and expense risk [Note 3A]..... 445,508 89,505 Reimbursement for excess expenses [Note 3D]..... 0 (26,389) -------------- -------------- NET EXPENSES...................................... 445,508 63,116 -------------- -------------- NET INVESTMENT INCOME (LOSS)...................... 3,587,433 782,620 -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received............ 0 3,474 Realized gain (loss) on shares redeemed [average cost basis].......................... (74,828) (2,913) Net unrealized loss on investments.............. (7,299,824) (2,073,481) -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS.................... (7,374,652) (2,072,920) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ (3,787,219) $ (1,290,300) ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A3 (This page intentionally left blank.) A4 FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31, 1994 and 1993
SUBACCOUNTS -------------------------------------------------------------- MONEY TOTAL MARKET BOND ------------------------------ ------------------------------ ------------------------------ 1993 1994 (AS RESTATED) 1994 1993 1994 1993 -------------- -------------- -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 63,087,032 $ 44,057,142 $ 2,402,301 $ 1,562,897 $ 4,226,871 $ 3,075,764 Capital gains distributions received....................... 54,709,623 70,916,387 0 0 158,594 892,376 Realized gain (loss) on shares redeemed [average cost basis]........... 167,179 626,607 0 0 4,403 15,239 Net unrealized gain (loss) on investments.................... (155,373,175) 89,884,218 0 0 (7,162,380) 662,894 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (37,409,341) 205,484,354 2,402,301 1,562,897 (2,772,512) 4,646,273 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 560,003,324 595,883,814 6,444,757 5,467,177 11,829,119 18,271,190 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (942,487) 1,089,951 (213,654) (175,801) (532,267) (36,073) -------------- -------------- -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 521,651,496 802,458,119 8,633,404 6,854,273 8,524,340 22,881,390 NET ASSETS: Beginning of year................ 2,065,486,599 1,263,028,480 69,536,457 62,682,184 67,670,072 44,788,682 -------------- -------------- -------------- -------------- -------------- -------------- End of year...................... $2,587,138,095 $2,065,486,599 $ 78,169,861 $ 69,536,457 $ 76,194,412 $ 67,670,072 ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A5 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS (CONTINUED) -------------------------------------------------------------- AGGRESSIVELY COMMON MANAGED STOCK FLEXIBLE ------------------------------ ------------------------------ 1994 1993 1994 1993 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 7,323,925 $ 3,787,584 $ 14,060,998 $ 12,932,914 Capital gains distributions received....................... 19,666,506 16,988,695 18,931,168 29,168,105 Realized gain (loss) on shares redeemed [average cost basis]........... 86,672 167,532 0 122,764 Net unrealized gain (loss) on investments.................... (18,362,891) 30,362,343 (56,779,739) 18,927,854 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ 8,714,212 51,306,154 (23,787,573) 61,151,637 -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 123,951,671 108,534,011 142,298,237 150,101,012 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ 452,486 1,171,594 (55,717) (111,711) -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 133,118,369 161,011,759 118,454,947 211,140,938 NET ASSETS: Beginning of year................ 366,994,831 205,983,072 581,381,675 370,240,737 -------------- -------------- -------------- -------------- End of year...................... $ 500,113,200 $ 366,994,831 $ 699,836,622 $ 581,381,675 ============== ============== ============== ============== ZERO CONSERVATIVELY COUPON MANAGED BOND FLEXIBLE 1995 ------------------------------ ------------------------------ 1994 1993 1994 1993 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 16,966,301 $ 10,601,459 $ 263,254 $ 257,300 Capital gains distributions received....................... 6,635,310 18,959,118 1,011 0 Realized gain (loss) on shares redeemed [average cost basis]........... 31,649 120,806 586 0 Net unrealized gain (loss) on investments.................... (33,092,575) 12,220,568 (288,227) (1,749) -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (9,459,315) 41,901,951 (23,376) 255,551 -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 127,164,401 163,207,517 338,277 1,203,358 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (1,173,893) 816,842 (106,380) 8,524 -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 116,531,193 205,926,310 208,521 1,467,433 NET ASSETS: Beginning of year................ 520,972,926 315,046,616 4,596,076 3,128,643 -------------- -------------- -------------- -------------- End of year...................... $ 637,504,119 $ 520,972,926 $ 4,804,597 $ 4,596,076 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A6 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS ---------------------------------------------------------------------------------------------- ZERO COUPON HIGH BOND YIELD STOCK 2000 BOND INDEX ------------------------------ ------------------------------ ------------------------------ 1993 1994 1993 1994 (AS RESTATED) 1994 1993 -------------- -------------- -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 1,032,410 $ 834,516 $ 4,958,854 $ 3,323,954 $ 3,181,988 $ 2,402,805 Capital gains distributions received....................... 31,655 5,978 38 23 267,733 339,359 Realized gain (loss) on shares redeemed [average cost basis]........... 1,031 1,154 5,625 48,986 58,302 63,772 Net unrealized gain (loss) on investments.................... (2,416,751) 919,475 (6,827,471) 2,255,362 (2,856,319) 8,649,699 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (1,351,655) 1,761,123 (1,862,954) 5,628,325 651,704 11,455,635 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 900,334 5,163,860 9,774,435 17,361,907 26,983,569 43,311,756 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ 409,426 10,638 (576,511) (16,603) (298,727) (951,071) -------------- -------------- -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... (41,895) 6,935,621 7,334,970 22,973,629 27,336,546 53,816,320 NET ASSETS: Beginning of year................ 16,828,522 9,892,901 47,203,803 24,230,174 163,423,478 109,607,158 -------------- -------------- -------------- -------------- -------------- -------------- End of year...................... $ 16,786,627 $ 16,828,522 $ 54,538,773 $ 47,203,803 $ 190,760,024 $ 163,423,478 ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A7 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS (CONTINUED) ---------------------------------------------------------------------------------------------- HIGH DIVIDEND NATURAL GLOBAL GOVERNMENT STOCK RESOURCES EQUITY* SECURITIES ------------------------------ ------------------------------ -------------- -------------- 1994 1993 1994 1993 1994 1994 -------------- -------------- -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 4,108,092 $ 1,948,922 $ 203,463 $ 300,114 $ (11,478) $ 3,587,433 Capital gains distributions received....................... 7,633,088 3,057,447 1,375,424 1,290,124 5,622 0 Realized gain (loss) on shares redeemed [average cost basis]........... 34,607 68,504 22,045 8,953 0 (74,828) Net unrealized gain (loss) on investments.................... (11,478,198) 6,361,835 (5,314,192) 6,638,189 (1,421,127) (7,299,824) -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ 297,589 11,436,708 (3,713,260) 8,237,380 (1,426,983) (3,787,219) -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 51,018,498 44,298,031 22,317,372 13,476,759 29,174,840 4,183,444 -------------- -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (376,490) 886,003 (47,480) 173,903 2,190,839 (467,937) -------------- -------------- -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 50,939,597 56,620,742 18,556,632 21,888,042 29,938,696 (71,712) NET ASSETS: Beginning of year................ 99,747,707 43,126,965 53,590,536 31,702,494 0 61,635,054 -------------- -------------- -------------- -------------- -------------- -------------- End of year...................... $ 150,687,304 $ 99,747,707 $ 72,147,168 $ 53,590,536 $ 29,938,696 $ 61,563,342 ============== ============== ============== ============== ============== ============== *Commenced Business on 5/1/94 1993 -------------- OPERATIONS: Net investment income (loss)..... $ 2,505,506 Capital gains distributions received....................... 213,250 Realized gain (loss) on shares redeemed [average cost basis]........... 6,004 Net unrealized gain (loss) on investments.................... 2,070,124 -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ 4,794,884 -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 20,135,848 -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (628,148) -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 24,302,584 NET ASSETS: Beginning of year................ 37,332,470 -------------- End of year...................... $ 61,635,054 ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A8 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) For the years ended December 31, 1994 and 1993
SUBACCOUNTS (CONTINUED) ------------------------------ ZERO COUPON BOND 2005 ------------------------------ 1994 1993 -------------- -------------- OPERATIONS: Net investment income (loss)..... $ 782,620 $ 523,407 Capital gains distributions received....................... 3,474 1,912 Realized gain (loss) on shares redeemed [average cost basis]........... (2,913) 2,893 Net unrealized gain (loss) on investments.................... (2,073,481) 817,624 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ (1,290,300) 1,345,836 -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS.... 3,624,370 5,351,388 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS........................ (146,182) (58,146) -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS.................... 2,187,888 6,639,078 NET ASSETS: Beginning of year................ 11,905,462 5,266,384 -------------- -------------- End of year...................... $ 14,093,350 $ 11,905,462 ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11. A9 NOTES TO FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993 NOTE 1: GENERAL The Prudential Variable Appreciable Account (the "Account") of The Prudential Insurance Company of America ("The Prudential") was established on August 11, 1987 by a resolution of The Prudential's Board of Directors in conformity with insurance laws of the State of New Jersey. The assets of the Account are segregated from The Prudential's other assets. The Account is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. There are fourteen subaccounts within the Account, each of which invests only in a corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The Series Fund is a diversified open-end management investment company, and is managed by The Prudential. NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS The net asset value per share for each portfolio of the Series Fund, the number of shares of each portfolio held by the subaccounts of the Account and the aggregate cost of investments in such shares at December 31, 1994 were as follows:
PORTFOLIOS ------------------------------------------------------------------------------- AGGRESSIVELY CONSERVATIVELY PORTFOLIO MONEY COMMON MANAGED MANAGED INFORMATION MARKET BOND STOCK FLEXIBLE FLEXIBLE - ---------------------------- -------------- -------------- -------------- -------------- --------------- Number of shares: 7,816,986 7,590,332 24,204,046 45,162,376 45,229,225 Net asset value per share: $ 10.0000 $ 10.0384 $ 20.6624 $ 15.4960 $ 14.0950 Cost: $ 78,169,861 $ 82,298,314 $ 479,554,451 $ 718,908,716 $ 652,751,738
PORTFOLIOS (CONTINUED) ------------------------------------------------------------------------------- ZERO ZERO COUPON COUPON HIGH HIGH PORTFOLIO BOND BOND YIELD STOCK DIVIDEND INFORMATION 1995 2000 BOND INDEX STOCK - ---------------------------- -------------- -------------- -------------- -------------- --------------- Number of shares: 453,570 1,415,159 7,400,245 12,753,836 10,403,600 Net asset value per share: $ 10.5929 $ 11.8620 $ 7.3655 $ 14.9571 $ 14.4842 Cost: $ 5,036,020 $ 17,707,975 $ 58,897,134 $ 172,505,026 $ 152,868,694
PORTFOLIOS (CONTINUED) -------------------------------------------------------------- ZERO COUPON PORTFOLIO NATURAL GLOBAL GOVERNMENT BOND INFORMATION RESOURCES EQUITY SECURITIES 2005 - ---------------------------- -------------- -------------- -------------- -------------- Number of shares: 4,995,241 2,157,138 5,884,837 1,311,729 Net asset value per share: $ 14.4432 $ 13.8789 $ 10.4614 $ 10.7441 Cost: $ 69,492,489 $ 31,359,823 $ 66,221,339 $ 15,136,391
NOTE 3: CHARGES AND EXPENSES A. Mortality Risk and Expense Risk Charges The mortality risk and expense risk charges at an effective annual rate of up to 0.90% may be applied daily against the net assets representing equity of the Contract owners held in each subaccount. For contracts with face amounts of $100,000 or more, the annual rate is 0.60%. B. Deferred Sales Charge A deferred sales charge is imposed upon the surrender of certain variable life insurance contracts to compensate The Prudential for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the Contract was issued. No sales charge will be imposed after the tenth year of the Contract. No sales charge will be imposed on death benefits. A10 C. Partial Withdrawal Charge The partial withdrawal of the cash surrender value from certain variable life insurance contracts invokes a charge equal to the lesser of $15 or 2% of the amount withdrawn. D. Expense Reimbursement The Account is reimbursed by The Prudential, on a non-guaranteed basis, for expenses incurred by the Series Fund in excess of the effective rate of 0.40% for all Zero Coupon Bond Portfolios, 0.45% for the Stock Index Portfolio, 0.50% for the High Dividend Stock Portfolio, 0.55% for the Natural Resources Portfolio, and 0.65% for the High Yield Bond Portfolio of the average daily net assets of these portfolios. NOTE 4: TAXES The operations of the subaccounts form a part of, and are taxed with, the operations of The Prudential. Under the Internal Revenue Code, all ordinary income and capital gains allocated to the Contract owners are not taxed to The Prudential. As a result, the net asset values of the subaccounts are not affected by federal income taxes on distributions received by the subaccounts. NOTE 5: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS The increase (decrease) in net assets resulting from surplus transfers represents the net contributions of The Prudential to the Account. NOTE 6: RELATED PARTY TRANSACTIONS The Prudential has purchased multiple individual contracts of the Account insuring the lives of certain employees. The Prudential is the owner and beneficiary of the contracts. Net premium payments of approximately $23.0 million for each of the years ended December 31, 1994 and December 31, 1993, respectively, were directed to the Aggressively Managed Flexible subaccount. Equity of Contract owners in that subaccount at December 31, 1994 and December 31, 1993 includes approximately $136.7 million and $122.8 million, respectively, owned by The Prudential. NOTE 7: RESTATEMENT Subsequent to the issuance of the Account's previously issued December 31, 1993 financial statements, The Prudential determined that in the High Yield Bond subaccount, net assets and net increase in net assets resulting from operations were overstated by approximately $284,192 due to the overvaluation of a security held in the High Yield Bond Portfolio of the Series Fund at December 31, 1993. Accordingly, the comparative 1993 financial information included in the statements of changes in net assets of the Account has been restated. A11 INDEPENDENT AUDITORS' REPORT To the Contract Owners of The Prudential Variable Appreciable Account and the Board of Directors of The Prudential Insurance Company of America Newark, New Jersey We have audited the accompanying statements of net assets of The Prudential Variable Appreciable Account of The Prudential Insurance Company of America (comprising, respectively, the Money Market, Bond, Common Stock, Aggressively Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond 1995, Zero Coupon Bond 2000, High Yield Bond, Stock Index, High Dividend Stock, Natural Resources, Global Equity, Government Securities and Zero Coupon Bond 2005 subaccounts) as of December 31, 1994, the related statements of operations for the periods presented in the year then ended, and the statements of changes in net assets for each of the periods presented in the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1994. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of each of the respective subaccounts constituting The Prudential Variable Appreciable Account as of December 31, 1994, the results of their operations, and the changes in their net assets for the respective stated periods in conformity with generally accepted accounting principles. As discussed in Note 7, the 1993 financial statements of The Prudential Variable Appreciable Account have been restated. Deloitte & Touche LLP Parsippany, New Jersey February 10, 1995 A12 1 CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1994 1993 ------ ------ (IN MILLIONS) ASSETS Fixed maturities....................... $ 78,743 $ 79,061 Equity securities...................... 2,327 2,216 Mortgage loans......................... 26,199 27,509 Investment real estate................. 1,600 1,903 Policy loans........................... 6,631 6,456 Other long-term investments............ 5,147 4,739 Short-term investments................. 10,630 6,304 Securities purchased under agreements to resell................. 5,591 9,656 Trading account securities............. 6,218 8,586 Cash................................... 1,109 1,666 Accrued investment income.............. 1,932 1,826 Premiums due and deferred.............. 2,712 2,549 Broker-dealer receivables.............. 7,311 9,133 Other assets........................... 7,119 9,997 Assets held in Separate Accounts....... 48,633 48,110 -------- -------- TOTAL ASSETS............................... $211,902 $219,711 ======== ======== LIABILITIES, AVR AND SURPLUS Liabilities: Policy liabilities and insurance reserves: Future policy benefits and claims...... $101,589 $100,030 Unearned premiums...................... 1,144 1,146 Other policy claims and benefits payable.............................. 1,848 1,935 Policy dividends....................... 1,686 2,018 Other policyholders' funds............. 9,097 9,874 Securities sold under agreements to repurchase........................ 8,919 14,703 Notes payable and other borrowings..... 12,009 13,354 Broker-dealer payables................. 5,144 5,410 Other liabilities...................... 13,036 13,075 Liabilities related to Separate Accounts...................... 47,946 47,475 -------- -------- TOTAL LIABILITIES.......................... 202,418 209,020 -------- -------- Asset valuation reserve (AVR).............. 2,035 2,687 -------- -------- Surplus: Capital notes.......................... 298 298 Special surplus fund................... 1,097 1,091 Unassigned surplus..................... 6,054 6,615 -------- -------- TOTAL SURPLUS.............................. 7,449 8,004 -------- -------- TOTAL LIABILITIES, AVR AND SURPLUS............................ $211,902 $219,711 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN SURPLUS AND ASSET VALUATION RESERVE (AVR)
YEARS ENDED DECEMBER 31, 1994 1993 1992 ----- ----- ----- (IN MILLIONS) REVENUE Premiums and annuity considerations............. $29,698 $29,982 $29,858 Net investment income........ 9,595 10,090 10,318 Broker-dealer revenue........ 3,677 4,025 3,592 Realized investment (losses)/gains............. (450) 953 720 Other income................. 1,037 924 833 ------- ------- ------- TOTAL REVENUE.................... 43,557 45,974 45,321 ------- ------- ------- BENEFITS AND EXPENSES Current and future benefits and claims................. 30,788 30,573 32,031 Insurance and underwriting expenses................... 4,830 4,982 4,563 Limited partnership matters.................... 1,422 390 129 General, administrative and other expenses......... 5,794 5,575 5,394 ------- ------- ------- TOTAL BENEFITS AND EXPENSES..................... 42,834 41,520 42,117 ------- ------- ------- Income from operations before dividends and income taxes............. 723 4,454 3,204 Dividends to policyholders................ 2,290 2,339 2,389 ------- ------- ------- Income/(loss) before income taxes................. (1,567) 2,115 815 Income tax (benefit)/provision.......... (392) 1,236 468 ------- ------- ------- NET INCOME/(LOSS)................ (1,175) 879 347 SURPLUS, BEGINNING OF YEAR...................... 8,004 7,365 6,527 Issuance of capital notes (after net charge-off of non-admitted prepaid postretirement benefit cost of $113 in 1993)........ 0 185 0 Net unrealized investment (losses) and change in AVR............ 620 (425) 491 ------- ------- ------- SURPLUS, END OF YEAR......................... 7,449 8,004 7,365 ------- ------- ------- AVR, BEGINNING OF YEAR........... 2,687 2,457 3,216 (Decrease)/increase in AVR (652) 230 (759) ------- ------- ------- AVR, END OF YEAR................. 2,035 2,687 2,457 ------- ------- ------- TOTAL SURPLUS AND AVR.......................... $ 9,484 $10,691 $ 9,822 ======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-1 2 CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 1993 1992 ----- ----- ----- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES Net income/(loss)................ $(1,175) $ 879 $ 347 Adjustments to reconcile net income/(loss) to cash flows from operating activities: Increase in policy liabilities and insurance reserves..... 1,289 2,747 3,428 Net increase in Separate Accounts.......... (52) (59) (69) Realized investment losses/(gains)............. 450 (953) (720) Depreciation, amortization and other non-cash items...................... 379 261 380 Decrease/(increase) in operating assets: Mortgage loans........... (226) (226) (1,952) Policy loans............. (175) (174) (216) Securities purchased under agreements to resell.............. 2,979 (2,049) (1,420) Trading account securities............. 2,447 (2,087) 351 Broker-dealer receivables............ 1,822 (1,803) (161) Other assets............. 1,873 (2,277) (1,041) (Decrease)/increase in operating liabilities: Securities sold under agreements to repurchase........... (3,247) 1,134 1,967 Broker-dealer payables............. (266) 1,067 (653) Other liabilities...... (2,116) 2,007 841 ------ ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES............ 3,982 (1,533) 1,082 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale/maturity of: Fixed maturities.............. 82,834 87,840 73,326 Equity securities............. 1,426 1,725 957 Mortgage loans................ 4,154 4,789 3,230 Investment real estate........ 935 441 243 Other long-term investments................. 1,022 1,352 2,046 Property and equipment........ 637 6 5 Payments for the purchase of: Fixed maturities.............. (83,075) (89,034) (72,397) Equity securities............. (1,535) (1,085) (977) Mortgage loans................ (3,446) (3,530) (3,087) Investment real estate........ (161) (196) (240) Other long-term investments................. (1,687) (531) (2,039) Property and equipment........ (392) (640) (733) Short-term investments (net)...... (4,281) (2,150) (1,160) Net change in cash placed as collateral for securities loaned........................ 2,011 (589) (1,032) ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES.......... (1,558) (1,602) (1,858) ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES Net (payments)/proceeds of short-term borrowings.... $ (1,115) $ 1,106 $ 70 Proceeds from the issuance of long-term debt.............. 345 1,228 217 Payments for the settlement of long-term debt........... (760) (721) (204) Proceeds/(payments) of unmatched securities purchased under agreements to resell........ 1,086 (47) (170) (Payments)/proceeds of unmatched securities sold under agreements to repurchase.................. (2,537) 1,707 1,201 Proceeds from the issuance of capital notes............... 0 298 0 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES.......... (2,981) 3,571 1,114 ------- ------- ------- Net (decrease)/increase in cash..................... (557) 436 338 Cash, beginning of year........ 1,666 1,230 892 ------- ------- ------- CASH, END OF YEAR.............. $ 1,109 $ 1,666 $ 1,230 ======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Income tax payments made, net of refunds, during 1994, 1993 and 1992 were $64 million, $933 million and $555 million, respectively. Interest payments made during 1994, 1993 and 1992 were $1,429 million, $1,171 million and $1,272 million, respectively. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-2 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 1. ACCOUNTING POLICIES AND PRINCIPLES A. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of The Prudential Insurance Company of America ("The Prudential"), a mutual life insurance company, and its subsidiaries (collectively, "the Company"). The activities of the Company cover a broad range of financial services, including life and health insurance, property and casualty insurance, reinsurance, group health care, securities brokerage, asset management, investment advisory services, mortgage banking and servicing, and real estate development and brokerage. All significant intercompany balances and transactions have been eliminated in consolidation. B. BASIS OF PRESENTATION The consolidated financial statements are presented in conformity with generally accepted accounting principles ("GAAP"), which for mutual life insurance companies and their insurance subsidiaries are statutory accounting practices prescribed or permitted by regulatory authorities in the domiciliary states. Certain reclassifications have been made to the 1993 and 1992 financial statements to conform to the 1994 presentation. In 1994, The American Institute of Certified Public Accountants issued Statement of Position 94-5, "Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises" ("SOP 94-5"), which requires insurance enterprises to disclose in their financial statements the accounting methods used in their statutory financial statements that are permitted by the state insurance departments rather than prescribed statutory accounting practices. The Prudential, domiciled in the State of New Jersey, prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the New Jersey Department of Insurance ("the Department"). Its insurance subsidiaries prepare statutory financial statements in accordance with accounting practices prescribed or permitted by their respective domiciliary home state insurance departments. Prescribed statutory accounting practices include publications of the National Association of Insurance Commissioners ("NAIC"), state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. In 1993, The Prudential issued Fixed Rate Capital Notes ("the notes"). Interest payments on the notes are pre-approved by the Department, and principal repayment is subject to a Risk-Based Capital test. This permitted accounting practice differs from that prescribed by the NAIC. The NAIC practices provide for Insurance Commissioner approval of every interest and principal payment before the payment is made. The Prudential has included the notes as part of surplus (see Note 7). The Prudential has established guaranty fund liabilities for the insolvencies of certain life insurance companies. The liabilities were established net of estimated premium tax credits and federal income tax. Prescribed statutory accounting practices do not address the establishment of liabilities for guaranty fund assessments. The Company, with permission from the Department, prepares an Annual Report that differs from the Annual Statement filed with the Department in that subsidiaries are consolidated and certain financial statement captions are presented differently. C. FUTURE APPLICATION OF ACCOUNTING STANDARDS The Financial Accounting Standards Board (the "FASB") issued Financial Interpretation No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises," which, as amended, is effective for fiscal years beginning after December 15, 1995. Interpretation No. 40 changes the current practice of mutual life insurance companies with respect to utilizing statutory basis financial statements for general purposes in that it would not allow such financial statements to be referred to as having been prepared in accordance with GAAP. Interpretation No. 40 requires GAAP financial statements of mutual life insurance companies to apply all GAAP pronouncements, unless specifically exempted. Implementation of Interpretation No. 40 will require significant effort and judgment as to determining GAAP for mutual insurance companies' insurance operations. The Company is currently assessing the impact of Interpretation No. 40 on its consolidated financial statements. D. INVESTED ASSETS Fixed maturities, which include long-term bonds and redeemable preferred stock, are stated primarily at amortized cost. Equity securities, which consist primarily of common stocks, are carried at market value, which is based on quoted market prices, where available, or prices provided by state regulatory authorities. F-3 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 As of January 1, 1994, the non-insurance subsidiaries of The Prudential adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Under SFAS No. 115, debt and marketable equity securities are classified in three categories: held-to-maturity, available-for-sale and trading. The effect of adopting SFAS No. 115 for the non-insurance subsidiaries was not material. Mortgage loans are stated primarily at unpaid principal balances. In establishing reserves for losses on mortgage loans, management considers expected losses on loans which they believe may not be collectible in full and expected losses on foreclosures and the sale of mortgage loans. Reserves established for potential or estimated mortgage loan losses are included in the "Asset valuation reserve." Policy loans are stated primarily at unpaid principal balances. Investment real estate, except for real estate acquired in satisfaction of debt, is carried at cost less accumulated straight-line depreciation ($748 million in 1994 and $859 million in 1993), encumbrances and permanent impairments in value. Real estate acquired in satisfaction of debt, included in "Other assets," is carried at the lower of cost or fair value less disposition costs. Fair value is considered to be the amount that could reasonably be expected in a current transaction between willing parties, other than in forced or liquidation sale. Included in "Other long-term investments" is the Company's net equity in joint ventures and other forms of partnerships, which amounted to $3,357 million and $3,745 million as of December 31, 1994 and 1993, respectively. The Company's share of net income from such entities was $354 million, $375 million and $185 million for 1994, 1993 and 1992, respectively. Short-term investments are stated at amortized cost, which approximates fair value. Securities purchased under agreements to resell and securities sold under agreements to repurchase are collateralized financing transactions and are carried at their contract amounts plus accrued interest. These agreements are generally collateralized by cash or securities with market values in excess of the obligations under the contract. It is the Company's policy to take possession of securities purchased under resale agreements and to value the securities daily. The Company monitors the value of the underlying collateral and collateral is adjusted when necessary. Trading account securities from broker-dealer operations are reported based upon quoted market prices with unrealized gains and losses reported in "Broker-dealer revenue." The Company has a securities lending program whereby large blocks of securities are loaned to third parties, primarily major brokerage firms. As of December 31, 1994 and 1993, the estimated fair values of loaned securities were $6,765 million and $6,520 million, respectively. Company and NAIC policies require a minimum of 102% and 105% of the fair value of the domestic and foreign loaned securities, respectively, to be separately maintained as collateral for the loans. Cash collateral received is invested in "Short-term investments," which are reflected as assets in the Consolidated Statements of Financial Position. The offsetting collateral liability is included in the Consolidated Statements of Financial Position in "Other liabilities" in the amounts of $2,385 million and $374 million at December 31, 1994 and 1993, respectively. Non-cash collateral is recorded in memorandum records and not reflected in the consolidated financial statements. Net unrealized investment gains and losses result principally from changes in the carrying values of invested assets. Net unrealized investment losses were $(32) million, $(195) million and $(268) million for the years ended December 31, 1994, 1993 and 1992, respectively. The asset valuation reserve (AVR) and the interest maintenance reserve (IMR) are required reserves for life insurance companies. The AVR is calculated based on a statutory formula and is designed to mitigate the effect of valuation and credit-related losses on unassigned surplus. F-4 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 The components of AVR at December 31, 1994 and 1993 are as follows:
1994 1993 ----- ----- (IN MILLIONS) Fixed maturities, equity securities and short-term investments............. $ 930 $1,591 Mortgage loans.......................... 674 722 Real estate and other invested assets... 431 374 ------ ------ Total AVR............................... $2,035 $2,687 ====== ======
In 1993, the Company made a voluntary contribution to the mortgage loan component of the AVR in the amount of $305 million. The IMR is designed to reduce the fluctuations of surplus resulting from market interest rate movements. Interest rate-related realized capital gains and losses are generally deferred and amortized into investment income over the remaining life of the investment sold. The IMR balance, included in "Other policyholders' funds," was $502 million and $1,539 million at December 31, 1994 and 1993, respectively. Net realized investment (losses)/gains of $(929) million, $1,082 million and $626 million were deferred during the years ended December 31, 1994, 1993 and 1992, respectively. IMR amounts amortized into investment income were $107 million, $118 million and $51 million for the years ended December 31, 1994, 1993 and 1992, respectively. E. FUTURE POLICY BENEFITS, LOSSES AND CLAIMS Reserves for individual life insurance are calculated using various methods, interest rates and mortality tables, which produce reserves that meet the aggregate requirements of state laws and regulations. Approximately 39% of individual life insurance reserves are determined using the net level premium method, or by using the greater of a net level premium reserve or the policy cash value. About 56% of individual life insurance reserves are calculated according to the Commissioner's Reserve Valuation Method ("CRVM") or methods which compare CRVM reserves to policy cash values. For group life insurance, 24% of reserves are determined using net level premium methods and various mortality tables and interest rates. About 53% of group life reserves are associated with extended death benefits. For the most part, these are calculated using modified group tables at various interest rates. The remainder of group life reserves are unearned premium reserves (calculated using the 1960 Commissioner's Standard Group Table), reserves for group life fund accumulations and other miscellaneous reserves. Reserves for group and individual annuity contracts are determined using the Commissioner's Annuity Reserve Valuation Method. For life insurance and annuities, unpaid claims include estimates of both the death benefits on reported claims and those which are incurred but not reported. Unpaid claims and claim adjustment expenses for other than life insurance and annuities include estimates of benefits and associated settlement expenses for reported losses and a provision for losses incurred but not reported. F-5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Activity in the liability for unpaid claims and claim adjustment expenses is:
1994 1993 ----------------------- ------------------------ ACCIDENT PROPERTY ACCIDENT PROPERTY AND AND AND AND HEALTH CASUALTY HEALTH CASUALTY --------- ---------- ---------- ---------- (IN MILLIONS) Balance at January 1 ......... $ 2,654 $ 4,869 $ 2,623 $ 4,712 Less reinsurance recoverables 15 1,070 22 1,107 -------- -------- -------- -------- Net balance at January 1 ..... 2,639 3,799 2,601 3,605 -------- -------- -------- -------- Incurred related to: Current year ................ 7,398 2,541 7,146 2,364 Prior years ................. (105) 158 (167) 109 -------- -------- -------- -------- Total incurred ............... 7,293 2,699 6,979 2,473 -------- -------- -------- -------- Paid related to: Current year ................ 5,568 1,237 5,336 1,119 Prior years ................. 1,649 1,163 1,605 1,160 -------- -------- -------- -------- Total paid ................... 7,217 2,400 6,941 2,279 -------- -------- -------- -------- Net balance at December 31 ... 2,715 4,098 2,639 3,799 Plus reinsurance recoverables 23 1,018 15 1,070 -------- -------- -------- -------- Balance at December 31 ....... $ 2,738 $ 5,116 $ 2,654 $ 4,869 ======== ======== ======== ========
As a result of changes in estimates of insured events in prior years, the declines of $105 million and $167 million in the provision for claims and claim adjustment expenses for accident and health business in 1994 and 1993, respectively, were due to lower-than-expected trends in claim costs and an accelerated decline in indemnity health business. As a result of changes in estimates of insured events in prior years, the provision for claims and claim adjustment expenses for property and casualty business (net of reinsurance recoveries of $47 million and $120 million in 1994 and 1993, respectively) increased by $158 million and $109 million in 1994 and 1993, respectively, due to increased loss development and reserve strengthening for asbestos and environmental claims. F. REVENUE RECOGNITION AND RELATED EXPENSES Life premiums are recognized as income over the premium paying period of the related policies. Annuity considerations are recognized as revenue when received. Health and property and casualty premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Unearned premium reserves are established to cover the unexpired portion of premiums written. Such reserves are computed by pro rata methods for direct business and are computed either by pro rata methods or using reports received from ceding companies for reinsurance. Premiums which have not yet been reported are estimated and accrued. Expenses incurred in connection with acquiring new insurance business, including such acquisition costs as sales commissions, are charged to operations as incurred in "Insurance and underwriting expenses." Commission revenues in "Broker-dealer revenue" and related broker-dealer expenses in "General, administrative and other expenses" are accrued when transactions are executed. F-6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 G. INCOME TAXES Under the Internal Revenue Code ("the Code"), The Prudential and its life insurance subsidiaries are taxed on their gain from operations after dividends to policyholders. In calculating this tax, the Code requires the capitalization and amortization of policy acquisition expenses. The Code also imposes an "equity tax" on mutual life insurance companies based on an imputed surplus which, in effect, reduces the deduction for policyholder dividends. The amount of the equity tax is estimated in the current year based on the anticipated equity tax rate, and is adjusted in subsequent years as the rate is finalized. The Prudential files a consolidated federal income tax return with all of its domestic subsidiaries. The provision for taxes reported in these financial statements also includes tax liabilities for the foreign subsidiaries. Net operating losses of the non-life subsidiaries may be used in this consolidated return, but are limited each year to the lesser of 35% of cumulative eligible non-life subsidiary losses or 35% of life company taxable income. As of January 1, 1993, the non-insurance subsidiaries of The Prudential adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, such subsidiaries recognize deferred tax liabilities or assets for the expected future tax consequences of events that have been recognized in their financial statements. Included in "Income tax (benefit)/provision" are deferred taxes of $(477) million, $21 million and $(8) million for the years ended December 31, 1994, 1993 and 1992, respectively. The cumulative effect of adopting SFAS No. 109 was not material. At December 31, 1994, the Company had consolidated non-life tax loss carryforwards of $598 million which will expire between 1998 and 2009, if not utilized. H. SEPARATE ACCOUNTS Separate Account assets and liabilities, reported in the Consolidated Statements of Financial Position at estimated market value, represent segregated funds which are administered for pension and other clients. The assets consist of common stocks, long-term bonds, real estate, mortgages and short-term investments. The liabilities consist of reserves established to meet withdrawal and future benefit payment contractual provisions. Investment risks associated with market value changes are generally borne by the clients, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate Account net investment income, realized and unrealized capital gains and losses, benefit payments and change in reserves are included in "Current and future benefits and claims." I. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives used for trading purposes are recorded in the Consolidated Statements of Financial Position at fair value at the reporting date. Realized and unrealized changes in fair values are recognized in "Broker-dealer revenue" and "Other income" in the Consolidated Statements of Operations in the period in which the changes occur. Gains and losses on hedges of existing assets or liabilities are included in the carrying amount of those assets or liabilities and are deferred and recognized in earnings in the same period as the underlying hedged item. For interest rate swaps that qualify for settlement accounting, the interest differential to be paid or received under the swap agreements is accrued over the life of the agreements as a yield adjustment. Gains and losses on early termination of derivatives that modify the characteristics of designated assets and liabilities are deferred and are amortized as an adjustment to the yield of the related assets or liabilities over their remaining lives. Derivatives used in activities that support life and health insurance and annuity contracts are recorded at fair value with unrealized gains and losses recorded in "Net unrealized investment (losses) and change in AVR." Upon termination of derivatives supporting life and health insurance and annuity contracts, the interest-related gains and losses are amortized through the IMR. 2. RESTRICTED ASSETS AND SPECIAL DEPOSITS Assets in the amounts of $5,901 million and $5,164 million at December 31, 1994 and 1993, respectively, were on deposit with governmental authorities or trustees as required by law. Assets valued at $5,855 million and $4,430 million at December 31, 1994 and 1993, respectively, were maintained as compensating balances or pledged as collateral for bank loans and other financing agreements. F-7 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Restricted cash of $455 million and $444 million at December 31, 1994 and 1993, respectively, was included in "Cash" in the Consolidated Statements of Financial Position and Cash Flows. 3. FIXED MATURITIES The carrying value and estimated fair value of fixed maturities at December 31, 1994 and 1993 are as follows:
1994 1993 ------------------------------------------- ----------------------------------------------- GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE -------- -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS) U.S. Treasury securities and obligations of U.S. government corporations and agencies .......... $13,624 $ 123 $ 647 $13,100 $14,979 $ 754 $ 94 $15,639 Obligations of U.S. ..... states and their political subdivisions 2,776 32 165 2,643 3,212 187 3 3,396 Fixed maturities issued by foreign governments and their agencies and political subdivisions 3,101 37 153 2,985 2,716 188 3 2,901 Corporate securities .... 54,144 1,191 1,772 53,563 51,548 4,390 300 55,638 Mortgage-backed securities ............ 4,889 82 148 4,823 6,478 257 220 6,515 Other fixed maturities .. 209 0 0 209 128 0 0 128 ------- ------- ------- ------- ------- ------- ------- ------- Total ................... $78,743 $ 1,465 $ 2,885 $77,323 $79,061 $ 5,776 $ 620 $84,217 ======= ======= ======= ======= ======= ======= ======= =======
The carrying value and estimated fair value of fixed maturities at December 31, 1994 categorized by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may prepay obligations with or without call or prepayment penalties.
ESTIMATED CARRYING FAIR VALUE VALUE ----------- ----------- (IN MILLIONS) Due in one year or less .............. $ 2,746 $ 2,760 Due after one year through five years 24,405 24,000 Due after five years through ten years 18,972 18,536 Due after ten years .................. 27,731 27,204 ------- ------- 73,854 72,500 Mortgage-backed securities ........... 4,889 4,823 ------- ------- Totals ............................... $78,743 $77,323 ======= =======
Proceeds from the sale and maturity of fixed maturities during 1994, 1993 and 1992 were $82,834 million, $87,840 million and $73,326 million, respectively. Gross gains of $693 million, $2,473 million and $2,034 million, and gross losses of $2,009 million, $698 million and $530 million were realized on such sales during 1994, 1993 and 1992, respectively (see Note 1D). The Company invests in both investment grade and non-investment grade securities. The Securities Valuation Office of the NAIC rates the fixed maturities held by insurers (which account for approximately 98% of the Company's total fixed maturities balance at December 31, 1994 and 1993) for regulatory purposes and groups investments into six categories ranging from highest quality bonds to those in or near default. The lowest three NAIC categories represent, for the most part, high-yield securities and are defined by the NAIC as including any security with a public agency rating of B+ or B1 or less. F-8 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Included in "Fixed maturities" are securities that are classified by the NAIC as being in the lowest three rating categories. These approximate 1.6% and 2.0% of the Company's assets at December 31, 1994 and 1993, respectively. At December 31, 1994 and 1993, their estimated fair value varied from the carrying value by $(78) million and $42 million, respectively. 4. MORTGAGE LOANS Mortgage loans at December 31, 1994 and 1993 are as follows:
1994 1993 ----------------------- ------------------- AMOUNT PERCENTAGE AMOUNT PERCENTAGE (IN MILLIONS) Commercial and agricultural loans: In good standing ......... $ 19,752 75.4% $ 20,916 76.0% In good standing with restructured terms 1,412 5.4% 1,177 4.3% Past due 90 days or more . 339 1.3% 590 2.2% In process of foreclosure 387 1.5% 415 1.5% Residential loans .......... 4,309 16.4% 4,411 16.0% -------- ------ -------- ------ Total mortgage loans ....... $ 26,199 100.0% $ 27,509 100.0% ======== ====== ======== ======
At December 31, 1994, the Company's mortgage loans were collateralized by the following property types: office buildings (30%), retail stores (20%), residential properties (17%), apartment complexes (12%), industrial buildings (11%), agricultural properties (7%) and other commercial properties (3%). The mortgage loans are geographically dispersed throughout the United States and Canada with the largest concentrations in California (25%) and New York (8%). Included in these balances are mortgage loans with affiliated joint ventures of $684 million and $689 million at December 31, 1994 and 1993, respectively. 5. EMPLOYEE BENEFIT PLANS A. PENSION PLANS The Company has several defined benefit pension plans which cover substantially all of its employees. The benefits are generally based on career average earnings and credited length of service. The Company's funding policy is to contribute annually the amount necessary to satisfy the Internal Revenue Service contribution guidelines. The pension plans are accounted for in accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS No. 87"). Employee pension benefit plan status at September 30, 1994 and 1993 is as follows:
1994 1993 -------- -------- (IN MILLIONS) Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefits of $2,956 in 1994 and $3,053 in 1993 ........................ $(3,255) $(3,401) ======= ======= Projected benefit obligation ............................... (4,247) (4,409) Plan assets at fair value .................................... 5,704 5,950 ------- ------- Plan assets in excess of projected benefit obligation ........ 1,457 1,541 Unrecognized net asset existing at the date of the initial application of SFAS No. 87 ................................. (980) (1,086) Unrecognized prior service cost since initial application of SFAS No. 87 ................................................ 228 253 Unrecognized net loss from actuarial experience since initial application of SFAS No. 87 ................................. 9 25 Additional minimum liability ................................. (8) 0 ------- ------- Prepaid pension cost ......................................... $ 706 $ 733 ======= =======
F-9 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Plan assets consist primarily of equity securities, bonds, real estate and short-term investments, of which $4,155 million are included in the Consolidated Statement of Financial Position at December 31, 1994. In compliance with statutory accounting principles, The Prudential's prepaid pension costs of $765 million and $784 million at December 31, 1994 and 1993, respectively, were considered non-admitted assets. These assets are excluded from the consolidated assets and the changes in these non-admitted assets of ($19) million and $142 million in 1994 and 1993, respectively, are reported in "General, administrative and other expenses" in the Consolidated Statements of Operations. The components of the net periodic pension expense/(benefit) for 1994 and 1993 are as follows:
1994 1993 1992 ------ ------ ------ (IN MILLIONS) Service cost - benefits earned during the year $ 163 $ 133 $ 133 Interest cost on projected benefit obligation 311 301 296 Actual return on assets ...................... 56 (854) (367) Net amortization and deferral ................ (639) 301 (150) Net charge for special termination benefits .. 156 0 0 ----- ----- ----- Net periodic pension expense/(benefit) ...... $ 47 $(119) $ (88) ===== ===== =====
The net expense relating to the Company's pension plans is $28 million, $23 million and $29 million in 1994, 1993 and 1992, respectively, which considers the changes in The Prudential's non-admitted prepaid pension asset of $(19) million, $142 million and $117 million, respectively. As a result of a special early retirement program, net curtailment gains and special termination benefits of approximately $156 million are included in the net periodic pension expense for the year ended December 31, 1994. The assumptions used in 1994 and 1993 to develop the accumulated pension benefit obligation were:
1994 1993 -------- -------- Discount rate ................................ 8.25-8.5% 7.0% Expected long-term rate of return on assets... 8.5-9.0% 8.5-9.0% Rate of increase in compensation levels ...... 5.0-5.5% 4.5-5.0%
B. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS The Company provides certain life insurance and health care benefits for its retired employees. Substantially all of the Company's employees may become eligible to receive a benefit if they retire after age 55 with at least 10 years of service. Effective in 1993, the costs of postretirement benefits, with respect to The Prudential, are recognized in accordance with the accounting policy issued by the NAIC. The NAIC's policy is similar to Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," except that the NAIC policy excludes non-vested employees. The Prudential has elected to amortize its transition obligation over 20 years. Prior to 1993, the Company's policy was to fund the cost of providing these benefits in the years that the employees were providing services to the Company. The Company defined this service period as originating at an assumed entry age and terminating at an average retirement age. Annual deposits to the fund were determined using the entry age normal actuarial cost method, including amortization of prior service costs for employees' services rendered prior to the initial funding of the plan. The provision for the year ended December 31, 1992 was $143 million. The Prudential's net periodic postretirement benefit cost required to be recognized for 1994 and 1993, under the NAIC policy is $110 million and $125 million, respectively. In 1994 and 1993, The Prudential voluntarily accrued an additional $10 million and $62 million, respectively, which represents a portion of the obligation for active non-vested employees (the total of this obligation is $520 million and $594 million as of December 31, 1994 and 1993, respectively). Company funding of its postretirement benefit obligations totaled $31 million and $404 million in 1994 and 1993, respectively. The Company contributes amounts to the plan in excess of covered expenses being paid. F-10 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 The postretirement benefit plan status as of September 30, 1994 and 1993 is as follows:
1994 1993 -------- -------- (IN MILLIONS) Accumulated postretirement benefit obligation (APBO): Retirees ........................................... $(1,337) $(1,211) Fully eligible active plan participants ............ (188) (445) ------- ------- Total APBO ...................................... (1,525) (1,656) Plan assets at fair value ............................ 1,304 1,335 ------- ------- Accumulated postretirement benefit obligation in excess of plan assets .............................. (221) (321) Unrecognized transition obligation ................... 448 525 Unrecognized net (gain)/loss from actuarial experience (41) 69 ------- ------- Prepaid postretirement benefit cost in accordance with the NAIC accounting policy .................... 186 273 Additional amount accrued ............................ (72) (62) ------- ------- Prepaid postretirement benefit cost .................. $ 114 $ 211 ======= =======
Plan assets consist of group and individual variable life insurance policies, group life and health contracts and short-term investments, of which $996 million are included in the Consolidated Statement of Financial Position at December 31, 1994. In compliance with statutory accounting principles, The Prudential's prepaid postretirement benefit costs of $127 million and $217 million at December 31, 1994 and 1993, respectively, are considered non-admitted assets. These assets are excluded from the consolidated assets and the changes in these non-admitted assets of $(90) million and $217 million in 1994 and 1993, respectively, are reported in "General, administrative and other expenses" in 1994 and in "Issuance of capital notes" in 1993. Net periodic postretirement benefit cost for 1994 and 1993 includes the following components:
1994 1993 -------- -------- (IN MILLIONS) Cost of newly eligible or vested employees... $ 38 $ 41 Interest cost ................................ 112 124 Actual return on plan assets ................. (98) (86) Net amortization and deferral ................ (13) 15 Amortization of transition obligation ........ 23 39 Net charge for special termination benefits... 58 0 Additional contribution expense .............. 10 62 ----- ----- Net periodic postretirement benefit cost ..... $ 130 $ 195 ===== =====
The net reduction to surplus relating to the Company's postretirement benefit plans is $40 million and $412 million in 1994 and 1993, respectively, which considers the changes in the non-admitted prepaid postretirement benefit cost of $(90) million and $217 million in 1994 and 1993, respectively. As a result of a special early retirement program, curtailment expenses and special termination benefits of approximately $58 million are included in the net periodic postretirement benefit cost for the year ended December 31, 1994. The assumptions used in 1994 and 1993 to measure the accumulated postretirement benefits obligation were:
1994 1993 -------- -------- Discount rate ...................................... 8.25-8.5% 7.0-7.5% Expected long-term rate of return on plan assets.... 9.0% 9.0% Salary scale ....................................... 5.5% 5.0%
F-11 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 The health care cost trend rates used varied from 9.1% to 13.9%, depending on the plan, with one plan being graded to 6.5% by the year 2012 and all others being graded to 6.0% by 2006. Increasing the health care cost trend rate by one percentage point in each year would increase the postretirement benefit obligation as of September 30, 1994, by $243 million and the total of the cost of newly eligible or vested employees and interest cost for 1994 by $21 million. In 1994, the Company changed its method of accounting for the recognition of costs and obligations relating to severance, disability and related benefits to former or inactive employees after employment, but before retirement, to an accrual method. Previously, these benefits were expensed when paid. The effect of this change was to decrease surplus by approximately $160 million in 1994. 6. NOTES PAYABLE AND OTHER BORROWINGS Notes payable and other borrowings consisted of the following at December 31, 1994 and 1993:
DECEMBER 31, 1994 DECEMBER 31, 1993 ------------------------------ ------------------------------ WEIGHTED AVERAGE WEIGHTED AVERAGE BALANCE COST OF FUNDS BALANCE COST OF FUNDS -------- ---------------- -------- -------------- (IN MILLIONS) Short-term debt..... $ 9,188 5.7% $ 9,435 3.7% Long-term debt...... 2,821 6.5% 3,919 5.3% ------- ------- $12,009 $13,354 ======= =======
Scheduled repayments of long-term debt as of December 31, 1994, are as follows: $594 million in 1995, $269 million in 1996, $362 million in 1997, $268 million in 1998, $666 million in 1999, and $662 million thereafter. As of December 31, 1994, the Company had $8,120 million in lines of credit from numerous financial institutions of which $3,925 million were unused. 7. CAPITAL NOTES In 1993, The Prudential issued 6.875% Fixed Rate Capital Notes ("the notes") in the aggregate principal amount of $300 million. The notes mature on April 15, 2003, and may not be redeemed prior to maturity and will not be entitled to any sinking fund. The notes are subordinated in right of payment to all claims of policyholders and to senior indebtedness. Payment of the principal amount of the notes at maturity is subject to the following conditions: (i) The Prudential shall not be in payment default with respect to any senior indebtedness or class of policyholders, (ii) no state or federal agency shall have instituted proceedings seeking reorganization, rehabilitation or liquidation of The Prudential, and (iii) immediately after making such payment, Total Adjusted Capital would exceed 200% of its Authorized Control Level Risk-Based Capital. The terms "Total Adjusted Capital" and "Authorized Control Level" are defined by the Risk-Based Capital for Life and/or Health Insurers Model Act. The payment of interest on the notes is subject to satisfaction of conditions (i) and (ii) above. Unpaid accrued interest amounted to $25 million at December 31, 1994 and 1993. The net proceeds from the notes, approximately $298 million, were contributed to a voluntary employee benefit association trust to prefund certain obligations of The Prudential to provide postretirement medical and other benefits. This resulted in a prepaid asset, which is non-admitted for statutory purposes. The net increase to surplus from the issuance of the notes, including a tax benefit of $104 million less the charge-off of the non-admitted asset of $217 million, was $185 million (see Note 5B). 8. SPECIAL SURPLUS FUND The special surplus fund includes required contingency reserves of $1,097 million and $1,091 million as of December 31, 1994 and 1993, respectively. 9. FAIR VALUE INFORMATION The fair value amounts have been determined by the Company using available information and reasonable valuation methodologies for those accounts for which fair value disclosures are required. Considerable judgment is necessarily applied in interpreting data to develop the estimates of fair value. Accordingly, the estimates presented may not be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair values. The following methods and assumptions were used in calculating the fair values. (For all other financial instruments presented in the table, the carrying value is a reasonable estimate of fair value.) F-12 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 FIXED MATURITIES. Fair values for fixed maturities, other than private placement securities, are based on quoted market prices or estimates from independent pricing services. Fair values for private placement securities are estimated using a discounted cash flow model which considers the current market spreads between the U.S. Treasury yield curve and corporate bond yield curve, adjusted for the type of issue, its current quality and its remaining average life. The fair value of certain non-performing private placement securities is based on amounts provided by state regulatory authorities. MORTGAGE LOANS. The fair value of residential mortgages is based on recent market trades or quotes, adjusted where necessary for differences in risk characteristics. The fair value of the commercial mortgage and agricultural loan portfolio is primarily based upon the present value of the scheduled cash flows discounted at the appropriate U.S. Treasury rate, adjusted for the current market spread for a similar quality mortgage. For certain non-performing and other loans, fair value is based upon the value of the underlying collateral. POLICY LOANS. The estimated fair value of policy loans is calculated using a discounted cash flow model based upon current U.S. Treasury rates and historical loan repayments. DERIVATIVE FINANCIAL INSTRUMENTS. The fair value of swap agreements is estimated based on the present value of future cash flows under the agreements discounted at the applicable zero coupon U.S. Treasury rate and swap spread. The fair value of forwards and futures is estimated based on market quotes for a transaction with similar terms, while the fair value of options is based principally on market quotes. The fair value of loan commitments is estimated based on fees actually charged or those currently charged for similar arrangements, adjusted for changes in interest rates and credit quality subsequent to origination. INVESTMENT-TYPE INSURANCE CONTRACT LIABILITIES. Fair values for the Company's investment-type insurance contract liabilities are estimated using a discounted cash flow model, based on interest rates currently being offered for similar contracts. NOTES PAYABLE AND OTHER BORROWINGS. The estimated fair value of notes payable and other borrowings is based on the borrowing rates currently available to the Company for debt with similar terms and maturities. The following table discloses the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1994 and 1993:
1994 1993 ------------------------------- ---------------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- -------- --------- (IN MILLIONS) Financial assets: Fixed maturities ..................... $78,743 $77,323 $79,061 $84,217 Equity securities .................... 2,327 2,327 2,216 2,216 Mortgage loans ....................... 26,199 24,955 27,509 28,004 Policy loans ......................... 6,631 6,018 6,456 6,568 Short-term investments ............... 10,630 10,630 6,304 6,304 Securities purchased under agreements to resell ............... 5,591 5,591 9,656 9,656 Trading account securities ........... 6,218 6,218 8,586 8,586 Cash ................................. 1,109 1,109 1,666 1,666 Broker-dealer receivables ............ 7,311 7,311 9,133 9,133 Assets held in Separate Accounts ..... 48,633 48,633 48,110 48,110 Financial liabilities: Investment-type insurance contracts .. 39,747 38,934 41,149 42,668 Securities sold under agreements to repurchase ...................... 8,919 8,919 14,703 14,703 Notes payable and other borrowings ... 12,009 11,828 13,354 13,625 Broker-dealer payables ............... 5,144 5,144 5,410 5,410 Liabilities related to Separate Accounts ............................. 47,946 47,946 47,475 47,475 Derivative financial instruments - net (see Note 10) ...................... 392 397 253 303
F-13 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 10. DERIVATIVE AND OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS A. DERIVATIVE FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," effective for 1994, requires certain disclosures about derivative financial instruments and other financial instruments with similar characteristics ("derivatives"). Derivatives include swaps, forwards, futures, options and loan commitments subject to market risk, all of which are used by the Company in the normal course of business in both trading and other than trading activities. The Company uses derivatives in trading activities primarily to meet the financing and hedging needs of its customers and to trade for its own account. The Company also uses derivatives for purposes other than trading to reduce exposure to interest rate, currency and other forms of market risk. The table below summarizes the Company's outstanding positions by derivative instrument as of December 31,1994. The amounts presented are classified as either trading or other than trading, based on management's intent at the time of contract inception and throughout the life of the contract. The table includes the estimated fair values of outstanding derivative positions only and does not include the fair values of associated financial and non-financial assets and liabilities, which generally offset derivative fair values. The fair value amounts presented do not reflect the netting of amounts pursuant to rights of setoff, qualifying master netting agreements with counterparties or collateral arrangements. The table shows that less than 5% of derivative fair values were not reflected in the Company's Consolidated Statement of Financial Position. DERIVATIVE FINANCIAL INSTRUMENTS AS OF DECEMBER 31, 1994 (IN MILLIONS)
TRADING OTHER THAN TRADING -------------------- ---------------------- ESTIMATED ESTIMATED NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE -------- ---------- -------- ---------- Swaps Assets $13,852 $ 837 $ 184 $ 9 Liabilities 14,825 1,216 4,993 48 Forwards Assets 21,988 300 2,720 24 Liabilities 19,898 289 3,112 19 Futures Assets 1,520 40 4,296 17 Liabilities 1,878 35 505 3 Options Assets 2,924 31 2,407 8 Liabilities 3,028 38 2,217 2 Loan commitments Assets 0 0 212 2 Liabilities 0 0 1,543 15 ------- ------- ------- ------- Total Assets $40,284 $ 1,208 $ 9,819 $ 60 ======= ======= ======= ======= Liabilities $39,629 $ 1,578 $12,370 $ 87 ======= ======= ======= =======
TOTAL ---------------------------------------------- CARRYING ESTIMATED NOTIONAL AMOUNT FAIR VALUE -------- -------- ---------- Swaps Assets $14,036 $ 845 $ 846 Liabilities 19,818 1,236 1,264 Forwards Assets 24,708 312 324 Liabilities 23,010 299 308 Futures Assets 5,816 30 57 Liabilities 2,383 35 38 Options Assets 5,331 34 39 Liabilities 5,245 40 40 Loan commitments Assets 212 (2) 2 Liabilities 1,543 1 15 ------- ------- ------- Total Assets $50,103 $ 1,219 $ 1,268* ======= ======= ======= Liabilities $51,999 $ 1,611 $ 1,665* ======= ======= =======
* $1,233 of Assets and $1,596 of Liabilities are reflected in the Consolidated Statement of Financial Position F-14 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 DERIVATIVES HELD FOR TRADING PURPOSES. The Company uses derivatives for trading purposes in securities broker-dealer activities and in a limited-purpose swap subsidiary. Net trading revenues for the year ended December 31, 1994, relating to forwards, futures and swaps were $107 million, $33 million and $8 million, respectively. Net trading revenues for options were not material. Average fair value for trading derivatives in an asset position during the year ended December 31, 1994, was $1,526 million and for derivatives in a liability position was $1,671 million. Of those derivatives held for trading purposes at December 31, 1994, 60.0% of notional consisted of interest rate derivatives, 33.7% consisted of foreign exchange derivatives, and 6.3% consisted of equity and commodity derivatives. DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING. Of the total notional of derivatives held for purposes other than trading at December 31, 1994, 23.0% were used by the Company to hedge its investment portfolio to reduce interest rate, currency and other market risks, 75.8% were used to hedge interest rate risk related to the Company's mortgage banking subsidiary activities, and 1.2% were used to hedge interest and currency risks associated with the Company's debt issuances. Of those derivatives held for purposes other than trading at December 31, 1994, 85.0% of notional consisted of interest rate derivatives, 13.9% consisted of foreign exchange derivatives, and 1.1% consisted of equity and commodity derivatives. Derivatives used to hedge the Company's investment portfolio, including futures, options and forwards, are typically short-term in nature and are intended to minimize exposure to market fluctuations or to change the characteristics of the Company's asset/liability mix, consistent with the Company's risk management activities. At December 31, 1994, net gains of $0.7 million relating to futures used as hedges of anticipated bond investments were deferred and included in "Other liabilities." The investments being hedged are expected to be made in the first quarter of 1995. The Company's mortgage banking subsidiary hedges the interest rate risk associated with mortgage loans and mortgage-backed securities held for sale and with unfunded loans for which a rate of interest has been guaranteed. At December 31, 1994, net gains of $0.8 million relating to forwards, futures and options used as hedges of unfunded loan commitments were deferred as "Other liabilities." The deferred gains were included in the carrying amounts of the loans when funded, which is generally within sixty days from the commitment date. The Company's mortgage banking subsidiary also hedges its exposure to future changes in interest rates on interest-sensitive liabilities and hedges the prepayment risk associated with its mortgage servicing portfolio. At December 31, 1994, net gains of $6.5 million relating to futures used as hedges of anticipated borrowings were deferred and included in "Other liabilities." The borrowings being hedged are expected to be issued by early 1996. The Company also uses derivatives, particularly swaps and forwards, to manage the interest rate and foreign exchange risks associated with its notes payable and other borrowings. B. OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS During the normal course of its business, the Company is party to financial instruments with off-balance-sheet credit risk such as commitments, financial guarantees, loans sold with recourse and letters of credit. Commitments include commitments to purchase and sell mortgage loans, the unfunded portion of commitments to fund investments in private placement securities, and unused credit card and home equity lines. The Company also provides financial guarantees incidental to other transactions and letters of credit that guarantee the performance of customers to third parties. These credit-related financial instruments have off-balance-sheet credit risk because only their origination fees, if any, and accruals for probable losses, if any, are recognized in the Consolidated Statements of Financial Position until the obligation under the instrument is fulfilled or expires. These instruments can extend for several years and expirations are not concentrated in any period. The Company seeks to control credit risk associated with these instruments by limiting credit, maintaining collateral where customary and appropriate, and performing other monitoring procedures. The notional amount of these instruments, which represents the Company's maximum exposure to credit loss from other parties' non-performance, was $17,389 million and $18,666 million at December 31, 1994 and 1993, respectively. Because many of these amounts expire without being advanced in whole or in part, the amounts do not represent future cash flows. The above notional amounts include $4,150 million and $3,066 million of unused available lines of credit under credit card and home equity commitments as of December 31, 1994 and 1993, respectively. The Company has not experienced, and does not anticipate experiencing, all of its customers exercising their entire available lines of credit at any given point in time. The estimated fair value of off-balance-sheet credit related instruments was $(91.3) million and $13.0 million at December 31, 1994 and 1993, respectively. The total fair value at December 31, 1994, includes $(13.3) million for fixed-rate loan commitments, which are subject to market risk. The estimated fair value was determined based on fees currently charged for similar arrangements, adjusted for changes in interest rate and credit quality that occurred subsequent to origination. F-15 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 11. CONTINGENCIES A. ENVIRONMENTAL-RELATED CLAIMS The Company receives claims under expired contracts which assert alleged injuries and/or damages relating to or resulting from toxic torts, toxic waste and other hazardous substances. The liabilities for such claims cannot be estimated by traditional reserving techniques. As a result of judicial decisions and legislative actions, the coverage afforded under these contracts may be expanded beyond their original terms. Extensive litigation between insurers and insureds over these issues continues and the outcome is not predictable, nor is there any clear emerging trend. In establishing the unpaid claim reserves for these losses, management considered the available information. However, given the expansion of coverage and liability by the courts and legislatures in the past, and potential for other unfavorable trends in the future, the ultimate cost of these claims could increase from the levels currently established. B. LAWSUITS Various lawsuits against the Company have arisen in the course of the Company's business. In certain of these matters, large and/or indeterminate amounts are sought. In 1993, Prudential Securities Incorporated (PSI), a subsidiary of The Prudential, entered into an agreement with the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and state securities commissions whereby PSI agreed to pay $330 million into a settlement fund to pay eligible claims on certain limited partnership matters. Under this agreement, if partnership matter claims exceed the established settlement fund, PSI is obligated to pay such additional claims. In October 1994, the United States Attorney for the Southern District of New York (the "U.S. Attorney") filed a complaint against PSI in connection with its sale of certain limited partnerships. Simultaneously, PSI entered into an agreement to comply with certain conditions for a period of three years, and to pay an additional $330 million into the settlement fund. At the end of the three-year period, assuming PSI has fully complied with the terms of the agreement, the U.S. Attorney will institute no further action. In the opinion of management, PSI is in compliance with all provisions of the aforementioned agreements and, after consideration of applicable accruals, the ultimate liability of such litigation, including partnership settlement matters, will not have a material adverse effect on the Company's financial position. 12. SUBSEQUENT EVENTS Several purported class actions and individual actions have been brought against the Company on behalf of those persons who purchased life insurance policies allegedly because of deceptive sales practices engaged in by the Company and its insurance agents in violation of state and federal laws. The sales practices alleged to have occurred are contrary to Company policy. Some of these cases seek very substantial damages while others seek unspecified compensatory, punitive and treble damages. The majority of these cases were filed after March 1, 1995. The Company intends to defend these cases vigorously. In response to this litigaton, several state insurance departments have initiated investigations or market conduct examinations relating to Prudential's sales practices. The Attorney General of two states have also made inquires. Litigation is subject to many uncertainties, and given the complexity and scope of these suits, their outcome cannot be predicted. It is also not possible to predict the likely results of any regulatory inquires or their effect on this litigation or other litigation which might be initiated in response to widespread media coverage of these matters. Accordingly, management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of all pending litigation. It is possible that the results of operations or cash flows of the Company in particular quarterly or annual periods could be materially affected by an ultimate unfavorable outcome of certain pending litigation matters. Management believes, however, that the ultimate outcome of all pending litigation should not have a material adverse effect on the Company's financial position. F-16 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors of The Prudential Insurance Company of America Newark, New Jersey We have audited the accompanying consolidated statements of financial position of The Prudential Insurance Company of America and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and changes in surplus and asset valuation reserve and of cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Prudential Insurance Company of America and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Parsippany, New Jersey March 1, 1995, except for Note 12, as to which the date is April 25, 1995 F-17 CUSTOM VAL(SM) LIFE_____________ INSURANCE CONTRACTS THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Prudential Plaza Newark, New Jersey 07102-3777 Telephone: (800) 437-4016, Ext. 46 PART II OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING WITH RESPECT TO INDEMNIFICATION The Prudential Directors' and Officers' Liability and Corporation Reimbursement Program, purchased by The Prudential from Aetna Casualty & Surety Company, CNA Insurance Company, Lloyds of London, Great American Insurance Company, Reliance Insurance Company, Corporate Officers & Directors Assurance Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American Insurance Company, provides coverage for "Loss" (as defined in the policies) arising from any claim or claims by reason of any actual or alleged act, error, misstatement, misleading statement, omission, or breach of duty by persons in the discharge of their duties solely in their capacities as directors or officers of The Prudential, any of its subsidiaries, or certain investment companies affiliated with The Prudential. Coverage is also provided to the individual directors or officers for such Loss, for which they shall not be indemnified. Loss essentially is the legal liability on claims against a director or officer, including adjudicated damages, settlements and reasonable and necessary legal fees and expenses incurred in defense of adjudicatory proceedings and appeals therefrom. Loss does not include punitive or exemplary damages or the multiplied portion of any multiplied damage award, criminal or civil fines or penalties imposed by law, taxes or wages, or matters which are insurable under the law pursuant to which the policies are construed. There are a number of exclusions from coverage. Among the matters excluded are Losses arising as the result of (1) claims brought about or contributed to by the criminal or deliberate fraudulent acts of a director or officer, and (2) claims arising from actual or alleged performance of, or failure to perform, services as, or in any capacity similar to, an investment adviser, investment banker, underwriter, broker or dealer, as those terms are defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules or regulations thereunder, or any similar federal, state or local statute, rule or regulation. The limit of coverage under the Program for both individual and corporate reimbursement coverage is $150,000,000. The retention for corporate reimbursement coverage is $10,000,000 per loss. The relevant provisions of New Jersey law permitting or requiring indemnification, New Jersey being the state of organization of The Prudential, can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of The Prudential's by-law 27, which relates to indemnification of officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) to this Registration Statement. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-1 CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-reference to items required by Form N-8B-2. The prospectus consisting of 83 pages. The undertaking to file reports. The undertaking with respect to indemnification. The signatures. Written consents of the following persons: 1. Deloitte and Touche LLP, independent auditors. 2. Clifford E. Kirsch. 3. Nancy D. Davis, FSA, MAAA. The following exhibits: 1. The following exhibits correspond to those required by paragraph A of the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of Board of Directors of The Prudential Insurance Company of America establishing The Prudential Variable Appreciable Account. (Note 6) (2) Not Applicable. (3) Distributing Contracts: (a) Distribution Agreement between Pruco Securities Corporation and The Prudential Insurance Company of America. (Note 10) (b) Proposed form of Agreement between Pruco Securities Corporation and independent brokers with respect to the Sale of the Contracts. (Note 8) (c) Schedules of Sales Commissions. (Note 8) (4) Not Applicable. (5) Custom VAL (previously named Adjustable Premium VAL) life insurance contracts: (Note 2) (a) With fixed death benefit for use in New Jersey and domicile approval states. (b) With variable death benefit for use in New Jersey and domicile approval states. (c) With fixed death benefit for use in non-domicile approval states. (d) With variable death benefit for use in non-domicile approval states. (6) (a) Charter of The Prudential Insurance Company of America, as amended February 26, 1988. (Note 9) (b) By-laws of The Prudential Insurance Company of America, as amended November 14, 1989. (Note 10) (7) Not Applicable. (8) Not Applicable. (9) Not Applicable. (10) (a) Application Form for Custom VAL (previously named Adjustable Premium VAL) life insurance contract. (Note 5) (b) Supplement to the Application for Custom VAL (previously named Adjustable Premium VAL) life insurance contract. (Note 2) (11) Form of Notice of Withdrawal Right. (Note 8) (12) Memorandum describing The Prudential's issuance, transfer, and redemption procedures for the Contracts pursuant to Rule 6e-3(T)(b)(12)(iii) and method of computing adjustments in payments and cash surrender values upon conversion to fixed- benefit policies pursuant to Rule 6e-3(T)(b)(13)(v)(B). (Note 8) (13) Available Contract Riders and Endorsements: (a) Rider for Insured's Waiver of Premium Benefit. (Note 5) (b) Rider for Applicant's Waiver of Premium Benefit. (Note 5) (c) Rider for Insured's Accidental Death Benefit. (Note 5) II-2 (d) Rider for Level Term Insurance Benefit on Life of Insured. (Note 5) (e) Rider for Decreasing Term Insurance Benefit on Life of Insured. (Note 5) (f) Rider for Interim Term Insurance Benefit. (Note 5) (g) Rider for Option to Purchase Additional Insurance on Life of Insured. (Note 5) (h) Rider for Decreasing Term Insurance Benefit on Life of Insured Spouse. (Note 5) (i) Rider for Level Term Insurance Benefit on Dependent Children. (Note 5) (j) Rider for Level Term Insurance Benefit on Dependent Children--from Term Conversions. (Note 5) (k) Rider for Level Term Insurance Benefit on Dependent Children--from Term Conversions or Attained Age Change. (Note 5) (l) Endorsement defining Insured Spouse. (Note 5) (m) Rider covering lack of Evidence of Insurability on a Child. (Note 5) (n) Rider modifying Waiver of Premium Benefit. (Note 5) (o) Rider to terminate a Supplementary Benefit. (Note 5) (p) Rider providing for election of Variable Reduced Paid-up Insurance. (Note 5) (q) Rider to provide for exclusion of Aviation Risk. (Note 5) (r) Rider to provide for exclusion of Military Aviation Risk. (Note 5) (s) Rider to provide for exclusion for War Risk. (Note 5) (t) Rider to provide for Reduced Paid-up Insurance. (Note 5) (u) Rider providing for Option to Exchange Policy. (Note 5) (v) Endorsement defining Ownership and Control of the Contract. (Note 5) (w) Rider providing for Modification of Incontestability and Suicide Provisions. (Note 5) (x) Endorsement issued in connection with Non-Smoker Qualified Contracts. (Note 5) (y) Endorsement issued in connection with Smoker Qualified Contracts. (Note 5) (z) Home Office Endorsement. (Note 5) (aa) Endorsement showing Basis of Computation for Non-Smoker Contracts. (Note 5) (bb) Endorsement showing Basis of Computation for Smoker Contracts. (Note 5) (cc) Rider for Term Insurance Benefit on Life of Insured-- Decreasing Amount After Three Years. (Note 5) (dd) Rider for Renewable Term Insurance Benefit on Life of Insured. (Note 5) (ee) Rider for Level Term Insurance Benefit on Life of Insured Spouse. (Note 4) (ff) Living Needs Benefit Rider (i) for use in Florida. (Note 11) (ii) for use in all approved jurisdictions except Florida and New York. (Note 11) (iii) for use in New York. (Note 12) (gg) Endorsement altering the Assignment provision. (Note 1) 2. See Exhibit 1.A.(5). 3. Opinion and Consent of Clifford E. Kirsch, as to the legality of the securities being registered. (Note 1) 4. None. 5. Not Applicable. 6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial matters pertaining to the securities being registered. (Note 1) 7. The Prudential's representations regarding mortality and expense risks and sales loads. (Note 2) 8. Powers of Attorney. (a) W. Boeschenstein, L. Carter, Jr., J. Cullen, C. Davis, R. Enrico, W. Gray, III, J. Hanson, C. Horner, A. Jacobson, G. Keith, Jr., B. Malkiel, E. O'Hara, J. Opel, R. Thomson, P. Vagelos, P. Volcker, S. Van Ness, P. Volker, J. Williams (Note 13) (b) F. Agnew, F. Becker, A. Ryan. (Note 14) (c) A. Gilmour, C. Sitter, D. Staheli (Note 15) II-3 (Note 1) Filed herewith. (Note 2) Incorporated by reference to Registrant's Form S-6, filed November 4, 1988. (Note 3) Incorporated by reference to Post-Effective Amendment No. 1 to Form S-6, Registration No. 33-20000, filed September 1, 1988, on behalf of The Prudential Variable Appreciable Account. (Note 4) Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6 Registration No. 33-20000, filed June 15, 1988, on behalf of The Prudential Variable Appreciable Account. (Note 5) Incorporated by reference to Form S-6, Registration No. 33-20000, filed February 4, 1988, on behalf of The Prudential Variable Appreciable Account. (Note 6) Incorporated by reference to Post-Effective Amendment No. 15 to Form S-6, Registration No. 33-20000, filed April xx, 1995, on behalf of The Prudential Variable Appreciable Account. (Note 7) Incorporated by reference to Form N-8B-2, File Number 2-80897, filed December 15, 1982, on behalf of The Prudential Individual Variable Contract Account. (Note 8) Incorporated by reference to Pre-Effective Amendment No. 1 to this Registration Statement, filed January 18, 1989. (Note 9) Incorporated by reference to Post-Effective Amendment No. 15 to Form S-6, Registration No. 33-20000, filed March 2, 1989, on behalf of The Prudential Variable Appreciable Account. (Note 10) Incorporated by reference to Post-Effective Amendment No. 4 to Form S-6, Registration No. 33-20000, filed March 2, 1990, on behalf of The Prudential Variable Appreciable Account. (Note 11) Incorporated by reference to Post-Effective Amendment No. 4 to this Registration Statement, filed April 30, 1990. (Note 12) Incorporated by reference to Post-Effective Amendment No. 9 to this Registration Statement, filed April 28, 1993. (Note 13) Incorporated by reference to Post-Effective Amendment No. 13 to Form S-6, Registration No. 33-20000, filed April 26, 1994. (Note 14) Incorporated by reference to Post-Effective Amendment No. 14 to Form S-6, Registration No. 33-20000 filed February 15, 1995. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that this Amendment is filed solely for one or more of the purposes specified in Rule 485(b)(1) under the Securities Act of 1933 and that no material event requiring disclosure in the prospectus, other than one listed in Rule 485(b)(1), has occurred since the effective date of the most recent Post-Effective Amendment to the Registration Statement which included a prospectus, and has caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized and its seal hereunto affixed and attested, all in the City of Newark and the State of New Jersey, on this 27th day of April, 1995. (Seal) The Prudential Variable Appreciable Account (Registrant) By: The Prudential Insurance Company of America (Depositor) Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES --------------------- --------------------- Thomas C. Castano Esther H. Milnes Assistant Secretary Vice President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 12 to the Registration Statement has been signed below by the following persons in the capacities indicated on this 27th day of April, 1995. Signature and Title ------------------- /s/ * - -------------------------------- Arthur C. Ryan Chairman of the Board, President and Chief Executive Officer /s/ * - -------------------------------- Garnett L. Keith, Jr. Vice Chairman and Director /s/ * *By: /s/ THOMAS C. CASTANO - -------------------------------- -------------------------------- Eugene M. O'Hara Thomas C. Castano Senior Vice President and (Attorney-in-Fact) Comptroller and Chief Financial Officer /s/ * - -------------------------------- Franklin E. Agnew Director /s/ * - -------------------------------- Frederic K. Becker Director /s/ * - -------------------------------- William W. Boeschenstein Director /s/ * - -------------------------------- Lisle C. Carter, Jr. Director /s/ * - -------------------------------- James G. Cullen Director /s/ * - -------------------------------- Carolyne K. Davis Director II-5 /s/ * - ----------------------------- Allan D. Gilmour Director /s/ * - ----------------------------- Roger A. Enrico Director /s/ * - ----------------------------- William H. Gray, III Director /s/ * *By: /s/ THOMAS C. CASTANO - ----------------------------- --------------------------- Jon F. Hanson Thomas C. Castano Director (Attorney-in-Fact) /s/ * - ----------------------------- Constance J. Horner Director /s/ * - ----------------------------- Allen F. Jacobson Director /s/ * - ----------------------------- Burton G. Malkiel Director /s/ * - ----------------------------- John R. Opel Director /s/* - ----------------------------- Charles R. Sitter Director /s/ * - ----------------------------- Donald L. Staheli Director /s/ * - ----------------------------- Richard M. Thomson Director /s/ * - ----------------------------- P. Roy Vagelos, M.D. Director /s/ * - ----------------------------- Stanley C. Van Ness Director /s/ * - ----------------------------- Paul A. Volcker Director /s/ * - ----------------------------- Joseph H. Williams Director II-6 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 12 to Registration Statement No. 33-25372 on Form S-6 of the Prudential Variable Appreciable Account of The Prudential Insurance Company of America of our report dated February 10, 1995, relating to the financial statements of The Prudential Variable Appreciable Account, and of our report dated March 1, 1995, except for Note 12, as to which the date is April 25, 1995, relating to the consolidated financial statements of The Prudential Insurance Company of America and subsidiaries appearing in the Prospectus, which is part of such Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte and Touch LLP Parsippany, New Jersey April 27, 1995 II-7 EXHIBIT INDEX Consent of Deloitte and Touche LLP, independent auditors. Page II-7 1.A.(13)(gg) Endorsement altering the Assignment provision. Page II-9 3. Opinion and Consent of Clifford E. Kirsch, as to Page II-10 the legality of the securities being registered. 6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, Page II-11 as to actuarial matters pertaining to the securities being registered. II-8 EX-1.A.(13)(GG) 2 ENDORSEMENTS Exhibit 1.A.(13)(gg) - -------------------------------------------------------------------------------- ENDORSEMENTS (Only we can endorse this contract.) ALTERATION OF TEXT The provision of this contract entitled "Assignment" is replaced at issue by the following: Assignment We will not be deemed to know of an assignment unless we receive it, or a copy of it, at our Home Office. We are not obliged to see that an assignment is valid or sufficient. This contract may not be assigned to any employee benefit plan or program without our consent. This contract may not be assigned if such assignment would violate any federal, state, or local law or regulation prohibiting sex distinct rates for insurance. The Prudential Insurance Company of America, By Dorothy K. Light Secretary ORD 89224--94 II-9 EX-3 3 OPINION LETTER Exhibit 3 April 24, 1995 The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 Gentlemen: In my capacity as Chief Counsel Variable Products of The Prudential Insurance Company of America, I have reviewed the establishment on August 11, 1987 of The Prudential Variable Appreciable Account (the "Account") by the Finance Committee of the Board of Directors of The Prudential Insurance Company of America ("The Prudential") as a separate account for assets applicable to certain variable life insurance contracts, pursuant to the provisions of Section 17B:28-7 of the Revised Statutes of New Jersey. I am responsible for oversight of the preparation and review of the Registration Statements on Form S-6, as amended, filed by The Prudential with the Securities and Exchange Commission (Registration No. 33-20000 and Registration No. 33-25372) under the Securities Act of 1933 for the registration of certain variable appreciable life insurance contracts issued with respect to the Account. I am of the following opinion: 1. The Prudential is a corporation duly organized under the laws of the State of New Jersey and is a validly existing corporation. 2. The Account has been duly created and is validly existing as a separate account pursuant to the aforesaid provisions of New Jersey law. 3. The portion of the assets held in the Account equal to the reserve and other liabilities for variable benefits under the variable appreciable life insurance contracts is not chargeable with liabilities arising out of any other business The Prudential may conduct. 4. The variable appreciable life insurance contracts are legal and binding obligations of The Prudential, in accordance with their terms. In arriving at the foregoing opinion, I have made such examination of law and examined such records and other documents as I judged to be necessary or appropriate. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, Clifford E. Kirsch II-10 EX-6 4 OPINION LETTER Exhibit 6 April 24, 1995 The Prudential Insurance Company of America Prudential Plaza Newark, New Jersey 07102-3777 To The Prudential: This opinion is furnished in connection with the registration by The Prudential Insurance Company of America of Custom VAL life insurance contracts (the "Contracts") under the Securities Act of 1933. The prospectus included in Post-Effective Amendment No. 12 to Registration Statement No. 33-25372 on Form S-6 describes the Contracts. I have reviewed the two Contract forms and I have participated in the preparation and review of the Registration Statement and Exhibits thereto. In my opinion: (1) The illustrations of cash surrender values and death benefits included in the section of the prospectus entitled "Illustrations", based on the assumptions stated in the illustrations, are consistent with the provisions of the respective forms of the Contracts. The rate structure of the Contracts has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear more favorable to a prospective purchaser of a Contract issued on a male age 35 than to prospective purchasers of Contracts on males of other ages or on females. (2) The illustration of the effect of a Contract loan on the cash surrender value included in the section of the prospectus entitled "Contract Loans," based on the assumption stated in the illustration, is consistent with the provisions of the Form A Contract. (3) The deduction in an amount equal to 1.25% of each premium is a reasonable charge in relation to the additional income tax burden imposed upon The Prudential Insurance Company of America as the result of the enactment of Section 848 of the Internal Revenue Code. In reaching that conclusion a number of factors were taken into account that, in my opinion, were appropriate and which resulted in a projected after-tax rate of return that is a reasonable rate to use in discounting the tax benefit of the deductions allowed in Section 828 in taxable years subsequent to the year in which the premiums are received. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the prospectus. Very truly yours, Nancy D. Davis, FSA, MAAA Vice President and Assistant Actuary The Prudential Insurance Company of America II-11 EX-27 5 FDS, PRUDENTIAL CUSTOM VAL
6 1 YEAR DEC-31-1994 DEC-31-1994 $2,600,908 $2,587,138 $0 $0 $0 $2,587,138 $0 $0 $0 $0 $0 $0 176,778 $0 $0 $0 $0 $0 $0 $2,587,138 $79,801 $0 $54,710 $16,714 $63,087 $167 $(155,373) $(37,409) $0 $0 $0 $0 $0 $0 $0 $521,651 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
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