AS FILED WITH THE SEC ON REGISTRATION NO. 33-57186
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 7 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
--------------
PRUCO LIFE OF NEW JERSEY
VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 437-4016, EXT. 46
(Address and telephone number of principal executive offices)
--------------
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
--------------
PRUvider Variable Appreciable 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 1996 was
filed on February 28, 1997.
It is proposed that this filing will become effective (check appropriate space):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1997 pursuant to paragraph (b) of Rule 485
(date)
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on ___________ pursuant to paragraph (a) of Rule 485
(date)
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
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N-8B-2 ITEM NUMBER LOCATION
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1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions (Part 1B)
5. Pruco Life of New Jersey Variable Appreciable Account
6. Pruco Life of New Jersey Variable Appreciable Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short-Term
Cancellation Right or "Free Look"; Transfers; How the
Contract Fund Changes with Investment Experience;
How a Contract's Death Benefit Will Vary; Surrender of
a Contract; Withdrawal of Excess Cash Surrender Value
(Part 1B); When Proceeds are Paid; Contract Loans;
Lapse and Reinstatement; Paid-Up Insurance Option;
Reduced Paid-Up Insurance Option; The Fixed-Rate
Option; Voting Rights; Possible Replacement of Series
Fund (Part 1B)
11. Brief Description of the Contract; Pruco Life of New
Jersey Variable Appreciable Account
12. Cover Page; Brief Description of the Contract; Flexible
Portfolios; Further Information About The Series Fund;
Sale of the Contract and Sales Commissions (Part 1B)
13. Brief Description of the Contract; Premiums; Allocation
of Premiums; Contract Fees and Charges; Reduction of
Charges for Concurrent Sales to Several Individuals;
(Part 1B); Sale of the Contract and Sales Commissions (Part 1B)
14. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
15. Brief Description of the Contract; Premiums; Allocation
of Premiums; Transfers; General Information About
Pruco Life of New Jersey Variable Appreciable Account,
and The Fixed Rate Option
16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
17. Surrender of a Contract; Withdrawal of Excess Cash
Surrender Value (Part 1B); When Proceeds are Paid
18. Pruco Life of New Jersey Variable Appreciable Account;
How the Contract Fund Changes with Investment
Experience
19. Reports to Contract Owners
</TABLE>
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N-8B-2 ITEM NUMBER LOCATION
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20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other Standard Contract Provisions (Part 1B); Possible
Replacement of The Series Fund (Part 1B)
25. Brief Description of the Contract
26. Brief Description of the Contract; Contract Fees and
Charges
27. Brief Description of the Contract
28. Brief Description of the Contract; Directors and Officers
of Pruco Life of New Jersey and Management of the
Series Fund (Part 1B)
29. Brief Description of the Contract
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Brief Description of the Contract
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions (Part 1B)
39. Sale of the Contract and Sales Commissions (Part 1B)
40. Not Applicable
41. Sale of the Contract and Sales Commissions (Part 1B)
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; Further Information
About the Series Fund; How the Contract Fund Changes
with Investment Experience; How a Contract's Death
Benefit Will Vary
45. Not Applicable
46. Brief Description of the Contract; Pruco Life of New
Jersey Variable Appreciable Account; Further
Information About the Series Fund
47. Pruco Life of New Jersey Variable Appreciable Account;
Further Information About the Series Fund
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Possible Replacement of the Series Fund (Part 1B)
</TABLE>
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53. Tax Treatment of Contract Benefits; Tax Treatment of
Contract Benefits (Part 1B)
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Consolidated Financial Statements
of Pruco Life Insurance Company of New Jersey and
Subsidiaries
</TABLE>
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PRUVIDER VARIABLE
APPRECIABLE LIFE(R)
INSURANCE
MAY 1, 1997
PROSPECTUS
THE PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT AND
THE PRUDENTIAL SERIES FUND, INC.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
SVAL-2 ED 5/97
CATALOG NO. 640189U
<PAGE>
PROSPECTUS
MAY 1, 1997
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
PRUVIDER(SM)
VARIABLE APPRECIABLE LIFE(R)
INSURANCE CONTRACT
This prospectus describes a variable life insurance contract issued by Pruco
Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), a stock life
insurance company that is an indirect wholly-owned subsidiary of The Prudential
Insurance Company of America ("Prudential"). Pruco Life of New Jersey calls this
contract its PRUVIDER(sm) Variable APPRECIABLE LIFE(R) Insurance Contract* (the
"Contract"). The Contract provides whole-life insurance protection. The death
benefit varies daily with investment experience but will never be less than a
guaranteed minimum amount (the face amount specified in the Contract). The
Contract also generally provides a cash surrender value which does not have a
guaranteed minimum amount.
The assets held for the purpose of paying benefits under these and other similar
contracts are segregated from the other assets of Pruco Life of New Jersey and
are invested in one or both of the current subaccounts of the Pruco Life of New
Jersey Variable Appreciable Account (from now on, the "Account"). In this case,
the assets will be invested in the corresponding portfolio of The Prudential
Series Fund, Inc. (from now on, the "Series Fund"). The two portfolios of the
Series Fund currently available to Contract owners are the CONSERVATIVE BALANCED
PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO. The Contract owner may also choose
to have the assets invested in a FIXED-RATE OPTION. This prospectus describes
the Contract generally, the Pruco Life of New Jersey Variable Appreciable
Account and the securities issued by the Series Fund.
Although it is advantageous to the purchaser to pay a Scheduled Premium amount
on the dates due, which are at least once a year but may be more often,
purchasers have flexibility as to when and in what amounts they pay premiums.
Before you sign an application to purchase this life insurance contract, you
should read this prospectus with care and have any questions you may have
answered by your Pruco Life of New Jersey representative. If you do purchase the
Contract, you should retain this prospectus for future reference, together with
the Contract itself that you will receive.
Additional information about the contract and the Series Fund is set forth in a
separate Statement of Additional Information which is incorporated by reference
into this prospectus. It is available without charge upon request to the Pruco
Life Insurance Company of New Jersey at the address shown below.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE, A NEW
POLICY SUPPLEMENTING THE EXISTING POLICY SHOULD BE REQUESTED, THEREBY PROTECTING
THE BENEFITS OF THE ORIGINAL POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY,
YOU SHOULD COMPARE THE BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY
WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS
PROSPECTUS AND YOU SHOULD CONSULT WITH A QUALIFIED TAX ADVISOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.
SVAL-2 Ed. 5-97
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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INTRODUCTION AND SUMMARY..............................................................1
BRIEF DESCRIPTION OF THE CONTRACT...............................................1
BALANCED PORTFOLIOS.............................................................3
CONSERVATIVE BALANCED PORTFOLIO...........................................3
FLEXIBLE MANAGED PORTFOLIO................................................3
FIXED-RATE OPTION...............................................................3
TRANSFERS BETWEEN INVESTMENT OPTIONS............................................3
THE SCHEDULED PREMIUM...........................................................3
PAYMENT OF HIGHER PREMIUMS......................................................3
CONTRACT LOANS..................................................................3
PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS..........................3
FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND.............................4
PORTFOLIO RATES OF RETURN.............................................................6
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED PREMIUMS.......7
GENERAL INFORMATION ABOUT PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
AND THE FIXED-RATE OPTION.......................................................8
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT...........................8
THE FIXED-RATE OPTION...........................................................8
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..................................9
REQUIREMENTS FOR ISSUANCE OF A CONTRACT.........................................9
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"....................................9
CONTRACT FEES AND CHARGES.......................................................9
Deductions from Premiums..................................................9
Deductions from Portfolios................................................9
Monthly Deductions from Contract Fund....................................10
Daily Deduction from the Contract Fund...................................11
Surrender or Withdrawal Charges..........................................11
Transaction Charges......................................................12
CONTRACT DATE..................................................................12
PREMIUMS.......................................................................12
ALLOCATION OF PREMIUMS.........................................................13
TRANSFERS......................................................................13
HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE.......................14
HOW A CONTRACT'S DEATH BENEFIT WILL VARY.......................................14
CONTRACT LOANS.................................................................15
SURRENDER OF A CONTRACT........................................................15
LAPSE AND REINSTATEMENT........................................................15
Fixed Extended Term Insurance............................................16
Fixed Reduced Paid-Up Insurance..........................................16
Variable Reduced Paid-Up Insurance.......................................16
What Happens If No Request Is Made?......................................16
PAID-UP INSURANCE OPTION.......................................................16
REDUCED PAID-UP INSURANCE OPTION...............................................17
WHEN PROCEEDS ARE PAID.........................................................17
LIVING NEEDS BENEFIT...........................................................17
Terminal Illness Option..................................................18
VOTING RIGHTS..................................................................18
REPORTS TO CONTRACT OWNERS.....................................................19
TAX TREATMENT OF CONTRACT BENEFITS.............................................19
Treatment as Life Insurance..............................................19
Pre-Death Distributions..................................................19
Other Tax Consequences...................................................20
OTHER CONTRACT PROVISIONS......................................................20
FURTHER INFORMATION ABOUT THE SERIES FUND............................................20
</TABLE>
<PAGE>
<TABLE>
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PAGE
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<S> <C>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.................................20
BALANCED PORTFOLIOS............................................................21
Conservative Balanced Portfolio..........................................21
Flexible Managed Portfolio...............................................22
FOREIGN SECURITIES.............................................................23
RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES RATED BELOW
INVESTMENT GRADE...............................................................23
OPTIONS, FUTURES CONTRACTS AND SWAPS...........................................24
SHORT SALES....................................................................24
REPURCHASE AGREEMENTS..........................................................25
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS.................................25
LOANS OF PORTFOLIO SECURITIES..................................................25
INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS.................................25
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES......................................26
PORTFOLIO BROKERAGE AND RELATED PRACTICES......................................26
STATE REGULATION.....................................................................26
EXPERTS..............................................................................26
LITIGATION...........................................................................27
EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....................27
ADDITIONAL INFORMATION...............................................................28
FINANCIAL STATEMENTS.................................................................29
FINANCIAL STATEMENTS OF THE PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT....A1
FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY ..................B1
</TABLE>
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 AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR
THE SERIES FUND.
<PAGE>
INTRODUCTION AND SUMMARY
This section provides only an overview of the more significant provisions of the
Contract. It omits details which are provided in the rest of this prospectus, as
well as in a Statement of Additional Information which is available to you upon
request without charge. A description of the contents of that Statement of
Additional Information is on page 27.
As you read this prospectus you should keep in mind that you are considering the
purchase of a life insurance contract. Because it is VARIABLE LIFE INSURANCE -
and variable life insurance has significant investment aspects and requires you
to make investment decisions - it is also a "security." That is why you have
been given this prospectus. Securities which are offered to the public must be
registered with the Securities and Exchange Commission, and the prospectus that
is a part of the registration statement must be given to all prospective buyers.
But because a substantial part of your premium pays for life insurance that will
pay to your beneficiary, in the event of your death, an amount far exceeding
your total premium payments, you should not buy this contract unless a major
reason for the purchase is to provide life insurance protection. Because the
contract provides whole-life or permanent insurance, it also serves a second
important objective. It can be expected to provide an increasing cash surrender
value that can be used during your lifetime.
BRIEF DESCRIPTION OF THE CONTRACT
The PRUVIDER Variable APPRECIABLE LIFE Contract (referred to from now on as the
"Contract") is issued and sold by the Pruco Life Insurance Company of New Jersey
("Pruco Life of New Jersey"), a stock life insurance company, organized in 1982
under the laws of the State of New Jersey. It is licensed to sell life insurance
and annuities only in the States of New Jersey and New York. These Contracts are
not offered in any state in which the necessary approvals have not yet been
obtained.
Pruco Life of New Jersey is a wholly-owned subsidiary of Pruco Life Insurance
Company, which in turn is a wholly-owned subsidiary of Prudential, a mutual
insurance company founded in 1875 under the laws of the State of New Jersey. As
of December 31, 1996, Prudential has invested $127 million in Pruco Life of New
Jersey through its subsidiary Pruco Life Insurance Company in connection with
Pruco Life of New Jersey's organization and operation. Prudential intends from
time to time to make additional capital contributions to Pruco Life of New
Jersey as needed to enable it to meet its reserve requirements and expenses in
connection with its business. Prudential is under no obligation to make such
contributions and its assets do not back the benefits payable under the
Contract. Pruco Life of New Jersey's financial statements begin on page B1 and
should be considered only as bearing upon Pruco Life of New Jersey's ability to
meet its obligations under the Contracts.
The Contract is a form of flexible premium variable life insurance. It is built
around a Contract Fund, the amount of which changes every business day. That
amount represents the value of your Contract on that day although you will have
to pay a surrender charge if you decide to surrender the Contract during the
first ten Contract years.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Pruco Life of New Jersey has
established a separate account, like a separate division within the Company,
called the Pruco Life of New Jersey Variable Appreciable Account. Whenever you
pay a premium, Pruco Life of New Jersey first deducts certain charges (described
below) and, unless you decide otherwise puts the remainder - often called the
"net premium" - into the Account, where it is combined with the net premiums
from all other contracts like this one. The money in the Account, including your
Contract Fund, is then invested in the following way. The Account is divided
into 2 subaccounts and you must decide which one[s] will hold the assets of your
Contract Fund. The money allocated to each subaccount is immediately invested in
a corresponding portfolio of The Prudential Series Fund, Inc. Those two
portfolios -- called the CONSERVATIVE BALANCED PORTFOLIO and the FLEXIBLE
MANAGED PORTFOLIO -- differ in the amount of risk associated with them and are
described in more detail below.
Because the assets that relate to the Contract may be invested in these variable
investment options, the Contract offers an opportunity for your cash surrender
value to appreciate more rapidly than it would under comparable fixed-benefit
whole-life insurance. You, 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. If you prefer to avoid this risk you
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 of your Contract
Fund allocated to that option. See THE FIXED-RATE OPTION, page 8.
Pruco Life of New Jersey deducts certain charges from each premium payment and
from the amounts held in the designated investment options. In addition, Pruco
Life of New Jersey 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 CONTRACT
1
<PAGE>
FEES AND CHARGES on page 9. In brief, and subject to that fuller description,
the following diagram outlines the charges which may be made:
PREMIUM PAYMENT
o less charge for taxes
attributable to premiums
o less $2 processing fee
INVESTED PREMIUM AMOUNT
o To be invested in one or a combination of:
o The Conservative Balanced Portfolio
o The Flexible Managed Portfolio
o The Fixed-Rate Option
DAILY CHARGES
o A daily charge equivalent to an annual rate of up to 0.9% is deducted from
the assets of the subaccounts for mortality and expense risks.
o Management fees and expenses are deducted from the assets of the Series
Fund. See DEDUCTIONS FROM PORTFOLIOS, page 9.
MONTHLY CHARGES
o A sales charge is deducted from the Contract Fund in the amount of 1/2 of
1% of the primary annual premium.
o 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.
o The Contract Fund is reduced by an administrative charge of up to $6 per
Contract and up to $0.19 per $1,000 of face amount of insurance
(currently, on a non-guaranteed basis, the $0.19 charge is decreased to
$0.09 per $1,000); if the face amount of the Contract is less than
$10,000, there is an additional charge of $0.30 per $1,000 of face amount.
o A charge for anticipated mortality is deducted, with the maximum charge
based on the non-smoker/smoker 1980 CSO Tables.
o If the Contract includes riders, a deduction from the Contract Fund will
be made for charges applicable to those riders; a deduction will also be
made if the rating class of the insured results in an extra charge.
POSSIBLE ADDITIONAL CHARGES
o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred sales charge is assessed; the maximum contingent
deferred sales charge during the first 5 years is 50% of the first year's
primary annual premium but this charge is both subject to other important
limitations and reduced for Contracts that have been in force for more
than 5 years.
o 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.
o An administrative processing charge of $15 will be made in connection with
each withdrawal of excess cash surrender value.
Because of the charges listed above, and in particular because of the
significant charges deducted upon early surrender or lapse, you should purchase
a Contract only if you intend and have the financial capability to keep it in
force for a substantial period.
When you first buy the Contract you give instructions to Pruco Life of New
Jersey as to what combination of the three investment options you wish your
Contract Fund invested. Thereafter you may make changes in these
2
<PAGE>
allocations either in writing or by telephone. The investment objectives of the
portfolios, described more fully starting on page 20 of this prospectus, and of
the fixed-rate option are as follows:
BALANCED PORTFOLIOS
CONSERVATIVE BALANCED PORTFOLIO. Achievement of a favorable total investment
return consistent with a portfolio having a conservatively managed mix of money
market instruments, fixed income securities, and common stocks, in proportions
believed by the investment manager to be appropriate for an investor who desires
diversification of investment who prefers a relatively lower risk of loss than
that associated with the Flexible Managed Portfolio while recognizing that this
reduces the chances of greater appreciation.
FLEXIBLE MANAGED PORTFOLIO. Achievement of a high total investment return
consistent with a portfolio having an aggressively managed mix of money market
instruments, fixed income securities, and common stocks, in proportions believed
by the investment manager to be appropriate for an investor desiring
diversification of investment who is willing to accept a relatively high level
of loss in an effort to achieve greater appreciation.
FIXED-RATE OPTION
Guarantee against loss of principal plus income at a rate which may change at
yearly intervals, but will never be lower than an effective annual rate of 4%.
TRANSFERS BETWEEN INVESTMENT OPTIONS
You may at any time change the instructions for the allocation of your premiums
to the various investment options. You may also transfer amounts held in one
option to another. There are restrictions upon transfers out of the fixed-rate
option which under certain circumstances Pruco Life of New Jersey may waive.
THE SCHEDULED PREMIUM
Your Contract sets forth an annual Scheduled Premium, or one that is payable
more frequently, such as monthly. Pruco Life of New Jersey guarantees that, if
the Scheduled Premiums are paid when due (or if missed premiums are paid later,
with interest), the death benefit will be paid upon the death of the insured.
The Contract will not lapse even if investment experience is unexpectedly so
unfavorable that the Contract Fund value drops to below zero.
The amount of the scheduled premium 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, and the
frequency of premium payments selected. Under certain low face amount Contracts
issued on younger insureds, the payment of the Scheduled Premium may cause the
Contract to be classified as a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 19. The scheduled premium will not be increased (except
to reflect changes in the rate for taxes attributable to premiums). See
PREMIUMS, page 12.
PAYMENT OF HIGHER PREMIUMS
The payment of premiums in excess of Scheduled Premiums may cause the Contract
to be classified as a Modified Endowment Contract. See PREMIUMS, page 12 and TAX
TREATMENT OF CONTRACT BENEFITS, page 19.
CONTRACT LOANS
The Contract permits the owner to borrow up to 90% of the amount of the cash
surrender value (100% of the portion allocated to the fixed-rate option) on
favorable terms. See CONTRACT LOANS, page 15. When a loan is made, the amount
held under the investment options described above is reduced, proportionately,
by the amount of the loan.
PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS
Pruco Life of New Jersey's PRUVIDER Variable APPRECIABLE LIFE Insurance Contract
is a form of life insurance that provides much of the flexibility of variable
universal life. However, it differs in two important ways. First, Pruco Life of
New Jersey guarantees that if the Scheduled Premiums are paid when due or within
the grace period (or missed premiums are paid later with interest), the Contract
will not lapse and the face amount of insurance will be paid upon the death of
the insured even if, because of unfavorable investment experience, the Contract
Fund value should drop to below zero. Second, if all premiums are not paid when
due (or made up), the Contract will not lapse as long as the Contract Fund is
higher than a stated amount set forth in a table in the Contract - an amount
that increases each year and in later years becomes quite high; it is called the
"Tabular Contract Fund." The Contract lapses when the Contract Fund falls to
below this stated amount, rather than when it drops to zero. Thus, when a
PRUVIDER Variable APPRECIABLE LIFE Contract lapses, it may still have
considerable value and you will,
3
<PAGE>
therefore, have a substantial incentive to reinstate it, as well as an
opportunity to make a considered decision whether to do so or to take, in one
form or another, the cash surrender value. In effect, Pruco Life of New Jersey
provides an early and timely warning against the imprudent use of the
flexibility provided by the Contract.
In the following pages of this prospectus we describe in much greater detail all
of the provisions of the Contract. That description is preceded by two sets of
tables. The first set provides, in condensed form, financial information about
the portfolios of the Series Fund, beginning on the date each of them was first
established. The second set shows what the cash surrender values and death
benefits would be under a Contract issued on a hypothetical person, making
certain assumptions. These tables show generally how the values under the
Contract would vary, with different investment performances.
FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS
OF THE SERIES FUND
The tables that follow provide information about the annual investment income,
capital appreciation and expenses of the 2 available portfolios of the Series
Fund for each year, beginning with the year after the Series Fund was
established. They are prepared on a per share basis and therefore provide useful
information about the investment performance of each portfolio.
NOTE, HOWEVER, THAT THESE TABLES DO NOT TELL YOU HOW YOUR CONTRACT FUND WOULD
HAVE CHANGED DURING THIS PERIOD BECAUSE THEY DO NOT REFLECT THE DEDUCTIONS FROM
THE CONTRACT FUND OTHER THAN THE PORTFOLIO DEDUCTIONS.
4
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the periods indicated)
The following highlights for the year ended December 31, 1996 have been audited
by Price Waterhouse LLP, independent accountants, whose report thereon was
unqualified. In addition, the financial highlights for each of the years prior
to and including the period ended December 31, 1995 have been audited by
Deloitte & Touche LLP, independent auditors, whose report thereon was also
unqualified. Their reports are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
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YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A) 1991(A) 1990(A) 1989(A) 1988(A) 1987(A)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of year...... $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30 $ 11.89 $ 12.57
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.66 0.63 0.53 0.49 0.56 0.69 0.82 0.89 0.77 0.66
Net realized and
unrealized gains
(losses) on
investments............ 1.24 1.78 (0.68) 1.23 0.41 1.74 (0.14) 1.15 0.43 (0.40)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 1.90 2.41 (0.15) 1.72 0.97 2.43 0.68 2.04 1.20 0.26
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net
investment income...... (0.66) (0.64) (0.51) (0.47) (0.54) (0.67) (0.81) (0.89) (0.79) (0.71)
Distributions from net
realized gains......... (1.03) (0.56) (0.15) (0.58) (0.51) (0.50) (0.17) (0.09) -- (0.23)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (1.69) (1.20) (0.66) (1.05) (1.05) (1.17) (0.98) (0.98) (0.79) (0.94)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value, end of
year................... $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30 $ 11.89
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
TOTAL INVESTMENT
RETURN:(B)............. 12.63% 17.27% (0.97%) 12.20% 6.95% 19.07% 5.27% 16.99% 10.19% 1.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in millions).......... $4,478.8 $3,940.8 $3,501.1 $3,103.2 $2,114.0 $1,500.0 $1,100.2 $976.0 $815.6 $803.9
Ratios to average net
assets:
Expenses............... 0.59% 0.58% 0.61% 0.60% 0.62% 0.63% 0.65% 0.64% 0.65% 0.66%
Net investment
income................. 4.13% 4.19% 3.61% 3.22% 3.88% 4.89% 6.21% 6.81% 6.22% 5.05%
Portfolio turnover
rate................... 295% 201% 125% 79% 62% 115% 44% 154% 111% 141%
Average commission rate
paid per share......... $0.0554 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A) 1991(A) 1990(A) 1989(A) 1988(A) 1987(A)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of year...... $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12 $ 12.33 $ 13.56
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.57 0.56 0.47 0.57 0.58 0.65 0.72 0.82 0.72 0.57
Net realized and
unrealized gains
(losses) on
investments............ 1.79 3.15 (1.02) 1.88 0.61 2.81 (0.47) 1.99 0.84 (0.75)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 2.36 3.71 (0.55) 2.45 1.19 3.46 0.25 2.81 1.56 (0.18)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net
investment income...... (0.58) (0.56) (0.45) (0.57) (0.56) (0.66) (0.70) (0.81) (0.77) (0.67)
Distributions from net
realized gains......... (1.85) (0.79) (0.46) (0.93) (0.91) (0.51) -- (0.67) -- (0.38)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (2.43) (1.35) (0.91) (1.50) (1.47) (1.17) (0.70) (1.48) (0.77) (1.05)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value, end of
year................... $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12 $ 12.33
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
TOTAL INVESTMENT
RETURN:(B)............. 13.64% 24.13% (3.16%) 15.58% 7.61% 25.43% 1.91% 21.77% 12.83% (1.83%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in millions).......... $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9 $1,062.4
Ratios to average net
assets:
Expenses............... 0.64% 0.63% 0.66% 0.66% 0.67% 0.67% 0.69% 0.69% 0.70% 0.71%
Net investment
income................. 3.07% 3.30% 2.90% 3.30% 3.63% 4.23% 5.13% 5.66% 5.52% 4.09%
Portfolio turnover
rate................... 233% 173% 124% 63% 59% 93% 52% 141% 128% 124%
Average commission rate
paid per share......... $0.0563 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(a) Calculations are based on average month-end shares outstanding, where
applicable.
(b) Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.
Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.
5
<PAGE>
PORTFOLIO RATES OF RETURN
The following table, based upon the immediately preceding financial highlights
for the Series Fund, shows first the average annual compounded net rates of
return for each Portfolio for the year ended December 31, 1996, for the 5 year
and 10 year periods ending on that date, and from the inception date of each
Portfolio to December 31, 1996. These rates of return should not be regarded as
an estimate or prediction of future performance. They may be useful in assessing
the competence and performance of the Series Fund's investment advisor and in
helping you to decide which portfolios to choose. THIS INFORMATION RELATES ONLY
TO THE SERIES FUND AND DOES NOT REFLECT THE VARIOUS OTHER CHARGES MADE UNDER THE
CONTRACTS.
<TABLE>
<CAPTION>
5 YEARS 10 YEARS INCEPTION
INCEPTION YEAR ENDED ENDED ENDED DATE TO
PORTFOLIO DATE 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C>
- -------------------------- ------------- ----------- ----------- ----------- -------------
CONSERVATIVE BALANCED 5/83 12.63% 9.43% 9.92% 10.60%
FLEXIBLE MANAGED 5/83 13.64% 11.18% 11.35% 11.77%
</TABLE>
6
<PAGE>
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. The tables assume
that no portion of the Contract Fund is allocated to the fixed-rate option. 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 selected Series Fund portfolios were
a uniform, after tax, annual rate of 0%, 4%, 8%, and 12% and minimum scheduled
premiums were paid. The death benefits and cash surrender values would be
different from those shown if the returns averaged 0%, 4%, 8%, and 12% but
fluctuated over and under those averages throughout the years.
The death benefits and cash surrender values shown in the first two tables on
pages T1 and T2 reflect Pruco Life of New Jersey's current charges. The values
shown in these tables are calculated upon the assumption that Pruco Life of New
Jersey will continue to use the administrative charges and mortality rates that
it is currently using, even though it is permitted under the Contract to use
higher administrative charges and the higher mortality charges specified in the
1980 CSO Table. While Pruco Life of New Jersey does not currently intend to
withdraw or modify these reductions in charges, it reserves the right to do so.
The death benefits and cash surrender values shown in the next two tables on
pages T3 and T4 are calculated upon the assumption that the maximum
administrative charges allowable under the Contract and the maximum mortality
charges specified by the 1980 CSO Table are made throughout the life of the
Contract; they do not reflect Pruco Life of New Jersey's current practice of
reducing the administrative and mortality charges.
The amounts shown for the death benefit and cash surrender value as of each
Contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross, after-tax return of the Series
Fund's portfolios. This is because these tables assume an investment management
fee and other estimated Series Fund expenses totaling 0.62% and also reflect the
daily charge to the Account for assuming mortality and expense risks, which is
equivalent to an effective annual rate of 0.9%. The 0.62% figure is based on an
average of the current management fees of the two available portfolios and an
analysis of historical operating expenses other than management fees, taking
into account any applicable expense offsets. Actual fees and expenses of the
portfolios associated with a Contract may be more or less than 0.62%, will vary
from year to year, and will depend on how the Contract Fund is allocated. Based
on the above assumptions, gross annual rates of return of 0%, 4%, 8%, and 12%
correspond in the tables to approximate net annual rates of return of -1.52%,
2.48%, 6.48%, and 10.48%, respectively. The tables reflect the fact that no
charges for federal or state income taxes are currently made against the Account
(other than "taxes attributable to premiums"). If such a charge is made in the
future, it will take higher gross rates of return to produce the same net
after-tax returns. 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, Pruco Life of New Jersey will furnish a comparable hypothetical
illustration based on the proposed insured's age and sex (except where unisex
rates apply) and on the face amount or premium amount requested. 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.
7
<PAGE>
ILLUSTRATIONS
-------------
THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE SELECT PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
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 --------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net) (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net)
------ -------------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 181 $5,003 $5,007 $ 5,011 $ 5,016 $ 0 $ 0 $ 2 $ 6
2 $ 369 $5,002 $5,013 $ 5,024 $ 5,036 $ 48 $ 59 $ 70 $ 82
3 $ 564 $5,000 $5,019 $ 5,040 $ 5,063 $101 $ 121 $ 142 $ 165
4 $ 767 $5,000 $5,024 $ 5,058 $ 5,096 $153 $ 185 $ 219 $ 256
5 $ 978 $5,000 $5,028 $ 5,079 $ 5,136 $204 $ 249 $ 300 $ 357
6 $ 1,198 $5,000 $5,033 $ 5,104 $ 5,186 $268 $ 329 $ 400 $ 482
7 $ 1,427 $5,000 $5,038 $ 5,133 $ 5,247 $330 $ 410 $ 506 $ 619
8 $ 1,665 $5,000 $5,042 $ 5,166 $ 5,318 $392 $ 493 $ 617 $ 769
9 $ 1,912 $5,000 $5,046 $ 5,204 $ 5,403 $452 $ 577 $ 735 $ 934
10 $ 2,169 $5,000 $5,049 $ 5,246 $ 5,501 $510 $ 662 $ 859 $ 1,114
15 $ 3,617 $5,000 $5,055 $ 5,539 $ 6,264 $718 $1,044 $ 1,528 $ 2,253
20 $ 5,379 $5,000 $5,042 $ 6,017 $ 9,081 $879 $1,452 $ 2,427 $ 4,105
25 $ 7,523 $5,000 $5,007 $ 6,949 $13,482 $965 $1,873 $ 3,625 $ 7,034
30 (Age 65) $10,132 $5,000 $5,000 $ 8,696 $19,488 $934 $2,290 $ 5,171 $11,589
35 $13,305 $5,000 $5,000 $10,646 $27,770 $691 $2,674 $ 7,108 $18,540
40 $17,166 $5,000 $5,000 $12,868 $39,313 $ 41 $2,983 $ 9,482 $28,970
45 $21,864 $5,000 $5,000 $15,463 $55,611 $ 0 $3,125 $12,331 $44,348
</TABLE>
- -----------
(1) If premiums are paid more frequently than annually, the payments would be
$89.46 semi-annually, $46.15 quarterly or $16.90 monthly. The death benefits
and cash surrender values would be slightly different for a Contract with
more frequent premium payments.
(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%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY 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
<PAGE>
THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE SELECT PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
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 ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net) (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 407 $20,012 $20,024 $20,036 $ 20,048 $ 38 $ 50 $ 62 $ 74
2 $ 829 $20,013 $20,046 $20,080 $ 20,115 $ 243 $ 276 $ 310 $ 345
3 $ 1,269 $20,001 $20,065 $20,132 $ 20,204 $ 441 $ 505 $ 572 $ 644
4 $ 1,726 $20,000 $20,081 $20,194 $ 20,316 $ 635 $ 739 $ 851 $ 973
5 $ 2,202 $20,000 $20,094 $20,265 $ 20,455 $ 832 $ 985 $ 1,155 $ 1,346
6 $ 2,697 $20,000 $20,111 $20,355 $ 20,634 $1,082 $ 1,294 $ 1,538 $ 1,818
7 $ 3,211 $20,000 $20,125 $20,458 $ 20,850 $1,333 $ 1,615 $ 1,947 $ 2,339
8 $ 3,746 $20,000 $20,138 $20,576 $ 21,106 $1,580 $ 1,941 $ 2,379 $ 2,909
9 $ 4,302 $20,000 $20,148 $20,710 $ 21,410 $1,821 $ 2,272 $ 2,834 $ 3,534
10 $ 4,881 $20,000 $20,156 $20,861 $ 21,765 $2,056 $ 2,608 $ 3,313 $ 4,217
15 $ 8,140 $20,000 $20,153 $21,933 $ 24,565 $2,893 $ 4,108 $ 5,887 $ 8,520
20 $12,106 $20,000 $20,071 $23,703 $ 34,368 $3,536 $ 5,709 $ 9,341 $ 15,537
25 $16,931 $20,000 $20,000 $26,728 $ 51,066 $3,882 $ 7,357 $13,944 $ 26,641
30 (Age 65) $22,801 $20,000 $20,000 $33,481 $ 73,847 $3,750 $ 8,976 $19,911 $ 43,915
35 $29,942 $20,000 $20,000 $41,021 $105,266 $2,769 $10,425 $27,387 $ 70,280
40 $38,631 $20,000 $20,000 $49,613 $149,051 $ 140 $11,484 $36,561 $109,838
45 $49,203 $20,000 $20,000 $59,648 $210,877 $ 0 $11,674 $47,568 $168,168
</TABLE>
- ----------
(1) If premiums are paid more frequently than annually, the payments would be
$202.79 semi-annually, $103.98 quarterly or $36.59 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.
(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%, 4%, 8%,
AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF
NEW JERSEY 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
<PAGE>
THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE SELECT PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
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 -------------------------------------------------- ---------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net) (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net)
------ -------------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 181 $5,000 $5,000 $ 5,004 $ 5,009 $ 0 $ 0 $ 0 $ 0
2 $ 369 $5,000 $5,000 $ 5,010 $ 5,022 $ 35 $ 45 $ 56 $ 67
3 $ 564 $5,000 $5,000 $ 5,018 $ 5,039 $ 82 $ 100 $ 120 $ 142
4 $ 767 $5,000 $5,000 $ 5,028 $ 5,063 $128 $ 157 $ 189 $ 224
5 $ 978 $5,000 $5,000 $ 5,039 $ 5,092 $172 $ 214 $ 261 $ 314
6 $ 1,198 $5,000 $5,000 $ 5,053 $ 5,129 $228 $ 284 $ 349 $ 425
7 $ 1,427 $5,000 $5,000 $ 5,070 $ 5,173 $283 $ 355 $ 442 $ 546
8 $ 1,665 $5,000 $5,000 $ 5,089 $ 5,227 $336 $ 427 $ 540 $ 677
9 $ 1,912 $5,000 $5,000 $ 5,111 $ 5,290 $388 $ 500 $ 642 $ 821
10 $ 2,169 $5,000 $5,000 $ 5,136 $ 5,364 $438 $ 573 $ 749 $ 977
15 $ 3,617 $5,000 $5,000 $ 5,316 $ 5,948 $601 $ 885 $1,305 $ 1,936
20 $ 5,379 $5,000 $5,000 $ 5,619 $ 7,671 $711 $1,200 $2,029 $ 3,468
25 $ 7,523 $5,000 $5,000 $ 6,094 $11,185 $738 $1,495 $2,960 $ 5,835
30 (Age 65) $10,132 $5,000 $5,000 $ 6,978 $15,837 $630 $1,732 $4,150 $ 9,418
35 $13,305 $5,000 $5,000 $ 8,391 $22,060 $278 $1,834 $5,602 $14,728
40 $17,166 $5,000 $5,000 $ 9,931 $30,451 $ 0 $1,641 $7,318 $22,439
45 $21,864 $5,000 $5,000 $11,640 $41,854 $ 0 $ 713 $9,283 $33,377
</TABLE>
- ----------
(1) If premiums are paid more frequently than annually, the payments would be
$89.46 semi-annually, $46.15 quarterly or $16.90 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.
(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%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY 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
<PAGE>
THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE SELECT PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
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 ---------------------------------------------------- ---------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net) (-1.52% Net) (2.48% Net) (6.48% Net) (10.48% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 407 $20,000 $20,000 $20,009 $ 20,020 $ 12 $ 24 $ 35 $ 46
2 $ 829 $20,000 $20,000 $20,024 $ 20,056 $ 190 $ 221 $ 253 $ 286
3 $ 1,269 $20,000 $20,000 $20,045 $ 20,110 $ 364 $ 422 $ 485 $ 551
4 $ 1,726 $20,000 $20,000 $20,073 $ 20,185 $ 532 $ 627 $ 730 $ 842
5 $ 2,202 $20,000 $20,000 $20,108 $ 20,282 $ 704 $ 843 $ 999 $ 1,173
6 $ 2,697 $20,000 $20,000 $20,152 $ 20,406 $ 923 $1,115 $ 1,336 $ 1,589
7 $ 3,211 $20,000 $20,000 $20,205 $ 20,558 $1,143 $1,396 $ 1,695 $ 2,047
8 $ 3,746 $20,000 $20,000 $20,268 $ 20,742 $1,358 $1,680 $ 2,071 $ 2,545
9 $ 4,302 $20,000 $20,000 $20,341 $ 20,963 $1,566 $1,967 $ 2,465 $ 3,087
10 $ 4,881 $20,000 $20,000 $20,426 $ 21,225 $1,768 $2,255 $ 2,878 $ 3,677
15 $ 8,140 $20,000 $20,000 $21,056 $ 23,325 $2,427 $3,477 $ 5,010 $ 7,280
20 $12,106 $20,000 $20,000 $22,139 $ 28,833 $2,870 $4,707 $ 7,777 $ 13,035
25 $16,931 $20,000 $20,000 $23,868 $ 42,092 $2,979 $5,844 $11,330 $ 21,959
30 (Age 65) $22,801 $20,000 $20,000 $26,688 $ 59,647 $2,546 $6,726 $15,871 $ 35,471
35 $29,942 $20,000 $20,000 $32,133 $ 83,129 $1,129 $7,031 $21,453 $ 55,500
40 $38,631 $20,000 $20,000 $38,071 $114,786 $ 0 $6,070 $28,055 $ 84,587
45 $49,203 $20,000 $20,000 $44,659 $157,809 $ 0 $1,945 $35,614 $125,848
</TABLE>
- -------------
1) If premiums are paid more frequently than annually, the payments would be
$202.79 semi-annually, $103.98 quarterly or $36.59 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.
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%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY 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
<PAGE>
GENERAL INFORMATION ABOUT
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE
ACCOUNT AND THE FIXED RATE OPTION
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
The Pruco Life of New Jersey Variable Appreciable Account was established on
January 13, 1984 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 Pruco
Life of New Jersey's other assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life of New Jersey. Pruco Life of New
Jersey is also the legal owner of the assets in the Account. Pruco Life of New
Jersey will maintain assets in the Account with a total market value at least
equal to the reserve and other liabilities relating to the variable benefits
attributable to the Account. These assets may not be charged with liabilities
which arise from any other business Pruco Life of New Jersey conducts. In
addition to these assets, the Account's assets may include funds contributed by
Pruco Life of New Jersey to commence operation of the Account and may include
accumulations of the charges Pruco Life of New Jersey makes against the Account.
From time to time these additional assets will be transferred to Pruco Life of
New Jersey's general account. Before making any such transfer, Pruco Life of New
Jersey 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 Pruco Life of New Jersey. There are currently two subaccounts within
the Account, one of which invests in the Conservative Balanced Portfolio and the
other of which invests in the Flexible Managed Portfolio of the Series Fund.
Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
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 Pruco
Life of New Jersey 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. Any inaccurate or misleading disclosure regarding the
fixed-rate option may, however, subject Pruco Life of New Jersey and its
directors to civil liability if that results in any damage.
As explained earlier, you may elect to allocate, either initially or by
transfer, all or part of the amount credited under the Contract to the
fixed-rate option, and the amount so allocated or transferred becomes part of
Pruco Life of New Jersey's general assets. Sometimes this is referred to as
Pruco Life of New Jersey's general account, which consists of all assets owned
by Pruco Life of New Jersey other than those in the Account and in other
separate accounts that have been or may be established by Pruco Life of New
Jersey. Subject to applicable law, Pruco Life of New Jersey 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, Pruco Life of
New Jersey guarantees that the part of the Contract Fund allocated to the
fixed-rate option will accrue interest daily at an effective annual rate that
Pruco Life of New Jersey declares periodically. This rate may not be 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. See CONTRACT DATE, page
12. Thereafter, a new crediting rate will be declared each year and will remain
in effect for the calendar year. Pruco Life of New Jersey reserves the right to
change this practice. Pruco Life of New Jersey 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. At least annually and 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 13). 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 17).
8
<PAGE>
DETAILED INFORMATION FOR PROSPECTIVE
CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The Contract may generally be issued on insureds below the age of 76. Generally,
the minimum initial guaranteed death benefit that can be applied for is $5,000
and the maximum that can be applied for is $25,000. For proposed insureds 21
years of age or younger, the minimum initial guaranteed death benefit that can
be applied for is $10,000. Before issuing any Contract, Pruco Life of New Jersey
requires evidence of insurability which may 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 these requirements on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it, within 45 days after Part I of the application for insurance is
signed, or within 10 days after Pruco Life of New Jersey 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 Home Office specified in the Contract. A Contract returned
according to this provision shall be deemed void from the beginning. You will
then receive a refund of all premium payments made, plus or minus any change due
to investment experience. However, if applicable law so requires, if you
exercise your short-term cancellation right, you will receive a refund of all
premium payments made, with no adjustment for investment experience.
CONTRACT FEES AND CHARGES
This section provides a detailed description of each charge that is described
briefly in the chart on page 2, and an explanation of the purpose of the charge.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, will be the highest charge that
Pruco Life of New Jersey is entitled to make under the Contract. The "current
charge" is the lower amount that Pruco Life of New Jersey is now charging.
However, if circumstances change, Pruco Life of New Jersey reserves the right to
increase each current charge, up to but to no more than the maximum charge,
without giving any advance notice.
A Contract owner may add several "riders" to the Contract which provide
additional benefits, which are charged for separately. The statement and
description of charges that follows assumes there are no riders to the Contract.
Deductions from Premiums
(a) A charge for taxes attributable to premiums is deducted from each premium.
That charge is currently made up of two parts. The first part is in an amount
equal to the state or local premium tax. It varies from jurisdiction to
jurisdiction and generally ranges from 0.75% to 5% (but in some instances it may
exceed 5%) of the premium received by Pruco Life of New Jersey. The second part
is for federal income taxes measured by premiums and it is equal to 1.25% of the
premium. Pruco Life of New Jersey 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.
During 1996, 1995 and 1994, Pruco Life of New Jersey received a total of
approximately $168,923, $153,339 and $149,988, respectively, in charges for
payment of taxes attributable to premiums.
(b) A charge of $2 is deducted from each premium payment to cover the cost of
collecting and processing premiums. Thus, if you pay premiums annually, this
charge will be $2 per year. If you pay premiums monthly, the charge will be $24
per year. If you pay premiums more frequently, for example under a payroll
deduction plan with your employer, the charge may be more than $24 per year.
During 1996, 1995 and 1994, Pruco Life of New Jersey received a total of
approximately $205,362, $169,672 and $116,312, respectively, in processing
charges.
Deductions from Portfolios
(a) An investment advisory fee is deducted daily from each portfolio at an
annual rate of 0.55% for the Conservative Balanced Portfolio and 0.6% for the
Flexible Managed Portfolio.
(b) The expenses incurred in conducting the investment operations of the
portfolios (such as investment advisory fees, custodian fees and preparation and
distribution of annual reports) are paid out of the portfolio's income.
9
<PAGE>
These expenses also vary from portfolio to portfolio. The total expenses of each
portfolio for the year 1996 expressed as a percentage of the average assets
during the year are shown below:
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
--------- --- -------- --------
Conservative Balanced 0.55% 0.04% 0.59%
Flexible Managed 0.60% 0.04% 0.64%
For the years 1996, 1995 and 1994, Prudential received a total of $94,962,866,
$77,610,207, and $66,413,206, respectively, in investment management fees for
all of the Series Fund's portfolios.
Monthly Deductions from Contract Fund
The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].
(a) A sales charge, often called a sales load, is deducted to pay part of the
costs Pruco Life of New Jersey incurs in selling the Contracts, including
commissions, advertising and the printing and distribution of prospectuses and
sales literature. The charge is equal to 0.5% of the "primary annual premium"
which is equal to the Scheduled Premium that would be payable if premiums were
being paid annually, less the two deductions from premiums (taxes attributable
to premiums and the $2 processing charge), and less the $6 part of the monthly
deduction described in (c) below, the $0.30 per $1,000 of face amount for
Contracts with a face amount of less than $10,000, and any extra premiums for
riders or substandard risks. The deduction is made whether the Contract owner is
paying premiums annually or more frequently. It is lower on Contracts issued on
insureds over 60 years of age. To summarize, this charge is somewhat less than
(significantly less for Contracts with small face amounts) 6% of the annual
Scheduled Premium.
There is a second sales load, which will be charged only if a Contract lapses or
is surrendered before the end of the 10th Contract year. It is often described
as a contingent deferred sales load ("CDSL") and is described later under
SURRENDER OR WITHDRAWAL CHARGES, page 11. During 1996, 1995 and 1994, Pruco Life
of New Jersey received a total of approximately $468,823, $351,003 and $203,885,
respectively, in sales load charges.
(b) A charge of not more than $0.01 per $1000 of face amount of insurance is
made to compensate Pruco Life of New Jersey for the risk it assumes by
guaranteeing that, no matter 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 1996, 1995 and 1994, Pruco Life of
New Jersey received a total of approximately $24,222, $19,558 and $12,917,
respectively, for this risk charge.
(c) An administrative charge of $6 plus up to $0.19 per $1,000 per month of face
amount of insurance is deducted each month. Currently, on a non-guaranteed
basis, this charge is reduced from $0.19 to $0.09 per $1,000. The charge is
intended to pay for processing claims, keeping records, and communicating with
Contract owners. If premiums are paid by automatic transfer under the Pru-Matic
Plan, as described on page 12, the current charge is further reduced to $0.07
per $1,000 of face amount. There is an additional charge of $0.30 per $1,000 of
face amount if the face amount of the Contract is less than $10,000. This
monthly administrative charge will not be made if the Contract has been
continued in force pursuant to an option on lapse. During 1996, 1995 and 1994,
Pruco Life of New Jersey received a total of approximately $1,263,734,
$1,028,516 and $680,579, respectively, in monthly administrative charges.
(d) A mortality charge is deducted that is intended to be used to pay death
benefits. When an insured dies, the amount payable to the beneficiary is larger
than the Contract Fund and significantly larger if the insured dies in the early
years of a Contract. The mortality charges collected from all Contract owners
enables Pruco Life of New Jersey to pay the death benefit for the few insureds
who die. The maximum mortality 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 current attained age and sex
(except where unisex rates apply) and the anticipated mortality for that class
of persons. The anticipated mortality is based upon mortality tables published
by The National Association of Insurance Commissioners called the
Non-Smoker/Smoker 1980 CSO Tables. Pruco Life of New Jersey may determine that a
lesser amount than that called for by these mortality tables will be adequate
for insureds of particular ages and may thus make a lower mortality charge for
such persons. Any lower current mortality charges are not applicable to
Contracts in force pursuant to an option on lapse. See LAPSE AND REINSTATEMENT,
page 15.
10
<PAGE>
(e) If the Contract includes riders, Pruco Life of New Jersey deducts any
charges applicable to those riders from the Contract Fund on each Monthly date.
In addition, Pruco Life of New Jersey will deduct on each Monthly date any extra
charge incurred because of the rating class of the insured.
(f) A charge may be deducted to cover federal, state or local taxes (other than
"taxes attributable to premiums" described above) that are imposed upon the
operations of the Account. At present no such taxes are imposed and no charge is
made. Pruco Life of New Jersey will review the question of a charge to the
Account for company federal income taxes periodically. Such a charge may be made
in future years for any company federal income taxes that would be attributable
to the Account.
Under current law, Pruco Life of New Jersey may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant and they are not charged against the Account. If there is a material
change in the applicable state or local tax laws, the imposition of any such
taxes upon Pruco Life of New Jersey that are attributable to the Account may
result in a corresponding charge against the Account.
Daily Deduction from the Contract Fund
Each day a charge is deducted from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.9%. This charge is
intended to compensate Pruco Life of New Jersey for assuming mortality and
expense risks under the Contract. The mortality risk assumed is that insureds
may live for shorter periods of time than Pruco Life of New Jersey 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 Pruco Life of New Jersey estimated in fixing its administrative charges.
This charge is not assessed against amounts allocated to the fixed-rate option.
During 1996, 1995 and 1994, Pruco Life of New Jersey received a total of
approximately $113,587, $71,857 and $31,792, respectively, in mortality and
expense risk charges.
Surrender or Withdrawal Charges
(a) An additional sales load (the CDSL) is charged if a Contract is surrendered
for its cash surrender value or lapses during the first 10 Contract years. It is
not deducted from the death benefit if the insured should die during this
period. This maximum contingent deferred charge is equal to 50% of the first
year's primary annual premium upon Contracts that lapse during the first 5
Contract years. That percentage is reduced uniformly on a daily basis starting
from the Contract's fifth anniversary until it disappears on the tenth
anniversary. Other important limitations apply. They are described more fully in
the Statement of Additional Information. The amount of this charge can be more
easily understood by reference to the following table which shows the sales
loads that would be paid by a 35 year old man with $20,000 face amount of
insurance, both through the monthly deductions from the Contract Fund described
above and upon the surrender of the Contract.
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE TOTAL SALES
SALES LOAD LOAD AS PER-
CUMULATIVE DEDUCTED CENTAGE OF
SURRENDER, SCHEDULED FROM CONTINGENT TOTAL SCHEDULED
LAST DAY OF PREMIUMS CONTRACT DEFERRED SALES PREMIUMS
YEAR NO. PAID FUND SALES LOAD LOAD PAID
-------- ---- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1 $ 390.90 $ 18.24 $ 87.22 $105.46 26.98%
2 781.80 36.48 104.16 140.64 17.99%
3 1,172.70 54.72 121.10 175.82 14.99%
4 1,563.60 72.96 138.04 211.00 13.49%
5 1,954.50 91.20 146.55 237.75 12.16%
6 2,345.40 109.44 121.80 231.24 9.86%
7 2,736.30 127.68 91.40 219.08 8.01%
8 3,127.20 145.92 60.80 206.72 6.61%
9 3,518.10 164.16 30.40 194.56 5.53%
10 3,909.00 182.40 0.00 182.40 4.67%
</TABLE>
The percentages shown in the last column will not be appreciably different for
insureds of different ages.
(b) An administrative charge of $5 per $1,000 of face amount of insurance is
deducted upon lapse or surrender to cover the cost of processing applications,
conducting medical examinations, determining insurability and the insured's
rating class, and establishing records. However, this charge is reduced
beginning on the Contract's fifth anniversary and declines daily at a constant
rate until it disappears entirely on the tenth Contract anniversary. We are
currently allowing partial surrenders of the Contract, but we reserve the right
to cancel this administrative practice. If the Contract is partially surrendered
during the first 10 years, a proportionate amount of the charge
11
<PAGE>
will be deducted from the Contract Fund. During 1996, 1995 and 1994, Pruco Life
of New Jersey received a total of approximately $33,452, $22,963 and $10,806,
respectively, for surrendered or lapsed Contracts. Surrender of all or part of a
Contract may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page
19.
Transaction Charges
An administrative processing charge of $15 will be made in connection with each
withdrawal of excess cash surrender value of a Contract. This charge is
described in more detail in the Statement of Additional Information.
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 any medical examination. In most cases no medical examination will be
necessary. If the first premium is not paid with the application, the Contract
date will ordinarily be the date the first premium was paid and the Contract was
delivered. Under certain circumstances, Pruco Life of New Jersey 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 will result in the use by Pruco Life of New
Jersey of a lower issue age in determining the amount of the scheduled premium.
Pruco Life of New Jersey 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.
PREMIUMS
As already explained, the Contract provides for a Scheduled Premium which, if
paid when due or within a 61 day grace period, ensures that the Contract will
not lapse. If you pay premiums other than on a monthly basis, you will receive a
notice that a premium is due about 3 weeks before each due date. If you pay
premiums monthly, you will receive a book each year with 12 coupons that will
serve as a reminder. With Pruco Life of New Jersey's consent, you may change the
frequency of premium payments.
You may elect to have monthly premiums paid automatically under the "Pru-Matic
Premium Plan" by pre-authorized transfers from a bank checking account. If you
select the Pru-Matic Premium Plan, one of the current monthly charges will be
reduced. See MONTHLY DEDUCTIONS FROM CONTRACT FUND, page 10. Some Contract
owners may also be eligible to have monthly premiums paid by pre-authorized
deductions from an employer's payroll.
The following table shows, for two face amounts, representative preferred and
standard annual premium amounts under Contracts issued on insureds who are not
substandard risks. These premiums do not reflect any additional riders or
supplementary benefits.
$10,000 FACE AMOUNT $20,000 FACE AMOUNT
----------------------- -----------------------
PREFERRED STANDARD PREFERRED STANDARD
--------- -------- --------- --------
Male, age 35 $233.70 $274.01 $390.90 $ 471.52
at issue
Female, age 45 $278.04 $308.53 $479.59 $ 540.57
at issue
Male, age 55 $450.96 $562.17 $825.43 $1047.86
at issue
The following table compares annual and monthly premiums for insureds who are in
the preferred rating class. Note that in these examples the sum of 12 monthly
premiums for a particular Contract is approximately 110% to 116% of the annual
scheduled premium for that Contract.
12
<PAGE>
$10,000 FACE AMOUNT $20,000 FACE AMOUNT
--------------------- ---------------------
MONTHLY ANNUAL MONTHLY ANNUAL
------- ------ ------- ------
Male, age 35 $22.43 $233.70 $36.59 $390.90
at issue
Female, age 45 $26.46 $278.04 $44.65 $479.59
at issue
Male, age 55 $41.96 $450.96 $75.66 $825.43
at issue
A significant feature of this Contract is that it permits you to pay greater
than Scheduled Premiums. This may be done by making occasional unscheduled
premium payments or on a periodic basis. If you wish, you may select a higher
contemplated premium than the Scheduled Premium. Pruco Life of New Jersey will
then bill you for the chosen premium. In general, the regular payment of higher
premiums will result in higher cash surrender values and higher death benefits.
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 15. The
payment of premiums in excess of Scheduled Premiums may cause the Contract to
become a Modified Endowment Contract. If this happens, loans and other
distributions which would otherwise not be taxable events will be subject to
federal income taxation. See TAX TREATMENT OF CONTRACT BENEFITS, page 19.
Pruco Life of New Jersey will generally accept any premium payment if the
payment is at least $25. Pruco Life of New Jersey does reserve the right,
however, to limit unscheduled premiums to a total of $5,000 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. See HOW A CONTRACT'S
DEATH BENEFIT WILL VARY, page 14. The privilege of making large or additional
premium payments offers a way of investing amounts which accumulate without
current income taxation, but again, there are tax consequences if the Contract
becomes a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS,
page 19.
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. The remainder is
allocated on the Contract date among the subaccount[s] or the fixed-rate option
according to the desired allocation specified in the application form. From this
invested portion of the initial premium, the first monthly deductions are made.
See CONTRACT FEES AND CHARGES, page 9. The invested portion of any part of the
initial premium in excess of the Scheduled Premium is placed in the selected
investment option[s] on the date of receipt at a Home Office, 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. All subsequent premium
payments, after the deduction from premiums, will be invested as of the end of
the valuation period in which it is received at a Home Office in accordance with
the allocation previously designated. Provided the Contract is not in default,
you may change the way in which subsequent premiums are allocated by giving
written notice to a Home Office. You may also change the way in which subsequent
premiums are allocated by telephoning the Home Office, provided you are enrolled
to use the Telephone Transfer system. 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 331/3% cannot. Of course, the total
allocation of all selected investment options must equal 100%.
TRANSFERS
If the Contract is not in default, or if the Contract is in force as variable
reduced paid-up insurance (see LAPSE AND REINSTATEMENT , page 15), you may, up
to four times in each Contract year, transfer amounts from one subaccount to the
other subaccount or to the fixed-rate option. Currently, you may make additional
transfers with Pruco Life of New Jersey's consent. There is no charge. All or a
portion of the amount credited to a subaccount may be transferred.
In addition, the total amount credited to a Contract held in the subaccounts may
be transferred to the fixed-rate option at any time during the first two
Contract years. If you wish to convert your variable Contract to a fixed-benefit
Contract in this manner, you must request a complete transfer of funds to the
fixed-rate option and should also change your allocation instructions regarding
any future premiums.
13
<PAGE>
Transfers between subaccounts will take effect as of the end of the valuation
period (usually the business day) in which a proper transfer request is received
at a Home Office. The valuation period is defined as 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 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. The request may be in terms of
dollars, such as a request to transfer $1,000 from one subaccount to the other,
or may be in terms of a percentage reallocation between subaccounts. In the
latter case, as with premium reallocations, the percentages must be in whole
numbers. You may transfer amounts by proper written notice to a Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on policies that are assigned, depending on the
terms of the assignment. Pruco Life of New Jersey has adopted procedures
designed to ensure that requests by telephone are genuine and will require
appropriate identification for that purpose. Pruco Life of New Jersey will not
be held liable for following telephone instructions that we reasonably believe
to be genuine. Pruco Life of New Jersey cannot guarantee that you will be able
to get through to complete a telephone transfer during peak periods such as
periods of drastic economic or market change.
Transfers from the fixed-rate option are subject to restrictions and may only be
made with Pruco Life of New Jersey's consent. Transfers from the fixed-rate
option to the subaccounts 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 received prior to the Contract anniversary will
be effected on the Contract anniversary. Transfer requests received within the
30-day period beginning on the Contract anniversary will be effected as of the
end of the valuation period in which a proper transfer request is received at a
Home Office. These limits are subject to change in the future.
HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE
As explained above, after the tenth Contract year, there will no longer be a
surrender charge and, if there is no Contract loan, the cash surrender value
will be equal to the Contract Fund. This section, therefore, also describes how
the cash surrender value of the Contract will change with investment experience.
On the Contract Date, the Contract Fund value is the initial premium less the
deductions from premiums and the first monthly deductions. See CONTRACT FEES AND
CHARGES, page 9. This amount is placed in the investment options designated by
the owner. Thereafter the Contract Fund value changes daily, reflecting
increases or decreases in the value of the securities in which the assets of the
subaccount have been invested, and interest credited on any amounts allocated to
the fixed-rate option. It is also reduced by the daily asset charge for
mortality and expense risks assessed against the variable investment options.
The Contract Fund value also increases to reflect the receipt of additional
premium payments and is decreased by the monthly deductions.
A Contract's cash surrender value on any date will be the Contract Fund value
reduced by the withdrawal charges, if any, and by any Contract debt. Upon
request, Pruco Life of New Jersey will tell a Contract owner the cash surrender
value of his or her Contract. It is possible, although highly unlikely, that the
cash surrender value of a Contract could 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 T4 of this prospectus illustrate what the death
benefit and cash surrender values would be for a representative Contract,
assuming uniform hypothetical investment results in the selected portfolio[s],
and also provide information about the aggregate premiums payable under the
Contract.
HOW A CONTRACT'S DEATH BENEFIT WILL VARY
The death benefit will change from the outset with investment experience. The
precise way in which that will occur is complicated and is described in the
Statement of Additional Information. In general, and assuming the optional
paid-up benefit is not in effect, see PAID-UP INSURANCE OPTION, page 16, if the
net investment performance is 4% per year or higher, the death benefit will
increase; if it is below 4%, it will decrease. Pruco Life of New Jersey
guarantees, however, that it will not decrease below the face amount of
insurance. If unfavorable experience of that kind should occur, it must be
offset by favorable experience before the death benefit begins to increase
again.
If the Contract is kept in force for several years and if investment performance
is relatively favorable, the Contract Fund value may grow to the point where, to
meet certain provisions of the Internal Revenue Code which require that the
death benefit always be greater than the Contract Fund value, the death benefit
must be increased. The required difference between the death benefit and
Contract Fund value is higher at younger ages than at older ages. A precise
description is in the Statement of Additional Information.
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CONTRACT LOANS
The owner may borrow from Pruco Life of New Jersey up to the "loan value" of the
Contract, using the Contract as the only security for the loan. The loan value
is equal to (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.
Interest charged on a loan accrues daily at a fixed effective annual rate of
5.5%. 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, Pruco Life of
New Jersey will notify you of its intent to terminate the Contract in 61 days,
within which time you 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. If
you fail to keep the Contract in force, the amount of unpaid Contract debt will
be treated as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT
BENEFITS, page 19, and LAPSE AND REINSTATEMENT, page 15.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the variable investment options and/or the fixed-rate option, as
applicable. The reduction will normally be made in the same proportions as the
value in each subaccount and the fixed-rate option bears to the total value of
the Contract. While a loan is outstanding, the amount that was so transferred
will continue to be treated as part of the Contract Fund but it will be credited
with the assumed rate of return of 4% rather than with the actual rate of return
of the subaccount[s] or fixed-rate option.
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.
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 T2 with an 8% gross investment return. Assume a $1,500 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 $3,237.44. 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 6.48% net return
for the designated subaccount[s] resulting from the 8% gross return in the
underlying Series Fund. Loans from Modified Endowment Contracts may be treated
for tax purposes as distributions of income. See TAX TREATMENT OF CONTRACT
BENEFITS, page 19.
SURRENDER OF A CONTRACT
You may surrender a Contract for its cash surrender value while the insured is
living. To surrender a Contract, you must deliver or mail it, together with a
written request in a form that meets our needs, to a Home Office. The cash
surrender value of a surrendered Contract (taking 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. We
are currently allowing partial surrenders of Contracts, but we reserve the right
to cancel this administrative practice. Surrender of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 19.
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LAPSE AND REINSTATEMENT
As has already been explained, 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.
In addition, 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 following Monthly Date. (A Table of
Tabular Contract Fund Values is included in the Contract; the values increase
with each year the Contract remains in force.) This could occur because of such
factors as favorable investment experience, deduction of current rather than
maximum 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, Pruco Life of New Jersey will send you 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 a 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, page 19.
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, Pruco Life of New Jersey requires renewed
evidence of insurability, and submission of certain payments due under the
Contract.
If your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of Pruco Life of New Jersey
prior to the end of the 61 day grace period. You may also choose one of the
three forms of insurance described below for which no further premiums are
payable.
Fixed Extended Term Insurance. The amount of insurance that would have been paid
on the date of default will continue for a stated period of time. You will be
told in writing how long that will be. The insurance amount will not change.
There will be a diminishing cash surrender value but no loan value. Extended
term insurance is not available to insureds in high risk classifications or
under Contracts issued in connection with tax-qualified pension plans.
Fixed Reduced Paid-Up Insurance. This insurance continues for the lifetime of
the insured but at an insurance amount that is generally lower than that
provided by fixed extended term insurance. It will decrease only if a Contract
loan is taken. You will be told, if you ask, what the amount of the insurance
will be. Fixed paid-up insurance has a cash surrender value and a loan value. It
is possible for this Contract to be classified as a Modified Endowment Contract
if this option is exercised during the first 7 Contract years. See TAX TREATMENT
OF CONTRACT BENEFITS, page 19.
Variable Reduced Paid-Up Insurance. This is similar to fixed paid-up insurance
and will initially be in the same amount. The Contract Fund will continue to
vary to reflect the experience of the selected investment options. There will be
a new guaranteed minimum death benefit. Variable reduced paid-up insurance has
cash surrender and loan values.
Variable reduced paid-up insurance is the automatic option provided upon lapse,
if the amount of variable reduced paid-up insurance is at least as great as the
amount of fixed extended term insurance which would have been provided upon
lapse. Variable reduced paid-up insurance will be available only if the insured
is not in one of the high risk rating classes for which Pruco Life of New Jersey
does not offer fixed extended term insurance. It is possible for this Contract
to be classified as a Modified Endowment Contract if this option is exercised
during the first 7 Contract years. See TAX TREATMENT OF CONTRACT BENEFITS, page
19.
What Happens If No Request Is Made? Except in the two situations described
below, if no request is made the "automatic option" will be fixed extended term
insurance. If that is not available to the insured, then fixed reduced paid-up
insurance will be provided. However, if variable reduced paid-up insurance is
available and the amount is at least as great as the amount of fixed extended
term insurance, then the automatic option will be variable reduced paid-up
insurance. This could occur when there is a Contract debt outstanding when the
Contract lapses.
PAID-UP INSURANCE OPTION
In certain circumstances you may elect to stop paying premiums and to have
guaranteed insurance coverage for the lifetime of the insured. This benefit is
available only if the following conditions are met: (1) the Contract is not in
default; (2) Pruco Life of New Jersey is not paying premiums in accordance with
any payment of premium benefit that may be included in the Contract; and (3) the
Contract Fund is sufficiently large so that the calculated guaranteed paid-up
insurance amount is at least equal to the face amount of insurance plus the
excess, if any, of the Contract Fund over the tabular Contract Fund. The amount
of guaranteed paid-up insurance coverage may
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be greater. It will be equal to the difference between the Contract Fund and the
present value of future monthly charges from the Contract Fund (other than
charges for anticipated mortality costs and for payment of premium riders)
multiplied by the attained age factor. This option will generally be available
only when the Contract has been in force for many years and the Contract Fund
has grown because of favorable investment experience or the payment of
unscheduled premiums or both. Once the paid-up insurance option is exercised,
the actual death benefit is equal to the greater of the guaranteed paid-up
insurance amount and the Contract Fund multiplied by the attained age factor.
Upon request, Pruco Life of New Jersey will quote the amount needed to pay up
the Contract and to guarantee the paid-up insurance amount as long as a payment
equal to or greater than the quoted amount is received within two weeks of the
quote. There is no guarantee if the remittance is received within the two week
period and is less than the quoted amount or if the remittance is received
outside the two week period. In this case, Pruco Life of New Jersey will add the
remittance to the Contract Fund and recalculate the guaranteed paid-up insurance
amount. If the guaranteed paid-up insurance amount is equal to or greater than
the face amount, the paid-up request will be processed. If the guaranteed
paid-up insurance amount is calculated below the face amount, the insured will
be notified that the amount is insufficient to process the request. In some
cases, the quoted amount, if paid, would increase the death benefit by more than
it increases the Contract Fund. In these situations, underwriting might be
required to accept the premium payment and to process the paid-up request. Pruco
Life of New Jersey reserves the right to change this procedure in the future.
After the first Contract year, you must make a proper written request for the
Contract to become fully paid-up and send the Contract to a Home Office to be
endorsed. If this option is exercised during the first 7 Contract years, the
Contract may be classified as a "Modified Endowment Contract," see TAX TREATMENT
OF CONTRACT BENEFITS, page 19. A Contract in effect under a paid-up insurance
option will have cash surrender and loan values.
REDUCED PAID-UP INSURANCE OPTION
Like the paid-up insurance option, reduced paid-up insurance provides the
insured with lifetime insurance coverage without the payment of additional
premiums. However, reduced paid-up insurance provides insurance coverage which
is generally lower than the death benefit of the Contract. Reduced paid-up
insurance is based upon a Contract's current net cash value and can be requested
at any time. This option is available only when the Contract is not in default
and Pruco Life of New Jersey is not paying any premiums in accordance with any
payment of premium benefit that may be included in the Contract. In order to
receive reduced paid-up insurance, a Contract owner must make a proper written
request, and Pruco Life of New Jersey may request that the owner send the
Contract to a Home Office to be endorsed. 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 19.
WHEN PROCEEDS ARE PAID
Pruco Life of New Jersey will generally pay any death benefit, cash surrender
value, loan proceeds or withdrawal within 7 days after receipt at a 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 at
a Home Office. However, Pruco Life of New Jersey may delay payment of proceeds
from the subaccount[s] and the variable portion of the death benefit due under
the Contract if the sale 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, Pruco Life of New Jersey
expects to pay the cash surrender value promptly upon request. However, Pruco
Life of New Jersey 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). Pruco
Life of New Jersey 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. The benefit may vary state-by-state. It can generally be
added only when the aggregate face amounts of the insured's eligible contracts
equal $50,000 or more. 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.
Subject to state regulatory approval, 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
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be greater than the Contract's cash surrender value. The following option may be
available. A Pruco Life of New Jersey 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, Pruco Life of New Jersey will provide an accelerated
payment of the portion of the death benefit selected by the Contract owner as a
LIVING NEEDS BENEFIT. You 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 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. Pruco Life of New Jersey
reserves the right to determine the minimum amount that may be accelerated.
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. Pruco
Life of New Jersey 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.
With the exception of certain business-related policies, the recently enacted
Health Insurance Portability and Accountability Act of 1996 excludes from income
the LIVING NEEDS BENEFIT if the insured is terminally ill or chronically ill as
defined by the tax law (although the exclusion in the latter case may be
limited). Contract owners should consult a qualified tax advisor before electing
to receive this benefit. Receipt of a LIVING NEEDS BENEFIT payment may also
affect a Contract owner's eligibility for certain government benefits or
entitlements.
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. Pruco
Life of New Jersey 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,
Pruco Life of New Jersey 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 Pruco Life of New Jersey will be
voted in the same proportion as shares in the respective portfolios for which
instructions are received.
Matters on which Contract owners may give voting instructions including the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter.
The number of shares in a portfolio for which you may give instructions is
determined by dividing the portion of your Contract Fund attributable to the
portfolio, by the value of one share of the portfolio. The number of votes for
which each Contract owner may give Pruco Life of New Jersey instructions will be
determined as of the record date chosen by the Board of Directors of the Series
Fund. Pruco Life of New Jersey will furnish Contract owners with proper forms
and proxies to enable them to give these instructions. Pruco Life of New Jersey
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.
Pruco Life of New Jersey 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, Pruco Life of New
Jersey 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 Pruco Life of New Jersey reasonably disapproves such
changes in accordance with applicable federal regulations. If Pruco Life of New
Jersey 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.
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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), you will be sent a statement
that provides certain information pertinent to your own Contract. These
statements show all transactions during the year that affected the value of your
Contract Fund, including monthly changes attributable to investment experience.
That statement will also show the current death benefit, cash surrender value,
and loan values of your Contract. On request, you will be sent a current
statement in a form similar to that of the annual statement described above, but
Pruco Life of New Jersey may limit the number of such requests or impose a
reasonable charge if such requests are made too frequently.
You 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 both. If a
single individual or company invests in the Series Fund through more than one
variable insurance contract, then the individual or company will receive only
one copy of each annual or semi-annual report issued by the Series Fund.
However, if such individual or company wishes to receive multiple copies of any
such report, a request may be made by calling the toll-free telephone number
listed on the inside front cover page of this prospectus.
TAX TREATMENT OF CONTRACT BENEFITS
The tax treatment of life insurance is complex and may change. 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 Pruco Life of New Jersey believes the tax laws
apply in the most commonly occurring circumstances. A more technical discussion
of what follows is contained in the Statement of Additional Information.
Treatment as Life Insurance. Pruco Life of New Jersey believes that the Contract
should qualify as "life insurance" under the Internal Revenue Code. This means
that: (1) except as noted below, the Contract owner should not be taxed on any
part of the Contract Fund, including additions attributable to interest,
dividends or appreciation until amounts are distributed under the Contract; and
(2) the death benefit should be excludible from the gross income of the
beneficiary under section 101(a) of the Code.
Although Pruco Life of New Jersey believes the Contract should qualify as "life
insurance" for federal tax purposes, there are uncertainties, particularly
because the Secretary of the Treasury has not yet issued permanent regulations
that bear on this question. Accordingly, we have reserved the right to make
changes -- which will be applied uniformly to all Contract owners after advance
written notice -- that we deem necessary to insure that the Contract will
continue to qualify as life insurance.
Pre-Death Distributions. The tax treatment of any distribution received by an
owner prior to an insured's death will depend upon whether the Contract is
classified as a Modified Endowment Contract.
If the Contract is not classified as a Modified Endowment Contract, proceeds
received in the event of a lapse, surrender of the Contract, or withdrawal of
part of the cash surrender value will generally not be taxable unless the total
amount received exceeds the gross premiums paid less the untaxed portion of any
prior withdrawals. In certain limited circumstances, all or a portion of a
withdrawal during the first 15 contract years may be taxable even if total
withdrawals do not exceed total premiums paid to date. The proceeds of any loan
will be treated as indebtedness of the owner and will not be treated as taxable
income.
If the Contract is classified as a Modified Endowment Contract, pre-death
distributions, including loans and withdrawals (even those made during the 2
year period before the Contract became a Modified Endowment Contract), will be
taxed first as investment income to the extent of gain in the Contract, and then
as a return of the Contract owner's investment in the Contract. In addition,
pre-death distributions (including full surrenders) will be subject to a penalty
of 10% of the amount includible in income unless the amount is distributed on or
after the owner reaches age 59 1/2, on account of the owner's disability, or as
a life annuity.
A Contract may be classified as a Modified Endowment Contract under various
circumstances. For example, low face amount Contracts issued on younger insureds
may be classified as a Modified Endowment Contract even though the Contract
owner pays only the Scheduled Premiums or even less than the Scheduled Premiums.
Before purchasing such a Contract, you should understand the tax treatment of
pre-death distributions and consider the purpose for which the Contract is being
purchased. More generally, a Contract may be classified as a Modified Endowment
Contract if premiums in excess of Scheduled Premiums are paid or the face amount
of insurance is decreased during the first seven Contract years, or if the face
amount of insurance is increased or if a rider is added or removed from the
Contract. You should consult with your tax advisor before making any of these
policy changes.
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Other Tax Consequences. There may be federal estate taxes and state and local
estate and inheritance taxes payable if either the owner or the insured dies.
The transfer or assignment of the Contract to a new owner may also have tax
consequences. The individual situation of each Contract owner or beneficiary
will be significant.
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 will be withheld or in certain other
circumstances.
OTHER CONTRACT PROVISIONS
There are several other Contract provisions that are of less significance to you
than those already described in detail either because they relate to options
that you may choose under the Contract but are not likely to exercise for
several years after you first purchase it or because they are of a routine
nature not likely to influence your decision to buy the Contract. These
provisions are summarized in the EXPANDED TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION, page 27 and described in greater detail in the Statement
of Additional Information.
FURTHER INFORMATION ABOUT THE SERIES FUND
The Prudential Series Fund, Inc. (the "Series Fund") is a Maryland corporation
organized on November 15, 1982. It is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end, diversified, management investment
company. This registration does not imply any supervision by the Securities and
Exchange Commission over the Series Fund's management or its investment policies
or practices.
The Series Fund is currently made up of fifteen separate portfolios, two of
which, the Conservative Balanced and Flexible Managed Portfolios are available
to Contract owners. Each portfolio is, for many purposes, in effect a separate
investment fund, and a separate class of capital stock is issued for each
portfolio. Each share of capital stock issued with respect to a portfolio has a
pro-rata interest in the assets of that portfolio and has no interest in the
assets of any other portfolio. Each portfolio bears its own liabilities and also
its proportionate share of the general liabilities of the Series Fund. In other
respects the Series Fund is treated as one entity. For example, the Series Fund
has only one Board of Directors and owners of the shares of each portfolio are
entitled to vote for members of the Board.
Shares in the Series Fund are currently sold and redeemed at the close of each
business day, at their net asset value, determined in the manner described in
the Statement of Additional Information, only to separate accounts of Prudential
and its subsidiaries. They may, in the future, be sold to other insurers to fund
benefits under variable life insurance and variable annuity contracts issued by
those companies.
Prudential is the investment advisor of the Series Fund. Prudential has entered
into a Service Agreement with its wholly-owned subsidiary The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to
Prudential such services as Prudential may require in connection with the
performance of its obligations under an Investment Advisory Agreement with the
Series Fund. One of PIC's business groups is Prudential Investments.
See INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 25.
INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS
Each portfolio of the Series Fund has a different objective which it pursues
through separate investment policies as described below. Since each portfolio
has a different investment objective, each can be expected to have different
investment results and incur different market and financial risks. Those risks,
as explained above, are borne by the Contract owner. The Series Fund may in the
future establish other portfolios with different investment objectives.
The investment objectives of each portfolio are fundamental and may not be
changed without the approval of the holders of a majority of the outstanding
shares of the portfolio affected (which for this purpose and under the 1940 Act
means the lesser of: (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented; or (ii) more than 50%
of the outstanding shares). The policies by which a portfolio seeks to achieve
its investment objectives, however, are not fundamental. They may be changed by
the Board of Directors of the Series Fund without the approval of the
shareholders.
The investment objectives of both portfolios available to PRUVIDER Contract
owners are set forth on page 3. For the sake of convenience, they are repeated
here, followed in each case by a brief description of the policies of both
portfolios. In some cases a fuller description of those policies is in the
Statement of Additional Information. There is no guarantee that any of these
objectives will be met.
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BALANCED PORTFOLIOS
CONSERVATIVE BALANCED PORTFOLIO. The objective of this portfolio is to achieve a
favorable total investment return consistent with a portfolio having a
conservatively managed mix of money market instruments, fixed income securities,
and common stocks in proportions believed by the investment manager to be
appropriate for an investor desiring diversification of investment who prefers a
relatively lower risk of loss than that associated with the Flexible Managed
Portfolio while recognizing that this reduces the chances of greater
appreciation.
To achieve this objective, the Conservative Balanced Portfolio will follow a
policy of maintaining a more conservative asset mix among stocks, bonds and
money market instruments than the Flexible Managed Portfolio. In general, the
portfolio manager will observe the following range of target asset allocation
mixes:
Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 15% 35% 50%
Bonds and Money Market 25% 65% 70%
The portfolio manager will make variations in the proportions of each investment
category in accordance with its judgment about the expected returns and risks of
the various investment categories, but will maintain at least 25% of the value
of the portfolio's assets in fixed-income senior securities.
The bond portion of this portfolio will be invested primarily in securities with
maturities of 2 to 10 years and ratings at the time of purchase within the four
highest grades determined by Moody's, S&P, or a similar nationally-recognized
rating service or if unrated, of comparable quality in the opinion of the
portfolio manager. However, the portfolio may purchase below-investment grade
debt. A description of corporate bond ratings is contained in the Statement of
Additional Information. Because of their shorter maturities, the value of the
notes and bonds in this portfolio will be less sensitive to changes in interest
rates than the longer-term bonds likely to be held in the Flexible Managed
Portfolio. Thus, there will be less of a risk of loss of principal, but not as
much of a likelihood for greater appreciation in value. Up to 20% of the bond
portion of this portfolio may be invested in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
The stock portion of this portfolio will be invested primarily in the equity
securities of major, established corporations in sound financial condition that
appear to offer attractive prospects of a total return from dividends and
capital appreciation that is superior to broadly based stock indices. The
portfolio may also invest in preferred stock, including below investment grade
preferred stock. The money market portion of the portfolio will hold high
quality money market instruments of the kind held by the Money Market Portfolio.
Moreover, when conditions dictate a temporary defensive strategy or during
temporary periods of portfolio structuring and restructuring, the Conservative
Balanced Portfolio may invest, without limit, in high quality money market
instruments of the kind held by the Money Market Portfolio. See SECURITIES IN
WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST in the Statement of
Additional Information.
To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in nonUnited States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under FOREIGN SECURITIES on page
23.
In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a whenissued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under OPTIONS, FUTURES CONTRACTS AND SWAPS and SHORT SALES, beginning on
page 24, and in detail in the Statement of Additional Information.
The Conservative Balanced Portfolio is managed by a team of portfolio managers.
Mark Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Conservative Balanced Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, has been the portfolio manager of the
equity portion of the portfolio since 1995. It is the intention of the portfolio
to appoint Patricia Bannan, Managing Director, Prudential Investments, to manage
a portion (to be determined by Mr. Stumpp) of the portfolio's equity holdings.
Upon Ms. Bannan's appointment, Mr. Spitz will continue to manage the other
portion of the portfolio's equity holdings. Tony Rodriguez, Vice President,
Prudential Investments, has been the portfolio manager of the fixed income
portion of the portfolio since 1993. Mr. Stumpp also supervises the team of
portfolio managers for the Flexible Managed Portfolio. Mr. Stumpp is also
portfolio manager for several employee benefit trusts including The Prudential
Retirement System for U.S. Employees and Special Agents. Prior to 1994, he was
responsible for corporate pension asset management for Prudential Diversified
Investment Strategies' corporate clients. Mr. Spitz is also portfolio manager of
the Prudential Equity Income Fund and the Equity Income and Flexible Managed
Portfolios of the Series Fund. Ms. Bannan has been portfolio manager of the
equity portion of the Flexible Managed Portfolio since 1996. Prior to 1996, Ms.
Bannan was President of Phoenix Investment
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Counsel where she personally managed $3 billion in assets, including a $2.5
billion balanced mutual fund. Mr. Rodriguez is also portfolio manager for the
Prudential Structured Maturity Fund, Inc. and the Flexible Managed Portfolio of
the Series Fund.
FLEXIBLE MANAGED PORTFOLIO. The objective of this portfolio is achievement of a
high total return consistent with a portfolio having an aggressively managed mix
of money market instruments, fixed income securities, and common stocks, in
proportions believed by the investment manager to be appropriate for an investor
desiring diversification of investment who is willing to accept a relatively
high level of loss in an effort to achieve greater appreciation.
To achieve this objective, the Flexible Managed Portfolio will follow a policy
of maintaining a more aggressive asset mix among stocks, bonds and money market
investments than the Conservative Balanced Portfolio. In general, the portfolio
manager will observe the following range of target asset allocation mixes:
Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 25% 60% 100%
Bonds 0% 40% 75%
Money Market 0% 0% 75%
The portfolio manager may make short-run, and sometimes substantial, variations
in the asset mix based upon its judgment about the expected returns and risks of
the various investment categories. In varying the asset mix in accordance with
these judgments, Prudential will also seek to take advantage of imbalances in
fundamental values among the different markets.
The bond component of this portfolio is expected under normal circumstances to
have a weighted average maturity of greater than 10 years. The values of bonds
with longer maturities are generally more sensitive to changes in interest rates
than those of shorter maturities. The bond portion of this portfolio will
primarily be invested in securities that have a rating at the time of purchase
within the four highest grades determined by Moody's, S&P, or a similar
nationally-recognized rating service. A description of corporate bond ratings is
contained in the Statement of Additional Information. However, up to 25% of the
bond component of this portfolio may be invested in securities having ratings at
the time of purchase of "BB," "Ba" or lower, or if not rated, of comparable
quality in the opinion of the portfolio manager, also known as high risk
securities. Up to 20% of the bond portion of this portfolio may be invested in
United States currency denominated debt securities issued outside the United
States by foreign or domestic issuers. The established company common stock
component of this portfolio will consist of the equity securities of major
corporations that are believed to be in sound financial condition. In selecting
stocks of smaller capitalization companies, the portfolio manager may invest in
companies that show above average profitability (measured by return-on-equity,
earnings, and dividend growth rates) with modest price/earnings ratios or
alternatively, in companies whose stock is undervalued relative to other stocks
in the market. The individual equity selections for this portfolio may have more
volatile market values than the equity securities selected for the Conservative
Balanced Portfolio. The portfolio may also invest in preferred stock, including
below investment grade preferred stock. The money market portion of the
portfolio will hold high quality money market instruments of the kind held by
the Money Market Portfolio. Moreover, when conditions dictate a temporary
defensive strategy or during temporary periods of portfolio structuring and
restructuring, the Flexible Managed Portfolio may invest, without limit, in high
quality money market instruments of the kind held by the Money Market Portfolio.
See SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST in the
Statement of Additional Information.
To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in non-United States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under FOREIGN SECURITIES, below.
In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a whenissued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under OPTIONS, FUTURES CONTRACTS AND SWAPS and SHORT SALES, beginning on
page 24, and in detail in the Statement of Additional Information.
The facts that this portfolio will invest in a mix of common stocks regarded as
having higher risks than the mix of common stocks that will be purchased by the
Conservative Balanced Portfolio; that it will invest in bonds with longer
maturities; and that the "normal" mix for this portfolio will include a higher
percentage of stocks all combine to mean that the risk of investing in this
portfolio is relatively higher--to the extent that each of these factors results
in greater risks--than the risk of investing in the Conservative Balanced
Portfolio.
The Flexible Managed Portfolio is managed by a team of portfolio managers. Mark
Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Flexible Managed Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio
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management team. Patricia Bannan, Managing Director, Prudential Investments, has
been the portfolio manager of the equity portion of the portfolio since 1996. It
is the intention of the portfolio to appoint Warren Spitz, Managing Director,
Prudential Investments, to manage a portion (to be determined by Mr. Stumpp) of
the portfolio's equity holdings. Upon Mr. Spitz's appointment, Ms. Bannan will
continue to manage the other portion of the portfolio's equity holdings. Tony
Rodriguez, Vice President, Prudential Investments, has been the portfolio
manager of the fixed income portion of the portfolio since 1993. Mr. Stumpp also
supervises the team of portfolio managers for the Conservative Balanced
Portfolio. Mr. Stumpp is also portfolio manager for several employee benefit
trusts including The Prudential Retirement System for U.S. Employees and Special
Agents. Prior to 1994, he was responsible for corporate pension asset management
for Prudential Diversified Investment Strategies' corporate clients. Prior to
1996, Ms. Bannan was President of Phoenix Investment Counsel where she
personally managed $3 billion in assets including a $2.5 billion balanced mutual
fund. Mr. Spitz has been portfolio manager of the equity portion of the
Conservative Balanced Portfolio since 1995 and is also portfolio manager of the
Prudential Equity Income Fund and the Equity Income Portfolio of the Series
Fund. Mr. Rodriguez is also portfolio manager for the Prudential Structured
Maturity Fund, Inc., and the Flexible Managed Portfolio of the Series Fund.
FOREIGN SECURITIES
The bond components of the Conservative Balanced and Flexible Managed Portfolios
may each invest up to 20% of their assets in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
To the extent permitted by applicable insurance law, the Conservative Balanced
and Flexible Managed Portfolios may invest up to 30% of their total assets in
debt and equity securities denominated in a foreign currency and issued by
foreign or domestic issuers. Securities issued outside the United States and not
publicly traded in the United States, as well as American Depository Receipts
("ADRs") and securities denominated in a foreign currency are referred to
collectively in this prospectus as "foreign securities."
ADRs are U.S. dollar-denominated certificates issued by a United States bank or
trust company and represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a United States bank and
traded on a United States exchange or in an over-the-counter market. Investment
in ADRs has certain advantages over direct investment in the underlying foreign
securities because they are easily transferable, have readily available market
quotations, and the foreign issuers are usually subject to comparable auditing,
accounting, and financial reporting standards as domestic issuers.
Foreign securities involve risks of political and economic instability in the
country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and, in the case of
securities not denominated in United States currency, the risk of currency
fluctuations. Such securities may be subject to greater fluctuations in price
than domestic securities. Under certain market conditions, foreign securities
may be less liquid than domestic securities. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of securities
exchanges, brokers, and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries. If the security is denominated in foreign
currency, it may be affected by changes in currency rates and in exchange
control regulations, and costs may be incurred in connection with conversions
between currencies. Finally, in the event of a default of any foreign debt
obligations, it may be more difficult for a portfolio to obtain or to enforce a
judgment against the issuers of such securities. See FORWARD FOREIGN CURRENCY
EXCHANGE CONTRACTS in the Statement of Additional Information.
RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES RATED BELOW
INVESTMENT GRADE
The Conservative Balanced and Flexible Managed Portfolios may invest in below
investment grade fixed income securities. Medium to lower rated and comparable
non-rated securities tend to offer higher yields than higher rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not have been as strong as that of other issuers.
Since medium to lower rated securities generally involve greater risks of loss
of income and principal than higher rated securities, investors should consider
carefully the relative risks associated with investments in high yield/high risk
securities which carry medium to lower ratings and in comparable non-rated
securities. Investors should understand that such securities are not generally
meant for short-term investing.
Fixed income securities are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations (credit risk) and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). The value of the fixed income securities in the
portfolio will be directly impacted by the market perception of the
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<PAGE>
creditworthiness of the securities' issuers and will fluctuate inversely with
changes in interest rates. Lower rated or unrated securities are more likely to
react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. For example, because investors generally perceive that there are
greater risks associated with investing in medium or lower rated securities, the
yields and prices of such securities may tend to fluctuate more than those of
higher rated securities. Moreover, in the lower quality segments of the fixed
income securities market, changes in perception of the creditworthiness of
individual issuers tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed income securities
market. The yield and price of medium to lower rated securities therefore may
experience greater volatility than is the case with higher rated securities.
Prudential considers both credit risk and market risk in selecting securities
for the portfolio. By holding a diversified selection of such securities, the
portfolio seeks to reduce this volatility.
The secondary market for high yield/high risk securities, which is concentrated
in relatively few market makers, may not be as liquid as the secondary market
for more highly rated securities. Under adverse market or economic conditions,
the secondary market for high yield/high risk securities could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, Prudential could find it more difficult to sell such
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities therefore may be less than the prices used in
calculating the portfolio's net asset value. In the absence of readily available
market quotations, high yield/high risk securities will be valued by the Series
Fund's Board of Directors using a method that, in the good faith belief of the
Board, accurately reflects fair value. Valuing such securities in an illiquid
market is a difficult task. The Board's judgment plays a more significant role
in valuing such securities than those securities for which more objective market
data are available.
From time to time, federal laws have been enacted which have required the
divestiture by companies of their investments in high yield bonds and have
limited the deductibility of interest by certain corporate issuers of high yield
bonds. These types of laws could adversely affect the portfolio's net asset
value and investment practices, the secondary market for high yield securities,
the financial condition of issuers of these securities and the value of
outstanding high yield securities. There is currently no legislation pending
that would adversely impact the market for high yield/high risk securities.
However, there can be no assurance that such legislation will not be proposed or
enacted in the future.
OPTIONS, FUTURES CONTRACTS AND SWAPS
The description of the portfolios' investment policies also state whether they
will invest in what are sometimes called derivative securities. These include
options (which may be to buy or sell equity securities, debt securities, stock
indices, foreign currencies and stock index futures contracts); futures
contracts on interest bearing securities, stock and interest rate indices, and
foreign currencies; and interest rate swaps. These investments have not in the
past represented more than a very minor part of the investments of any portfolio
but may increase in the future.
A call option gives the owner the right to buy and a put option the right to
sell a designated security or index at a predetermined price for a given period
of time. They will be used primarily to hedge or minimize fluctuations in the
principal value of a portfolio or to generate additional income. They involve
risks which differ, depending upon the particular option. But they often offer
an attractive alternative to the purchase or sale of the related security.
Futures contracts represent a contractual obligation to buy or sell a designated
security or index within a stated period. They can be used as a hedge against or
to minimize fluctuations of a portfolio or as an efficient way of establishing
certain positions more quickly than direct purchase of the securities. They can
also be used to speculate, but this will not be done by any of the portfolios.
They involve risks of various kinds, all of which could result in losses rather
than in achieving the intended objective of any particular purchase.
Because options, futures and swaps are now used to such a limited extent, a full
description of these investments and the risks associated with them is in the
Statement of Additional Information.
SHORT SALES
The Conservative Balanced and Flexible Managed Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). The portfolio will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the portfolio replaces the borrowed security. The
portfolio will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash purchase
of a long position in a security. The amount of any gain will be decreased, and
the amount of any loss will be increased, by the amount of any fee or interest
paid in connection with the short sale.
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REPURCHASE AGREEMENTS
The portfolios may enter into repurchase agreements, subject to each portfolio's
investment limit in short-term debt obligations, whereby the seller of a
security agrees to repurchase that security from the portfolio at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the portfolio's
money is invested in the repurchase agreement. The repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
the instruments declines, the portfolio will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the portfolio may incur a loss. Both portfolios participate
in a joint repurchase account pursuant to an order of the SEC. On a daily basis,
any uninvested cash balances of the portfolios may be aggregated and invested in
one or more repurchase agreements. Each portfolio participates in the income
earned or accrued in the joint account based on the percentage of its
investment.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
The fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use reverse repurchase agreements and dollar rolls. The money
market portion of these portfolios may use reverse repurchase agreements.
Reverse repurchase agreements involve the sale of securities held by a portfolio
with an agreement by the portfolio to repurchase the same securities at an
agreed upon price and date. During the reverse repurchase period, the portfolio
often continues to receive principal and interest payments on the sold
securities. The terms of each agreement reflect a rate of interest for use of
the funds for the period, and thus these agreements have the characteristics of
borrowing by the portfolio. Dollar rolls involve sales by a portfolio of
securities for delivery in the current month with a simultaneous contract to
repurchase substantially similar securities (same type and coupon) from the same
party at an agreed upon price and date. During the roll period, the portfolio
forgoes principal and interest paid on the securities. A portfolio is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. A portfolio will establish a
segregated account with its custodian in which it will maintain cash, U.S.
Government securities or other liquid unencumbered assets equal in value to its
obligations in respect of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by the portfolio may decline below the price of
the securities the portfolio has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, the
portfolio's use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the portfolio's obligation to repurchase the securities. No portfolio will
obligate more than 30% of its net assets in connection with reverse repurchase
agreements and dollar rolls.
LOANS OF PORTFOLIO SECURITIES
Both of the portfolios may from time to time lend the securities they hold to
broker-dealers, provided that such loans are made pursuant to written agreements
and are continuously secured by collateral in the form of cash, U.S. Government
Securities or irrevocable standby letters of credit in an amount equal to at
least the market value at all times of the loaned securities plus the accrued
interest and dividends. During the time securities are on loan, the portfolio
will continue to receive the interest and dividends, or amounts equivalent
thereto, on the loaned securities, while receiving a fee from the borrower or
earning interest on the investment of the cash collateral.
There is a slight risk that the borrower may become insolvent, which might delay
carrying out a decision to sell the loaned security. This risk can be minimized
by careful selection of borrowers and requiring and monitoring the adequacy of
capital. No loans will be made to any broker affiliated with Prudential.
INVESTMENT RESTRICTIONS APPLICABLE TO THE
PORTFOLIOS
The Series Fund is subject to certain investment restrictions which are
fundamental to the operations of the Series Fund and may not be changed except
with the approval of a majority vote of the persons participating in the
affected portfolio.
The investments of the various portfolios are generally subject to certain
additional restrictions under state laws. In the event of future amendments to
the applicable New Jersey statutes, each portfolio will comply, without the
approval of the shareholders, with the statutory requirements as so modified.
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A detailed discussion of investment restrictions applicable to the Series Fund
is in the Statement of Additional Information.
INVESTMENT MANAGEMENT ARRANGEMENTS AND
EXPENSES
The Series Fund has entered into an Investment Advisory Agreement with
Prudential under which Prudential will, subject to the direction of the Board of
Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio.
Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment advisor.
Subject to Prudential's supervision, substantially all of the investment
advisory services provided to the Series Fund by Prudential, with respect to the
Conservative Balanced and Flexible Managed Portfolios, are furnished by its
wholly-owned subsidiary PIC, pursuant to the Service Agreement between
Prudential and PIC which provides that a portion of the fee received by
Prudential for providing investment advisory services will be paid to PIC. PIC
is registered as an investment advisor under the Investment Advisers Act of
1940.
Under the Investment Advisory Agreement, Prudential receives an investment
management fee as compensation for its services to the Series Fund. The fee is a
daily charge, payable quarterly, equal to an annual percentage of the average
daily net assets of each individual portfolio. It is set forth on page 9.
Further information about the investment management arrangements and the
expenses of the Series Fund is in the Statement of Additional Information.
PORTFOLIO BROKERAGE AND RELATED PRACTICES
Prudential is responsible for decisions to buy and sell securities for the
portfolios, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Fixed income securities, as
well as equity securities traded in the over-the-counter market, are generally
traded on a "net" basis with dealers acting as principals for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer.
An affiliated broker may be employed to execute brokerage transactions on behalf
of the portfolios, as long as the commissions are reasonable and fair compared
to the commissions received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. The Series Fund may not
engage in any transactions in which Prudential or its affiliates, including
Prudential Securities Incorporated, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal. Additional information about portfolio brokerage and related
transactions is in the Statement of Additional Information.
STATE REGULATION
Pruco Life of New Jersey 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.
Pruco Life of New Jersey 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, Pruco Life of New Jersey
is required to file with New Jersey and other jurisdictions a separate statement
with respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus for the year ended December
31, 1996 have been audited by Price Waterhouse LLP, independent accountants, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Price Waterhouse LLP's principal business address is 1177 Avenue of
the Americas, New York, New York 10036.
The financial statements included in this prospectus for the years prior to 1996
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and are included in reliance upon the
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reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Pruco Life of New Jersey. There have been no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statements disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of the accountant, would have caused them to make a
reference to the matter in their reports.
Actuarial matters included in this prospectus have been examined by Nancy D.
Davis, FSA, MAAA, Vice President and Actuary of Prudential whose opinion is
filed as an exhibit to the registration statement.
LITIGATION
Several actions have been brought against Pruco Life of New Jersey alleging that
Pruco Life of New Jersey and its agents engaged in improper life insurance sales
practices. Prudential has agreed to indemnify Pruco Life of New Jersey for
losses, if any, resulting from such litigation. No other significant litigation
is being brought against Pruco Life of New Jersey that would have a material
effect on its financial position.
EXPANDED TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
Included in the registration statements for the Contracts and the Series Fund is
a Statement of Additional Information which is available without charge by
writing to Pruco Life of New Jersey at 213 Washington Street, Newark, New Jersey
07102-2992. The following table of contents of that Statement provides a brief
summary of what is included in each section.
I. MORE DETAILED INFORMATION ABOUT THE CONTRACT.
SALES LOAD UPON SURRENDER. A description is given of exactly how Pruco
Life of New Jersey determines the amount of the part of the sales load
that is imposed only upon surrenders or withdrawals during the first 10
Contract years.
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS. Where
the Contract is sold at the same time to several individuals who are
members of an associated class and Pruco Life of New Jersey's expenses
will be reduced, some of the charges under those Contracts may be reduced.
PAYING PREMIUMS BY PAYROLL DEDUCTION. Your employer may pay monthly
premiums for you with deductions from your salary.
UNISEX PREMIUMS AND BENEFITS. In some states and under certain
circumstances, premiums and benefits will not vary with the sex of the
insured.
HOW THE DEATH BENEFIT WILL VARY. A description is given of exactly how the
death benefit may increase to satisfy Internal Revenue Code requirements.
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE. If the Contract Fund value is
high enough you may be able to withdraw part of the cash surrender value
while keeping the Contract in effect. There will be a transaction charge.
The death benefit will change. There may be tax consequences. You should
consult your Pruco Life of New Jersey representative to discuss whether a
withdrawal or a loan is preferable.
TAX TREATMENT OF CONTRACT BENEFITS. A fuller account is provided of how
Contract owners may be affected by federal income taxes.
SALE OF THE CONTRACT AND SALES COMMISSIONS. The Contract is sold primarily
by agents of Prudential who are also registered representatives of one of
its subsidiaries, Pruco Securities Corporation, a broker and dealer
registered under the Securities and Exchange Act of 1934. Generally,
selling agents receive a commission of 50% of the Scheduled Premium in the
first year, no more than 6% of the scheduled premiums for the second
through tenth years and smaller commissions thereafter.
RIDERS. Various extra fixed-benefits may be obtained for an extra premium.
They are described in what are known as "riders" to the Contract.
OTHER STANDARD CONTRACT PROVISIONS. The Contract contains several
provisions commonly included in all life insurance policies. They include
provisions relating to beneficiaries, misstatement of age or sex, suicide,
assignment, incontestability, and settlement options.
27
<PAGE>
II. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.
General
Convertible Securities
Loan Participations
Warrants
Options and Futures
When-Issued and Delayed Delivery Securities
Short Sales
Short Sales Against the Box
Interest Rate Swaps
Loans of Portfolio Securities
Illiquid Securities
Forward Foreign Currency Exchange Contracts
A more detailed description is given of these investments and the policies
of these portfolios.
III. INVESTMENT RESTRICTIONS.
There are many restrictions upon the investments the portfolios may make
and the practices in which they may engage; these are fundamental, meaning
they may not be changed without Contract owner approval.
IV. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES.
A fuller description than that in the prospectus is given.
V. PORTFOLIO TRANSACTIONS AND BROKERAGE.
A description is given of how securities transactions are effected and how
Prudential selects the brokers.
VI. DETERMINATION OF NET ASSET VALUE.
A full description is given of how the daily net asset value of each
portfolio is determined.
VII. SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST.
A full description is given.
VIII. DEBT RATINGS.
A description is given of how Moody's Investors Services, Inc. and
Standard & Poor's Corporation describe the creditworthiness of debt
securities.
IX. POSSIBLE REPLACEMENT OF THE SERIES FUND.
Although it is most unlikely, it is conceivable that Pruco Life of New
Jersey might wish to replace the Series Fund portfolios with other
investment options. SEC approval will be needed.
X. OTHER INFORMATION CONCERNING THE SERIES FUND.
Incorporation and Authorized Stock
Dividends, Distributions and Taxes
Custodian and Transfer Agent
Experts
License
More detail is provided about these matters.
XI. DIRECTORS AND OFFICERS OF PRUCO LIFE NEW JERSEY AND MANAGEMENT OF THE
SERIES FUND.
The names and recent affiliations of Pruco Life of New Jersey's directors
and executive officers are given. The same information is given for the
Series Fund.
XII. FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.
XIII. THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS.
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 and
the Statement of Additional Information do 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.
28
<PAGE>
Further information may also be obtained from Pruco Life of New Jersey. Its
address and telephone number are on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
financial statements of Pruco Life of New Jersey which should be considered only
as bearing upon the ability of Pruco Life of New Jersey to meet its obligations
under the Contracts. The financial statements of the Series Fund are in the
Statement of Additional Information.
29
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUVIDER VARIABLE APPRECIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------- --------------
<S> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value [Note
3]............................................ $ 332,374,136 $ 103,313,807
-------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 332,222,571 $ 102,839,654
Equity of Pruco Life Insurance Company of New
Jersey........................................ 151,565 474,153
-------------- --------------
$ 332,374,136 $ 103,313,807
-------------- --------------
-------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 9,673,291 $ 4,036,315
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A]..... 1,886,931 603,268
Reimbursement for excess expenses [Note 5D]..... (768,611) (184,407)
-------------- --------------
NET EXPENSES...................................... 1,118,320 418,861
-------------- --------------
NET INVESTMENT INCOME............................. 8,554,971 3,617,454
-------------- --------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received............ 31,237,057 6,285,583
Realized gain on shares redeemed
[average cost basis].......................... 1,665,484 631,625
Net unrealized gain (loss) on investments....... (2,307,005) 818,813
-------------- --------------
NET GAIN ON INVESTMENTS........................... 30,595,536 7,736,021
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 39,150,507 $ 11,353,475
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A5.
A1
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
---------------------------------------------- ----------------------------------------------
1996 1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income............ $ 8,554,971 $ 7,690,078 $ 5,619,063 $ 3,617,454 $ 3,339,301 $ 2,486,229
Capital gains distributions
received....................... 31,237,057 12,349,890 6,536,164 6,285,583 3,199,302 863,296
Realized gain on shares redeemed
[average cost basis]........... 1,665,484 862,723 469,942 631,625 395,934 84,451
Net unrealized gain (loss) on
investments.................... (2,307,005) 35,084,463 (20,633,412) 818,813 6,759,491 (4,531,190)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 39,150,507 55,987,154 (8,008,243) 11,353,475 13,694,028 (1,097,214)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7]......................... (4,012,445) 7,645,276 10,588,266 (2,779,707) (668,617) 1,744,736
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8]......................... (30,235) (84,390) 28,940 307,568 (183,597) 139,892
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE IN NET ASSETS....... 35,107,827 63,548,040 2,608,963 8,881,336 12,841,814 787,414
NET ASSETS:
Beginning of year................ 297,266,309 233,718,269 231,109,306 94,432,471 81,590,657 80,803,243
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 332,374,136 $ 297,266,309 233,718,269 $ 103,313,807 $ 94,432,471 81,590,657
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A5.
A2
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF THE
PRUVIDER VARIABLE APPRECIABLE LIFE
SUBACCOUNTS OF PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1: GENERAL
Pruco Life of New Jersey Variable Appreciable Account (the "Account") was
established on January 13, 1984 under New Jersey law as a separate investment
account of Pruco Life Insurance Company of New Jersey ("Pruco Life of New
Jersey") which is a wholly-owned subsidiary of Pruco Life Insurance Company (an
Arizona domiciled company) and is indirectly wholly-owned by The Prudential
Insurance Company of America ("Prudential"). The assets of the Account are
segregated from Pruco Life of New Jersey's other assets. The two products that
invest in the Account are Pruco Life of New Jersey Variable Appreciable Life
("VAL") and Pruco Life of New Jersey PRUvider Variable Appreciable Life
("PRUvider").
The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are two subaccounts within the Account
available to Contract owners of PRUvider. Each of the subaccounts invests only
in a corresponding portfolio of The Prudential Series Fund, Inc. (the "Series
Fund"). The Series Fund is a diversified open-end management investment company,
and is managed by Prudential.
New sales of the VAL product, which invests in the Account, were discontinued as
of May 1, 1992. However, premium payments made by current Contract owners will
continue to be received by the Account.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated at the net
asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security transactions are
reported on an average cost basis. Purchase and sale transactions are recorded
as of the trade date of the security being purchased or sold.
Distributions Received--Dividend and the capital gain distributions received are
reinvested in additional shares of the Series Fund and are recorded on the
ex-dividend date.
Equity of Pruco Life Insurance Company of New Jersey--Pruco Life of New Jersey
maintains a position in the Account for the purpose of administering activity in
the Account. The activity includes unit transactions, fund share transactions,
and expense processing. Pruco Life of New Jersey monitors the balance daily and
transfers funds based upon anticipated activity. At times, Pruco Life of New
Jersey may owe an amount to the Account, which is reflected in Pruco Life of New
Jersey's equity as a negative balance. The position does not have an effect on
the Contract owner's account or the related unit value.
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund, the number
of shares of each portfolio held by the subaccounts of the Account and the
aggregate cost of investments in such shares at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------- --------------
<S> <C> <C>
Number of shares: 18,685,690 6,658,079
Net asset value per share: $ 17.78763 $ 15.51706
Cost: $ 290,510,240 $ 91,751,530
</TABLE>
A3
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of Contract owner
equity for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
----------------- -----------------
<S> <C> <C>
Contract Owner Units Outstanding (VAL):......... 87,958,937.501 30,989,074.232
Unit value (VAL):............................... $ 3.68167 $ 3.09975
----------------- -----------------
Contract Owner Equity (VAL):.................... $ 323,835,781 $ 96,058,382
----------------- -----------------
Contract Owner Units Outstanding (PRUvider):.... 3,269,346.631 3,069,365.344
Unit value (PRUvider):.......................... $ 2.56528 $ 2.20934
----------------- -----------------
Contract Owner Equity (PRUvider):............... $ 8,386,790 $ 6,781,272
----------------- -----------------
TOTAL CONTRACT OWNER EQUITY:.................... $ 332,222,571 $ 102,839,654
----------------- -----------------
----------------- -----------------
</TABLE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective annual rate of
0.60% and 0.90% are applied daily against the net assets representing equity
of VAL and PRUvider Contract owners held in each subaccount, respectively.
Mortality risk is that contract holders may not live as long as estimated
and expense risk is that the cost of issuing and administering the policies
may exceed the estimated expenses. For 1996, the amount of these charges
paid to Pruco Life of New Jersey was $3,627,280 for VAL and $113,587 for
PRUvider.
B. Deferred Sales Charge
Subsequent to a Contract owner redemption, a deferred sales charge is
imposed upon surrenders of certain variable life insurance contracts to
compensate Pruco Life of New Jersey 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. For 1996, the amount of these charges paid to Pruco Life of New
Jersey was $33,452.
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life of New Jersey on partial withdrawals of
the cash surrender value. For 1996, the amount of these charges paid to
Pruco Life of New Jersey was $17,194.
D. Expense Reimbursement
Pursuant to a prior merger agreement, the Account is reimbursed by Pruco
Life of New Jersey for expenses in excess of 0.40% of the VAL product's
average daily net assets incurred by the Flexible Managed and Conservative
Balanced Portfolios of the Series Fund. PRUvider contracts do not provide
for reimbursement by Pruco Life of New Jersey. For 1996, the amount of those
reimbursements totaled $953,018.
E. Cost of Insurance Charges
Contract holder contributions are applied to the Account net of the
following charges: transaction costs, premium taxes, sales loads, monthly
administration charges, and death benefit risk charges. During 1996, Pruco
Life Insurance Company of New Jersey, received a total of $205,362,
$168,923, $468,823, $1,263,734, and $24,222, respectively, for these
charges.
NOTE 6: TAXES
Pruco Life of New jersey is taxed as a "life insurance company" under the
Internal Revenue Code and the operations of the Account form a part of and are
taxed with those of Pruco Life of New Jersey. Under current federal law, no
federal income taxes are payable by the Account. As such, no provision for tax
liability has been recorded.
A4
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract owner activity in the subaccounts of the Account for the year ended
December 31, 1996, was as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------- --------------
<S> <C> <C>
Contract Owner Contributions, net: $ 32,612,223 $ 15,200,979
Contract Owner Redemptions: $ (35,135,228) $ (16,449,929)
Net Transfers from(to) other subaccounts or fixed rate option: $ (1,489,440) $ (1,530,757)
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers represents
the net contributions (withdrawals) of Pruco Life of New Jersey to (from) the
Account.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the year ended
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
----------------- -----------------
<S> <C> <C>
Contract Owner Contributions: 10,117,095.280 5,634,628.443
Contract Owner Redemptions: (10,999,911.624) (6,423,986.641)
</TABLE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Series Fund, Inc. were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
-----------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------- --------------
<S> <C> <C>
For the year ended December 31, 1996
Purchases.................................... $ 3,974,000 $ 1,320,000
Sales........................................ $ (9,135,000) $ (4,211,000)
</TABLE>
NOTE 11: RELATED PARTY TRANSACTIONS
Prudential has purchased multiple individual VAL contracts of the Account
insuring the lives of certain employees. Prudential is the owner and beneficiary
of the contracts. Net premium payments of approximately $2.9 million for the
year ended December 31, 1996 were directed to the Flexible Managed subaccount.
Equity of Contract owners in that subaccount at December 31, 1996 includes
approximately $119.4 million owned by Prudential.
A5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
PRUvider Variable Appreciable Life Subaccounts of
Pruco Life of New Jersey Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company of New Jersey
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of Flexible Managed Subaccount and
Conservative Balanced Subaccount of Pruco Life of New Jersey Variable
Appreciable Account at December 31, 1996, and the results of each of their
operations and the changes in each of their net assets for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Pruco Life Insurance Company of New
Jersey's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1996, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
March 31, 1997
A6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
Pruco Life of New Jersey Variable Appreciable
Account and the Board of Directors
of Pruco Life Insurance Company of New Jersey
Newark, New Jersey
We have audited the accompanying statements of changes in net assets of the
Flexible Managed and Conservative Balanced subaccounts of the Pruco Life of New
Jersey Variable Appreciable Account of Pruco Life Insurance Company of New
Jersey for the periods presented for each of the two years ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of the Flexible Managed and Conservative
Balanced subaccounts of the Pruco Life of New Jersey Variable Appreciable
Account for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A7
<PAGE>
PRUCO LIFE OF NEW JERSEY COMPANY
FINANCIALS MODULE
Module Name: PLNJ-FIN_96
CIK#: 0001021330
CCC#: b*fpf4dz
<PAGE>
PRUVIDER(SM)
VARIABLE APPRECIABLE LIFE(R)
INSURANCE CONTRACT
PRUDENTIAL
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016, Extension 46
A Subsidiary of The Prudential Insurance Company of America
<PAGE>
PART IB
INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
PRUVIDER
VARIABLE
APPRECIABLE
LIFE(R)___________________
INSURANCE CONTRACTS
PROVIDING FOR THE INVESTMENT
OF ASSETS IN THE
INVESTMENT PORTFOLIOS OF
THE PRUDENTIAL SERIES
FUND, INC.
The Pruco Life Insurance Company of New Jersey, a stock life insurance company
that is an indirect wholly-owned subsidiary of the Prudential Insurance Company
of America, offers a variable life insurance contract called the PRUVIDER
Variable APPRECIABLE LIFE(R) Insurance Contract*. The Contract provides
whole-life insurance protection. The death benefit varies daily with investment
experience but will never be less than the "face amount" of insurance specified
in the Contract. The Contract also generally provides a cash surrender value
which also varies with investment experience. There is no guaranteed minimum
cash surrender value.
The assets held for the purpose of paying benefits under these contracts can be
invested in one or both of the two available subaccounts of the Pruco Life of
New Jersey Variable Appreciable Account. The assets invested in each subaccount
are in turn invested in a corresponding portfolio of The Prudential Series Fund,
Inc., a diversified, open-end management investment company (commonly known as a
mutual fund) that is intended to provide a range of investment alternatives to
variable contract owners. Each portfolio is, for investment purposes, in effect
a separate fund. The two available Series Fund portfolios are the CONSERVATIVE
BALANCED PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO. A separate class of
capital stock is issued for each portfolio. Shares of the Series Fund are
currently sold only to separate accounts of Pruco Life of New Jersey and certain
other insurers to fund the benefits under variable life insurance and variable
annuity contracts issued by those companies.
The PRUVIDER Variable APPRECIABLE LIFE(R) Insurance Contract owner may also
choose to invest in a fixed-rate option which is described in the prospectus of
The Pruco Life of New Jersey Variable Appreciable Account.
------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE PRUCO LIFE OF NEW JERSEY VARIABLE
APPRECIABLE ACCOUNT DATED MAY 1, 1997, WHICH IS AVAILABLE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, 213
WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992 OR BY TELEPHONING (800)
437-4016, EXT. 46.
------------------------------------
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.
SVAL-2SAI Ed 5-97
Catalog No. 64M087E
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MORE DETAILED INFORMATION ABOUT THE CONTRACT..........................................1
SALES LOAD UPON SURRENDER.......................................................1
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS................1
PAYING PREMIUMS BY PAYROLL DEDUCTION............................................1
UNISEX PREMIUMS AND BENEFITS....................................................2
HOW THE DEATH BENEFIT WILL VARY.................................................2
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE.......................................2
TAX TREATMENT OF CONTRACT BENEFITS..............................................3
TREATMENT AS LIFE INSURANCE...............................................3
PRE-DEATH DISTRIBUTIONS...................................................3
WITHHOLDING...............................................................4
OTHER TAX CONSIDERATIONS..................................................4
SALE OF THE CONTRACT AND SALES COMMISSIONS......................................5
RIDERS..........................................................................5
OTHER STANDARD CONTRACT PROVISIONS..............................................5
BENEFICIARY...............................................................5
INCONTESTABILITY..........................................................5
MISSTATEMENT OF AGE OR SEX................................................5
SUICIDE EXCLUSION.........................................................5
ASSIGNMENT................................................................5
SETTLEMENT OPTIONS........................................................6
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS..................................6
GENERAL.........................................................................6
CONVERTIBLE SECURITIES..........................................................6
LOAN PARTICIPATIONS.............................................................6
WARRANTS........................................................................6
OPTIONS AND FUTURES.............................................................7
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES....................................13
SHORT SALES....................................................................13
SHORT SALES AGAINST THE BOX....................................................13
INTEREST RATE SWAPS............................................................14
LOANS OF PORTFOLIO SECURITIES..................................................14
ILLIQUID SECURITIES............................................................14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS....................................15
INVESTMENT RESTRICTIONS..............................................................16
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES......................................18
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................19
DETERMINATION OF NET ASSET VALUE.....................................................21
SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST..................22
DEBT RATINGS.........................................................................24
POSSIBLE REPLACEMENT OF THE SERIES FUND..............................................25
OTHER INFORMATION CONCERNING THE SERIES FUND.........................................26
INCORPORATION AND AUTHORIZED STOCK.............................................26
DIVIDENDS, DISTRIBUTIONS AND TAXES.............................................26
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT......................26
EXPERTS........................................................................26
LICENSE........................................................................27
DIRECTORS AND OFFICERS OF PRUCO LIFE OF NEW JERSEY AND MANAGEMENT OF THE SERIES FUND.28
FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. ........................... A1
THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS........................... B1
</TABLE>
<PAGE>
MORE DETAILED INFORMATION ABOUT THE CONTRACT
SALES LOAD UPON SURRENDER
A contingent deferred sales load is assessed if the Contract lapses or is
surrendered during the first 10 Contract years. No such charge is applicable to
the death benefit, no matter when that may become payable. Subject to the
additional limitations described below, for Contracts that lapse or are
surrendered during the first 5 Contract years the charge will be equal to 50% of
the first year's primary annual premium. In the next 5 Contract years that
percentage is reduced uniformly on a daily basis until it reaches zero on the
tenth Contract anniversary. Thus, for Contracts surrendered at the end of the
sixth year, the maximum deferred sales charge will be 40% of the first year's
primary annual premium, for Contracts surrendered at the end of year 7, the
maximum deferred sales charge will be 30% of the first year's primary annual
premium, and so forth. We are currently allowing partial surrenders of the
Contract, but we reserve the right to cancel this administrative practice. If
the Contract is partially surrendered during the first 10 years, a proportionate
amount of the charge will be deducted from the Contract Fund. Surrender of all
or part of the Contract may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 3.
The contingent deferred sales load is also subject to a further limit at older
issue ages (approximately above age 61) in order to comply with certain
requirements of state law. Specifically, the contingent deferred sales load for
such insureds is no more than $32.50 per $1,000 of face amount.
The sales load is subject to a further important limitation that may,
particularly for Contracts that lapse or are surrendered within the first 5 or 6
years, result in a lower contingent deferred sales load than that described
above. (This limitation might also, under unusual circumstances, apply to reduce
the monthly sales load deductions described in the prospectus in item (a) under
MONTHLY DEDUCTIONS FROM CONTRACT FUND.)
The limitation is based on a Guideline Annual Premium ("GAP") that is associated
with every Contract. The GAP is an amount 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 Pruco Life of New
Jersey will charge (that is, the sum of the monthly sales load deduction and the
contingent deferred sales charge) will not be more than 30% of the premiums
actually paid until those premiums total one GAP plus no more than 9% of the
next premiums paid until total premiums are equal to 5 GAPS, plus no more than
6% of all subsequent premiums. If the sales charges described above would at any
time exceed this maximum amount then the charge, to the extent of any excess,
will not be made.
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS
Pruco Life of New Jersey 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. Pruco Life of New Jersey 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 Pruco Life of
New Jersey 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 Pruco Life of New Jersey on a uniform basis. Pruco Life of New
Jersey's reductions in charges for these sales will not be unfairly
discriminatory to the interests of any individual Contract owners.
PAYING PREMIUMS BY PAYROLL DEDUCTION
In addition to the annual, semi-annual, quarterly and monthly premium payment
modes, a payroll budget method of paying premiums may also be available under
certain Contracts. The employer generally deducts the necessary amounts from
employee paychecks and sends premium payments to Pruco Life of New Jersey
monthly. Any Pruco Life of New Jersey representative authorized to sell this
Contract can provide further details concerning the payroll budget method of
paying premiums.
UNISEX 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
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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. Pruco Life of New
Jersey may offer the Contract with unisex mortality rates to such prospective
purchasers.
HOW THE DEATH BENEFIT WILL VARY
The death benefit will vary with investment experience. Assuming no withdrawals,
the death benefit will be equal to the face amount of insurance plus the amount
(if any) by which the Contract Fund value exceeds the applicable "Tabular
Contract Fund value" for the Contract (subject to an exception described below
under which the death benefit is higher). Each Contract contains a table that
sets forth the 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 was no Contract debt.
Thus, for a Contract with no withdrawals, the death benefit will equal the face
amount if the Contract Fund equals the Tabular Contract Fund value. If, due to
investment results greater than a net return of 4%, or to payment of greater
than scheduled premiums, or to smaller than maximum charges, the Contract Fund
value is a given amount greater than the Tabular Contract Fund value, the death
benefit will be the face amount plus that excess amount. If, due to investment
results 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 additional payments
that bring the Contract Fund up to the tabular level before favorable investment
results or additional payments will increase the death benefit. Again, the death
benefit will reflect a deduction for the amount of any Contract debt. See
CONTRACT LOANS in the prospectus.
The Contract Fund could grow to the point where it is necessary to increase the
death benefit by a greater amount in order to ensure that the Contract will
satisfy the Internal Revenue Code's definition of life insurance. Thus, the
death benefit 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 times the attained age factor that
applies.
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. (A Table of Tabular Contract Fund Values is
included in the Contract; the values increase with each year the Contract
remains in force.) But because the Contract Fund may be made up in part by an
outstanding Contract loan, there is a further limitation that the amount
withdrawn may not be larger than an amount sufficient to reduce the cash
surrender value to zero. The amount withdrawn must be at least $200. An owner
may make no more than four such withdrawals in each Contract year, and there is
a $15 administrative processing fee for each withdrawal. An amount withdrawn may
not be repaid except as a scheduled or unscheduled premium subject to the
applicable charges. Upon request, Pruco Life of New Jersey 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 3.
A temporary need for funds may also be met by making a loan and you should
consult your Pruco Life of New Jersey representative about how best to meet your
needs.
When a withdrawal is made, the cash surrender value and Contract Fund value are
reduced by the amount of the withdrawal, and the death benefit is accordingly
reduced. Neither the face amount of insurance nor the amount of scheduled
premiums will be changed due to a withdrawal of excess cash surrender value. No
surrender charges will be assessed upon a withdrawal.
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, Pruco Life of
New Jersey treats withdrawals as a return of premium.
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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 Pruco Life of New
Jersey 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 Section 7702 of the
Internal Revenue Code (the "Code") and as long as the underlying investments for
the Contract satisfy diversification requirements set forth in Treasury
Regulations issued pursuant to Section 817(h) of the Code.
These diversification requirements must ordinarily be met within 1 year after
Contract owner funds are first allocated to the particular portfolio of the
Series Fund, and within 30 days after the end of each calendar quarter
thereafter. Each portfolio must meet one of two alternative tests. Under the
first test, no more than 55% of the portfolio's assets can be invested in any
one investment; no more than 70% of the assets can be invested in any two
investments; no more than 80% can be invested in any three investments; and no
more than 90% can be invested in any four investments. Under the second test,
the portfolio must meet the tax law diversification requirements for a regulated
investment company and no more than 55% of the value of the portfolio's assets
can be invested in cash, cash items, Government securities, and securities of
other regulated investment companies.
For purposes of determining whether a variable account is adequately
diversified, each United States Government agency or instrumentality is treated
as a separate issuer. Compliance with diversification requirements will
generally limit the amount of assets that may be invested in federally insured
certificates of deposit and all types of securities issued or guaranteed by each
United States Government agency or instrumentality.
Pruco Life of New Jersey believes that it has taken adequate steps to cause the
Contract to be treated as life insurance for tax purposes. This means that: (1)
except as noted below, the Contract owner should not be taxed on any part of the
Contract Fund, including additions attributable to interest, dividends or
appreciation until amounts are distributed under the Contract; and (2) the death
benefit should be excludible from the gross income of the beneficiary under
section 101(a) of the Code.
However, Section 7702 of the Code, which defines life insurance for tax
purposes, gives the Secretary of the Treasury authority to prescribe regulations
to carry out the purposes of the Section. In this regard, proposed regulations
governing mortality charges were issued in 1991 and proposed regulations
relating to the definition of life insurance were issued in 1992. None of these
proposed regulations has yet been finalized. Additional regulations under
Section 7702 may also be promulgated in the future. Moreover, in connection with
the issuance of temporary regulations under Section 817(h), the Treasury
Department announced that such regulations do not provide guidance concerning
the extent to which Contract owners may direct their investments to particular
divisions of a separate account. Such guidance will be included in regulations
or rulings under Section 817(d) relating to the definition of a variable
contract.
Pruco Life of New Jersey 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 premiums paid less the untaxed portion 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.
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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. A Contract
may be classified as a Modified Endowment Contract under various
circumstances. For example, low face amount Contracts issued on younger
insureds may be classified as a Modified Endowment Contract even though
the Contract owner pays only the Scheduled Premiums or even less than the
Scheduled Premiums. Before purchasing such a Contract, you should
understand the tax treatment of pre-death distributions and consider the
purpose for which the Contract is being purchased. More generally, a
Contract may be classified as a Modified Endowment Contract if premiums 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 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 Pruco Life of New Jersey representative.
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, 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 percent 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 portions 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 or in certain other
circumstances. Contract owners who do not provide a social security number or
other taxpayer identification number will not be permitted to elect out of
withholding. All recipients of such amounts may be subject to penalties under
the estimated tax rules if withholding and estimated tax payments are not
sufficient.
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 section 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. The recently enacted Health Insurance Portability and Accountability
Act of 1996 generally disallows tax deductions for interest on Contract debt on
a business-owned insurance policy effective (with certain transitional rules)
for interest paid or accrued after October 13, 1995. An exception permits the
deduction of interest on policy loans on Contracts for up to 20 key persons. The
interest deduction for Contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per key insured
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.
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SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 213 Washington
Street, Newark, New Jersey 07102-2992. 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 6% of the scheduled premiums for the second 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.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life of New Jersey 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 Pruco Life of New Jersey's surplus, which may include amounts
derived from the mortality and expense risk charge and the guaranteed minimum
death benefit risk charge described in the prospectus under DAILY DEDUCTION FROM
THE CONTRACT FUND and item (d) under MONTHLY DEDUCTIONS FROM CONTRACT FUND.
RIDERS
The Contract 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 (or, in
the case of a Contract issued on an insured under the age of 15, if the
applicant dies or becomes 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 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 Pruco Life of New Jersey representative authorized to sell the Contract can
explain these extra benefits further. Samples of the provisions are available
from Pruco Life of New Jersey upon written request.
OTHER STANDARD 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 Pruco Life of New Jersey'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, Pruco Life of New
Jersey 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, Pruco Life of New
Jersey 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, Pruco Life of New Jersey will pay
no more under the Contract than the sum of the premiums paid.
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 Pruco Life of New
Jersey's consent. Pruco Life of New Jersey 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.
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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 Pruco Life of New Jersey representative authorized to sell this
Contract can explain these options upon request.
INVESTMENT OBJECTIVES AND POLICIES OF
THE PORTFOLIOS
GENERAL
The Prudential Series Fund, Inc. (the "Series Fund") has fifteen separate
portfolios, two of which, the Conservative Balanced Portfolio and the Flexible
Managed Portfolio, are available to PRUVIDER Contract owners. The portfolios are
managed by The Prudential Insurance Company of America ("Prudential"), see
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 18.
Each of the portfolios seeks to achieve a different investment objective.
Accordingly, each portfolio can be expected to have different investment results
and to be subject to different financial and market risks. Financial risk refers
to the ability of an issuer of a debt security to pay principal and interest and
to the earnings stability and overall financial soundness of an issuer of an
equity security. Market risk refers to the degree to which the price of a
security will react to changes in conditions in securities markets in general,
and with particular reference to debt securities, to changes in the overall
level of interest rates.
The investment objectives of the Series Fund's portfolios that are available to
PRUVIDER Contract owners can be found under INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS in the prospectus.
CONVERTIBLE SECURITIES
The Conservative Balanced and Flexible Managed Portfolios may invest in
convertible securities. A convertible security is a fixed-income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. The price of a convertible
security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. While no securities investment is without risk, investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
LOAN PARTICIPATIONS
The Conservative Balanced and Flexible Managed Portfolios may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations between
a corporate borrower and one or more financial institutions ("Lenders"). The
portfolios may invest in such Loans generally in the form of participations in
Loans ("Participations"). Participations typically will result in the Series
Fund having a contractual relationship only with the Lender, not with the
borrower. The Series Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Series Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Series Fund may not benefit directly from any
collateral supporting the Loan in which it has purchased the Participation. As a
result, the Series Fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, the Series Fund may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower.
WARRANTS
The Conservative Balanced and Flexible Managed Portfolios may invest in warrants
on common stocks. Warrants are options to buy a number of shares of stock at a
predetermined price during a specified period. The risk associated with the
purchase of a warrant is that the purchase price will be lost if the market
price of the stock does not reach a level that justifies the exercise or sale of
the warrant before it expires.
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OPTIONS AND FUTURES
OPTIONS ON EQUITY SECURITIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write (i.e., sell) put and call options on equity
securities that are traded on securities exchanges or that are listed on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or that result from privately negotiated transactions with broker-dealers ("OTC
options"). A call option is a short-term contract pursuant to which the
purchaser or holder, in return for a premium paid, has the right to buy the
equity security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying equity security against payment of the exercise price. A put option
is a similar contract which gives the purchaser or holder, in return for a
premium, the right to sell the underlying equity security at a specified price
during the term of the option. The writer of the put, who receives the premium,
has the obligation to buy the underlying security at the exercise price upon
exercise by the holder of the put.
A portfolio will write only "covered" options on stocks. A call option is
covered if: (1) the portfolio owns the security underlying the option; or (2)
the portfolio has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
securities it holds; or (3) the portfolio holds on a share-for-share basis a
call on the same security as the call written where the exercise price of the
call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the portfolio in cash, Treasury bills or other high grade
short-term debt obligations in a segregated account with its custodian. A put
option is covered if: (1) the portfolio deposits and maintains with its
custodian in a segregated account cash, U.S. Government securities or other
liquid unencumbered assets having a value equal to or greater than the exercise
price of the option; or (2) the portfolio holds on a share-for-share basis a put
on the same security as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written or less than
the exercise price if the difference is maintained by the portfolio in cash,
Treasury bills or other high grade short-term debt obligations in a segregated
account with its custodian.
The Conservative Balanced and Flexible Managed Portfolios may also purchase
"protective puts" (i.e., put options acquired for the purpose of protecting a
portfolio security from a decline in market value). In exchange for the premium
paid for the put option, the portfolio acquires the right to sell the underlying
security at the exercise price of the put regardless of the extent to which the
underlying security declines in value. The loss to the portfolio is limited to
the premium paid for, and transaction costs in connection with, the put plus the
initial excess, if any, of the market price of the underlying security over the
exercise price. However, if the market price of the security underlying the put
rises, the profit the portfolio realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount (net of
transaction costs) for which the put may be sold. Similar principles apply to
the purchase of puts on debt securities and stock indices, as described below
under OPTIONS ON DEBT SECURITIES, page 8 and OPTIONS ON STOCK INDICES, page 9.
The portfolios may purchase call options for hedging and investment purposes. No
portfolio intends to invest more than 5% of its net assets at any one time in
the purchase of call options on stocks. These portfolios may also purchase
putable and callable equity securities, which are securities coupled with a put
or a call option provided by the issuer.
If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" by buying an option of the
same series as the option previously written. Similarly, the holder of an
exchange-traded option may liquidate his or her position by exercise of the
option or by effecting a "closing sale transaction" by selling an option of the
same series as the option previously purchased. A portfolio will realize a
profit from a closing transaction if the price of the transaction is less than
the premium received from writing the option or is more than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction with respect to a call option
is likely to be offset in whole or in part by appreciation of the underlying
equity security owned by the portfolio. Unlike exchange-traded options, OTC
options generally do not have a continuous liquid market. Consequently, the
portfolio will generally be able to realize the value of an OTC option it has
purchased only by exercising it or reselling it to the dealer who issued it.
Similarly, when the portfolio writes an OTC option, it generally will be able to
close out the OTC option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which the portfolio originally wrote the
OTC option. There is, in general, no guarantee that closing purchase or closing
sale transactions can be effected.
A portfolio's use of options on equity securities is subject to certain special
risks, in addition to the risk that the market value of the security will move
adversely to the portfolio's option position. An option position may be closed
out only on an exchange, board of trade or other trading facility which provides
a secondary market for an option of the same series. Although a portfolio will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange
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will exist for any particular option, or at any particular time, and for some
options no secondary market on an exchange or otherwise may exist. In such event
it might not be possible to effect closing transactions in particular options,
with the result that the portfolio would have to exercise its options in order
to realize any profit and would incur brokerage commissions upon the exercise of
such options and upon the subsequent disposition of underlying securities
acquired through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If a portfolio as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, which might cause an exchange to institute special
procedures that might interfere with the timely execution of customers' orders.
The purchase and sale of OTC options will also be subject to certain risks.
Unlike exchange-traded options, OTC options generally do not have a continuous
liquid market. Consequently, a portfolio will generally be able to realize the
value of an OTC option it has purchased only by exercising it or reselling it to
the dealer who issued it. Similarly, when a portfolio writes an OTC option, it
generally will be able to close out the OTC option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
portfolio originally wrote the OTC option. While the portfolios will seek to
enter into OTC options only with dealers who agree to and which are expected to
be able to be capable of entering into closing transactions with the portfolio,
there can be no assurance that the portfolio will be able to liquidate an OTC
option at a favorable price at any time prior to expiration. In the event of
insolvency of the other party, the portfolio may be unable to liquidate an OTC
option. Prudential monitors the creditworthiness of dealers with whom the Series
Fund enters into OTC option transactions under the general supervision of the
Series Fund's Board of Directors.
OPTIONS ON DEBT SECURITIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write (i.e., sell) put and call options on debt
securities (including U.S. Government debt securities) that are traded on U.S.
securities exchanges or that result from privately negotiated transactions with
primary U.S. Government securities dealers recognized by the Federal Reserve
Bank of New York ("over-the-counter" or "OTC" options). Options on debt are
similar to options on stock, except that the option holder has the right to take
or make delivery of a debt security, rather than stock.
A portfolio will write only "covered" options. Options on debt securities are
covered in the same manner as options on stocks, discussed above, except that,
in the case of call options on U.S. Treasury Bills, the portfolio might own U.S.
Treasury Bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the option contract amount
and a maturity date no later than that of the securities deliverable under the
call option. The principal reason for a portfolio to write an option on one or
more of its securities is to realize through the receipt of the premiums paid by
the purchaser of the option a greater current return than would be realized on
the underlying security alone. Calls on debt securities will not be written
when, in the opinion of Prudential, interest rates are likely to decline
significantly, because under those circumstances the premium received by writing
the call likely would not fully offset the foregone appreciation in the value of
the underlying security.
The portfolios may also write straddles (i.e., a combination of a call and a put
written on the same security at the same strike price where the same issue of
the security is considered "cover" for both the put and the call). In such
cases, the portfolio will also segregate or deposit for the benefit of the
portfolio's broker cash or liquid high-grade debt obligations equivalent to the
amount, if any, by which the put is "in the money." It is contemplated that each
portfolio's use of straddles will be limited to 5% of the portfolio's net assets
(meaning that the securities used for cover or segregated as described above
will not exceed 5% of the portfolio's net assets at the time the straddle is
written). The writing of a call and a put on the same security at the same
strike price where the call and the put are covered by different securities is
not considered a straddle for purposes of this limit.
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The portfolios may purchase "protective puts" in an effort to protect the value
of a security that it owns against a substantial decline in market value.
Protective puts are described above in OPTIONS ON EQUITY SECURITIES, page 7. A
portfolio may wish to protect certain portfolio securities against a decline in
market value at a time when put options on those particular securities are not
available for purchase. A portfolio may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio. While changes in the value of the put
option should generally offset changes in the value of the securities being
hedged, the correlation between the two values may not be as close in these
transactions as in transactions in which the portfolio purchases a put option on
an underlying security it owns.
The portfolios may also purchase call options on debt securities for hedging or
investment purposes. No portfolio currently intends to invest more than 5% of
its net assets at any one time in the purchase of call options on debt
securities. A portfolio may also purchase putable and callable debt securities,
which are securities coupled with a put or call option provided by the issuer.
If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" or a "closing sale
transaction" in a manner similar to that discussed above in connection with
options on equity securities.
The staff of the Securities and Exchange Commission has taken the position that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid for purposes of a portfolio's 15% limitation on investment in illiquid
securities. However, pursuant to the terms of certain no-action letters issued
by the staff, the securities used as cover for written OTC options may be
considered liquid provided that the portfolio sells OTC options only to
qualified dealers who agree that the portfolio may repurchase any OTC option it
writes for a maximum price to be calculated by a predetermined formula. In such
cases, the OTC option would be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.
The use of debt options is subject to the same risks described above in
connection with stock options.
OPTIONS ON STOCK INDICES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and sell put and call options on stock indices traded on
securities exchanges or listed on NASDAQ or that result from privately
negotiated transactions with broker-dealers ("OTC options"). Options on stock
indices are similar to options on stock except that rather than the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. Unlike stock options, all settlements are in cash, and gain or
loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.
The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per Contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
The portfolios may purchase put and call options for hedging and investment
purposes. No portfolio intends to invest more than 5% of its net assets at any
one time in the purchase of puts and calls on stock indices. A portfolio may
effect closing sale and purchase transactions involving options on stock
indices, as described above in connection with stock options.
A portfolio will write only "covered" options on stock indices. A call option is
covered if the portfolio holds a portfolio of stocks at least equal to the value
of the index times the multiplier times the number of contracts. When a
portfolio writes a call option on a broadly based stock market index, the
portfolio will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, cash equivalents or "qualified
securities" (defined below) with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. If a portfolio has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian or pledge to a broker as collateral for the option at least five
"qualified securities," all of which are stocks of issuers in such industry or
market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. Such stocks will include stocks which represent at least 50% of
the weighting of the industry or market segment index and will represent at
least 50% of the portfolio's holdings in that industry or market segment. No
individual security will represent more than 15% of the amount so segregated,
pledged or escrowed in the case of broadly based stock market index options or
25% of such amount in the case of industry or market segment index options. If
at the close of business on any day the market
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value of such qualified securities so segregated, escrowed or pledged falls
below 100% of the current index value times the multiplier times the number of
contracts, the portfolio will so segregate, escrow or pledge an amount in cash,
Treasury bills or other high-grade short-term obligations equal in value to the
difference. In addition, when a portfolio writes a call on an index which is
in-the-money at the time the call is written, the portfolio will segregate with
its custodian or pledge to the broker as collateral, cash, U.S. Government or
other liquid unencumbered assets equal in value to the amount by which the call
is in-the-money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence may be applied to the portfolio's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts. A "qualified security" is an equity
security which is listed on a securities exchange or NASDAQ against which the
portfolio has not written a stock call option and which has not been hedged by
the portfolio by the sale of stock index futures. However, if the portfolio
holds a call on the same index as the call written where the exercise price of
the call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the portfolio in cash, Treasury bills or other high-grade
short-term obligations in a segregated account with its custodian, it will not
be subject to the requirement described in this paragraph.
A put option is covered if: (1) the portfolio holds in a segregated account
cash, Treasury bills or other high-grade short-term debt obligations of a value
equal to the strike price times the multiplier times the number of contracts; or
(2) the portfolio holds a put on the same index as the put written where the
strike price of the put held is equal to or greater than the strike price of the
put written or less than the strike price of the put written if the difference
is maintained by the portfolio in cash, Treasury bills or other liquid
unencumbered assets in a segregated account with its custodian. In instances
involving the purchase of futures contracts by a portfolio, an amount of cash
and cash equivalents, equal to the market value of the futures contracts, will
be deposited in a segregated account with the portfolio's custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of such futures is unleveraged.
The purchase and sale of options on stock indices will be subject to the risks
described above under OPTIONS ON EQUITY SECURITIES, page 7. In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options. Index prices may be distorted if trading of
certain stocks included in the index is interrupted. Trading in the index
options also may be interrupted in certain circumstances, such as if trading
were halted in a substantial number of stocks included in the index. If this
occurred, a portfolio would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, might be
unable to exercise an option it holds, which could result in substantial losses
to the portfolio. It is the policy of the portfolios to purchase or write
options only on stock indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the index.
The ability to establish and close out positions on such options will be subject
to the development and maintenance of a liquid secondary market. A portfolio
will not purchase or sell any index option contract unless and until, in its
manager's opinion, the market for such options has developed sufficiently that
the risk in connection with such transactions is no greater than the risk in
connection with options on stocks.
There are certain special risks associated with writing calls on stock indices.
Because exercises of index options are settled in cash, a call writer such as a
portfolio cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot precisely provide in advance
for, or cover, its potential settlement obligations by acquiring and holding the
underlying securities. The portfolios, however, will follow the "cover"
procedures described above.
Price movements in a portfolio's equity security portfolio probably will not
correlate precisely with movements in the level of the index and, therefore, in
writing a call on a stock index a portfolio bears the risk that the price of the
securities held by the portfolio may not increase as much as the index. In such
event, the portfolio would bear a loss on the call which is not completely
offset by movement in the price of the portfolio's equity securities. It is also
possible that the index may rise when the portfolio's securities do not rise in
value. If this occurred, the portfolio would experience a loss on the call which
is not offset by an increase in the value of its securities portfolio and might
also experience a loss in its securities portfolio. However, because the value
of a diversified securities portfolio will, over time, tend to move in the same
direction as the market, movements in the value of a portfolio's securities in
the opposite direction as the market would be likely to occur for only a short
period or to a small degree.
When a portfolio has written a call, there is also a risk that the market may
decline between the time the portfolio has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of the
exercise, and the time the portfolio is able to sell stocks in its portfolio. As
with stock options, a portfolio will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on stock
where the portfolio would be able to deliver the underlying securities in
settlement, the portfolio may have to sell part of its stock portfolio in order
to make settlement in cash, and the price of such stocks might decline before
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they can be sold. This timing risk makes certain strategies involving more than
one option substantially more risky with options in stock indices than with
stock options. For example, even if an index call which a portfolio has written
is "covered" by an index call held by the portfolio with the same strike price,
the portfolio will bear the risk that the level of the index may decline between
the close of trading on the date the exercise notice is filed with the clearing
corporation and the close of trading on the date the portfolio exercises the
call it holds or the time the portfolio sells the call, which in either case
would occur no earlier than the day following the day the exercise notice was
filed.
There are also certain special risks involved in purchasing put and call options
on stock indices. If a portfolio holds an index option and exercises it before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If such a
change causes the exercised option to fall out-of-the-money, the portfolio will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer. Although the portfolio may be able to minimize the risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
times for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.
OPTIONS ON FOREIGN CURRENCIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write put and call options on foreign currencies
traded on U.S. or foreign securities exchanges or boards of trade for hedging
purposes in a manner similar to that in which forward foreign currency exchange
contracts (see FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS, page 15) and futures
contracts on foreign currencies (discussed under FUTURES CONTRACTS, page 11)
will be employed. Options on foreign currencies are similar to options on stock,
except that the option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.
A portfolio may purchase and write options to hedge the portfolio's securities
denominated in foreign currencies. If there is a decline in the dollar value of
a foreign currency in which the portfolio's securities are denominated, the
dollar value of such securities will decline even though the foreign currency
value remains the same. To hedge against the decline of the foreign currency, a
portfolio may purchase put options on such foreign currency. If the value of the
foreign currency declines, the gain realized on the put option would offset, in
whole or in part, the adverse effect such decline would have on the value of the
portfolio's securities. Alternatively, a portfolio may write a call option on
the foreign currency. If the foreign currency declines, the option would not be
exercised and the decline in the value of the portfolio securities denominated
in such foreign currency would be offset in part by the premium the portfolio
received for the option.
If, on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), the portfolio may purchase call options
on the foreign currency. The purchase of such options could offset, at least
partially, the effects of the adverse movements of the exchange rates.
Alternatively, a portfolio could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.
A portfolio's successful use of currency exchange options on foreign currencies
depends upon the manager's ability to predict the direction of the currency
exchange markets and political conditions, which requires different skills and
techniques than predicting changes in the securities markets generally. For
instance, if the currency being hedged has moved in a favorable direction, the
corresponding appreciation of the portfolio's securities denominated in such
currency would be partially offset by the premiums paid on the options. Further,
if the currency exchange rate does not change, the portfolio net income would be
less than if the portfolio had not hedged since there are costs associated with
options.
The use of these options is subject to various additional risks. The correlation
between movements in the price of options and the price of the currencies being
hedged is imperfect. The use of these instruments will hedge only the currency
risks associated with investments in foreign securities, not market risks. The
portfolio's ability to establish and maintain positions will depend on market
liquidity. The ability of the portfolio to close out an option depends upon a
liquid secondary market. There is no assurance that liquid secondary markets
will exist for any particular option at any particular time.
Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. In addition,
the quantities of currency underlying option contracts represent odd lots in a
market dominated by transactions between banks; this can mean extra transaction
costs upon exercise. Option markets may be closed while round-the-clock
interbank currency markets are open, and this can create price and rate
discrepancies.
FUTURES CONTRACTS. The Conservative Balanced and Flexible Managed Portfolios
may, to the extent permitted by applicable regulations, attempt to reduce the
risk of investment in equity securities by hedging a portion of their
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equity portfolios through the use of stock index futures contracts. A stock
index futures contract is an agreement in which the seller of the contract
agrees to deliver to the buyer an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made.
The Conservative Balanced and Flexible Managed Portfolios may, to the extent
permitted by applicable regulations, purchase and sell for hedging purpose
futures contracts on interest-bearing securities (such as U.S. Treasury bonds
and notes) or interest rate indices (referred to collectively as "interest rate
futures contracts").
The Conservative Balanced and Flexible Managed Portfolios may, to the extent
permitted by applicable regulations, purchase and sell futures contracts on
foreign currencies or groups of foreign currencies for hedging purposes.
When the futures contract is entered into, each party deposits with a futures
commission merchant (or in a segregated custodial account) approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the futures commission merchant, called the "variation margin," will be
made on a daily basis as the underlying security, index or rate fluctuates
making the long and short positions in the futures contracts more or less
valuable, a process known as "marking to the market." The Board of Directors
currently intends to limit futures trading for hedging purposes so that a
portfolio will not enter into futures contracts or related options if the
aggregate initial margins and premiums exceed 5% of the fair market value of its
assets, after taking into account unrealized profits and unrealized losses on
any such contracts and options.
In addition, as permitted by applicable regulations, the Conservative Balanced
and Flexible Managed Portfolios may purchase and sell stock index futures
contracts and interest rate futures contracts to adjust the portfolio's asset
mix. For example, if the investment manager expects bonds to outperform stocks,
it may purchase interest rate futures contracts rather than actually selling
stocks and buying bonds. Neither portfolio will enter into futures contracts or
related options for this purpose if the aggregate initial margins and premiums
for futures and options for this purpose exceed 5% of the fair market of that
portfolio's assets, taking into account unrealized profits and unrealized losses
on any such futures and options.
A portfolio's successful use of futures contracts depends upon the investment
manager's ability to predict the direction of the relevant market. The
correlation between movement in the price of the futures contract and the price
of the securities or currencies being hedged is imperfect. The ability of a
portfolio to close out a futures position depends on a liquid secondary market.
There is no assurance that liquid secondary markets will exist for any
particular futures contract at any particular time.
There are several additional risks associated with a portfolio's use of futures
contracts for hedging purposes. One such risk arises because of imperfect
correlation between movements in the price of the futures contract and the price
of the securities or currency that are the subject of the hedge. In the case of
futures contracts on stock or interest rate indices, the correlation between the
price of the futures contract and movements in the index might not be perfect.
To compensate for differences in historical volatility, a portfolio could
purchase or sell future contracts with a greater or lesser value than the
securities or currency it wished to hedge or purchase. In addition, temporary
price distortions in the futures market could be caused by a variety of factors.
Further, the ability of a portfolio to close out a futures position depends on a
liquid secondary market. There is no assurance that a liquid secondary market on
an exchange will exist for any particular futures contract at any particular
time. Further, each portfolio's successful use of futures contracts is to some
extent dependent on the ability of the portfolio manager to predict correctly
movements in the direction of the market, interest rates and/or currency
exchange rates.
In addition, the hours of trading of futures contracts may not conform to the
hours during which the portfolio may trade the underlying securities and/or
currency. To the extent that the futures markets close before the securities or
currency markets, significant price and rate movements can take place in the
securities and/or currency markets that cannot be reflected in the futures
markets.
OPTIONS ON FUTURES CONTRACTS. To the extent permitted by applicable insurance
law and federal regulations, the Conservative Balanced and Flexible Managed
Portfolios may enter into certain transactions involving options on stock index
futures contracts, options on interest rate futures contracts, and options on
foreign currency futures contracts. An option on a futures contract gives the
purchaser or holder the right, but not the obligation, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified price at any time during the option
exercise period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accomplished by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
As an alternative to exercise, the holder or writer of an option may terminate a
position by selling or purchasing an option of the
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securities being hedged, and the risk that there might not be a liquid secondary
market for the option. There is also the risk of imperfect correlation between
the option and the underlying futures contract. If there were no liquid
secondary market for a particular option on a futures contract, the portfolio
might have to exercise an option it held in order to realize any profit and
might continue to be obligated under an option it had written until the option
expired or was exercised. If the portfolio were unable to close out an option it
had written on a futures contract, it would continue to be required to maintain
initial margin and make variation margin payments with respect to the option
position until the option expired or was exercised against the portfolio.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Conservative Balanced
and Flexible Managed Portfolios may purchase or sell securities on a when-issued
or delayed delivery basis, that is, delivery and payment can take place a month
or more after the date of the transaction. The portfolios will limit such
purchases to those in which the date for delivery and payment falls within 120
days of the date of the commitment. A portfolio will make commitments for such
when-issued transactions only with the intention of actually acquiring the
securities. A portfolio's custodian will maintain, in a separate account, cash,
U.S. Government securities or other liquid unencumbered assets having a value
equal to or greater than such commitments. If a portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio security, incur a gain or loss
due to market fluctuations.
In addition, the short-term portions of the portfolios may purchase money market
securities on a when-issued or delayed delivery basis on the terms set forth
under item 6 in SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY
INVEST, page 22.
SHORT SALES
The Conservative Balanced and Flexible Managed Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). To complete such a transaction, the portfolio will
borrow the security to make delivery to the buyer. The portfolio is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the portfolio. Until the security is
replaced, the portfolio is required to pay to the lender any interest which
accrues during the period of the loan. To borrow the security the portfolio may
be required to pay a fee which would increase the cost of the security sold. The
proceeds of the short sale will be retained by the broker to the extent
necessary to meet margin requirements until the short position is closed out.
Until the portfolio replaces the borrowed security, it will (a) maintain in a
segregated account cash, U.S. Government or other liquid unencumbered assets
securities at such a level that the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current market
value of the security sold short and will not be less than the market value of
the security at the time it was sold short or (b) otherwise cover its short
position.
The portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the portfolio replaces the borrowed security. The portfolio will realize a gain
if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
will be increased, by the amount of any fee or interest paid in connection with
the short sale. No more than 25% of any portfolio's net assets will be, when
added together: (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales and (ii) allocated to segregated
accounts in connection with short sales.
SHORT SALES AGAINST THE BOX
The portfolios may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the portfolio owns an
equal amount of such securities or securities convertible into or exchangeable,
with or without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a "short sale
against the box"); provided, that if further consideration is required in
connection with the conversion or exchange, cash, U.S. Government securities or
other liquid unencumbered assets in an amount equal to such consideration must
be put in a segregated account.
INTEREST RATE SWAPS
The fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use interest rate swaps to increase or decrease a portfolio's
exposure to long- or short-term interest rates. No portfolio currently intends
to invest more than 5% of its net assets at any one time in interest rate swaps.
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Interest rate swaps, in their most basic form, involve the exchange by a
portfolio with another party of their respective commitments to pay or receive
interest. For example, a portfolio might exchange its right to receive certain
floating rate payments in exchange for another party's right to receive fixed
rate payments. Interest rate swaps can take a variety of other forms, such as
agreements to pay the net differences between two different indices or rates,
even if the parties do not own the underlying instruments. Despite their
differences in form, the function of interest rate swaps is generally the same -
to increase or decrease a portfolio's exposure to long- or short-term interest
rates. For example, a portfolio may enter into a swap transaction to preserve a
return or spread on a particular investment or a portion of its portfolio or to
protect against any increase in the price of securities the portfolio
anticipates purchasing at a later date.
The use of swap agreements is subject to certain risks. As with options and
futures, if the investment manager's prediction of interest rate movements is
incorrect, the portfolio's total return will be less than if the portfolio had
not used swaps. In addition, if the counterparty's creditworthiness declines,
the value of the swap would likely decline. Moreover, there is no guarantee that
a portfolio could eliminate its exposure under an outstanding swap agreement by
entering into an offsetting swap agreement with the same or another party.
A portfolio will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a portfolio
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the portfolio's accrued
obligations under the swap agreement over the accrued amount the portfolio is
entitled to receive under the agreement. If a portfolio enters into a swap
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the portfolio's accrued obligations under the agreement.
LOANS OF PORTFOLIO SECURITIES
The portfolios may from time to time lend the securities they hold to
broker-dealers, provided that such loans are made pursuant to written agreements
and are continuously secured by collateral in the form of cash, U.S. Government
securities or irrevocable standby letters of credit in an amount equal to at
least the market value at all times of the loaned securities plus the accrued
interest and dividends. During the time securities are on loan, the portfolio
will continue to receive the interest and dividends or amounts equivalent
thereto on the loaned securities while receiving a fee from the borrower or
earning interest on the investment of the cash collateral. The right to
terminate the loan will be given to either party subject to appropriate notice.
Upon termination of the loan, the borrower will return to the lender securities
identical to the loaned securities. The portfolio will not have the right to
vote securities on loan, but would terminate the loan and retain the right to
vote if that were considered important with respect to the investment.
The primary risk in lending securities is that the borrower may become insolvent
on a day on which the loaned security is rapidly advancing in price. In such
event, if the borrower fails to return the loaned securities, the existing
collateral might be insufficient to purchase back the full amount of the
security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage; but the portfolio
would be an unsecured creditor with respect to such shortage and might not be
able to recover all or any of it. However, this risk may be minimized by a
careful selection of borrowers and securities to be lent and by monitoring
collateral.
No portfolio will lend securities to broker-dealers affiliated with Prudential,
including Prudential Securities Incorporated. This will not affect a portfolio's
ability to maximize its securities lending opportunities.
ILLIQUID SECURITIES
The portfolios may hold up to 15% of its net assets in illiquid securities.
Illiquid securities are those which may not be sold in the ordinary course of
business within seven days at approximately the value at which the portfolio has
valued them. Variable and floating rate instruments that cannot be disposed of
within seven days and repurchase agreements with a maturity of greater than
seven days are considered illiquid.
The portfolios may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the adviser, acting under
guidelines approved and monitored by the Board of Directors, that an adequate
trading market exists for that security. In making that determination, the
adviser will consider, among other relevant factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers; (3)
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dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades. A portfolio's treatment of
Rule 144A securities as liquid could have the effect of increasing the level of
portfolio illiquidity to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing these securities. In addition, the
adviser, acting under guidelines approved and monitored by the Board of
Directors, may conditionally determine, for purposed of the 15% test, that
certain commercial paper issued in reliance on the exemption from registration
in Section 4(2) of the Securities Act of 1933 will not be considered illiquid,
whether or not it may be resold under Rule 144A. To make that determination, the
following conditions must be met: (1) the security must not be traded flat or in
default as to principal or interest; (2) the security must be rated in one of
the two highest rating categories by at least two nationally recognized
statistical rating organizations ("NRSROs"), or if only one NRSRO rates the
security, by that NRSRO; if the security is unrated, the adviser must determine
that the security is of equivalent quality; and (3) the adviser must consider
the trading market for the specific security, taking into account all relevant
factors. The adviser will continue to monitor the liquidity of any Rule 144A
security or any Section 4(2) commercial paper which has been determined to be
liquid and, if a security is no longer liquid because of changed conditions, the
holdings of illiquid securities will be reviewed to determine if any steps are
required to assure that the 15% test continues to be satisfied.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
To the extent permitted by applicable insurance law, the Conservative Balanced
and Flexible Managed Portfolios may purchase securities denominated in foreign
currencies. To address the currency fluctuation risk that such investments
entail, these portfolios may enter into forward foreign currency exchange
contracts in several circumstances. When a portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, or when a
portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when a portfolio's manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the portfolio may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The portfolios will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate a portfolio to deliver an amount of
foreign currency in excess of the value of the securities or other assets
denominated in that currency held by the portfolio. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the portfolios believe that it is important to have the
flexibility to enter into such forward contracts when it is determined that the
best interests of the portfolios will thereby be served.
The portfolios generally will not enter into a forward contract with a term of
greater than 1 year. At the maturity of a forward contract, a portfolio may
either sell the portfolio security and make delivery of the foreign currency or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a portfolio to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If a portfolio retains the portfolio security and engages in an offsetting
transaction, the portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between the portfolio's entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of
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the currency it has agreed to purchase. Should forward prices increase, the
portfolio will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The portfolios' dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the portfolios are not
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of the portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedge currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
Although the portfolios value their assets daily in terms of U.S. dollars, they
do not intend physically to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. They will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a portfolio at one rate, while offering a lesser rate of exchange should the
portfolio desire to resell that currency to the dealer.
INVESTMENT RESTRICTIONS
Set forth below are certain investment restrictions applicable to the
portfolios. Restrictions 1, 3, 5, and 8-11 are fundamental and may not be
changed without shareholder approval as required by the 1940 Act. Restrictions
2, 4, 6, 7, and 12 are not fundamental and may be changed by the Board of
Directors without shareholder approval.
Neither of the portfolios available to PRUVIDER Contract owners will:
1. Buy or sell real estate and mortgages, although the portfolios may buy and
sell securities that are secured by real estate and securities of real
estate investment trusts and of other issuers that engage in real estate
operation. Buy or sell commodities or commodities contracts, except that
the Conservative Balanced and Flexible Managed Portfolios may purchase and
sell stock index futures contracts and related options, purchase and sell
interest rate futures contracts and related options, and purchase and sell
foreign currency futures contracts and related options and forward foreign
currency exchange contracts.
2. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company.
3. Acquire securities for the purpose of exercising control or management of
any company except in connection with a merger, consolidation, acquisition
or reorganization.
4. Make short sales of securities or maintain a short position, except that
the Conservative Balanced and Flexible Managed Portfolios may sell
securities short up to 25% of their net assets and may make short sales
against the box. Collateral arrangements entered into with respect to
options, futures contracts and forward contracts are not deemed to be short
sales. Collateral arrangements entered into with respect to interest rate
swap agreements are not deemed to be short sales.
5. Purchase securities on margin or otherwise borrow money or issue senior
securities except that the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios may enter into reverse repurchase
agreements, dollar rolls and may purchase securities on a when-issued and
delayed delivery basis; except that the money market portion of any
portfolio may enter into reverse repurchase agreements and may purchase
securities on a when-issued and delayed delivery basis; and except that the
Conservative Balanced and Flexible Managed Portfolios may purchase
securities on a when-issued or a delayed delivery basis. The Series Fund
may also obtain such short-term credit as it needs for the clearance of
securities transactions and may borrow from a bank for the account of any
portfolio as a temporary measure to facilitate redemptions (but not for
leveraging or investment) or to exercise an option, an amount that does not
exceed 5% of the value of the portfolio's total assets (including the
amount owed as a result of the borrowing) at the time the borrowing is
made. Interest paid on borrowings will not be available for investment.
Collateral arrangements with respect to futures contracts and options
thereon and forward foreign currency exchange contracts (as permitted by
restriction no.1) are not deemed to be the issuance of a senior security or
the purchase of a security on margin. Collateral arrangements with respect
to the writing of options on debt securities, equity securities, stock
indices and foreign currencies by the Conservative Balanced and Flexible
Managed Portfolios are not deemed to be the issuance of a senior security
or the purchase of a security on margin. Collateral arrangements entered
into by the Conservative Balanced and Flexible Managed Portfolios with
respect to
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interest rate swap agreements are not deemed to be the issuance of a senior
security or the purchase of a security on margin.
6. Enter into reverse repurchase agreements if, as a result, the portfolio's
obligations with respect to reverse repurchase agreements would exceed 10%
of the portfolio's net assets (defined to mean total assets at market value
less liabilities other than reverse repurchase agreements); except that the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may enter into reverse repurchase agreements and dollar rolls
provided that the portfolio's obligations with respect to those instruments
do not exceed 30% of the portfolio's net assets (defined to mean total
assets at market value less liabilities other than reverse repurchase
agreements and dollar rolls).
7. Pledge or mortgage assets, except that no more than 10% of the value of any
portfolio may be pledged (taken at the time the pledge is made) to secure
authorized borrowing and except that a portfolio may enter into reverse
repurchase agreements. Collateral arrangements entered into with respect to
futures and forward contracts and the writing of options are not deemed to
be the pledge of assets. Collateral arrangements entered into with respect
to interest rate swap agreements are not deemed to be the pledge of assets.
8. Lend money, except that loans of up to 10% of the value of each portfolio
may be made through the purchase of privately placed bonds, debentures,
notes, and other evidences of indebtedness of a character customarily
acquired by institutional investors that may or may not be convertible into
stock or accompanied by warrants or rights to acquire stock. Repurchase
agreements and the purchase of publicly traded debt obligations are not
considered to be "loans" for this purpose and may be entered into or
purchased by a portfolio in accordance with its investment objectives and
policies.
9. Underwrite the securities of other issuers, except where the Series Fund
may be deemed to be an underwriter for purposes of certain federal
securities laws in connection with the disposition of portfolio securities
and with loans that a portfolio may make pursuant to item 8 above.
10. Make an investment unless, when considering all its other investments, 75%
of the value of a portfolio's assets would consist of cash, cash items,
obligations of the United States Government, its agencies or
instrumentalities, and other securities. For purposes of this restriction,
"other securities" are limited for each issuer to not more than 5% of the
value of a portfolio's assets and to not more than 10% of the issuer's
outstanding voting securities held by the Series Fund as a whole. Some
uncertainty exists as to whether certain of the types of bank obligations
in which a portfolio may invest, such as certificates of deposit and
bankers' acceptances, should be classified as "cash items" rather than
"other securities" for purposes of this restriction, which is a
diversification requirement under the 1940 Act. Interpreting most bank
obligations as "other securities" limits the amount a portfolio may invest
in the obligations of any one bank to 5% of its total assets. If there is
an authoritative decision that any of these obligations are not
"securities" for purposes of this diversification test, this limitation
would not apply to the purchase of such obligations.
11. Purchase securities of a company in any industry if, as a result of the
purchase, a portfolio's holdings of securities issued by companies in that
industry would exceed 25% of the value of the portfolio, except that this
restriction does not apply to purchases of obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities or issued by
domestic banks. For purposes of this restriction, neither finance companies
as a group nor utility companies as a group are considered to be a single
industry and will be grouped instead according to their services; for
example, gas, electric, and telephone utilities will each be considered a
separate industry. For purposes of this exception, domestic banks shall
include all banks which are organized under the laws of the United States
or a state (as defined in the 1940 Act), U.S. branches of foreign banks
that are subject to the same regulations as U.S. banks and foreign branches
of domestic banks (as permitted by the SEC). This restriction shall not
apply to mortgage-backed securities, collateralized mortgage obligations or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
12. Invest more than 15% of its net assets in illiquid securities. For purposes
of this restriction, illiquid securities are those deemed illiquid pursuant
to SEC regulations and guidelines, as they may be revised from time to
time.
The investments of the various portfolios are generally subject to certain
additional restrictions under the laws of the State of New Jersey. In the event
of future amendments to the applicable New Jersey statutes, each portfolio will
comply, without the approval of the shareholders, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
stand are, in summary form, as follows:
1. An Account may not purchase any evidence of indebtedness issued, assumed or
guaranteed by any institution created or existing under the laws of the
U.S., any U.S. state or territory, District of Columbia, Puerto Rico,
Canada or any Canadian province, if such evidence of indebtedness is in
default as to interest. "Institution"
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includes any corporation, joint stock association, business trust, business
joint venture, business partnership, savings and loan association, credit
union or other mutual savings institution.
2. The stock of a corporation may not be purchased unless: (i) the corporation
has paid a cash dividend on the class of stock during each of the past 5
years preceding the time of purchase; or (ii) during the 5-year period the
corporation had aggregate earnings available for dividends on such class of
stock sufficient to pay average dividends of 4% per annum computed upon the
par value of such stock or upon stated value if the stock has no par value.
This limitation does not apply to any class of stock which is preferred as
to dividends over a class of stock whose purchase is not prohibited.
3. Any common stock purchased must be: (i) listed or admitted to trading on a
securities exchange in the United States or Canada; or (ii) included in the
National Association of Securities Dealers' national price listings of
"over-the-counter" securities; or (iii) determined by the Commissioner of
Insurance of New Jersey to be publicly held and traded and have market
quotations available.
4. Any security of a corporation may not be purchased if after the purchase
more than 10% of the market value of the assets of a portfolio would be
invested in the securities of such corporation.
As a result of these currently applicable requirements of New Jersey law, which
impose substantial limitations on the ability of the Series Fund to invest in
the stock of companies whose securities are not publicly traded or who have not
recorded a 5-year history of dividend payments or earnings sufficient to support
such payments, the portfolios will not generally hold the stock of newly
organized corporations. Nonetheless, an investment not otherwise eligible under
items 1 or 2 above may be made if, after giving effect to the investment, the
total cost of all such non-eligible investments does not exceed 5% of the
aggregate market value of the assets of the portfolio.
Investment limitations also arise under the insurance laws and regulations of
Arizona and may arise under the laws and regulations of other states. Although
compliance with the requirements of New Jersey law set forth above will
ordinarily result in compliance with any applicable laws of other states, under
some circumstances the laws of other states could impose additional restrictions
on the portfolios. For example, the Series Fund will generally invest no more
than 10% of its assets in the obligations of banks of the foreign countries
described in item 2 of SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY
CURRENTLY INVEST, page 22. In addition, the Series Fund adheres to additional
restrictions relating to such practices as the lending of securities, borrowing,
and the purchase of put and call options, futures contracts, and derivative
instruments on securities to comply with investment guidelines issued by the
California Department of Insurance.
Current federal income tax laws require that the assets of each portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the Series Fund and not the Contract owners, are
considered the owners of assets held in the Account for federal income tax
purposes. See TAX TREATMENT OF CONTRACT BENEFITS, page 3. Prudential intends to
maintain the assets of each portfolio pursuant to those diversification
requirements.
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES
The Series Fund and Prudential have entered into an Investment Advisory
Agreement under which Prudential will, subject to the direction of the Board of
Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio. As
noted in the prospectus, Prudential has also entered into a Service Agreement
with its wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"),
which provides that PIC will furnish to Prudential such services as Prudential
may require in connection with Prudential's performance of its obligations under
the Investment Advisory Agreement.
Under the Investment Advisory Agreement, Prudential receives an investment
management fee as compensation for its services to the Series Fund. The fee is a
daily charge, payable quarterly, equal to an annual percentage of the average
daily net assets of each individual portfolio.
The investment management fee for the Conservative Balanced Portfolio is equal
to an annual rate of 0.55% of the average daily net assets of each of the
portfolios. For the Flexible Managed Portfolio, the fee is equal to an annual
rate of 0.6% of the average daily net assets of the portfolio.
The Investment Advisory Agreement requires Prudential to pay for maintaining any
Prudential staff and personnel who perform clerical, accounting, administrative,
and similar services for the Series Fund, other than investor services and any
daily Series Fund accounting services. It also requires Prudential to pay for
the equipment, office space and related facilities necessary to perform these
services and the fees or salaries of all officers and directors of the Series
Fund who are affiliated persons of Prudential or any subsidiary of Prudential.
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Each portfolio pays all other expenses incurred in its individual operation and
also pays a portion of the Series Fund's general administrative expenses
allocated on the basis of the asset size of the respective portfolios. Expenses
that will be borne directly by the portfolios include redemption expenses,
expenses of portfolio transactions, shareholder servicing costs, interest,
certain taxes, charges of the Custodian and Transfer Agent, and other expenses
attributable to a particular portfolio. Expenses that will be allocated among
all portfolios include legal expenses, state franchise taxes, auditing services,
costs of printing proxies, costs of stock certificates, Securities and Exchange
Commission fees, accounting costs, the fees and expenses of directors of the
Series Fund who are not affiliated persons of Prudential or any subsidiary of
Prudential, and other expenses properly payable by the entire Series Fund. If
the Series Fund is sued, litigation costs may be directly applicable to one or
more portfolios or allocated on the basis of the size of the respective
portfolios, depending upon the nature of the lawsuit. The Series Fund's Board of
Directors has determined that this is an appropriate method of allocating
expenses.
Under the Investment Advisory Agreement, Prudential has agreed to refund to the
Conservative Balanced and Flexible Managed Portfolios the portion of the
investment management fee for that portfolio equal to the amount that the
aggregate annual ordinary operating expenses of that portfolio (excluding
interest, taxes, and brokerage fees and commissions but including investment
management fees) exceeds 0.75% of the portfolio's average daily net assets.
The Investment Advisory Agreement with Prudential was most recently approved by
the Series Fund's Board of Directors, including a majority of the Directors who
are not interested persons of Prudential, on February 12, 1997 with respect to
the Conservative Balanced and Flexible Managed Portfolios. The Investment
Advisory Agreement was most recently approved by shareholders in accordance with
instructions from Contract owners at their 1989 annual meeting with respect to
the Conservative Balanced and Flexible Managed Portfolios. The Agreement will
continue in effect if approved annually by: (1) a majority of the non-interested
persons of the Series Fund's Board of Directors; and (2) by a majority of the
entire Board of Directors or by a majority vote of the shareholders of each
portfolio. The required shareholder approval of the Agreement shall be effective
with respect to any portfolio if a majority of the voting shares of that
portfolio vote to approve the Agreement, even if the Agreement is not approved
by a majority of the voting shares of any other portfolio or by a majority of
the voting shares of the entire Series Fund. The Agreement provides that it may
not be assigned by Prudential and that it may be terminated upon 60 days' notice
by the Series Fund's Board of Directors or by a majority vote of its
shareholders. Prudential may terminate the Agreement upon 90 days' notice.
The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Series Fund at their 1989 annual meeting with respect to the
Conservative Balanced and Flexible Managed Portfolios. The Service Agreement
between Prudential and PIC will continue in effect as to the Series Fund for a
period of more than 2 years from its execution, only so long as such continuance
is specifically approved at least annually in the same manner as the Investment
Advisory Agreement between Prudential and the Series Fund. The Service Agreement
may be terminated by either party upon not less than 30 days' prior written
notice to the other party, will terminate automatically in the event of its
assignment, and will terminate automatically as to the Series Fund in the event
of the assignment or termination of the Investment Advisory Agreement between
Prudential and the Series Fund. Prudential is not relieved of its responsibility
for all investment advisory services under the Investment Advisory Agreement.
Under the Service Agreement, Prudential pays PIC a portion of the fee it
receives for providing investment advisory services.
Prudential also serves as the investment advisor to several other investment
companies. When investment opportunities arise that may be appropriate for more
than one entity for which Prudential serves as investment advisor, Prudential
will not favor one over another and may allocate investments among them in an
impartial manner believed to be equitable to each entity involved. The
allocations will be based on each entity's investment objectives and its current
cash and investment positions. Because the various entities for which Prudential
acts as investor advisor have different investment objectives and positions,
Prudential may from time to time buy a particular security for one or more such
entities while at the same time it sells such securities for another.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Prudential is responsible for decisions to buy and sell securities, options on
securities and indices, and futures and related options for the Series Fund.
Prudential is also responsible for the selection of brokers, dealers, and
futures commission merchants to effect the transactions and the negotiation of
brokerage commissions, if any. Brokerdealers may receive brokerage commissions
on Series Fund portfolio transactions, including options and the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of Prudential.
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Bonds, including convertible bonds, and equity securities traded in the
over-the-counter market are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments and U.S. Government agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid. The Series Fund
will not deal with Prudential Securities Incorporated in any transaction in
which Prudential Securities Incorporated acts as principal. Thus, it will not
deal with Prudential Securities Incorporated if execution involves Prudential
Securities Incorporated's acting as principal with respect to any part of the
Series Fund's order. Portfolio securities may not be purchased from any
underwriting or selling syndicate of which Prudential Securities Incorporated,
during the existence of the syndicate, is a principal underwriter (as defined in
the 1940 Act) except in accordance with rules of the Securities and Exchange
Commission. This limitation, in the opinion of the Series Fund, will not
significantly affect the portfolios' current ability to pursue their respective
investment objectives. However, in the future it is possible that the Series
Fund may under other circumstances be at a disadvantage because of this
limitation in comparison to other funds not subject to such a limitation.
In placing orders for portfolio securities of the Series Fund, Prudential is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, Prudential will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Series Fund, Prudential or Prudential's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by
Prudential in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the
Series Fund may be used in managing other investment accounts. Conversely,
brokers, dealers or futures commission merchants furnishing such services may be
selected for the execution of transactions for such other accounts, and the
services furnished by such brokers, dealers or futures commission merchants may
be used by Prudential in providing investment management for the Series Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. Prudential's policy is to pay higher commissions to brokers, other than
Prudential Securities Incorporated, for particular transactions than might be
charged if a different broker had been selected on occasions when, in
Prudential's opinion, this policy furthers the objective of obtaining best price
and execution. Prudential's present policy is not to permit higher commissions
to be paid on Series Fund transactions in order to secure research, statistical,
and investment services from brokers. Prudential might in the future authorize
the payment of such higher commissions but only with the prior concurrence of
the Board of Directors of the Series Fund, if it is determined that the higher
commissions are necessary in order to secure desired research and are reasonable
in relation to all the services that the broker provides.
Subject to the above considerations, Prudential Securities Incorporated may act
as a securities broker or futures commission merchant for the Series Fund. In
order for Prudential Securities Incorporated to effect any portfolio
transactions for the Series Fund, the commissions received by Prudential
Securities Incorporated must be reasonable and fair compared to the commissions
received by other brokers in connection with comparable transac tions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. This standard would allow Prudential Securities
Incorporated to receive no more than the remuneration that would be expected to
be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Series Fund, including a majority of the noninterested directors, has
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to Prudential Securities
Incorporated are consistent with the foregoing standard. In accordance with Rule
11a2-2(T) under the Securities Exchange Act of 1934, Prudential Securities
Incorporated may not retain compensation for effecting transactions on a
securities exchange for the Series Fund unless the Series Fund has expressly
authorized the retention of such compensation in a written contract executed by
the Series Fund and Prudential Securities Incorporated. Rule 11a2-2(T) provides
that Prudential Securities Incorporated must furnish to the Series Fund at least
annually a statement setting forth the total amount of all compensation retained
by Prudential Securities Incorporated from transactions effected for the Series
Fund during the applicable period. Brokerage and futures transactions with
Prudential Securities Incorporated are also subject to such fiduciary standards
as may be imposed by applicable law.
For the years 1996, 1995, and 1994, the Series Fund paid a total of $12,197,982,
$11,607,197, and $11,579,886, respectively, in brokerage commissions for all
portfolios. Of those amounts, $961,524, $899,739, and $560,155, for 1996, 1995,
and 1994, respectively, was paid out to Prudential Securities Incorporated. For
1996, the commissions paid to this affiliated broker constituted 7.9% of the
total commissions paid by the Series Fund for that year. Transactions through
this affiliated broker accounted for 7.9% of the aggregate dollar amount of
transactions for all of the portfolios of the Series Fund involving the payment
of commissions.
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DETERMINATION OF NET ASSET VALUE
Shares in the Series Fund are currently offered continuously, without sales
charge, at prices equal to the respective net asset values of the portfolios,
only to separate accounts to fund benefits payable under the Contracts described
in the variable life insurance and variable annuity prospectuses. The Series
Fund may at some later date also offer its shares to other separate accounts of
Prudential or other insurers. Prudential acts as principal underwriter to the
Series Fund. As such, Prudential receives no underwriting compensation from the
Series Fund.
As noted in the prospectus, the net asset value of the shares of each portfolio
is determined once daily on each day the New York Stock Exchange ("NYSE") is
open for business. The NYSE is open for business Monday through Friday except
for the days on which the following holidays are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. In the event the New York Stock Exchange
closes early on any business day, the net asset value of each portfolio shall be
determined at a time between such closing and 4:15 p.m. New York City time.
In determining the net asset value of any intermediate or long-term fixed income
securities of the Conservative Balanced and Flexible Managed Portfolios (other
than debt obligations with remaining maturities 12 months or less, which are
valued at amortized cost) will be valued utilizing an independent pricing
service to determine valuations for normal institutional size trading units of
securities. The pricing service considers such factors as security prices,
yields, maturities, call features, ratings, and developments relating to
specific securities in arriving at securities valuations.
All short-term debt obligations in the money market portions of the Conservative
Balanced and Flexible Managed Portfolios of 12 months remaining maturity or less
are valued on an amortized cost basis in accordance with an order obtained from
the Securities and Exchange Commission. This means that each obligation will be
valued initially at its purchase price and thereafter by amortizing any discount
or premium uniformly to maturity, regardless of the impact of fluctuating
interest rates on the market value of the obligation. This highly practical
method of valuation is in widespread use and almost always results in a value
that is extremely close to the actual market value. In order to continue to
utilize the amortized cost method of valuation, the money market portions of the
Conservative Balanced and Flexible Managed Portfolios may not purchase any
security with a remaining maturity of more than 12 months and must maintain a
dollar-weighted average portfolio maturity of 120 days or less. In the event of
sizeable changes in interest rates, however, the value determined by this method
may be higher or lower than the price that would be received if the obligation
were sold. The Series Fund's Board of Directors has established procedures to
monitor whether any material deviation occurs and, if so, will promptly consider
what action, if any, should be initiated to prevent unfair results to Contract
owners. The short-term portion of these portfolios may be invested only in high
quality instruments, as described in SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST, page 22.
The net asset value of the common stocks and convertible debt securities of the
portfolios will be determined in the following manner. Any security for which
the primary market is on an exchange is generally valued at the last sale price
on such exchange as of the close of the NYSE (which is currently 4:00 p.m. New
York City time) or, in the absence of recorded sales, at the mean between the
most recently quoted bid and asked prices. NASDAQ National Market System equity
securities are valued at the last sale price or, if there was no sale on such
day, at the mean between the most recently quoted bid and asked prices. Other
over-the-counter equity securities are valued at the mean between the most
recently quoted bid and asked prices. Convertible debt securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed to be over-the-counter, are valued at the
mean between the most recently quoted bid and asked prices. Corporate bonds
(other than convertible debt securities) are valued on the same basis as
intermediate or long-term fixed income securities, as described above.
Short-term debt instruments which mature in less than 60 days are valued at
amortized cost. For valuation purposes, quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents.
With respect to all the portfolios which utilize such investments, options on
stock and stock indices traded on national securities exchanges are valued at
the average of the bid and asked prices as of the close of the respective
exchange (which is currently 4:10 p.m. New York City time). Futures contracts
and options thereon are valued at the last sale price at the close of the
applicable commodities exchanges or board of trade (which is currently 4:15 p.m.
New York City time) or, if there was no sale on the applicable commodities
exchange or board of trade on such day, at the mean between the most recently
quoted bid and asked prices on such exchange or board of trade.
Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by Prudential under the direction of the
Board of Directors of the Series Fund.
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SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO
MAY CURRENTLY INVEST*
The Money Market Portfolio, and the other portfolios to the extent their
investment policies so provide, may invest in the following liquid, short-term,
debt securities regularly bought and sold by financial institutions:
1. U.S. Treasury Bills and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These are debt securities
(including bills, certificates of indebtedness, notes, and bonds) issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government that is established under the authority of an act of Congress.
Although all obligations of agencies and instrumentalities are not direct
obligations of the U.S. Treasury, payment of the interest and principal on them
is generally backed directly or indirectly by the U.S. Government. This support
can range from the backing of the full faith and credit of the United States, to
U.S. Treasury guarantees or to the backing solely of the issuing instrumentality
itself. Securities which are not backed by the full faith and credit of the
United States include but are not limited to obligations of the Tennessee Valley
Authority, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and the United States Postal Service, each of which has
the right to borrow from the U.S. Treasury to meet its obligations, and
obligations of the Federal Farm Credit System and the Federal Home Loan Banks,
the obligations of which may only be satisfied by the individual credit of the
issuing agency. Obligations of the Government National Mortgage Association, the
Farmers Home Administration, and the Export-Import Bank are examples of
securities that are backed by the full faith and credit of the United States.
2. Obligations (including certificates of deposit, bankers' acceptances, and
time deposits) of domestic banks, foreign branches of U.S. banks, U.S. branches
of foreign banks, and foreign offices of foreign banks provided that such bank
has, at the time of the portfolio's investment, total assets of at least $1
billion or the equivalent. Obligations of any savings and loan association or
savings bank organized under the laws of the United States or any state thereof,
provided that such association or savings bank has, at the time of the
portfolio's investment, total assets of at least $1 billion. The term
"certificates of deposit" includes both Eurodollar certificates of deposit,
which are traded in the over-the-counter market, and Eurodollar time deposits,
for which there is generally not a market. "Eurodollars" are dollars deposited
in banks outside the United States. An investment in Eurodollar instruments
involves risks that are different in some respects from an investment in debt
obligations of domestic issuers, including future political and economic
developments such as possible expropriation or confiscatory taxation that might
adversely affect the payment of principal and interest on the Eurodollar
instruments.
"Certificates of deposit" are certificates evidencing the indebtedness of a
commercial bank to repay funds deposited with it for a definite period of time
(usually from 14 days to 1 year). "Bankers' acceptances" are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. "Time deposits"
are non-negotiable deposits in a bank for a fixed period of time.
3. Commercial paper, variable amount demand master notes, bills, notes and other
obligations issued by a U.S. company, a foreign company or a foreign government,
its agencies, instrumentalities or political subdivisions, denominated in U.S.
dollars, and, at the date of investment, rated at least A or A-2 by Standard &
Poor's Rating Group ("S&P"), A or Prime-2 by Moody's Investors Service
("Moody's") or, if not rated, issued by an entity having an outstanding
unsecured debt issue rated at least A or A-2 by S&P or A or Prime-2 by Moody's.
For a description of corporate bond ratings, see DEBT RATINGS page 24. If such
obligations are guaranteed or supported by a letter of credit issued by a bank,
such bank (including a foreign bank) must meet the requirements set forth in
paragraph 2 above. If such obligations are guaranteed or insured by an insurance
company or other non-bank entity, such insurance company or other non-bank
entity must represent a credit of high quality, as determined by the Series
Fund's investment adviser (which as noted above is currently Prudential) under
the supervision of the Series Fund's Board of Directors.
As stated above in paragraphs 2 and 3, the Money Market Portfolio and short-term
portions of the other portfolios may contain obligations of foreign branches of
domestic banks and domestic branches of foreign banks, as well as commercial
paper, bills, notes, and other obligations issued in the United States by
foreign issuers, including foreign governments, their agencies, and
instrumentalities. This involves certain additional risks. These risks include
future political and economic developments in the country of the issuer, the
possible imposition of withholding taxes on interest income payable on such
obligations held by the Series Fund, the possible seizure or nationalization of
foreign deposits, and the possible establishment of exchange controls or other
foreign governmental laws or restrictions which might affect adversely the
payment of principal and interest on such obligations held by the Series Fund.
In addition, there may be less publicly available information about a foreign
issuer than about a domestic one, and foreign issuers may not be subject to the
same accounting, auditing and
* Although the Money Market Portfolio is not available to PRUVIDER Contract
owners, any short-term portion of the Conservative Balanced and Flexible Managed
Portfolios may be invested in the types of securities described in this section.
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financial recordkeeping standards and requirements as domestics issuers.
Securities issued by foreign issuers may be subject to greater fluctuations in
price than securities issued by U.S. entities. Finally, in the event of default
with respect to any such foreign debt obligations, it may be more difficult for
the Series Fund to obtain or to enforce a judgment against the issuers of such
securities.
4. Repurchase Agreements. When the Money Market Portfolio purchases money market
securities of the types described above, it may on occasion enter into a
repurchase agreement with the seller wherein the seller and the buyer agree at
the time of sale to repurchase of the security at a mutually agreed upon time
and price. The period of maturity is usually quite short, possibly overnight or
a few days, although it may extend over a number of months. The resale price is
in excess of the purchase price, reflecting an agreed-upon market rate effective
for the period of time the portfolio's money is invested in the security, and is
not related to the coupon rate of the purchased security. Repurchase agreements
may be considered loans of money to the seller of the underlying security, which
are collateralized by the securities underlying the repurchase agreement. The
Series Fund will not enter into repurchase agreements unless the agreement is
"fully collateralized" (i.e., the value of the securities is, and during the
entire term of the agreement remains, at least equal to the amount of the 'loan'
including accrued interest). The Series Fund will take possession of the
securities underlying the agreement and will value them daily to assure that
this condition is met. The Series Fund has adopted standards for the parties
with whom it will enter into repurchase agreements which it believes are
reasonably designed to assure that such a party presents no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase agreement. In the event that a seller defaults on a repurchase
agreement, the Series Fund may incur a loss in the market value of the
collateral, as well as disposition costs; and, if a party with whom the Series
Fund had entered into a repurchase agreement becomes involved in bankruptcy
proceedings, the Series Fund's ability to realize on the collateral may be
limited or delayed and a loss may be incurred if the collateral securing the
repurchase agreement declines in value during the bankruptcy proceedings.
The Series Fund will not enter into repurchase agreements with Prudential or its
affiliates, including Prudential Securities Incorporated. This will not affect
the Series Fund's ability to maximize its opportunities to engage in repurchase
agreements.
5. Reverse Repurchase Agreements. The Money Market Portfolio may use reverse
repurchase agreements, which are described under REVERSE REPURCHASE AGREEMENTS
AND DOLLAR ROLLS in the prospectus. No portfolio may obligate more than 10% of
its net assets in connection with reverse repurchase agreements, except that the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may obligate up to 30% of their net assets in connection with reverse
repurchase agreements and dollar rolls.
6. When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Money Market Portfolio may purchase securities
on a when-issued or delayed delivery basis (i.e., delivery and payment can take
place a month or more after the date of the transaction). The purchase price and
the interest rate payable on the securities are fixed on the transaction date.
The securities so purchased are subject to market fluctuation, and no interest
accrues to the portfolio until delivery and payment take place. At the time the
portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value. The
portfolio will make commitments for when-issued transactions only with the
intention of actually acquiring the securities and, to facilitate such
acquisitions, the Series Fund's custodian bank will maintain in a separate
account securities of the portfolio having a value equal to or greater than such
commitments. On delivery dates for such transactions, the portfolio will meet
its obligations from maturities or sales of the securities held in the separate
account and/or from then available cash flow. If the portfolio chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other obligation, incur a gain or loss
due to market fluctuation. No when-issued commitments will be made if, as a
result, more than 15% of the portfolio's net assets would be so committed.
The Board of Directors of the Series Fund has adopted policies for the Money
Market Portfolio to conform to amendments of an SEC rule applicable to money
market funds, like the portfolio. These policies do not apply to any other
portfolio. The policies are as follows: (1) The portfolio will not invest more
than 5% of its assets in the securities of any one issuer (except U.S.
Government securities); however, the portfolio may exceed the 5% limit with
respect to a single security rated in the highest rating category for up to
three business days after the purchase thereof; (2) To be eligible for
investment, a security must be a United States dollar-denominated instrument
that the Series Fund's Board has determined to present minimal credit risks and
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSROs") assigning a
rating to the security or issue, or if only one NRSRO has assigned a rating,
that NRSRO. An unrated security must be deemed to be of comparable quality as
determined by the Series Fund's Board. In other words, the portfolio will invest
in only first tier or second tier securities. First tier securities are
securities which are rated by at least two NRSROs, or by the only NRSRO that has
rated the security, in the highest short-term rating category, or unrated
securities of comparable quality as determined by the Series Fund's Board.
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Second tier securities are eligible securities that are not first tier
securities; (3) The portfolio will not invest more than 5% of its total assets
in second tier securities; (4) The portfolio may not invest more than 1% of its
assets in second tier securities of any one issuer; (5) In the event a first
tier security held by the portfolio is downgraded and becomes a second tier
security, or in the case of an unrated security the Series Fund's Board
determines it is no longer of comparable quality to a first tier security, or in
the event Prudential becomes aware that an NRSRO has rated a second tier
security or an unrated portfolio security below its second highest rating, the
Board will reassess promptly whether the security presents minimal credit risks
and shall cause the portfolio to take such action as the Board determines is in
the best interests of the portfolio and its shareholders; (6) In the event of a
default or if because of a rating downgrade a security held in the portfolio is
no longer an eligible investment, the portfolio will sell the security as soon
as practicable unless the Series Fund's Board makes a specific finding that such
action would not be in the best interest of the portfolio; and (7) The
portfolio's dollar-weighted average maturity will be no more than 90 days. The
Series Fund's Board of Directors has adopted written procedures delegating to
the investment advisor under certain guidelines the responsibility to make
several of the above-described determinations, including certain credit quality
determinations.
DEBT RATINGS
Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:
Bonds:
Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
A -- Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds which are rated "Baa" are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Commercial paper:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
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- --Leading market positions in well-established industries.
- --High rates of return of funds employed.
- --Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- --Well established access to a range of financial markets and assured sources of
alternate liquidity.
o Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Rating Group describes its grades of corporate debt securities
and its "A" commercial paper as follows:
Bonds:
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
BBB Debt rated "BBB" is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB-B-CCC-CC-C
Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse conditions.
Commercial paper:
Commercial paper rated A by Standard & Poor's Rating Group has the
following characteristics: Liquidity ratios are better than the
industry average. Long term senior debt rating is "A" or better. In
some cases BBB credits may be acceptable. The issuer has access to
at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowances made for unusual
circumstances. Typically, the issuer's industry is well established,
the issuer has a strong position within its industry and the
reliability and quality of management is unquestioned. Issuers rated
A are further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this classification.
POSSIBLE REPLACEMENT OF THE SERIES FUND
Although Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Prudential may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
In addition, although it is highly unlikely, 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,
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<PAGE>
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) difference between voting instructions given by variable life
insurance and variable annuity contract owners. Prudential will bear the
expense, if it does become necessary, of remedying any material conflict
including establishing a new underlying investment company and segregating the
assets held under variable life insurance and variable annuity contracts.
OTHER INFORMATION CONCERNING THE SERIES FUND
INCORPORATION AND AUTHORIZED STOCK
The Series Fund was incorporated under Maryland law on November 15, 1982. The
authorized Capital Stock of the Series Fund consists of 2 billion shares, par
value $0.01 per share. As of the date of this prospectus, the shares of Capital
Stock are divided into fifteen classes: MONEY MARKET PORTFOLIO Capital Stock
(225 million shares), DIVERSIFIED BOND PORTFOLIO Capital Stock (200 million
shares), HIGH YIELD BOND PORTFOLIO Capital Stock (100 million shares),
GOVERNMENT INCOME PORTFOLIO Capital Stock (100 million shares), EQUITY PORTFOLIO
Capital Stock (200 million shares), STOCK INDEX PORTFOLIO Capital Stock (100
million shares), EQUITY INCOME PORTFOLIO Capital Stock (100 million shares),
NATURAL RESOURCES PORTFOLIO Capital Stock (100 million shares), GLOBAL PORTFOLIO
Capital Stock (100 million shares), CONSERVATIVE BALANCED PORTFOLIO Capital
Stock (300 million shares), FLEXIBLE MANAGED PORTFOLIO Capital Stock (300
million shares), ZERO COUPON BOND PORTFOLIO 2000 Capital Stock (25 million
shares), ZERO COUPON BOND PORTFOLIO 2005 Capital Stock (50 million shares),
PRUDENTIAL JENNISON PORTFOLIO Capital Stock (50 million shares), SMALL
CAPITALIZATION STOCK PORTFOLIO Capital Stock (50 million shares). The shares of
each portfolio, when issued, will be fully paid and non-assessable, will have no
conversion, exchange or similar rights, and will be freely transferable. Each
share of stock will have a pro rata interest in the assets of the portfolio to
which the stock of that class relates and will have no interest in the assets of
any other portfolio.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Series Fund is qualified as a regulated investment company under Section 851
of the Internal Revenue Code and distributes substantially all of each
portfolio's net investment income and realized gains from securities
transactions to the respective subaccounts, which immediately reinvest it. For
each taxable year in which it and each of its portfolios so qualify, the Series
Fund will not be subject to tax on net investment income and realized gains from
securities transactions distributed to shareholders.
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, Chase Metro Tech Center, Brooklyn, NY 11245, is currently
the custodian of the assets held by all the portfolios, except the Global
Portfolio. On or about May 31, 1997, Investors Fiduciary Trust Company ("IFTC"),
127 West 10th Street, Kansas City, MO 64105-1716, will become the custodian of
the assets held by all the portfolios except the Global Portfolio. IFTC will
also be the custodian of the assets held in connection with repurchase
agreements entered into by the portfolios, and is authorized to use the
facilities of the Depository Trust Company and the facilities of the book-entry
system of the Federal Reserve Bank with respect to securities held by these
portfolios. Brown Brothers Harriman & Co. ("Brown Brothers"), 40 Water Street,
Boston, MA 02109, is the custodian of the assets of the Global Portfolio. Each
of the Series Fund's custodians employs subcustodians, who were approved by the
directors of the Series Fund in accordance with regulations of the Securities
and Exchange Commission, for the purpose of providing custodial service for the
Series Fund's foreign assets held outside the United States. The directors of
the Series Fund monitor the activities of the custodians and the subcustodians.
Prudential is the transfer agent and dividend disbursing agent for the Series
Fund. Prudential as transfer agent issues and redeems shares of the Series Fund
and maintains records of ownership for the shareholders. Prudential's principal
business address is Prudential Plaza, Newark, New Jersey 07102-3777.
EXPERTS
The financial statements of the Series Fund included in this statement of
additional information and the FINANCIAL HIGHLIGHTS included in the prospectus
for the year ended December 31, 1996 have been audited by Price Waterhouse LLP,
independent accountants, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing. Price Waterhouse LLP's principal business
address is 1177 Avenue of the Americas, New York, New York 10036.
The financial statements of the Series Fund included in this statement of
additional information and the FINANCIAL HIGHLIGHTS included in the prospectus
for the years prior to 1996 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such
26
<PAGE>
firm given upon their authority as experts in accounting and auditing. Deloitte
& Touche LLP's principal business address is Two Hilton Court, Parsippany, NJ
07054-0319.
LICENSE
As part of the Investment Advisory Agreement, Prudential has granted the Series
Fund a royalty-free, non-exclusive license to use the words "The Prudential" and
"Prudential" and its registered service mark of a rock representing the Rock of
Gibraltar. However, Prudential may terminate this license if Prudential or a
company controlled by it ceases to be the Series Fund's investment advisor.
Prudential may also terminate the license for any other reason upon 60 days
written notice; but, in this event, the Investment Advisory Agreement shall also
terminate 120 days following receipt by the Series Fund of such notice, unless a
majority of the outstanding voting securities of the Series Fund vote to
continue the Agreement notwithstanding termination of the license.
27
<PAGE>
DIRECTORS AND OFFICERS OF PRUCO LIFE OF NEW JERSEY
AND MANAGEMENT OF THE SERIES FUND
DIRECTORS AND OFFICERS OF PRUCO LIFE OF NEW JERSEY
The directors and major officers of Pruco Life of New Jersey, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE OF NEW JERSEY
WILLIAM M. BETHKE, Director. -- President, Prudential Capital Markets Group
since 1992.
IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; 1993 to 1995:
President, Prudential Select; Prior to 1993: Senior Vice President of
Prudential.
MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; 1993 to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services; Prior to 1993: Managing Director, Prudential Investment Corporation.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; 1993 to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services; Prior
to 1993: Vice President and Associate Actuary of Prudential.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief
Executive Officer, Prudential International Insurance; 1993 to 1994: President,
Prudential International Insurance; Prior to 1993: Senior Vice President and
Company Actuary of Prudential.
WILLIAM F. YELVERTON, Chairman and Director. --Chief Executive Officer,
Prudential Individual Insurance Group since 1995; Prior to 1995: Chief Executive
Officer, New York Life Worldwide.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking and
Cash Management for Prudential.
LINDA S. DOUGHERTY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President and Comptroller, Prudential Individual Insurance Group since
1997; Prior to 1997: Vice President, Accounting, Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; 1993 to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank; Prior to
1993: Operations Executive, Global Securities Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; 1994 to 1995: Associate General Counsel
with Paine Webber; Prior to 1994: Assistant Director in the Division of
Investment Management with the Securities and Exchange Commission.
FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
MARIO A. MOSSE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1996; Prior to 1996: Vice President, Chase
Manhattan Bank.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
KAREN L. SHAPIRO, Senior Vice President. -- Vice President, Prudential
Individual Insurance Group since 1996; Vice President and Associate General
Counsel, Prudential Securities Incorporated 1993 to 1996; Prior to 1993: Senior
Associate with Shaw, Pittman, Potts and Trowbridge.
The business address of all directors and officers of Pruco Life of New Jersey
is 213 Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF PRUDENTIAL
28
<PAGE>
MANAGEMENT OF THE SERIES FUND
The names of all directors and major officers of the Series Fund and the
principal occupation of each during the last 5 years are shown below. Unless
otherwise stated, the address of each director and officer is Prudential Plaza,
Newark, New Jersey 07102-3777.
DIRECTORS OF THE SERIES FUND
MENDEL A. MELZER*, Chairman of the Board--Chief Investment Officer of Prudential
Investments since 1996; 1995 to 1996: Chief Financial Officer of the Money
Management Group of Prudential; 1993 to 1995: Senior Vice President and Chief
Financial Officer of Prudential Preferred Financial Services; Prior to 1993:
Managing Director, The Prudential Investment Corporation.
E. MICHAEL CAULFIELD*, President and Director--Chief Executive Officer of
Prudential Investments since 1995; 1995: Chief Executive Officer, Prudential
Preferred Financial Services; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company; Prior to 1992: President of Investment Services of
Prudential.
SAUL K. FENSTER, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.
W. SCOTT MCDONALD, JR., Director--Principal, Kaludis Consulting Group since
1997; 1995 to 1996: Principal, Scott McDonald & Associates; Prior to 1995:
Executive Vice President of Fairleigh Dickinson University. Address:9 Zamrok
Way, Morristown, New Jersey 07960.
JOSEPH WEBER, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN COTE, Vice President--Vice President Prudential Investments since 1996;
1995 to 1996: Chief Operating Officer and Managing Director, Prudential Mutual
Fund Investment Management; Prior to 1995: Senior Vice President and Treasurer
of Prudential Mutual Funds.
THOMAS EARLY, Secretary--General Counsel, Mutual Funds and Annuities, Prudential
Investments since 1996; 1994 to 1996: General Counsel, Prudential Retirement
Services, Prudential Investments; Prior to 1994: Associate General Counsel and
Chief Financial Services Counsel, Frank Russell Company.
I. EDWARD PRICE, Vice President--Senior Vice President and Actuary, Prudential
Individual Insurance Group since 1995; 1994 to 1995: Chief Executive Officer,
Prudential International Insurance; 1993 to 1994: President, Prudential
International Insurance; Prior to 1993: Senior Vice President and Company
Actuary of Prudential.
EUGENE STARK, Comptroller, Principal Financial Officer and Treasurer--Vice
President, Prudential Investments.
No director or officer of the Series Fund who is also an officer, director or
employee of Prudential or its affiliates is entitled to any remuneration from
the Series Fund for services as one of its directors or officers. Each director
of the Series Fund who is not an interested person of the Series Fund will
receive a fee of $2,000 per year plus $200 per portfolio for each meeting of the
Board attended and will be reimbursed for all expenses incurred in connection
with attendance at meetings.
*These members of the Board are interested persons of Prudential, its affiliates
or the Series Fund as defined in the 1940 Act. Certain actions of the Board,
including the annual continuance of the Investment Advisory Agreement between
the Series Fund and Prudential, must be approved by a majority of the members of
the Board who are not interested persons of Prudential, its affiliates or the
Series Fund. Mr. Melzer and Mr. Caulfield, two of the five members of the Board,
are interested persons of Prudential and the Series Fund, as that term is
defined in the 1940 Act, because they are officers and/or affiliated persons of
Prudential, the investment advisor to the Series Fund. Messrs. Fenster,
McDonald, and Weber are not interested persons of Prudential, its affiliates or
the Series Fund. However, Mr. Fenster is President of the New Jersey Institute
of Technology. Prudential has issued a group annuity contract to the Institute
and provides group life and group health insurance to its employees.
29
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$4,188,354,768).......................... $4,538,468,628
Receivable for investments sold short (Note
2)....................................... 111,621,197
Interest and dividends receivable.......... 44,683,414
Receivable for investments sold............ 1,376,096
--------------
Total Assets............................. 4,696,149,335
--------------
LIABILITIES
Investments sold short at value (proceeds
$111,621,197 including accrued interest)
(Note 2)................................. 110,481,637
Payable for investments purchased.......... 99,447,868
Payable to investment adviser.............. 6,126,182
Accrued expenses........................... 768,878
Bank overdraft............................. 453,239
Payable for capital stock repurchased...... 62,998
--------------
Total Liabilities........................ 217,340,802
--------------
NET ASSETS................................... $4,478,808,533
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,886,377
Paid-in capital in excess of par......... 4,094,460,572
--------------
4,097,346,949
Accumulated net realized gains on
investments.............................. 30,208,164
Net unrealized appreciation on
investments.............................. 351,253,420
--------------
Net assets, December 31, 1996.............. $4,478,808,533
--------------
--------------
Net asset value and redemption price per
share of 288,637,703 outstanding shares
of common stock (authorized 300,000,000
shares).................................. $ 15.52
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 174,514,843
Dividends (net of $488,736 foreign
withholding tax)......................... 23,515,755
---------------
198,030,598
---------------
EXPENSES
Investment advisory fee.................... 23,052,572
Shareholders' reports...................... 1,367,000
Custodian expense.......................... 228,000
Accounting fees............................ 127,000
Audit fees................................. 70,400
Legal fees................................. 2,900
Directors' fees............................ 2,000
Miscellaneous expenses..................... 736
---------------
Total expenses........................... 24,850,608
Less: custodian fee credit................. (103,584)
---------------
Net expenses............................. 24,747,024
---------------
NET INVESTMENT INCOME........................ 173,283,574
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 270,207,375
Short sales.............................. (100,129)
---------------
270,107,246
---------------
Net change in unrealized appreciation on:
Investments.............................. 60,263,761
Short sales.............................. 1,139,560
---------------
61,403,321
---------------
NET GAIN ON INVESTMENTS...................... 331,510,567
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 504,794,141
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 173,283,574 $ 155,293,990
Net realized gain on investments and short sales....................................... 270,107,246 167,342,297
Net change in unrealized appreciation on investments and short sales................... 61,403,321 264,773,974
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 504,794,141 587,410,261
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (174,034,704) (154,987,434)
Dividends in excess of net investment income........................................... (41,632) --
Distributions from net realized capital gains.......................................... (273,551,593) (133,660,168)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (447,627,929) (288,647,602)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [10,561,256 and 5,345,143 shares, respectively]..................... 167,668,924 81,026,772
Capital stock issued in reinvestment of dividends and distributions [29,086,855 and
19,023,739 shares, respectively]...................................................... 447,627,929 288,647,602
Capital stock repurchased [(8,429,995) and (15,343,313) shares, respectively].......... (134,428,797) (228,767,054)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 480,868,056 140,907,320
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 538,034,268 439,669,979
NET ASSETS:
Beginning of year...................................................................... 3,940,774,265 3,501,104,286
------------------ -------------------
End of year............................................................................ $ 4,478,808,533 $ 3,940,774,265
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B12 THROUGH B16.
A1
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$4,400,135,497).......................... $4,981,429,094
Cash....................................... 52,238
Receivable for securities sold short (Note
2)....................................... 113,630,151
Interest and dividends receivable.......... 33,277,907
Receivable for investments sold............ 31,241,005
--------------
Total Assets............................. 5,159,630,395
--------------
LIABILITIES
Payable for investments purchased.......... 141,168,642
Investments sold short, at value (proceeds
$113,630,151 including accrued interest)
(Note 2)................................. 112,461,581
Payable to investment adviser.............. 7,374,729
Accrued expenses........................... 1,390,075
Payable for capital stock repurchased...... 312,681
--------------
Total Liabilities........................ 262,707,708
--------------
NET ASSETS................................... $4,896,922,687
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,751,892
Paid-in capital in excess of par......... 4,273,689,804
--------------
4,276,441,696
Distributions in excess of net investment
income................................... (576,929)
Accumulated net realized gains on
investments.............................. 38,595,752
Net unrealized appreciation on
investments.............................. 582,462,168
--------------
Net assets, December 31, 1996.............. $4,896,922,687
--------------
--------------
Net asset value and redemption price per
share, 275,189,159 shares of common stock
outstanding (300,000,000 shares
authorized).............................. $ 17.79
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 127,494,108
Dividends (net of $553,612 foreign
withholding tax)......................... 40,857,296
---------------
168,351,404
---------------
EXPENSES
Investment advisory fee.................... 27,247,674
Shareholders' reports...................... 1,423,000
Custodian expense.......................... 397,050
Accounting fees............................ 122,000
Audit fees................................. 75,600
Legal fees................................. 3,100
Directors' fees............................ 2,000
Miscellaneous expenses..................... 165
---------------
Total expenses........................... 29,270,589
Less: custodian fee credit................. (131,050)
---------------
Net expenses............................. 29,139,539
---------------
NET INVESTMENT INCOME........................ 139,211,865
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments.............................. 408,037,782
Foreign currencies....................... (69,542)
Short sales.............................. 77,891
---------------
408,046,131
---------------
Net change in unrealized appreciation on:
Investments.............................. 40,562,155
Foreign currencies....................... (1,902)
Short sales.............................. 1,168,570
---------------
41,728,823
---------------
NET GAIN ON INVESTMENTS...................... 449,774,954
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 588,986,819
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 139,211,865 $ 126,640,661
Net realized gain on investments, foreign currencies and short sales................... 408,046,131 292,267,835
Net change in unrealized appreciation on investments, foreign currencies and short
sales................................................................................. 41,728,823 410,041,102
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 588,986,819 828,949,598
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (142,089,785) (124,621,227)
Distributions from net realized capital gains.......................................... (458,909,559) (176,844,671)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (600,999,344) (301,465,898)
-------------- --------------
CAPITAL TRANSACTIONS:
Capital stock sold [8,998,637 and 8,486,525 shares, respectively]...................... 166,455,957 146,641,074
Capital stock issued in reinvestment of dividends and distributions [34,012,173 and
17,050,711 shares, respectively]...................................................... 600,999,344 301,465,898
Capital stock repurchased [(6,420,074) and (11,612,102) shares, respectively].......... (119,724,926) (195,926,134)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 647,730,375 252,180,838
-------------- --------------
TOTAL INCREASE IN NET ASSETS............................................................. 635,717,850 779,664,538
NET ASSETS:
Beginning of year...................................................................... 4,261,204,837 3,481,540,299
-------------- --------------
End of year............................................................................ $4,896,922,687 $4,261,204,837
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B12 THROUGH B16.
A2
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
CONSERVATIVE BALANCED PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 91.2%
VALUE
COMMON STOCKS -- 36.7% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE/DEFENSE -- 0.6%
GenCorp, Inc.................................... 629,100 $ 11,402,438
Litton Industries, Inc. (a)..................... 241,400 11,496,675
UNC, Inc. (a)................................... 278,800 3,345,600
--------------
26,244,713
--------------
AIRLINES -- 1.2%
AMR Corp. (a)................................... 378,700 33,372,937
USAir Group, Inc. (a)........................... 776,100 18,141,337
--------------
51,514,274
--------------
AUTOS - CARS & TRUCKS -- 0.5%
A.O. Smith Corp................................. 450,000 13,443,750
Ford Motor Co................................... 295,900 9,431,812
--------------
22,875,562
--------------
AUTOMOBILES & TRUCKS -- 1.8%
Chrysler Corp................................... 929,500 30,673,500
General Motors Corp............................. 464,700 25,907,025
Goodyear Tire & Rubber Co....................... 250,800 12,884,850
Mascotech, Inc.................................. 604,200 9,893,775
--------------
79,359,150
--------------
CHEMICALS -- 0.1%
Millenium Chemicals, Inc. (a)................... 188,227 3,341,029
--------------
CHEMICALS - SPECIALTY -- 1.0%
Ferro Corp...................................... 609,100 17,283,212
M.A. Hanna Co................................... 689,950 15,092,656
OM Group, Inc................................... 435,400 11,755,800
--------------
44,131,668
--------------
COMMERCIAL SERVICES -- 0.3%
BW/IP, Inc. (Class 'A' Stock)................... 365,600 6,032,400
IMO Industries, Inc. (a)........................ 575,600 1,798,750
Parker-Hannifin Corp............................ 197,450 7,651,187
--------------
15,482,337
--------------
COMPUTER HARDWARE -- 1.4%
Amdahl Corp. (a)................................ 836,600 10,143,775
Digital Equipment Corp. (a)..................... 293,500 10,676,063
International Business Machines Corp............ 278,900 42,113,900
--------------
62,933,738
--------------
CONSTRUCTION -- 0.2%
McDermott International, Inc.................... 481,900 10,601,800
--------------
CONSUMER SERVICES -- 0.4%
ADT Ltd. (a).................................... 576,300 13,182,863
SPS Transaction Services, Inc. (a).............. 185,900 2,834,975
--------------
16,017,838
--------------
CONTAINERS & PACKAGING -- 0.2%
Sealed Air Corp. (a)............................ 183,600 7,642,350
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.0%
RJR Nabisco Holdings Corp....................... 791,400 26,907,600
Whitman Corp.................................... 849,000 19,420,875
--------------
46,328,475
--------------
DRUGS AND MEDICAL SUPPLIES -- 0.3%
United States Surgical Corp..................... 339,700 13,375,688
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ELECTRICAL EQUIPMENT -- 1.0%
Belden, Inc..................................... 457,600 $ 16,931,200
Westinghouse Electric Corp...................... 1,487,300 29,560,087
--------------
46,491,287
--------------
ELECTRONICS -- 1.3%
National Semiconductor Corp. (a)................ 964,000 23,497,500
Texas Instruments, Inc.......................... 557,700 35,553,375
--------------
59,050,875
--------------
ENGINEERING & CONSTRUCTION -- 0.2%
Giant Cement Holdings, Inc. (a)................. 400,400 6,456,450
--------------
FINANCIAL SERVICES -- 2.9%
Alex Brown, Inc................................. 278,100 20,162,250
Lehman Brothers Holdings, Inc................... 1,597,400 50,118,425
Merrill Lynch & Co., Inc........................ 185,900 15,150,850
Morgan Stanley Group, Inc....................... 209,200 11,950,550
Salomon, Inc.................................... 650,700 30,664,237
--------------
128,046,312
--------------
FOREST PRODUCTS -- 1.7%
Champion International Corp..................... 650,700 28,142,775
Louisiana-Pacific Corp.......................... 650,700 13,746,037
Mead Corp....................................... 326,100 18,954,562
Willamette Industries, Inc...................... 238,100 16,577,712
--------------
77,421,086
--------------
GAS PIPELINES -- 0.3%
Western Gas Resources, Inc...................... 659,000 12,685,750
--------------
HOUSEHOLD PRODUCTS -- 0.3%
Jan Bell Marketing, Inc. (a).................... 964,200 1,988,663
Leggett & Platt, Inc............................ 366,600 12,693,525
--------------
14,682,188
--------------
HOUSING RELATED -- 1.1%
Hanson, PLC, ADR, (United Kingdom).............. 2,540,300 17,147,025
Owens Corning................................... 620,800 26,461,600
--------------
43,608,625
--------------
INSURANCE -- 3.0%
Allstate Corp................................... 124,999 7,234,317
Equitable of Iowa Companies..................... 346,500 15,895,687
Financial Security Assurance Holdings, Ltd...... 218,100 7,170,037
PennCorp Financial Group, Inc................... 513,500 18,486,000
Provident Companies, Inc........................ 170,900 8,267,287
Reinsurance Group of America, Inc............... 487,800 22,987,575
TIG Holdings, Inc............................... 546,900 18,526,237
Trenwick Group, Inc............................. 273,300 12,640,125
W.R. Berkley Corp............................... 180,100 9,140,075
Western National Corp........................... 836,600 16,104,550
--------------
136,451,890
--------------
INTEGRATED PRODUCERS -- 0.2%
Murphy Oil Corp................................. 177,400 9,867,875
--------------
</TABLE>
B1
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MACHINERY -- 1.4%
Case Corp....................................... 597,500 $ 32,563,750
DT Industries, Inc.............................. 226,100 7,913,500
Paxar Corp...................................... 1,232,660 21,263,385
--------------
61,740,635
--------------
MEDIA -- 1.6%
Central Newspapers, Inc. (Class 'A' Stock)...... 319,800 14,071,200
Gannett Co., Inc................................ 185,900 13,919,262
Hollinger International, Inc.................... 155,600 1,789,400
Houghton Mifflin Co............................. 185,900 10,526,587
Knight-Ridder, Inc.............................. 371,800 14,221,350
Lee Enterprises, Inc............................ 325,300 7,563,225
McGraw-Hill, Inc................................ 185,500 8,556,187
Media General, Inc. (Class 'A' Stock)........... 59,000 1,784,750
--------------
72,431,961
--------------
METALS-NON FERROUS -- 1.1%
Aluminum Company of America..................... 750,500 47,844,375
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 2.0%
Danaher Corp.................................... 435,800 20,319,175
Donaldson, Inc.................................. 372,200 12,468,700
IDEX Corp....................................... 275,300 10,977,587
Mark IV Industries, Inc......................... 558,793 12,642,692
Trinity Industries, Inc......................... 358,300 13,436,250
Wolverine Tube, Inc. (a)........................ 259,800 9,157,950
York International Corp......................... 185,000 10,336,875
--------------
89,339,229
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.8%
Coltec Industries, Inc. (a)..................... 299,900 5,660,613
Global Industrial Technologies, Inc. (a)........ 390,700 8,644,238
Material Sciences Corp. (a)..................... 649,600 11,692,800
Titan Wheel International, Inc.................. 695,550 8,868,263
--------------
34,865,914
--------------
OIL - EXPLORATION & PRODUCTION -- 1.9%
Basin Exploration, Inc. (a)..................... 142,700 891,875
Cabot Oil & Gas Corp. (Class 'A' Stock)......... 552,500 9,461,563
Enron Oil & Gas Co.............................. 309,300 7,809,825
Mesa, Inc. (a).................................. 2,711,400 14,234,850
Noble Affiliates, Inc........................... 325,300 15,573,738
Oryx Energy Co. (a)............................. 789,500 19,540,125
Parker & Parsley Petroleum Co................... 248,600 9,136,050
Seagull Energy Corp. (a)........................ 373,400 8,214,800
--------------
84,862,826
--------------
OIL & GAS -- 1.2%
Societe Nationale Elf Aquitaine, ADR,
(France)...................................... 1,199,200 54,263,800
--------------
OIL SERVICES -- 0.6%
Coflexip, ADR, (France)......................... 650,700 17,080,875
Weatherford Enterra, Inc. (a)................... 298,653 8,959,590
--------------
26,040,465
--------------
PETROLEUM SERVICES -- 0.1%
ICO, Inc........................................ 492,100 3,014,112
--------------
RAILROADS -- 0.2%
Burlington Northern, Inc........................ 117,900 10,183,612
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 0.4%
Crescent Real Estate Equities, Inc.............. 339,400 $ 17,903,350
--------------
RETAIL -- 1.6%
Bombay Company, Inc. (a)........................ 890,300 4,117,638
Charming Shoppes, Inc. (a)...................... 2,788,600 14,117,288
Dillard Department Stores, Inc. (a)............. 202,900 6,264,538
K mart Corp. (a)................................ 1,913,600 19,853,600
Toys 'R' Us, Inc. (a)........................... 557,700 16,731,000
Woolworth Corp. (a)............................. 557,700 12,199,688
--------------
73,283,752
--------------
STEEL -- 0.9%
Bethlehem Steel Corp. (a)....................... 929,500 8,365,500
LTV Corp........................................ 1,408,200 16,722,375
National Steel Corp. (Class 'B' Stock) (a)...... 289,300 2,676,025
USX-U.S. Steel Group............................ 418,300 13,124,163
--------------
40,888,063
--------------
TELECOMMUNICATIONS -- 0.1%
Deutsche Telekom, ADR, (Germany) (a)............ 309,500 6,306,063
--------------
TEXTILES -- 1.3%
Farah, Inc. (a)................................. 249,300 1,932,075
Fieldcrest Cannon, Inc. (a)..................... 427,500 6,840,000
Fruit of the Loom, Inc. (Class 'A' Stock) (a)... 464,700 17,600,513
Owens-Illinois, Inc. (a)........................ 513,700 11,686,675
Phillips-Van Heusen Corp........................ 578,500 8,315,938
Tultex Corp. (a)................................ 558,300 3,908,100
V.F. Corp....................................... 143,700 9,699,750
--------------
59,983,051
--------------
TOBACCO -- 0.4%
Philip Morris Companies, Inc.................... 87,300 9,832,163
UST, Inc........................................ 250,400 8,106,700
--------------
17,938,863
--------------
TRUCKING/SHIPPING -- 0.1%
Yellow Corp..................................... 482,100 6,930,188
--------------
TOTAL COMMON STOCKS
(cost $1,310,419,852).......................................... 1,642,431,219
--------------
PREFERRED STOCKS -- 1.0%
FINANCIAL SERVICES -- 0.8%
Central Hispano Corp............................ 225,900 5,986,350
Central Hispano Financial Services.............. 1,000,000 25,200,000
--------------
31,186,350
--------------
GAS PIPELINES -- 0.1%
TransCanada Pipelines, Ltd...................... 140,000 3,640,000
--------------
MEDIA -- 0.0%
Times Mirror Co. (Cum. Conv.), Series B......... 1 28
--------------
PETROLEUM -- 0.1%
Mesa, Inc. (Conv. Pfd.)......................... 914,929 5,832,671
--------------
TOTAL PREFERRED STOCKS
(cost $36,848,291)............................................. 40,659,049
--------------
</TABLE>
B2
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS -- 53.5% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
DOMESTIC CORPORATE BONDS -- 36.6%
AEROSPACE -- 0.2%
Northrop Grumman Corp.,
7.875%, 03/01/26.............................. Baa3 $ 7,500 $ 7,517,475
--------------
AGRICULTURAL EQUIPMENT -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba3 6,500 6,576,700
--------------
AIRLINES -- 2.9%
Delta Air Lines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 24,145,800
10.375%, 02/01/11............................. Ba1 28,405 34,799,534
United Air Lines, Inc.,
9.75%, 08/15/21............................... Baa2 10,125 12,000,555
10.67%, 05/01/04.............................. Baa3 29,665 35,084,499
11.21%, 05/01/14.............................. Baa3 18,433 24,168,797
--------------
130,199,185
--------------
ASSET-BACKED SECURITIES -- 0.2%
Banc One Credit Card Master Trust,
7.75%, 12/15/99............................... A2 5,100 5,178,081
Standard Credit Card Master Trust,
5.95%, 10/07/04............................... Aaa 4,650 4,469,813
--------------
9,647,894
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.9%
Continental Cablevision, Inc.,
8.30%, 05/15/06............................... Ba2 11,200 11,931,024
8.625%, 08/15/03.............................. Ba2 27,050 29,271,076
Tele-Communications, Inc.,
7.875%, 08/01/13.............................. Baa3 2,500 2,301,450
9.25%, 04/15/02............................... Baa3 21,425 22,694,860
9.80%, 02/01/12............................... B2 7,000 7,575,400
9.875%, 06/15/22.............................. Baa3 7,900 8,507,668
10.125%, 04/15/22............................. Baa3 2,000 2,196,040
--------------
84,477,518
--------------
COMPUTERS -- 0.2%
Digital Equipment Corp.,
7.125%, 10/15/02.............................. Ba1 10,000 9,542,500
--------------
FINANCIAL SERVICES -- 19.1%
Associates Corp. of North America,
6.625%, 05/15/01.............................. Aa3 34,500 34,485,510
6.68%, 09/17/99............................... Aa3 34,050 34,299,927
8.375%, 01/15/98.............................. A1 1,100 1,125,454
Bank of New York,
7.97%, 12/31/26............................... A1 26,000 26,258,440
Barnett Banks,
8.06%, 12/01/26............................... A2 3,500 3,540,775
Bayerische Landes,
6.20%, 09/30/99............................... Aaa 30,000 29,970,000
Capital One Bank,
6.66%, 08/17/98............................... Baa3 10,050 10,085,677
6.73%, 06/04/98............................... Baa2 16,000 16,094,400
6.90%, 04/15/99............................... Baa3 11,000 11,073,590
7.20%, 07/19/99............................... Baa3 11,250 11,376,112
CIT Group Holdings, M.T.N.,
5.85%, 03/16/98............................... Aa3 25,000 25,009,750
5.875%, 11/09/98.............................. Aa3 33,900 33,795,588
Conseco, Inc.,
8.70%, 11/15/26............................... NR 18,200 18,356,884
CoreStates Financial Corp.,
8.00%, 12/15/26............................... A1 24,250 24,251,455
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 $ 11,500 $ 11,195,250
7.00%, 06/15/00............................... Baa3 30,000 30,363,000
7.50%, 06/15/03............................... Baa3 5,000 5,139,300
7.875%, 03/15/98.............................. Baa3 9,925 10,145,831
8.75%, 12/15/99............................... Baa3 5,000 5,295,500
First Tennessee National Corp., B.A.,
8.07%, 01/06/27............................... NR 11,150 11,087,560
First Union Corp.,
7.85%, 01/01/27............................... A1 43,500 43,103,062
9.45%, 06/15/99............................... Baa2 4,000 4,274,280
First USA Bank,
8.20%, 02/15/98............................... Baa3 14,575 14,878,306
Ford Motor Credit,
7.00%, 09/25/01............................... A1 37,000 37,551,670
General Motors Acceptance Corp., M.T.N.,
5.395%, 02/02/99.............................. P1 2,000 1,999,825
7.375%, 07/20/98.............................. Baa1 4,650 4,742,209
Lehman Brothers Holdings, Inc.,
6.71%, 10/12/99............................... Baa1 6,000 6,008,100
6.84%, 09/25/98............................... Baa1 30,000 30,227,100
6.89%, 10/10/00............................... Baa1 10,545 10,581,380
Liberty Mutual Insurance Co.,
7.875%, 10/15/26.............................. A2 2,500 2,526,985
8.20%, 05/04/07............................... A2 51,005 54,164,250
Lumbermens Mutual Casualty Co.,
9.15%, 07/01/26............................... Baa1 28,750 31,265,625
Mellon Bank Corp.,
7.72%, 12/01/26............................... A2 15,635 15,151,097
7.995%, 01/15/27.............................. A2 38,500 38,018,750
Republic Bank of New York Corp.,
7.53%, 12/04/26............................... NR 21,000 20,582,583
Salomon, Inc., M.T.N.,
5.98%, 02/02/98............................... Baa1 35,000 34,982,850
7.00%, 05/15/99............................... Baa1 42,000 42,331,800
7.25%, 05/01/01............................... Baa1 8,625 8,706,592
State Street Capital Corp.,
7.94%, 12/30/26............................... NR 10,000 9,960,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 8,955,000
Travelers Capital, Inc.,
7.75%, 12/01/36............................... A1 20,000 19,350,000
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 20,750 20,542,500
USAA Capital Corp.,
6.34%, 09/18/98............................... Aa1 10,000 10,040,000
Wells Fargo & Co.,
7.96%, 12/15/26............................... A1 32,500 31,974,429
--------------
854,868,396
--------------
FOOD & BEVERAGE -- 0.1%
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 4,000 4,018,000
--------------
HEALTH CARE -- 0.0%
Tenet Healthcare Corp.,
8.625%, 12/01/03.............................. Ba2 2,000 2,110,000
--------------
HOSPITAL MANAGEMENT -- 0.0%
Service Corp. International,
7.00%, 06/01/15............................... A3 2,500 2,530,950
--------------
</TABLE>
B3
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
MEDIA -- 5.8%
News America Holdings, Inc.,
7.375%, 10/17/08.............................. Baa3 $ 28,000 $ 27,784,960
7.75%, 12/01/45............................... Baa3 61,000 56,802,590
9.25%, 02/01/13............................... Baa3 24,050 26,942,975
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 6,425 6,419,667
Time Warner, Inc.,
7.75%, 06/15/05............................... Ba1 15,000 15,088,950
8.11%, 08/15/06............................... Ba1 13,250 13,583,503
8.18%, 08/15/07............................... Ba1 24,500 25,138,715
Time Warner, Inc., (Con't)
8.375%, 07/15/33.............................. Baa3 37,450 37,584,446
9.125%, 01/15/13.............................. Ba1 14,270 15,578,559
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba1 5,325 5,435,813
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 8,545 8,178,931
7.75%, 06/01/05............................... Ba2 22,275 21,933,524
--------------
260,472,633
--------------
OIL & GAS -- 0.1%
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Ba2 3,000 3,225,450
--------------
OIL & GAS EQUIPMENT & SERVICES -- 0.2%
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 3,887,640
Noble Drilling Corp.,
9.125%, 07/01/06.............................. Ba2 3,500 3,762,500
--------------
7,650,140
--------------
RETAIL -- 3.1%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 18,075 18,526,875
8.50%, 06/15/03............................... Ba1 36,750 38,220,000
10.00%, 02/15/01.............................. Ba1 4,500 4,905,000
Rite Aid Corp.,
6.70%, 12/15/01............................... A3 5,000 4,982,500
Sears Roebuck Acceptance Corp., M.T.N.,
6.38%, 02/16/99............................... A2 70,000 70,177,100
--------------
136,811,475
--------------
TECHNOLOGY -- 1.8%
Comdisco, Inc., M.T.N.,
5.54%, 01/26/98............................... Baa1 12,500 12,456,750
6.09%, 11/09/98............................... Baa1 34,000 34,034,000
6.29%, 10/22/98............................... Baa1 5,000 5,007,450
6.375%, 11/30/01.............................. Baa1 21,500 21,153,850
6.689%, 05/22/98.............................. Baa1 9,000 9,075,240
--------------
81,727,290
--------------
TELECOMMUNICATIONS -- 0.7%
TCI Communications, Inc.,
8.65%, 09/15/04............................... Baa3 28,470 28,609,788
8.75%, 08/01/15............................... Baa3 5,450 5,383,946
--------------
33,993,734
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp., M.T.N.,
10.00%, 06/01/98.............................. Baa3 3,000 3,157,440
10.05%, 06/15/99.............................. Baa3 500 539,080
--------------
3,696,520
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
UTILITIES -- 0.1%
Arkla, Inc., M.T.N.,
9.25%, 12/18/97............................... Ba2 $ 3,000 $ 3,077,790
--------------
FOREIGN CORPORATE BONDS -- 6.3%
Banco de Commercio Exterior de Colombia, SA,
M.T.N., (Colombia)
8.625%, 06/02/00.............................. NR 5,500 5,713,125
Banco Ganadero, SA, M.T.N., (Colombia)
9.75%, 08/26/99............................... Baa3 7,300 7,683,250
Bangkok Bank, (Thailand)
7.25%, 09/15/05............................... A3 10,000 9,777,400
8.25%, 03/15/16............................... A3 15,000 15,258,750
Central Hispano Financial Services, (Cayman
Islands)
6.031%, 04/28/05.............................. A3 10,000 10,005,000
Compania Sud Americana de Vapores, SA, (Chile)
7.375%, 12/08/03.............................. NR 7,600 7,486,000
Deutsche Bank, (Germany)
6.70%, 12/13/06............................... Aa1 12,500 12,299,562
Domtar, Inc., (Canada)
9.50%, 08/01/16............................... Ba1 9,000 9,843,750
Empresa Colombia de Petroleos, (Colombia)
7.25%, 07/08/98............................... NR 8,250 8,311,875
Kansallis-Osake Pankki, N.Y., (Finland)
6.125%, 05/15/98.............................. A3 6,160 6,163,758
8.650%, 12/29/49 (b).......................... Baa2 10,000 10,441,500
9.75%, 12/15/98............................... Baa1 16,950 17,990,730
Okobank, (Finland)
7.25%, 09/27/49............................... A3 18,750 19,125,000
7.325%, 10/29/49.............................. NR 9,000 9,220,500
7.70%, 10/29/49............................... NR 3,500 3,585,750
Petroliam Nasional, (Malaysia)
6.625%, 10/18/01.............................. NR 22,000 22,014,520
7.125%, 10/18/06.............................. A1 66,400 66,830,936
PT Alatief Freeport Financial Co., (Netherlands)
9.75%, 04/15/01............................... Ba2 8,950 9,784,588
Royal Bank of Canada, (Canada)
6.75%, 10/24/11............................... Aa3 17,400 17,034,600
Siam Commercila, (Thailand)
7.50%, 03/15/06............................... A3 14,500 14,282,500
--------------
282,853,094
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 5.4%
Federal National Mortgage Association,
9.05%, 04/10/00............................... 14,000 15,148,420
United States Treasury Bonds,
5.875%, 11/15/99.............................. 5,000 4,980,450
United States Treasury Notes,
5.00%, 02/15/99............................... 17,000 16,691,790
5.625%, 11/30/98-11/30/00..................... 86,500 85,271,755
5.875%, 11/30/01-02/15/04..................... 45,400 44,645,298
</TABLE>
B4
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
6.00%, 08/15/99............................... $ 10,000 $ 9,998,400
6.125%, 07/31/00-09/30/00..................... 19,300 19,298,110
6.25%, 04/30/01-02/15/03...................... 20,150 20,142,013
6.375%, 09/30/01.............................. 7,000 7,041,580
6.50%, 08/31/01-10/15/06...................... 16,500 16,625,810
6.75%, 04/30/00............................... 3,000 3,056,730
--------------
242,900,356
--------------
FOREIGN GOVERNMENT BONDS -- 5.2%
Republic of Argentina, (Argentina)
6.625%, 03/31/05.............................. B1 4,900 4,293,625
Republic of Colombia, (Colombia)
7.125%, 05/11/98.............................. Ba1 2,775 2,788,875
8.00%, 06/14/01............................... Baa3 2,250 2,283,750
8.75%, 10/06/99............................... Ba1 12,325 12,879,625
Republic of Poland, (Poland)
4.00%, (until 10/27/98),
5.00%, (until 10/27/99),
6.00%, (until 10/27/02),
7.00%, 10/27/14............................... Baa3 129,500 109,589,375
Republic of Venezuela, (Venezuela)
6.50%, 12/18/07............................... Ba2 9,750 8,580,000
United Mexican States, (Mexico)
7.563%, 08/06/01.............................. Baa3 73,500 73,672,725
9.75%, 02/06/01............................... Ba2 4,000 4,130,000
11.375%, 09/15/16............................. Ba2 13,000 13,536,250
--------------
231,754,225
--------------
TOTAL LONG-TERM BONDS
(cost $2,376,901,639).................................................... 2,399,651,325
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,724,169,782).................................................... 4,082,741,593
--------------
SHORT-TERM INVESTMENTS -- 10.1%
BANK NOTES -- 0.2%
First Bank N.A., Minneapolis,
5.275%, 10/24/97.............................. P3 2,000 1,998,881
PNC Bank N.A.,
5.20%, 04/01/97............................... NR 5,000 4,999,364
--------------
6,998,245
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 1.5%
Advanta National Bank,
5.80%, 03/19/97............................... NR 25,000 25,350,000
5.84%, 03/14/97............................... NR 21,500 21,457,000
6.26%, 09/01/97............................... NR 10,500 10,510,500
8.18%, 02/09/97............................... Baa3 10,000 10,100,000
--------------
67,417,500
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 0.1%
Abbey National Treasury Services, PLC,
5.41%, 01/30/97............................... P1 5,000 5,000,093
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 1.0%
Bank of Montreal (Canada),
5.39%, 01/22/97............................... P1 18,000 18,000,000
Bank of Nova Scotia (Canada),
5.39%, 03/04/97............................... P3 4,000 4,000,000
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Banque Nationale De Paris (France),
5.42%, 01/15/97............................... NR $ 10,000 $ 9,999,961
5.58%, 04/02/97............................... NR 3,000 2,999,191
Commerzbank (Germany),
5.42%, 06/10/97............................... P1 1,000 999,631
Deutsche Bank (Germany),
5.69%, 10/28/97............................... P3 3,000 2,999,261
National Bank of Canada (Canada),
5.438%, 03/10/97.............................. P3 2,000 2,000,000
Norddeutsche Landesbank (Germany),
5.75%, 04/11/97............................... NR 5,000 5,001,784
Societe Generale (France),
5.78%, 08/20/97............................... P1 2,000 2,001,590
--------------
48,001,418
--------------
COMMERCIAL PAPER -- 3.8%
Aetna Services, Inc.,
5.42%, 03/14/97............................... NR 5,000 4,946,553
American Brands, Inc.,
5.45%, 02/06/97............................... P3 1,000 994,701
6.00%, 01/22/97............................... P3 2,000 1,993,333
American Express Credit Corp.,
5.30%, 02/28/97............................... P1 5,000 4,958,042
Aristar, Inc.,
5.40%, 01/28/97............................... P2 2,000 1,992,200
5.47%, 03/17/97............................... P2 3,000 2,966,268
Bank Austria,
5.35%, 01/15/97............................... NR 8,000 7,984,544
Barton Capital Corp.,
5.35%, 02/27/97............................... NR 2,000 1,983,356
5.40%, 02/21/97............................... NR 8,000 7,940,000
BHF Finance, Inc.,
5.31%, 01/30/97............................... NR 1,000 995,870
Bradford & Bingley Building Society,
5.35%, 01/10/97-01/15/97...................... NR 28,000 27,960,767
Caterpillar Financial Services Corp.,
5.35%, 05/16/97-06/16/97...................... NR 2,000 1,955,565
5.38%, 04/28/97............................... P1 5,000 4,913,322
5.50%, 02/27/97............................... P1 1,380 1,368,193
Cheltenham & Gloucester Building Society,
5.325%, 02/24/97.............................. NR 7,000 6,945,123
Coca Cola Enterprises, Inc.,
5.34%, 02/03/97............................... NR 2,000 1,990,507
Colonial Pipeline Co.,
5.75%, 01/27/97............................... P3 2,000 1,992,014
Commonwealth Bank of Austria,
5.40%, 02/10/97............................... NR 5,000 4,970,750
Corporate Receivables Corp.,
5.40%, 02/20/97............................... NR 2,000 1,985,300
Countrywide Home Loan, Inc.,
6.05%, 01/21/97............................... NR 1,000 996,807
6.20%, 01/15/97............................... NR 7,000 6,984,328
6.35%, 01/15/97............................... NR 6,000 5,986,242
CXC, Inc.,
7.00%, 01/02/97............................... NR 3,662 3,662,000
Dupont (EI) De Nemours,
5.50%, 03/04/97............................... P3 1,000 990,681
</TABLE>
B5
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Engelhard Corp.,
5.58%, 02/24/97............................... P2 $ 2,000 $ 1,983,570
First Data Corp.,
5.40%, 03/18/97-03/25/97...................... NR 8,617 8,512,061
5.46%, 03/25/97............................... NR 5,000 4,937,817
Fleet Funding Corp,
5.80%, 02/04/97............................... NR 3,729 3,709,174
ITT Hartford Group, Inc.,
5.45%, 01/23/97............................... P1+ 1,000 996,821
Kredietbank Na Finance Corp.,
5.32%, 01/16/97............................... NR 2,000 1,995,862
Lehman Brothers Holdings, Inc.,
6.70%, 01/07/97............................... NR 5,000 4,995,347
Merrill Lynch & Co., Inc.,
5.35%, 01/29/97............................... P1 12,000 11,951,850
5.37%, 01/31/97............................... P1 7,000 6,969,719
NYNEX Corp.,
6.80%, 01/06/97............................... P3 3,000 2,997,733
Preferred Receivables Funding Corp.,
5.60%, 02/25/97............................... P1 4,000 3,966,400
Rank Xerox Capital PLC.,
6.25%, 01/09/97............................... NR 2,583 2,579,861
Societe Generale,
5.77%, 05/15/97............................... P1 2,000 2,000,259
Transamerica Financial Corp.,
5.38%, 02/06/97............................... P1 3,750 3,730,385
WCP Funding, Inc.,
5.40%, 02/20/97............................... NR 2,000 1,985,300
--------------
172,768,625
--------------
OTHER CORPORATE OBLIGATIONS -- 3.0%
American General Financial Corp.,
7.75%, 01/15/97............................... P1 3,700 3,702,664
9.50%, 08/01/97............................... P1 1,500 1,530,273
Associates Corp. of North America,
9.70%, 05/01/97............................... P1 2,000 2,023,837
Beneficial Corp.,
9.35%, 02/03/97............................... P1 3,500 3,510,736
Capital Equipment Receivable Trust,
5.60%, 10/15/97............................... NR 3,862 3,862,223
Capital One Bank,
8.625%, 01/15/97.............................. Baa3 32,425 32,443,158
Coca-Cola Enterprises, Inc.,
6.50%, 11/15/97............................... A3 3,750 3,765,600
General Motors Acceptance Corp.,
5.47%, 02/12/97............................... P1 12,000 11,925,243
6.30%, 09/10/97............................... Aaa 5,000 5,017,600
6.70%, 04/30/97............................... A3 11,000 11,035,420
7.60%, 02/10/97............................... P1 2,000 2,004,629
7.85%, 03/05/97............................... Baa1 3,300 3,312,078
7.85%, 03/05/97............................... P1 10,050 10,080,742
Kimberly Clark Corp.,
9.125%, 06/01/97.............................. NR 1,000 1,013,822
Mellon Bank Corp.,
6.50%, 12/01/97............................... Baa1 1,650 1,656,253
Norwest Corp.,
7.875%, 01/30/97.............................. P1 2,000 2,003,190
Salomon, Inc.,
5.89%, 11/10/97............................... Baa1 30,000 29,962,500
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Short Term Repack Asset,
6.00%, 12/15/97............................... NR $ 4,000 $ 3,999,186
--------------
132,849,154
--------------
REPURCHASE AGREEMENT -- 0.5%
Joint Repurchase Agreement Account
6.613%, 01/02/97 (Note 5)..................... 22,692 22,692,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $464,184,986)...................................................... 455,727,035
--------------
TOTAL INVESTMENTS BEFORE SHORT
SALE -- 101.3%
(cost $4,188,354,768; Note 6)............................................ 4,538,468,628
--------------
INVESTMENT SOLD SHORT -- (2.4%)
United States Treasury Bond,
6.75%, 8/15/26
(proceeds $111,621,197; Note 2).............................. (106,860) (110,481,637)
--------------
TOTAL INVESTMENTS, NET OF SHORT SALES -- 98.9%
4,427,986,991
--------------
OTHER ASSETS IN EXCESS OF OTHER
LIABILITIES -- 1.1%...................................................... 50,821,542
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,478,808,533
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
ADR American
Depository
Receipt
B.A. Bankers' Acceptances
C.D. Certificates of Deposit
M.T.N. Medium Term Note
PLC Public Limited Company
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
NR Not Rated
(a) Non-income producing security.
(b) Indicates a variable rate security.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B12 THROUGH B16.
B6
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
LONG-TERM INVESTMENTS -- 97.6%
VALUE
COMMON STOCKS -- 61.3% SHARES (NOTE 2)
------------- --------------
<CAPTION>
<S> <C> <C>
AEROSPACE -- 4.1%
AlliedSignal, Inc............................... 600,000 $ 40,200,000
Boeing Co....................................... 530,500 56,431,937
Lockheed Martin Corp............................ 500,000 45,750,000
Rockwell International Corp. (a)................ 400,000 24,350,000
United Technologies Corp........................ 550,000 36,300,000
--------------
203,031,937
--------------
BANKS AND SAVINGS & LOANS -- 4.2%
Banc One Corp................................... 775,000 33,325,000
BankAmerica Corp................................ 300,000 29,925,000
Chase Manhattan Corp............................ 550,000 49,087,500
Citicorp........................................ 310,000 31,930,000
PNC Bank Corp................................... 750,000 28,218,750
State Street Boston Corp........................ 500,000 32,250,000
--------------
204,736,250
--------------
BEVERAGES -- 0.9%
Anheuser-Busch Companies, Inc................... 1,150,000 46,000,000
--------------
CHEMICALS -- 0.6%
E.I. du Pont de Nemours & Co.................... 300,000 28,312,500
--------------
CHEMICALS - SPECIALTY -- 1.8%
IMC Global, Inc................................. 600,000 23,475,000
Morton International, Inc....................... 600,000 24,450,000
Praxair, Inc.................................... 825,000 38,053,125
--------------
85,978,125
--------------
COMMERCIAL SERVICES -- 0.3%
CUC International, Inc. (a)..................... 600,000 14,250,000
--------------
COMPUTER SERVICES -- 6.4%
3Com Corp. (a).................................. 600,000 44,025,000
Cadence Design Systems, Inc. (a)................ 675,000 26,831,250
Cascade Communications.......................... 325,000 17,915,625
Cisco Systems, Inc. (a)......................... 750,000 47,718,750
Computer Associates International, Inc.......... 975,000 48,506,250
Computer Sciences Corp. (a)..................... 500,000 41,062,500
First Data Corp................................. 500,000 18,250,000
Gateway 2000, Inc. (a).......................... 275,000 14,729,687
Microsoft Corp. (a)............................. 250,000 20,656,250
Oracle Corp. (a)................................ 775,000 32,356,250
--------------
312,051,562
--------------
CONSTRUCTION -- 0.7%
Fluor Corp...................................... 550,000 34,512,500
--------------
COSMETICS & SOAPS -- 0.7%
Procter & Gamble Co............................. 300,000 32,250,000
--------------
DIVERSIFIED GAS -- 0.3%
Cross Timbers Oil Co............................ 530,000 13,316,250
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.8%
Alco Standard Corp.............................. 300,000 15,487,500
Hewlett-Packard Co.............................. 325,000 16,331,250
Honeywell, Inc.................................. 650,000 42,737,500
Xerox Corp...................................... 300,000 15,787,500
--------------
90,343,750
--------------
DRUGS AND MEDICAL SUPPLIES -- 6.0%
American Home Products Corp..................... 885,000 51,883,125
Baxter International, Inc....................... 650,000 26,650,000
Becton, Dickinson & Co.......................... 800,000 34,700,000
Boston Scientific Corp. (a)..................... 700,000 42,000,000
Medtronic, Inc.................................. 400,000 27,200,000
Novartis Corp., AG ADR (Switzerland)............ 933,328 53,491,332
Pfizer, Inc..................................... 700,000 58,012,500
--------------
293,936,957
--------------
ELECTRICAL EQUIPMENT -- 1.9%
Applied Materials, Inc. (a)..................... 450,000 16,171,875
Baldor Electric Co.............................. 1 25
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Belden, Inc..................................... 425,000 $ 15,725,000
FORE Systems, Inc. (a).......................... 725,000 23,834,375
Westinghouse Electric Corp...................... 1,900,000 37,762,500
--------------
93,493,775
--------------
ELECTRONICS -- 2.2%
ADT Ltd. (a).................................... 750,000 17,156,250
Intel Corp...................................... 475,000 62,195,313
Maxim Integrated Products, Inc. (a)............. 700,000 30,275,000
--------------
109,626,563
--------------
FINANCIAL SERVICES -- 0.9%
MBNA Corp....................................... 1,075,000 44,612,500
--------------
FOODS -- 0.4%
Nabisco Holdings Corp.
(Class 'A' Stock)............................. 500,000 19,437,500
--------------
FOREST PRODUCTS -- 1.2%
Kimberly-Clark Corp............................. 350,000 33,337,500
Willamette Industries, Inc...................... 399,000 27,780,375
--------------
61,117,875
--------------
GAS PIPELINES -- 0.7%
Enron Corp...................................... 850,000 36,656,250
--------------
HEALTH CARE -- 0.2%
Tenet Healthcare Corp. (a)...................... 400,000 8,750,000
--------------
HOSPITAL MANAGEMENT -- 1.1%
Columbia/HCA Healthcare Corp.................... 900,000 36,675,000
Guidant Corp.................................... 300,000 17,100,000
--------------
53,775,000
--------------
INSURANCE -- 5.0%
Aetna Inc....................................... 650,000 52,000,000
Allstate Corp................................... 875,000 50,640,625
American International Group, Inc............... 250,000 27,062,500
Chubb Corp...................................... 400,000 21,500,000
CIGNA Corp...................................... 250,000 34,156,250
Travelers Group, Inc............................ 1,266,666 57,474,970
--------------
242,834,345
--------------
LEISURE -- 0.6%
Carnival Corp. (Class 'A' Stock)................ 900,000 29,700,000
--------------
LODGING -- 0.2%
Hilton Hotels Corp.............................. 400,000 10,450,000
--------------
MACHINERY -- 0.8%
Case Corp....................................... 700,000 38,150,000
--------------
MEDIA -- 0.4%
Comcast Corp. (Class 'A' Stock)................. 1,000,000 17,625,000
--------------
MINERAL RESOURCES -- 0.5%
Potash Corp. of Saskatchewan, Inc............... 270,000 22,950,000
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 4.5%
Cognizant Corp.................................. 735,700 24,278,100
General Electric Co............................. 700,000 69,212,500
Illinois Tool Works, Inc........................ 400,000 31,950,000
Tyco International, Ltd......................... 1,225,000 64,771,875
York International Corp......................... 500,000 27,937,500
--------------
218,149,975
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.1%
Unilever N.V., ADR (United Kingdom)............. 300,000 52,575,000
--------------
PETROLEUM -- 3.2%
British Petroleum, PLC, ADR (United Kingdom).... 325,000 45,946,875
Mobil Corp...................................... 400,000 48,900,000
Royal Dutch Petroleum Co., ADR (Netherlands).... 200,000 34,150,000
Total SA, ADR (France).......................... 700,000 28,175,000
--------------
157,171,875
--------------
</TABLE>
B7
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
PETROLEUM SERVICES -- 1.3%
Baker Hughes, Inc............................... 581,700 $ 20,068,650
Halliburton Co.................................. 700,000 42,175,000
--------------
62,243,650
--------------
RETAIL -- 6.5%
American Stores Co.............................. 800,000 32,700,000
Federated Department Stores, Inc. (a)........... 1,120,000 38,220,000
The Gap, Inc.................................... 500,000 15,062,500
Home Depot, Inc................................. 750,000 37,593,750
Koninklijke Ahold, ADR (Netherlands)............ 250,000 15,437,500
Nike, Inc. (Class 'B' Stock).................... 600,000 35,850,000
Nine West Group................................. 775,000 35,940,625
Price/Costco, Inc. (a).......................... 1,500,000 37,687,500
Safeway, Inc. (a)............................... 1,000,000 42,750,000
Staples, Inc. (a)............................... 1,601,500 28,927,094
--------------
320,168,969
--------------
TELECOMMUNICATIONS -- 0.8%
AT&T Corp....................................... 550,000 23,925,000
Newbridge Networks Corp. (a).................... 500,000 14,125,000
--------------
38,050,000
--------------
TOTAL COMMON STOCKS
(cost $2,434,484,264).......................................... 2,996,258,108
--------------
PREFERRED STOCKS -- 1.5%
FINANCIAL SERVICES -- 0.5%
Central Hispano Financial Services.............. 1,000,000 25,200,000
--------------
GAS PIPELINES -- 0.1%
TransCanada Pipelines, Ltd...................... 140,000 3,640,000
--------------
LEISURE -- 0.3%
Hilton Hotels (Conv.)........................... 600,000 14,775,000
--------------
TELECOMMUNICATIONS -- 0.6%
Airtouch Communications (Conv.)................. 700,000 31,675,000
--------------
TOTAL PREFERRED STOCKS
(cost $75,571,505)............................................. 75,290,000
--------------
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CONVERTIBLE BONDS -- 0.6% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
RETAIL -- 0.6%
Federated Department Stores, Inc.,
5.00%, 10/01/03............................... Ba3 $ 8,000 $ 9,180,000
Home Depot, Inc.,
3.25%, 10/01/01............................... A1 19,000 18,715,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $27,850,057)....................................................... 27,895,000
--------------
LONG-TERM BONDS -- 34.2%
DOMESTIC CORPORATE BONDS -- 22.3%
AEROSPACE -- 0.2%
Northrop Grumman Corp.,
7.875%, 03/01/26.............................. NR 7,500 7,517,475
--------------
AGRICULTURAL EQUIPMENT -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba3 6,500 6,576,700
--------------
AIRLINES -- 2.3%
Delta Air Lines, Inc.,
10.125%, 05/15/10............................. Baa3 19,335 23,342,952
10.375%, 02/01/11............................. Ba1 25,750 31,546,840
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
United Air Lines, Inc.,
9.75%, 08/15/21............................... Baa2 $ 10,125 $ 12,000,555
10.67%, 05/01/04.............................. Baa3 19,500 23,062,455
11.21%, 05/01/14.............................. Baa3 17,500 22,945,475
--------------
112,898,277
--------------
ASSET BACKED -- 0.1%
Standard Credit Card Master Trust
5.95%, 10/07/04............................... AAA 4,500 4,325,625
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.3%
Continental Cablevision, Inc.,
8.30%, 05/15/06............................... Ba2 10,800 11,504,916
8.625%, 08/15/03.............................. Ba2 7,500 8,115,825
TCI Communications, Inc.,
8.65%, 09/15/04............................... Baa3 6,000 6,029,460
8.75%, 08/01/15............................... Baa3 5,950 5,877,886
Tele-Communications, Inc.,
7.875%, 08/01/13.............................. Baa3 17,500 16,110,150
9.80%, 02/01/12............................... B2 7,000 7,575,400
9.875%, 06/15/22.............................. Baa3 7,878 8,483,976
10.125%, 04/15/22............................. Baa3 2,000 2,196,040
--------------
65,893,653
--------------
COMPUTERS -- 0.3%
Digital Equipment Corp.,
7.125%, 10/15/02.............................. Ba1 14,800 14,122,900
--------------
FINANCIAL SERVICES -- 10.7%
Bank of New York,
7.97%, 12/31/26............................... A1 26,000 26,258,440
Barnett Banks,
8.06%, 12/01/26............................... NR 3,500 3,540,775
Capital One Bank,
6.66%, 08/17/98............................... Baa3 11,175 11,214,671
6.73%, 06/04/98............................... Baa2 26,000 26,153,400
6.90%, 04/15/99............................... Baa3 11,000 11,073,590
7.20%, 07/19/99............................... Baa3 11,250 11,376,112
Conseco, Inc.,
8.70%, 11/15/26............................... NR 18,200 18,356,884
CoreStates Financial Corp.,
8.00%, 12/15/26............................... NR 24,250 24,251,455
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 3,500 3,407,250
7.00%, 06/15/00............................... Baa3 13,500 13,663,350
First Tennessee National Corp., B.A.,
8.07%, 01/06/27............................... NR 11,150 11,087,560
First Union Corp.,
7.85%, 01/01/27............................... A1 43,500 43,103,062
First USA Bank,
8.20%, 02/15/98............................... Baa3 13,000 13,270,530
Ford Motor Credit,
7.00%, 09/25/01............................... NR 13,000 13,193,830
General Motors Acceptance Corp., M.T.N.,
7.375%, 07/20/98.............................. Baa1 4,500 4,589,235
7.875%, 03/15/00.............................. NR 5,000 5,202,100
Lehman Brothers Holdings, Inc.,
6.71%, 10/12/99............................... Baa1 24,000 24,032,400
6.84%, 09/25/98............................... Baa1 5,000 5,037,850
Liberty Mutual Insurance Co.,
7.875%, 10/15/26.............................. A2 2,500 2,526,985
8.20%, 05/04/07............................... NR 5,000 5,309,700
Lumbermens Mutual Casualty Co.,
9.15%, 07/01/26............................... NR 12,600 13,702,500
</TABLE>
B8
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Mellon Bank Corp.,
7.72%, 12/01/26............................... A2 $ 15,500 $ 15,020,275
7.995%, 01/15/27.............................. A2 38,500 38,018,750
Republic Bank of New York Corp.,
7.53%, 12/04/26............................... NR 21,000 20,582,583
Salomon, Inc., M.T.N.,
5.98%, 02/02/98............................... Baa 23,500 23,488,485
7.00%, 05/15/99............................... Baa 34,600 34,873,340
7.25%, 05/01/01............................... Baa 8,625 8,706,593
State Street Capital Corp.,
7.94%, 12/30/26............................... NR 7,500 7,470,000
Travelers Capital, Inc.,
7.75%, 12/01/36............................... A1 20,000 19,350,000
Union Planters Corp.,
8.20%, 12/15/26............................... NR 20,750 20,542,500
USAA Capital Corp.,
6.34%, 09/18/98............................... Aa1 20,000 20,080,000
Wells Fargo & Co.,
7.96%, 12/15/26............................... A1 26,300 26,563,000
--------------
525,047,205
--------------
FOOD & BEVERAGE -- 0.1%
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 3,000 3,013,500
--------------
HEALTH CARE -- 0.9%
Tenet Healthcare Corp.,
8.625%, 12/01/03.............................. Ba2 15,315 16,157,325
9.625%, 09/01/02.............................. Ba1 23,750 26,006,250
--------------
42,163,575
--------------
INDUSTRIAL -- 0.1%
Service Corp. International,
7.00%, 06/01/15............................... A3 2,500 2,530,950
--------------
MEDIA -- 3.9%
News America Holdings, Inc.,
7.375%, 10/17/08.............................. Baa3 2,000 1,984,640
7.75%, 12/01/45............................... Baa3 39,000 36,316,410
9.25%, 02/01/13............................... Baa3 36,200 40,554,498
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 9,100 9,092,447
Time Warner, Inc.,
8.11%, 08/15/06............................... Ba1 13,250 13,583,503
8.18%, 08/15/07............................... Ba1 13,000 13,338,910
8.375%, 07/15/33.............................. Baa3 32,800 32,917,752
9.125%, 01/15/13.............................. Ba1 12,040 13,144,068
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba 5,300 5,410,293
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 7,350 7,035,126
7.75%, 06/01/05............................... Ba2 19,675 19,373,382
--------------
192,751,029
--------------
OIL & GAS -- 0.4%
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Ba2 3,000 3,225,450
Transco Energy Co.,
9.125%, 05/01/98.............................. Ba3 14,000 14,531,160
--------------
17,756,610
--------------
OIL & GAS EQUIPMENT & SERVICES -- 0.1%
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 3,887,640
Noble Drilling Corp.,
9.125%, 07/01/06.............................. Ba2 3,500 3,762,500
--------------
7,650,140
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
RETAIL -- 1.6%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 $ 6,600 $ 6,765,000
8.50%, 06/15/03............................... Ba1 66,000 68,640,000
10.00%, 02/15/01.............................. Ba1 2,500 2,725,000
--------------
78,130,000
--------------
TECHNOLOGY -- 0.2%
Comdisco, Inc., M.T.N.,
6.375%, 11/30/01.............................. Baa1 2,700 2,656,530
7.25%, 04/15/98............................... Baa2 10,000 10,135,700
--------------
12,792,230
--------------
FOREIGN CORPORATE BONDS -- 7.0%
Banco de Commercio Exterior de Colombia, SA,
M.T.N.,(Colombia)
8.625%, 06/02/00.............................. NR 5,500 5,713,125
Banco Ganadero, SA, M.T.N., (Colombia)
9.75%, 08/26/99............................... Baa 7,300 7,683,250
Bancomer, SA, (Mexico)
8.00%, 07/07/98............................... Ba 8,000 7,980,000
Bangkok Bank, (Thailand)
7.25%, 09/15/05............................... A3 10,000 9,777,400
Central Hispano Financial Services, (Cayman
Islands)
6.031%, 04/28/05.............................. A3 5,000 5,002,500
Compania Sud Americana de Vapores, SA, (Chile)
7.375%, 12/08/03.............................. NR 5,650 5,565,250
Controladora Commercial Mexicana, SA, (Mexico)
8.75%, 04/21/98............................... NR 15,100 15,175,500
Deutsche Bank, (Germany)
6.70%, 12/13/06............................... Aa 17,500 17,219,388
Dotmar, Inc., (Canada)
9.50%, 08/01/16............................... Ba 24,750 27,070,313
Empresa Colombia de Petroleos, (Colombia)
7.25%, 07/08/98............................... NR 8,250 8,311,875
Kansallis-Osake Pankki, N.Y., (Finland)
8.65%, 01/01/49 (b)........................... Baa1 9,000 9,397,350
9.75%, 12/15/98............................... Baa1 16,760 17,789,064
Nacional Financie, (Cayman Islands)
9.00%, 01/25/99............................... Ba2 15,000 15,300,000
National Power Co., (United Kingdom)
7.875%, 12/15/06.............................. Ba2 22,500 22,612,500
8.40%, 12/15/16............................... Ba2 27,500 27,362,500
Okobank, (Finalnd)
7.70%, 10/29/49 (b)........................... NR 3,500 3,585,750
7.25%, 09/27/49............................... A3 18,750 19,125,000
7.325%, 10/29/49 (b).......................... NR 9,000 9,220,500
Petroliam Nasional, (Malaysia)
7.125%, 10/18/06.............................. NR 63,100 63,509,519
PT Alatief Freeport Financial Co., (Netherlands)
9.75%, 04/15/01............................... Ba2 7,600 8,308,700
Rio de Janeiro, (Brazil)
10.375%, 07/12/99............................. NR 7,000 7,192,500
Rogers Cablesystems, Inc., Sr. Sec'd Notes,
(Canada)
10.00%, 03/15/05.............................. Ba3 2,000 2,130,000
</TABLE>
B9
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Royal Bank of Canada, (Canada)
6.75%, 10/24/11............................... Aa3 $ 15,000 $ 14,685,000
Siam Commercila, (Thailand)
7.50%, 03/15/06............................... Aa3 14,500 14,282,500
--------------
343,999,484
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
Federal National Mortgage Association,
Zero Coupon, 10/09/19......................... Aaa 11,800 2,391,388
United States Treasury Notes,
6.375%, 08/15/02.............................. Aaa 10,000 10,065,600
--------------
12,456,988
--------------
FOREIGN GOVERNMENT BONDS -- 4.7%
Republic of Argentina, (Argentina)
6.625%, 03/31/05.............................. B1 32,340 28,337,925
Republic of Colombia, (Colombia)
7.125%, 05/11/98.............................. Ba1 2,700 2,713,500
8.00%, 06/14/01............................... NR 2,150 2,182,250
8.75%, 10/06/99............................... Ba1 12,300 12,853,500
Republic of Poland, (Poland)
4.00%, (until 10/27/98)....................... Baa3 100,500 85,048,125
5.00%, (until 10/27/99)
6.00%, (until 10/27/02)
7.00%, 10/27/14
Republic of Venezuela, (Venezuela)
6.50%, 12/18/07............................... Ba2 60,250 53,020,000
United Mexican States, (Mexico)
9.75%, 02/06/01............................... NR 25,000 25,812,500
11.375%, 09/15/16............................. NR 21,000 21,866,250
--------------
231,834,050
--------------
TOTAL LONG-TERM BONDS
(cost $1,657,819,992).................................................... 1,681,460,391
--------------
TOTAL LONG TERM INVESTMENTS
(cost $4,195,725,818).................................................... 4,780,903,499
--------------
SHORT-TERM INVESTMENTS -- 4.1%
BANK NOTES -- 0.1%
American Express Centurian Bank,
5.625%, 01/14/97.............................. NR 1,000 1,000,001
Comerica Bank of Detroit,
6.585%, 02/14/97.............................. NR 569 568,948
NBD Bank, N.A.,
6.55%, 06/02/97............................... NR 2,000 2,008,199
--------------
3,577,148
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 0.5%
Advanta National Bank,
6.14%, 02/28/97............................... Baa2 17,000 17,000,000
Chase Manhattan Bank,
5.43%, 05/06/97............................... P3 6,000 6,000,000
--------------
23,000,000
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 0.1%
Abbey National Treasury Services, PLC, (United
Kingdom)
5.41%, 01/30/97............................... P1 $ 2,000 $ 2,000,037
Bayerische Hypotheken, (Germany)
5.74%, 05/27/97............................... NR 1,000 1,000,409
--------------
3,000,446
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.5%
Bank of Montreal, (Canada)
5.39%, 01/22/97............................... P1 2,000 2,000,000
Banque Nationale de Paris, (France)
5.41%, 01/15/97............................... NR 3,000 2,999,989
5.58%, 04/02/97............................... NR 2,000 1,999,461
Barclays Bank, PLC, (United Kingdom)
5.37%, 02/03/97-02/05/97...................... NR 6,000 6,000,000
Deutsche Bank, (Germany)
5.69%, 10/28/97............................... P3 1,000 999,754
Empresas La Moderna, SA, (Mexico)
10.25%, 11/12/97.............................. Baa1 2,000 2,051,250
Grupo Televisa, SA, (Mexico)
10.00%, 11/09/97.............................. Ba2 4,000 4,100,000
National Bank of Canada, (Canada)
5.438%, 03/10/97.............................. P3 1,000 1,000,000
Societe Generale, (France)
5.77%, 05/15/97............................... P1 1,000 1,000,130
--------------
22,150,584
--------------
COMMERCIAL PAPER -- 1.3%
Aetna Services, Inc.,
5.42%, 03/14/97............................... NR 2,000 1,978,621
American Brands Inc,
5.33%, 01/31/97............................... P3 1,000 995,706
6.00%, 01/22/97............................... P3 1,000 996,667
American Express Credit Corp.,
5.30%, 02/28/97............................... P1 3,000 2,974,825
Aristar, Inc.,
5.59%, 02/28/97............................... P2 1,000 991,149
Bank Austria,
5.35%, 01/15/97............................... NR 2,000 1,996,136
Barton Capital Corp.,
5.35%, 02/27/97............................... NR 1,000 991,678
Bradford & Bingley Building Society,
5.35%, 01/10/97-01/15/97...................... A1 5,550 5,542,659
Caterpillar Financial Services Corp.,
5.35%, 06/16/97............................... P1 1,000 975,479
Cheltenham & Gloucester Building Society,
5.325%, 02/24/97.............................. NR 1,000 992,160
5.35%, 01/15/97............................... NR 1,000 998,068
Coca Cola Enterprises, Inc.,
5.34%, 02/03/97............................... NR 1,000 995,253
Colonial Pipeline Co.,
5.75%, 01/27/97............................... P3 1,000 996,007
Commonwealth Bank of Australia,
5.32%, 01/22/97............................... NR 7,000 6,979,311
Corporate Receivables Corp.,
5.33%, 01/24/97............................... NR 2,000 1,993,486
</TABLE>
B10
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Countrywide Home Loan, Inc.,
6.20%, 01/15/97............................... NR $ 3,000 $ 2,993,283
CXC, Inc.,
5.60%, 01/16/97............................... NR 1,005 1,002,811
7.00%, 01/02/97............................... NR 670 670,000
Dakota Cert. Prog. of Stand. Cred.,
5.34%, 01/23/97............................... NR 2,000 1,993,770
Engelhard Corp.,
5.58%, 02/24/97............................... P2 1,000 991,785
Enterprise Funding Corp.,
5.47%, 01/16/97............................... NR 1,000 997,873
5.50%, 01/15/97............................... NR 2,000 1,996,028
Fleet Funding Corp.,
5.80%, 02/04/97............................... NR 1,000 994,683
General Motors Acceptance Corp.,
5.47%, 02/12/97............................... P1 3,000 2,981,311
5.50%, 04/07/97............................... P1 1,912 1,884,249
Kredietbank Na Finance Corp.,
5.32%, 01/16/97............................... NR 1,000 997,931
Merrill Lynch & Co., Inc.,
5.31%, 02/27/97............................... P1 1,000 991,740
5.32%, 01/21/97............................... P1 1,000 997,192
5.33%, 01/24/97............................... P1 2,000 1,993,486
5.35%, 01/29/97............................... P1 3,000 2,987,963
Morgan Stanley Group, Inc.,
5.32%, 01/29/97............................... P1 5,000 4,980,050
Nationwide Building Society,
5.375%, 02/26/97.............................. NR 1,000 991,788
Preferred Receivables Funding Corp.,
5.45%, 01/15/97............................... P1 1,000 998,032
5.60%, 02/25/97............................... P1 1,000 991,600
Short Term Repack Asset Trust,
6.006%, 12/15/97.............................. NR 1,000 999,797
Societe Generale,
5.57%, 04/04/97............................... P1 1,000 999,676
Transamerica Financial Corp.,
5.34%, 02/03/97............................... P1 1,000 995,253
--------------
65,827,506
--------------
OTHER CORPORATE OBLIGATIONS -- 0.2%
Associates Corp. of North America,
6.625%, 11/15/97.............................. P1 600 604,890
Beneficial Corp.,
5.54%, 08/05/97............................... P1 1,000 1,000,375
9.70%, 05/30/97............................... P1 2,000 2,031,498
Capital Equipment Receivable Trust,
5.60%, 10/15/97............................... NR 1,545 1,544,889
Dean Witter, Discover &,
5.747%, 03/06/97.............................. P2 1,250 1,250,281
Ford Motor Credit Corp.,
5.625%, 03/03/97.............................. P1 500 499,927
7.95%, 03/27/97............................... P1 465 467,315
General Electric Capital Corp.,
8.00%, 02/01/97............................... P1 1,500 1,503,055
General Motors Acceptance Corp.,
7.75%, 02/20/97-04/15/97...................... P1 825 828,464
7.85%, 03/05/97............................... P1 1,150 1,154,153
7.90%, 03/13/97............................... P1 500 501,804
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Household Finance Corp.,
5.67%, 08/11/97............................... P2 $ 475 $ 475,495
Norwest Corp.,
7.70%, 11/15/97............................... P1 500 508,485
Pfizer, Inc.,
6.50%, 02/01/97............................... P3 500 500,280
--------------
12,870,911
--------------
REPURCHASE AGREEMENT -- 1.4%
Joint Repurchase Agreement Account,
6.613%, 01/02/97 (Note 5)..................... 70,099 70,099,000
--------------
TOTAL SHORT-TERM INVESTMENTS -- 4.1%
(cost $204,409,679)...................................................... 200,525,595
--------------
TOTAL INVESTMENTS BEFORE SHORT SALE -- 101.7%
(cost $4,400,135,497; Note 6)............................................ 4,981,429,094
--------------
INVESTMENT SOLD SHORT -- (2.2%)
United States Treasury Bond,
6.75% 8/15/26
(proceeds $113,630,151; Note 2)............................. 108,775 (112,461,581)
--------------
TOTAL INVESTMENTS, NET OF SHORT SALES -- 99.5%............................. 4,868,967,513
OTHER ASSETS IN EXCESS OF OTHER
LIABILITIES -- 0.5%.................................................... 27,955,174
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,896,922,687
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (West German Stock Company)
B.A. Bankers' Acceptances
C.D. Certificates of Deposit
M.T.N. Medium Term Note
NR Not Rated
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
(a) Non-income producing security.
(b) Indicates a variable rate security.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B12 THROUGH B16.
B11
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE CONSERVATIVE BALANCED PORTFOLIO AND
FLEXIBLE MANAGED PORTFOLIO OF
THE PRUDENTIAL SERIES FUND, INC.
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only two Portfolios: Conservative Balanced
Portfolio and Flexible Managed Portfolio. Shares in the Series Fund are
currently sold only to certain separate accounts of The Prudential Insurance
Company of America ("The Prudential"), Pruco Life Insurance Company and Pruco
Life Insurance Company of New Jersey (together referred to as the "Companies")
to fund benefits under certain variable life insurance and variable annuity
contracts ("contracts") issued by the Companies. The accounts invest in shares
of the Series Fund through subaccounts that correspond to the portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determine prices by analysis of quality,
coupon, maturity and other factors. Any security for which a reliable market
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors. Short-term
securities are valued at amortized cost.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
be delayed or limited. (See Note 5).
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities -- at
the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses -- at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal year.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal year. Accordingly,
these realized foreign currency gains (losses) are included in the reported net
realized gains (losses) on investment transactions.
B12
<PAGE>
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
SHORT SALES: Conservative Balanced Portfolio and Flexible Managed Portfolio may
sell a security it does not own in anticipation of a decline in the market value
of that security (short sale). When the Portfolio makes a short sale, it must
borrow the security sold short and deliver it to the broker-dealer through which
it made the short sale as collateral for its obligation to deliver the security
upon conclusion of the sale. The Portfolio may have to pay a fee to borrow the
particular security and may be obligated to remit any interest or dividends
received on such borrowed securities. A gain, limited to the price at which the
Portfolio sold the security short, or a loss, unlimited in magnitude, will be
recognized upon the termination of a short sale if the market price at
termination is less than or greater than, respectively, the proceeds originally
received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sale or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of three elements: stated
coupon, original issue discount and market discount, is recorded on the accrual
basis. Certain Portfolios own shares of
B13
<PAGE>
real estate investment trusts ("REITs") which report information on the source
of their distributions annually. A portion of distributions received from REITs
during the year is estimated to be a return of capital and is recorded as a
reduction of their costs. Expenses are recorded on the accrual basis which may
require the use of certain estimates by management. The Series Fund expenses are
allocated to the respective portfolios on the basis of relative net assets.
CUSTODY FEE CREDITS: The Series Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian. Such custody fee credits are presented as a reduction of gross
expenses in the accompanying Statements of Operations.
TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
Each Portfolio will declare and distribute dividends from net investment income
and distributions from net realized gains, if any, twice a year. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the fiscal year ended
December 31, 1996, the application of this statement increased (decreased)
paid-in capital in excess of par (PC), undistributed net investment income
("UNI") and accumulated net realized gains (losses) on investments ("G/L") by
the following amounts:
<TABLE>
<CAPTION>
PC UNI G/L
------------- ----------- -----------
<S> <C> <C> <C>
Conservative Balanced Portfolio............ $(15,661,578) $3,079,619 $12,581,959
Flexible Managed Portfolio................. (31,413,181) 8,052,179 23,361,002
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.
B14
<PAGE>
The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolios' average daily net assets:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISORY FEE
---- -----------------------
<S> <C>
Conservative Balanced Portfolio..................... 0.55%
Flexible Managed Portfolio.......................... 0.60
</TABLE>
The Prudential has agreed to refund to a Portfolio, the portion of the
investment advisory fee for that Portfolio equal to the amount that the
aggregate annual ordinary operating expenses (excluding interest, taxes and
brokerage commissions) exceeds 0.75% of the Portfolio's average daily net
assets. No refund was required for the fiscal year ended December 31, 1996.
PIC is an indirect, wholly-owned subsidiary of The Prudential.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the fiscal year ended December 31, 1996, Prudential Securities Incorporated,
an indirect, wholly owned subsidiary of The Prudential, earned $703,293 in
brokerage commissions from transactions executed on behalf of the Conservative
Balanced Portfolio and the Flexible Managed Portfolio as follows:
<TABLE>
<CAPTION>
FUND COMMISSION
---- ----------
<S> <C>
Conservative Balanced Portfolio................................ $ 120,976
Flexible Managed Portfolio..................................... 582,317
---------
$ 703,293
</TABLE>
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The portfolios of the Series Fund may transfer uninvested cash balances into a
single joint repurchase agreement account, the daily aggregate balance of which
is invested in one or more repurchase agreements collateralized by U.S.
Government obligations. The Series Fund's undivided interest in the joint
repurchase agreement account represented $868,381,000 as of December 31, 1996.
The Portfolios of the Series Fund with cash invested in the joint account had
the following principal amounts and percentage participation in the account:
<TABLE>
<CAPTION>
PRINCIPAL PERCENTAGE
AMOUNT INTEREST
------------- -----------
<S> <C> <C>
Conservative Balanced Portfolio.................... $ 22,692,000 2.61%
Flexible Managed Portfolio......................... 70,099,000 8.07
All other portfolios (currently not available to
PRUvider)......................................... 775,590,000 89.32
------------- -------
$ 868,381,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 6.75%, in the principal amount of $265,000,000,
repurchase price $265,099,375, due 1/2/97. The value of the collateral including
accrued interest was $270,501,866.
Goldman, Sachs & Co., Inc., 5.85%, in the principal amount of $73,381,000,
repurchase price $73,404,849, due 1/2/97. The value of the collateral including
accrued interest was $75,883,443.
Smith Barney, Inc., 6.65%, in the principal amount of $265,000,000, repurchase
price $265,097,902, due 1/2/97. The value of the collateral including accrued
interest was $270,820,275.
UBS Securities Corp., 6.65%, in the principal amount of $265,000,000, repurchase
price $265,097,902, due 1/2/97. The value of the collateral including accrued
interest was $270,302,336.
The weighted average interest rate of these repurchase agreements was 6.613%.
B15
<PAGE>
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchase and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1996 were
as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
-------------- --------------
<S> <C> <C>
Debt Securities................. $10,348,623,701 $7,818,989,849
Equity Securities............... $ 524,839,665 $2,661,774,273
</TABLE>
Proceeds From Sales:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
-------------- --------------
<S> <C> <C>
Debt Securities................. $9,086,693,898 $7,188,296,334
Equity Securities............... $ 797,513,299 $2,656,626,154
</TABLE>
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
-------------- --------------
<S> <C> <C>
Gross Unrealized Appreciation... $ 413,912,093 $ 610,666,412
Gross Unrealized Depreciation... 67,562,846 36,056,964
Total Net Unrealized............ 346,349,247 574,609,448
Tax Basis....................... 4,192,119,381 4,406,819,646
</TABLE>
B16
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.66 0.63 0.53 0.49 0.56
Net realized and unrealized gains
(losses) on investments.......... 1.24 1.78 (0.68) 1.23 0.41
-------- -------- -------- -------- --------
Total from investment
operations..................... 1.90 2.41 (0.15) 1.72 0.97
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.66) (0.64) (0.51) (0.47) (0.54)
Distributions from net realized
gains............................ (1.03) (0.56) (0.15) (0.58) (0.51)
-------- -------- -------- -------- --------
Total distributions............ (1.69) (1.20) (0.66) (1.05) (1.05)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 12.63% 17.27% (0.97%) 12.20% 6.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $4,478.8 $3,940.8 $3,501.1 $3,103.2 $2,114.0
Ratios to average net assets:
Expenses......................... 0.59% 0.58% 0.61% 0.60% 0.62%
Net investment income............ 4.13% 4.19% 3.61% 3.22% 3.88%
Portfolio turnover rate............ 295% 201% 125% 79% 62%
Average commission rate paid per
share............................ $0.0554 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.57 0.56 0.47 0.57 0.58
Net realized and unrealized gains
(losses) on investments.......... 1.79 3.15 (1.02) 1.88 0.61
-------- -------- -------- -------- --------
Total from investment
operations..................... 2.36 3.71 (0.55) 2.45 1.19
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.58) (0.56) (0.45) (0.57) (0.56)
Distributions from net realized
gains............................ (1.85) (0.79) (0.46) (0.93) (0.91)
-------- -------- -------- -------- --------
Total distributions............ (2.43) (1.35) (0.91) (1.50) (1.47)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 13.64% 24.13% (3.16%) 15.58% 7.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6
Ratios to average net assets:
Expenses......................... 0.64% 0.63% 0.66% 0.66% 0.67%
Net investment income............ 3.07% 3.30% 2.90% 3.30% 3.63%
Portfolio turnover rate............ 233% 173% 124% 63% 59%
Average commission rate paid per
share............................ $0.0563 N/A N/A N/A N/A
</TABLE>
(a) Calculations are based on average month-end shares outstanding, where
applicable.
(b) Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B12 THROUGH B16.
B17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:
In our opinion, the accompanying Statements of Assets and Liabilities, including
the Schedules of Investments, and the related Statements of Operations and of
Changes in Net Assets and the Financial Highlights present fairly, in all
material respects, the financial position of each of the Conservative Balanced
and Flexible Managed Portfolios (collectively the "Portfolios"), two of the
fifteen portfolios that comprise The Prudential Series Fund, Inc. at December
31, 1996, the results of each of their operations, the changes in each of their
net assets, and each of their financial highlights for the year ended December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 14, 1997
B18
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE PRUDENTIAL SERIES FUND, INC.:
We have audited the accompanying statements of changes in net assets of the
Flexible Managed and Conservative Balanced Portfolios (two of the portfolios
comprising The Prudential Series Fund, Inc.) for the year ended December 31,
1995, and the financial highlights contained in the prospectus for each of the
years in the nine-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights 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 financial statements and financial highlights present
fairly, in all material respects, the changes in net assets and the financial
highlights of each of the respective portfolios of The Prudential Series Fund,
Inc. for the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 15, 1996
B19
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
MENDEL A. MELZER W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD,
CHAIRMAN, PhD. CEO,
THE PRUDENTIAL SERIES EXECUTIVE VICE PRUDENTIAL INVESTMENTS
FUND, INC. PRESIDENT, PRESIDENT, THE
FAIRLEIGH DICKINSON PRUDENTIAL SERIES FUND,
UNIVERSITY INC.
SAUL K. FENSTER, PhD. JOSEPH WEBER, PhD.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
TAX INFORMATION
Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1996) as to the federal tax status of dividends paid by the Fund during such
fiscal year. Accordingly, we are advising you that in 1996, the Fund paid
dividends as follows:
ORDINARY DIVIDENDS
SHORT-TERM LONG-TERM TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DIVIDENDS
------ ------------- ------------- ---------
Conservative Balanced Portfolio $0.661 $0.047 $0.980 $1.688
Flexible Managed Portfolio 0.577 0.218 1.631 2.426
B20
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company of New Jersey represents that the fees and charges
deducted under the PRUvider Variable Appreciable Life Insurance Contracts
registered by this registration statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses to be incurred, and the risks
assumed by the depositor.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance program, purchased by Prudential from Aetna Casualty & Surety Company,
CNA Insurance Companies, Lloyds of London, Great American Insurance Company,
Reliance Insurance Company, Corporate Officers & Directors Assurance Ltd.,
A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American
Insurance Company, provides reimbursement for "Loss" (as defined in the
policies) which the Company pays as indemnification to its directors or officers
resulting from any claim for any actual or alleged act, error, misstatement,
misleading statement, omission, or breach of duty by persons in the discharge of
their duties in their capacities as directors or officers of Prudential, any of
its subsidiaries, or certain investment companies affiliated with Prudential.
Coverage is also provided to the individual directors or officers for such Loss,
for which they shall not be indemnified. Loss essentially is the legal liability
on claims against a director or officer, including adjudicated damages,
settlements and reasonable and necessary legal fees and expenses incurred in
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 uninsurable under the law pursuant to which the policies are
construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal, dishonest or fraudulent acts or omissions or the willful violation
of any law by a director or officer, (2) claims based on or attributable to
directors or officers gaining personal profit or advantage to which they were
not legally entitled, and (3) claims arising from actual or alleged performance
of, or failure to perform, services as, or in any capacity similar to, an
investment adviser, investment banker, underwriter, broker or dealer, as those
terms are defined in the Securities Act of 1933, the Securities Exchange Act of
1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940,
any rules or regulations thereunder, or any similar federal, state 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 Prudential and
Pruco Life of New Jersey, can be found in Section 14A:3-5 of the New Jersey
Statutes Annotated. The text of The Prudential's by-law 26, which relates to
indemnification of officers and directors, is incorporated by reference to
Exhibit 1.A.(6)(b) of Post-Effective Amendment No. 1 to Form S-6, Registration
No. 33-61079, filed April 25, 1996, on behalf of The Prudential Variable
Appreciable Account. The text of Pruco Life of New Jersey's by-laws, Article V,
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
<PAGE>
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 58 pages.
The Statement of Additional Information consisting of 53 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. Deloitte & Touche LLP, independent auditors.
2. Price Waterhouse LLP, independent accountants.
3. Clifford E. Kirsch, Esq.
4. Nancy 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 Pruco Life Insurance
Company of New Jersey establishing the Pruco Life of New Jersey
Variable Appreciable Account. (Note 2)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company of New
Jersey. (Note 1)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 1)
(c) Schedules of Sales Commissions. (Note 1)
(4) Not Applicable.
(5) PRUvider Variable Appreciable Life Insurance Contract. (Note 1)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company of New Jersey, as amended March 11, 1983.(Note 3)
(b) By-laws of Pruco Life Insurance Company of New Jersey, as
amended February 1, 1991. (Note 3)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form. (Note 6)
(b) Supplement to the Application for PRUvider Variable
Appreciable Life Insurance Contract. (Note 4)
(11) Form of Notice of Withdrawal Right. (Note 1)
(12) Memorandum describing Pruco Life Insurance Company of New
Jersey's issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-3(b)(12)(iii) and method of
computing cash adjustment upon exercise of right to exchange for
fixed-benefit insurance pursuant to Rule 6e-3(T)(b)(13)(v)(B).
(Note 7)
(13) Available Contract Riders.
(a) Rider for Insured's Payment of Premium Benefit. (Note 1)
(b) Rider for Applicant's Payment of Premium Benefit. (Note
1)
(c) Rider for Insured's Accidental Death and Dismemberment
Benefit. (Note 1)
(d) Rider for Option to Purchase Additional Insurance on Life
of Insured. (Note 1)
(e) Rider for Term Insurance Benefit on Life of
Insured--Decreasing Amount. (Note 1)
II-2
<PAGE>
(f) Rider for Term Insurance Benefit on Life of Insured
Spouse--Decreasing Amount. (Note 1)
(g) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 1) (h) Rider for Level Term Insurance
Benefit on Dependent Children--from Term Conversions.
(Note 1)
(i) Rider for Level Term Insurance Benefit on Dependent
Children--from Term Conversions or Attained Age Change.
(Note 1)
(j) Living Needs Benefit Rider for use in New York. (Note 1)
(k) Endorsement altering the Assignment provision ORD
89224--94-P NY. (Note 1)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the
securities being registered. (Note 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. Indemnification Agreement. (Note 1)
8. Powers of Attorney:
(a) W. Bethke, I. Kleinman, M. Melzer, E. Milnes, I. Price, W. Yelverton
(Note 5)
(b) Linda Dougherty (Note 8)
27. Financial Data Schedule. (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Exhibit 1.A.(1), Form S-6
Registration No. 2-89780, filed March 5, 1984, on behalf of the Pruco
Life of New Jersey Variable Appreciable Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 17 to
Form S-6, Registration No. 2-89780, filed March 1, 1991, on behalf of
the Pruco Life of New Jersey Variable Appreciable Account.
(Note 4) Incorporated by reference to Registrant's Form S-6, filed January
19, 1993.
(Note 5) Incorporated by reference to Form N-4, Registration No. 333-18117,
filed December 18, 1996 on behalf of the Pruco Life of New Jersey
Flexible Premium Variable Annuity Account.
(Note 6) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996 on behalf of the Pruco Life Variable Appreciable
Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 33-57186,
filed April 25, 1996 on behalf of the Pruco Life of New Jersey
Variable Appreciable Account.
(Note 8) Incorporated by reference to Form S-1, Registration No. 33-20018,
filed April 9, 1997 on behalf of the Pruco Life of New Jersey
Variable Contract Real Property Account.
PLEASE NOTE: A Post-Effective Amendment No.1 was not filed for this Registration
Statement.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life of New Jersey PRUvider Variable Appreciable Account, 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 PostEffective Amendment to
the Registration Statement which included a prospectus and has caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 25th day of April, 1997.
(Seal) PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
--------------------- ---------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 25th day of April, 1997.
SIGNATURE AND TITLE
/s/ *
- -----------------------------------------
Esther H. Milnes
President and Director
/s/ *
- -----------------------------------------
Linda S. Dougherty
Chief Accounting Officer and Comptroller
/s/ *
- -----------------------------------------
William M. Bethke
Director
/s/ * *By: /s/ THOMAS C. CASTANO
- ----------------------------------------- ----------------------
Ira J. Kleinman Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -----------------------------------------
Mendel A. Melzer
Director
/s/ *
- -----------------------------------------
I. Edward Price
Director
/s/ *
- -----------------------------------------
William F. Yelverton
Director
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Consent of Deloitte & Touche LLP, independent auditors. Page II-6
Consent of Price Waterhouse LLP, independent accountants. Page II-7
1.A.(3)(a) Distribution Agreement between Pruco Securities Corporation Page II-8
and Pruco Life Insurance Company of New Jersey.
1.A.(3)(b) Proposed form of Agreement between Pruco Securities Page II-13
Corporation and independent brokers with respect to the Sale
of the Contracts.
1.A.(3)(c) Schedules of Sales Commissions. Page II-23
1.A.(5) PRUvider Variable Appreciable Life Insurance Contract. Page II-24
1.A.(11) Form of Notice of Withdrawal Right. Page II-55
1.A.(13)(a) Rider for Insured's Payment of Premium Benefit. Page II-57
1.A.(13)(b) Rider for Applicant's Payment of Premium Benefit. Page II-59
1.A.(13)(c) Rider for Insured's Accidental Death and Dismemberment Page II-62
Benefit.
1.A.(13)(d) Rider for Option to Purchase Additional Insurance on Life of Page II-64
Insured.
1.A.(13)(e) Rider for Term Insurance Benefit on Life of Page II-67
Insured--Decreasing Amount.
1.A.(13)(f) Rider for Term Insurance Benefit on Life of Insured Page II-70
Spouse--Decreasing Amount.
1.A.(13)(g) Rider for Level Term Insurance Benefit on Dependent Page II-74
Children.
1.A.(13)(h) Rider for Level Term Insurance Benefit on Dependent Page II-78
Children--from Term Conversions.
1.A.(13)(i) Rider for Level Term Insurance Benefit on Dependent Page II-82
Children--from Term Conversions or Attained Age Change.
1.A.(13)(j) Living Needs Benefit Rider for use in New York. Page II-86
1.A.(13)(k) Endorsement altering the Assignment provision ORD Page II-88
89224--94-P NY.
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the Page II-89
legality of the securities being registered.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to Page II-90
actuarial matters pertaining to the securities being
registered.
7. Indemnification Agreement Page II-91
27. Financial Data Schedule. Page II-93
</TABLE>
II-5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No.7 to Registration
Statement No.33-57186 on Form S-6 of Pruco Life of New Jersey Variable
Appreciable Account of Pruco Life Insurance Company of New Jersey of our report
dated February 15, 1996, relating to the financial statements of the Flexible
Managed and Conservative Balanced subaccounts of Pruco Life of New Jersey
Variable Appreciable Account, and of our report dated December 19, 1996,
relating to the financial statements of Pruco Life Insurance Company of New
Jersey 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 & Touche LLP
Parsippany, New Jersey
April 25, 1997
II-6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 7 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 31, 1997, relating to the
financial statements of Pruco Life of New Jersey Variable Appreciable Account,
which appears in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated April 11, 1997, relating to the
financial statements of Pruco Life Insurance Company of New Jersey, which
appears in such Prospectus.
We also consent to the use in the Statement of Additional Information
constituting part of this Registration Statement of our report dated February
14, 1997, relating to the financial statements and financial highlights of the
Conservative Balanced and Flexible Managed Portfolios, two of the fifteen
portfolios that comprise The Prudential Series Fund, Inc., which appears in such
Statement of Additional Information.
We also consent to the references to us under the headings "Financial
Highlights" and "Experts" in the Prospectus and "Experts" in the Statement of
Additional Information.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 24, 1997
II-7
EXHIBIT 1.A.(3)(a)
DISTRIBUTION AGREEMENT--VARIABLE LIFE INSURANCE CONTRACTS
AGREEMENT made this day of 1992, by and between Pruco Life
Insurance Company of New Jersey, a New Jersey corporation ("Company"), on its
own behalf and on behalf of the Pruco Life of New Jersey Variable Appreciable
Account ("Account") and Pruco Securities Corporation, a New Jersey corporation
("Distributor").
WITNESSETH:
WHEREAS, the Company has established and maintains the Account, a separate
investment account, pursuant to the laws of New Jersey for the purpose of
selling variable life insurance contracts ("Contracts"), to commence after the
effectiveness of the Registration Statement filed with the Securities and
Exchange Commission on Form S-6 pursuant to the Securities Act of 1933, as
amended (the "1933 Act"); and
WHEREAS, the Account will be registered as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the "Securities Exchange Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company and the Distributor wish to enter into an agreement to
have the Distributor act as the Company's principal underwriter for the sale of
the Contracts through the Account;
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT OF THE DISTRIBUTOR
The Company agrees that during the term of this Agreement it will take all
action which is required to cause the Contracts to comply as an insurance
product and a registered security with all applicable federal and state laws and
regulations. The Company appoints the Distributor and the Distributor agrees to
act as the principal underwriter for the sale of Contracts to the public, during
the term of this Agreement, in each state and other jurisdictions in which such
Contracts may lawfully be sold. Distributor shall offer the Contracts for sale
and distribution at premium rates set by the Company. Applications for the
Contracts shall be solicited only by representatives duly and appropriately
licensed or otherwise qualified for the sale of such Contracts in
II-8
<PAGE>
each state or other jurisdiction. Company shall undertake to appoint
Distributor's qualified representatives as life insurance agents of Company.
Completed applications for Contracts shall be transmitted directly to the
Company for acceptance or rejection in accordance with underwriting rules
established by the Company. Initial premium payments under the Contracts shall
be made by check payable to the Company and shall be held at all times by
Distributor or its representatives in a fiduciary capacity and remitted promptly
to the Company. Anything in this Agreement to the contrary notwithstanding, the
Company retains the ultimate right to control the sale of the Contracts and to
appoint and discharge life insurance agents of the Company. The Distributor
shall be held to the exercise of reasonable care in carrying out the provisions
of this Agreement.
2. SALES AGREEMENTS
Distributor is hereby authorized to enter into separate written agreements,
on such terms and conditions as Distributor may determine not inconsistent with
this Agreement, with one or more organizations which agree to participate in the
distribution of * the Contracts. Such organization (hereafter "Dealer") shall be
both registered as a broker/dealer under the Securities Exchange Act and a
member of NASD. Dealer and its agents or representatives soliciting applications
for Contracts shall be duly and appropriately licensed, registered or otherwise
qualified for the sale of such Contracts (and the riders and other policies
offered in connection therewith) under the insurance laws and any applicable
blue-sky laws of each state or other jurisdiction in which the Company is
licensed to sell the Contracts.
Company shall have the responsibility for ensuring that Dealer supervises
its representatives. Dealer shall assume any legal responsibilities of Company
for the acts, commissions or defalcations of such representatives insofar as
they relate to the sale of the Contracts. Applications for Contracts solicited
by such Dealer through its agents or representatives shall be transmitted
directly to the Company, and if received by Distributor, shall be forwarded to
Company. All premium payments under the Contracts shall be made by check to
Company and, if received by Distributor, shall be held at all times in a
fiduciary capacity and remitted promptly to Company.
3. LIFE INSURANCE LICENSING
Company shall be responsible for insuring that Brokers are duly qualified,
under the insurance laws of the applicable jurisdictions, to sell the Contract.
4. SUITABILITY
Company wishes to ensure that Contracts sold by
-2-
II-9
<PAGE>
Distributor will be issued to purchasers for whom the Contract will be suitable.
Distributor shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to an applicant
to purchase a Contract in the absence of reasonable grounds to believe that the
purchase of the Contract is suitable for such applicant. While not limited to
the following, a determination of suitability shall be based on information
furnished to a representative after reasonable inquiry of such applicant
concerning the applicant's insurance and investment objectives, financial
situation and needs, and the likelihood that the applicant will continue to make
the premium payments contemplated by the Contracts.
5. PROMOTION MATERIALS
Company shall have the responsibility for furnishing to Distributor and its
representatives sales promotion materials and individual sales proposals related
to the sale of the Contracts. Distributor shall not use any such materials that
have not been approved by Company.
6. COMPENSATION
Company shall arrange for the payment of commissions directly to those
registered representatives of Distributor who are entitled thereto in connection
with the sale of the Contracts on behalf of Distributor, in the amounts and on
such terms and conditions as Company and Distributor shall determine; provided
that such terms, conditions and commissions shall be as are set forth in or as
are not inconsistent with the Prospectus included as part of the Registration
Statement for the Contracts and effective under the 1933 Act.
Company shall arrange for the payment of commissions directly to those
Brokers who sell Contracts under agreements entered into pursuant to paragraph
2. hereof, in amounts as may be agreed to by the Company and specified in such
written agreements.
Company shall reimburse Distributor for the costs and expenses incurred by
Distributor in furnishing or obtaining the services, materials and supplies
required by the terms of this Agreement in the initial sales efforts and the
continuing obligations hereunder.
7. RECORDS
Distributor shall have the responsibility for maintaining the records of
representatives licensed, registered and otherwise qualified to sell the
Contracts. Distributor shall maintain such other records as are required of it
by applicable laws and regulations. The books, accounts, and records of Company,
the Account and Distributor shall be maintained so as to clearly and
-3-
II-10
<PAGE>
accurately disclose the nature and details of the transactions. All records
maintained by the Distributor in connection with this Agreement shall be the
property of the Company and shall be returned to the Company upon termination of
this Agreement, free from any claims or retention of rights by the Distributor.
The Distributor shall keep confidential any information obtained pursuant to
this Agreement and shall disclose such information, only if the Company has
authorized such disclosure, or if such disclosure is expressly required by
applicable federal or state regulatory authorities.
8. INVESTIGATION AND PROCEEDING
(a) Distributor and Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts distributed under this Agreement. Distributor and
Company further agree to cooperate fully in any securities regulatory
investigation or proceeding with respect to Company, Distributor, their
affiliates and their agents or representatives to the extent that such
investigation or proceeding is in connection with Contracts distributed under
this Agreement. The Distributor shall furnish applicable federal and state
regulatory authorities with any information or reports in connection with its
services under this Agreement which such authorities may request in order to
ascertain whether the Company's operations are being conducted in a manner
consistent with any applicable law or regulations.
(b) In the case of a substantive customer complaint, Distributor and
Company will cooperate in investigating such complaint and any response to such
complaint will be sent to the other party to this Agreement for approval not
less than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is required, the
proposed response shall be communicated by telephone or telegraph.
9. TERMINATION
This Agreement shall terminate automatically upon its assignment without
the prior written consent of both parties. This Agreement may be terminated at
any time by either party on 60 days' written notice to the other party, without
the payment of any penalty. Upon termination of this Agreement all
authorizations, rights and obligations shall cease except the obligation to
settle accounts hereunder, including commissions on premiums subsequently
received for Contracts in effect at time of termination, and the agreements
contained in paragraph 8 hereof.
10. REGULATION
This Agreement shall be subject to the provisions of the 1940 Act and the
Securities Exchange Act of the rules,
-4-
II-11
<PAGE>
regulations, and rulings thereunder and of the applicable rules and regulations
of the NASD, from time to time in effect, and the terms hereof shall be
interpreted and construed in accordance therewith.
11. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
12. APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
By:
-----------------------------------
President
PRUCO SECURITIES CORPORATION
By:
------------------------------------
Senior Vice President
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II-12
EXHIBIT 1.A.(13)(b)
SELECTED BROKER AGREEMENT
This agreement is made on the _____ day of __________________, 1992
by and between ________________________________________ ("Broker"),
a ___________________________ corporatiion with its principal business
address at ________________________________________________________________,
and PRUCO SECURITIES CORPORATION ("Distributor"), a New Jersey corporation
with its principal place of business at 213 Washington Street, Newark,
New Jersey 07102.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties
hereto agree as follows:
A. DEFINITIONS
(1) Contracts - Variable life insurance contracts and/or variable annuity
contracts described in Schedule A attached hereto and issued by the
Pruco Life Insurance Company of New Jersey (hereinafter called the
"Company") and for which Distributor has been appointed the principal
underwriter pursuant to Distribution Agreement(s), copies of which have
been furnished to Broker. From time to time Schedule A may be updated
or amended. Such updates or amendments will be effective upon written
notification to the Broker that a new or amended Schedule A has been
issued.
(2) Accounts - Separate account(s) established and maintained by the Company
pursuant to the laws of Arizona or New Jersey to fund the benefits under
the Contracts.
(3) The Prudential Series Fund, Inc., or the "Fund" - An open-end management
investment company registered under the 1940 Act, shares of which are
sold to the Accounts in connection with the sale of the Contracts.
(4) Registration Statement - The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Fund,
including financial statements and all exhibits.
(5) Prospectus - The prospectuses included within the Registration
Statements referred to herein.
(6) 1933 Act - The Securities Act of 1933, as amended.
(7) 1934 Act - The Securities Exchange Act of 1934, as amended.
II-13
<PAGE>
(8) 1940 Act - The Investment Company Act of 1940, as amended.
(9) SEC - The Securities and Exchange Commission.
B. AGREEMENTS OF DISTRIBUTOR
(1) Pursuant to the authority delegated to it by Company, Distributor hereby
authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons, provided that there is
an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited. In connection with the solicitation of applications
for Contracts, Broker is hereby authorized to offer riders that are
available with the Contracts in accordance with instructions furnished
by Distributor or Company.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and of any other
action or circumstance that may prevent the lawful sale of the Contract
in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. AGREEMENTS OF BROKER
(1) Broker represents that it is a registered broker/dealer under the 1934
Act and a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"). Broker represents that its agents or
representatives who will be soliciting applications for the Contracts
will be duly registered representatives of Broker and furthermore that
each one will be a registered representative in good standing with
accreditation to sell the Contracts as required by the NASD.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use its best efforts to find purchasers for the
Contracts acceptable to
-2-
II-14
<PAGE>
Company. In meeting its obligation to use its best efforts f to solicit
applications for Contracts, Broker shall, during the term of this
Agreement, engage in the following activities:
(a) Continuously utilize training, sales and promotional materials
which have been approved by Company;
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may
be requested on the results of such inspections and the compliance
with such procedures.
(c) Broker shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to
an applicant to purchase a Contract in the absence of reasonable
grounds to believe that the purchase of the Contract is suitable
for such applicant. While not limited to the following, a
determination of suitability shall be based on information
furnished to a representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment
objectives, financial situation and needs, and the likelihood that
the applicant will continue to make the premium payments
contemplated by the Contract.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be held at all times in a fiduciary capacity and shall be
remitted promptly in full together with such applications, forms and
other required documentation to an office of the Company designated by
Distributor. Checks or money orders in payment of initial premiums shall
be drawn to the order of Pruco Life Insurance Company of New Jersey.
Broker acknowledges that the Company retains the ultimate right to
control the sale of the Contracts and that the Distributor or Company
shall have the unconditional right to reject, in whole or part, any
application for the Contract. In the event Company or Distributor
rejects an application, Company immediately will return all payments
directly to the purchaser and Broker will be notified of such action. In
the event that any purchaser of a Contract elects to return such
Contract pursuant to either Rule 6e-2(b)(13)(viii) or Rule
6e-3(T)(b)(13)(viii) of the 1940 Act, the purchaser will receive a
refund in accordance with the provisions of the applicable Rule.
(4) Broker shall act as an independent contractor, and nothing herein
contained shall make Broker, or any one
-3-
II-15
<PAGE>
of its employees, agents or representatives, an employee of Company or
Distributor in connection with the solicitation of or applications for
Contracts. Broker, its agents or representatives, and its employees
shall not hold themselves out to be employees of Company or Distributor
in this connection or in any dealings with the public.
(5) Broker agrees that any material it develops, approves or uses for sales,
training, explanatory or other purposes in connection with the
solicitation of applications for Contracts hereunder (other than generic
advertising materials which do not make specific reference to the
Contracts) will not be used without the prior written consent of
Distributor and, where appropriate, the endorsement of Company to be
obtained by Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only in
accordance with applicable laws and regulations. No agent or
representative of Broker shall solicit applications for the Contracts
until duly licensed and appointed by Company as a life insurance and
variable contract broker or agent of Company in the appropriate states
or other jurisdictions. Broker shall ensure that such agents or
representatives fulfill any training requirements necessary to be
licensed. Broker understands and acknowledges that neither it nor its
agents or representatives is authorized by Distributor or
Company to give any information or make any representation in
connection with this Agreement or the offering of the Contracts other
than those contained in the Prospectus or other solicitation material
authorized in writing by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company to:
make, alter or discharge any Contract or other form; waive any
forfeiture, extend the time of paying any premium; receive any monies or
premiums due, or to become due, to Company, except as set forth in
Section C(3) of this Agreement. Broker shall not expend, nor contract
for the expenditure of the funds of Distributor, nor shall Broker
possess or exercise any authority on behalf of Broker by this Agreement.
(8) Broker shall have the responsibility for maintaining the records of its
representatives licensed, registered and otherwise qualified to sell the
Contracts. Broker shall maintain such other records as are required of
it by applicable laws and regulations. The books, accounts and records
of Company, the Account, Distributor and Broker relating to the sale of
the Contracts shall be maintained so as to clearly and accurately
disclose the nature and details of the
-4-
II-16
<PAGE>
transactions. All records maintained by the Broker in connection
with this Agreement shall be the property of the Company and shall be
returned to the Company upon termination of this Agreement, free from
any claims or retention of rights by the Broker. Nothing in this Section
C(8) shall be interpreted to prevent the Broker from retaining copies of
any such records which the Broker, in its discretion, deems necessary or
desirable to keep. The Broker shall keep confidential any information
obtained pursuant to this Agreement and shall disclose such information,
only if the Company has authorized such disclosure, or if such
disclosure is expressly required by applicable federal or state
regulatory authorities.
(9) Broker agrees that it will not offer for sale, either directly or
through any affiliated entity, any variable annuity containing a market
value adjustment feature other than those shown on Schedule A hereto, as
amended from time to time.
D. COMPENSATION
(1) Pursuant to the Distribution Agreement between Distributor and Company,
Distributor shall cause Company to arrange for the payment of
commissions to Broker as compensation for the sale of each contract sold
by an agent or representative of Broker. The amount of such commission
shall be based on a Compensation Schedule to be determined by agreement
of Company and Distributor, and compensation to Broker shall be shown
on Schedule B hereto, which may be amended from time to time by
Distributor. Company shall identify to Broker with each such payment
the name of the agent or representative of Broker who solicited each
Contract covered by the payment.
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any premium it shall receive for
purposes of payment of commission or otherwise. Neither Broker nor any
of its agents or representatives shall have an interest in any
compensation paid by Company to Distributor, now or hereafter, in
connection with the sale of any Contracts hereunder.
(3) Upon the termination of this Agreement, the Company will pay commissions
to the Broker only on net premiums which the Company receives within
sixty (60) days of the termination date on applications written by the
Broker on or before the termination date. No other compensation will be
payable by the Company after the termination date.
-5-
II-17
<PAGE>
E. COMPLAINTS AND INVESTIGATIONS
(1) Broker and Distributor jointly agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts marketed under this Agreement. Broker and
Distributor further agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with
respect to Broker, Distributor, their affiliates and their agents or
representatives to the extent that such investigation or proceeding is
in connection with Contracts marketed under this Agreement. Broker shall
furnish applicable federal and state regulatory authorities with any
information or reports in connection with its services under this
Agreement which such authorities may request in order to ascertain
whether the Company's operations are being conducted in a manner
consistent with any applicable law or regulation.
F. TERM OF AGREEMENT
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section E
hereof; (b) the indemnity set forth in Section G hereof.
G. INDEMNITY
(1) Broker shall be held to the exercise of reasonable care in carrying out
the provisions of this Agreement.
(2) Distributor agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims, damages or
liabilities, joint or several, to which Broker or such officer or
director become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact, required to be stated therein or
necessary to make the statements therein not misleading, contained in
any Registration Statement or any post-effective amendment thereof or in
the Prospectus, or any sales literature provided by the Company or by
the Distributor.
(3) Broker agrees to indemnify and hold harmless Company
-6-
II-18
<PAGE>
and Distributor and each of their current and former directors and
officers and each person, if any, who controls or has controlled Company
or Distributor within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages or liabilities to which Company or
Distributor and any such director or officer or controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Broker, its registered representatives, agents
directors, officers, employees or other persons who are or should
be under its control or supervision; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other
compensation or renumeration of any type;
(c) The failure of Broker, its officers, employees, or agents to comply
with the provisions of this Agreement; and Broker will reimburse
Company and Distributor and any director or officer or controlling
person of either for any legal or other expenses reasonably
incurred by Company, Distributor, or such director, officer or
controlling person in connection with investigating or defending
any such loss, claims, damage, liability or action. This indemnity
agreement will be in addition to any liability which Broker may
otherwise have.
H. ASSIGNABILITY
This Agreement shall not be assigned by either party without the written
consent of the other.
I. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey.
-7-
II-19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PRUCO SECURITIES CORPORATION
By:_________________________________________________
_________________________________________________
(Broker)
By:_________________________________________________
II-20
<PAGE>
SCHEDULE A TO SELECTED BEOKER AGREEMENT BY AND BETWEEN
(Broker)
AND
PRUCO SECURITIES CORPORATION
Contracts:
II-21
<PAGE>
SCHEDULE B TO SELECTED BEOKER AGREEMENT BY AND BETWEEN
(Broker)
AND
PRUCO SECURITIES CORPORATION
COMPENSATION SCHEDULE
Contract Compensaton to Broker
PRUvider xxxxxxxxxxxxxx
II-22
EXHIBIT 1.A.(3)(c)
COMMISSION SCHEDULE FOR
PRUVIDER VARIABLE LIFE INSURANCE CONTRACTS
I. DISTRICT AGENCIES
A. First year commissions on contracts issued on the following insureds:
Commission as Percentage
Insured of Scheduled Premiums
------- ---------------------
Under Age 60 50%
Age 60-69 45%
Age 70-75 40%
B. Commissions on renewal scheduled premiums in contract years two
through four, whether paid or not, are 7%;
C. On premiums paid in excess of the first scheduled premium, a
commission of 3% will be paid until the client has paid premiums equal
to ten years of scheduled premiums, and 2% thereafter.
II. The registered representatives of Prudential Securities, Inc. will be
paid the following commissions on contracts they sell: the same as stated
above for District Agencies for first year scheduled premiums, and 5% of
the second through tenth year scheduled premiums. They will also be paid 3%
of premiums paid in excess of scheduled premiums until the client has paid
premiums equal to ten years of scheduled premiums, and 2% thereafter.
III. In the event a contract lapses or is surrendered within the first two
contract years, a portion or all of the first year commission may be
subject to recapture by Pruco Life Insurance Company of New Jersey. If the
contract lapses at the end of year one, 30% of the commission is subject to
recapture. A higher percentage of the first year commission may be first
recaptured on earlier lapses. A lower and decreasing portion of the
year commission is subject to recapture throughout the second contract
year.
IV. 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 that stated
above.
II-23
EXHIBIT 1.A.(5)
- --------------------------------------------------------------------------------
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Newark, New Jersey 07102-2992
A Stock Company of The Prudential Insurance Company of America
INSURED JOHN DOE XX XXX XXX POLICY NUMBER
JUNE 10, 1992 CONTRACT DATE
FACE AMOUNT $5,000--
PREMIUM PERIOD LIFE
AGENCY 0-MIL7
===============================================================================
We will pay the beneficiary the proceeds of this contract promptly if we receive
due proof that the insured died. We make this promise subject to all the
provisions of the contract.
THE PROCEEDS ARISING FROM THE INSURED'S DEATH WILL BE THE INSURANCE AMOUNT,
PLUS THE AMOUNT OF ANY EXTRA BENEFIT ARISING FROM THE INSURED'S DEATH (UNLESS
THE CONTRACT IS IN DEFAULT OR THERE IS CONTRACT DEBT). THE INSURANCE AMOUNT
MAY BE FIXED OR VARIABLE DEPENDING ON THE PAYMENT OF PREMIUMS, THE INVESTMENT
EXPERIENCE OF THE VARIABLE INVESTMENT OPTIONS, ANY EXCESS INTEREST CREDITED TO
THE FIXED INVESTMENT OPTIONS, AND THE CHARGES MADE. BUT IT WILL NOT BE LESS
THAN THE FACE AMOUNT. (WE DESCRIBE THE INSURANCE AMOUNT UNDER DEATH PROCEEDS.)
THE CASH VALUE MAY INCREASE OR DECREASE DAILY DEPENDING ON THE PAYMENT OF
PREMIUMS, THE INVESTMENT EXPERIENCE OF THE VARIABLE INVESTMENT OPTIONS, ANY
EXCESS INTEREST CREDITED TO THE FIXED INVESTMENT OPTIONS, AND THE CHARGES MADE.
THERE IS NO GUARANTEED MINIMUM.
We specify a schedule of premiums. Additional premiums may be paid at your
option subject to the limitations in the contract.
Please read this contract with care. If there is ever a question about it, or
if there is a claim, just see one of our agents or get in touch with one of
our offices.
RIGHT TO CANCEL CONTRACT.--You may return this contract to us within 10 days
after you get it. All you have to do is take the contract or mail it to one of
our offices or to the representative who sold it to you. It will be canceled
from the start and we will return your money in accordance with state law.
Signed for Pruco Life Insurance Company of New Jersey,
a New Jersey Corporation.
[Specimen Signature] [Specimen Signature]
Secretary President
VARIABLE LIFE INSURANCE POLICY. INSURANCE PAYABLE UPON DEATH. SCHEDULED
PREMIUMS PAYABLE THROUGHOUT INSURED'S LIFETIME. PROVISION FOR OPTIONAL
ADDITIONAL PREMIUMS. BENEFITS REFLECT PREMIUM PAYMENTS, INVESTMENT RESULTS AND
CHARGES. DEATH BENEFIT GUARANTEED IF SCHEDULED PREMIUMS DULY PAID AND NO
CONTRACT DEBT OR WITHDRAWALS. NON-PARTICIPATING.
===============================================================================
VAL--DR--105--NY
II-24
<PAGE>
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GUIDE TO CONTENTS
Page
Contract Data ........................................ 3
List of Contract Limitations; List of
Supplementary Benefits, if any; Schedule of
Premiums; Adjustments to Premium Payments;
Adjustments to the Contract Fund;
Table of Maximum Monthly Mortality Rates ............. 4
Per $1,000
Investment Options ................................... 5
The Account; Variable Investment Options;
Fixed Investment Options; Schedule of Initial
Allocation of Invested Premium Amounts
Attained Age Factors ................................. 6
Tabular Values ....................................... 7
Premium Payment ...................................... 8
Payment of Premiums; Basic Premiums; Taxes
Attributable to Premiums; Scheduled Premiums;
Unscheduled Premiums; Invested Premium
Amount; Allocations
Default and Reinstatement ............................ 9
Default; Contract Fund Deficit; Premium
Account Deficit; Premium Account; Grace
Period; Reinstatement; Benefits After the Grace
Period; Extended Insurance; Fixed Reduced
Paid-up insurance; Variable Reduced Paid-up
Insurance; Cash Value
Contract Fund ........................................ 12
Coverage Amount
Separate Accounts .................................... 12
Separate Account; Investment Options:
Separate Account Investments; Change in Investment
Policy
Fixed Investment Options ............................. 13
Guaranteed Interest; Excess Interest
Transfers ............................................ 13
Class One Investments; Class Two Investments
Surrender ............................................ 14
Net Cash Value; Cash Value; Tabular Values
Loans ................................................ 15
Loan Value; Contract Debt; Loan Requirements;
Interest Charge; Repayment; Effect of a Loan;
Excess Contract Debt; Postponement of Loan
Withdrawals .......................................... 16
Withdrawals; Effect on Insurance Amount;
Effect on Guaranteed Paid-Up Insurance
Amount
Death Proceeds ....................................... 17
Insurance Amount; Proceeds Arising From
Insured's Death; Payment of Death Claim
Optional Paid-Up Benefit ............................. 17
Guaranteed Paid-Up Insurance Amount; Paid-
Up Insurance Amount; Effects of the Paid-Up
Benefit
Optional Reduced Paid-Up Benefit ..................... 18
Beneficiary .......................................... 18
Settlement Options ................................... 19
Payee Defined; Choosing an Option; Options
Described; First Payment Due Date; Residue
Described; Withdrawal of Residue; Designating
Contingent Payee(s); Changing Options;
Conditions; Death of Payee
Income Tables ........................................ 22
General Provisions ................................... 23
Definitions; The Contract; Contract
Modifications; Ownership and Control; Suicide
Exclusion; Currency; Misstatement of Age or
Sex; Incontestability; Assignment; Interest
Included in Death Proceeds; Annual Report;
Change in Plan
Basis Of Computation ................................. 24
Mortality Tables Described; Exclusions; Values
After 20 Contract Years; Minimum Legal Values
Supplementary Benefits ............................... 24
A copy of the application follows page 25.
(VAL--DR--105)(NY) Page 2
II-25
<PAGE>
CONTRACT DATA
Insured's Sex and Issue Age M-35
Insured JOHN DOE XX XXX XXX POLICY NUMBER
June 10,1992 Contract Date
Face Amount $5,000
Premium Period LIFE
Agency 0-MIL7
Beneficiary CLASS 1 MARY DOE, WIFE
CLASS 2 ROBERT DOE, SON
***** END OF LIST *****
RATING
FACE AMOUNT CLASS
----------- -------
$5,000 PREFERRED
VAL--DR--105 Page 3
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<PAGE>
POLICY NUMBER XX XXX XXX
LIST OF CONTRACT LIMITATIONS
The minimum premium we wil1 accept is the lesser of the scheduled premium and
$25.
Unscheduled premiums may be paid at any time during the insured's lifetime as
long as the contract is not in default past the days of grace or has not become
paid-up as described under Optional Paid-Up Benefit.
We may limit the amount of unscheduled premiums in any contract year to $5,000.
We may limit the number of withdrawals to four in any contract year.
The minimum amount you may withdraw is $200.
You may not borrow less than $200 at any one time except to pay premiums.
The minimum face amount is $5,000.
***** END OF LIST *****
LIST OF SUPPLEMENTARY BENEFITS
(Each benefit is described in the form that
bears the number shown for it)
NONE
***** END OF LIST *****
VAL--DR--l05 Page 3A
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<PAGE>
POLICY NUMBER XX XXX XXX
SCHEDULE OF PREMIUMS
Scheduled premiums are equal to the basic premium plus the charge for taxes
attributable to premiums. The initial scheduled premium due on the contract date
is $172.09. Due dates of scheduled premiums occur on the contract date and at
intervals of 12 months after that date.
Basic premiums are: $168.05 EACH
***** END OF SCHEDULE *****
ADJUSTMENTS TO PREMIUM PAYMENTS
From each premium paid, we will:
Deduct a charge for any taxes attributable to premiums. For purposes of
this charge, the term "taxes attributable to premiums" shall include: (a)
any federal, state or local income tax, (b) any premium, excise, or
business tax, and (c) any other type of tax (or component thereof) measured
by or based upon the amount of premium received by us.
Deduct a charge for payment processing of up to $2.00.
The remainder of the premium is the invested premium amount.
ADJUSTMENTS TO THE CONTRACT FUND
On the contract date the contract fund is equal to the invested premium amount
credited on that date, minus any of the charges described below which may be due
on that date.
On any day after that date, we will adjust the contract fund by:
o adding any invested premium amounts.
o adding any increase due to investment results in the value of the variable
investment options.
VAL--DR--105 (NY) Page 3B
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<PAGE>
POLICY NUMBER XX XXX XXX
ADJUSTMENTS TO THE CONTRACT FUND CONT.
o adding guaranteed interest at an effective annual rate of 4% (0.01074598% a
day) on that portion of the contract fund that is not in a variable
investment option.
o adding any excess interest on that portion of the contract fund that is not
in a variable investment option.
o subtracting any decrease due to investment results in the value of the
variable investment options.
o subtracting a charge against the variable investment options at a rate of
not more than .00245475% a day (0.90% a year) for mortality and expense
risks that we assume.
. . . and on each monthly date, we will adjust the contract fund by:
o subtracting any amount charged against the contract for federal, state or
local taxes attributable to the contract (other than taxes previously
deducted from the premium).
o subtracting a monthly charge for the expected cost of mortality of up to
the maximum monthly rate (see Table of Maximum Monthly Rates) multiplied by
the coverage amount (described under Contract Fund).
o subtracting a monthly charge for administrative expenses of up to $6.95.
There is an additional 30 cents per $1,000 of face amount if the face
amount is less than $10,000.
o subtracting a monthly charge for sales expenses of up to $0.38.
o subtracting a monthly charge of up to $0.05 to guarantee that the insurance
amount will not fall below the face amount regardless of the investment
performance of the variable investment options.
o subtracting any charge for extra rating class.
o subtracting any charge for extra benefits.
VAL--DR--105 Page 3C
II-29
<PAGE>
POLICY NUMBER XX XXX XXX
ADJUSTMENTS TO THE CONTRACT FUND CONT.
. . . and when appropriate, we will adjust the contract fund by:
o subtracting any withdrawals.
o subtracting any portion of the surrender charges associated with a
withdrawal (see Withdrawals).
o subtracting an administrative charge of up to $15 for withdrawals.
SCHEDULE OF MONTHLY DEDUCTIONS FROM THE CONTRACT FUND FOR
ANY EXTRA BENEFITS OR EXTRA RATING CLASS
NONE
***** END OF SCHEDULE *****
SCHEDULE OF MAXIMUM SURRENDER CHARGES
For full surrender at the beginning of the contract year indicated, the maximum
charge we will deduct is shown below. For surrender at other times, the amount
of the charge will reflect the number of days since the beginning of the
contract year (see Surrender). We will also deduct a surrender charge when we
determine the net cash value used to provide any benefit after the "Grace
Period".
YEAR OF SURRENDER YEAR OF SURRENDER
SURRENDER CHARGE SURRENDER CHARGE
--------- ------ --------- ------
1 $63.05 6 $63.05
2 $63.05 7 $50.45
3 $63.05 8 $37.85
4 $63.05 9 $25.20
5 $63.05 10 $12.60
11 and later $ 0.00
VAL--DR--105 PAGE 3D
II-30
<PAGE>
POLICY NO. XX XXX XXX
TABLE OF MAXIMUM MONTHLY MORTALITY RATES PER $1000
Insured's Maximum Insured's Maximum
Attained Age Rate Attained Age Rate
------------ ------- ------------- -------
35 0.1439 68 2.4893
36 0.1514 69 2.7438
37 0.1614 70 3.0317
38 0.1722 71 3.3603
39 0.1839 72 3.7397
40 0.1980 73 4.1690
41 0.2130 74 4.6407
42 0.2288 75 5.1449
43 0.2463 76 5.6774
44 0.2654 77 6.2340
45 0.2870 78 6.8180
46 0.3130 79 7.4478
47 0.3353 80 8.1434
48 0.3627 81 8.9229
49 0.3927 82 9.8023
50 0.4268 83 10.7774
51 0.4659 84 11.8290
52 0.5108 85 12.9330
53 0.5624 86 14.0753
54 0.6198 87 15.2384
55 0.6839 88 16.4173
56 0.7538 89 17.6287
57 0.8278 90 18.8899
58 0.9102 91 20.2303
59 1.0025 92 21.6995
60 1.1057 93 23.4408
61 1.2205 94 25.7770
62 1.3528 95 29.2738
63 1.5025 96 35.0252
64 1.6689 97 45.0097
65 1.8511 98 61.9945
66 2.0483 99 83.1973
67 2.2596
These monthly rates are based on the Commissioners 1980 Standard Ordinary
Non-Smokers Mortality Table.
We may charge less than these rates. At least once every five years, but not
more often than once a year, we will consider the need to change the rates we
charge based on actual mortality experience under contracts like this one. We
will change them only if we do so for all contracts like this one dated in the
same year as this one.
VAL--DR--105 (NY) Page 4
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<PAGE>
POLICY NO. XX XXX XXX
INVESTMENT OPTIONS
The Pruco Life of New Jersey PRUvider Variable Appreciable Account. Each
investment option of this account invests in a specific portfolio of Prudential
Series Fund, Inc. We show the available investment options of the account below.
They invest in Series Fund portfolios with the same names. This account is
registered with the SEC under the Investment Company Act of 1940.
These are Class One investments as described under Transfers.
VARIABLE INVESTMENT OPTIONS
AGGRESSIVELY MANAGED FLX
CONSERVATIVELY MANAGED FLX
These are Class Two investments as described under Transfers.
FIXED INVESTMENT OPTIONS
Fixed Interest Rate
***** END OF LIST *****
SCHEDULE OF INITIAL ALLOCATION OF INVESTED PREMIUM AMOUNTS
Fixed Interest Rate 40%
Aggressively Managed Flex 60%
VAL--DR--105 (NY) Page 5
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<PAGE>
POLICY NO. XX XXX XXX
ATTAINED AGE FACTORS
These factors are used to determine your insurance amount as described under
Death Proceeds. These factors apply on the contract anniversary when the
Insured's attained age is as shown. To calculate the insurance amount at other
times we consider the time elapsed since the last contract anniversary.
Attained Attained
Age Factors Age Factors
-------- ------- -------- -------
35 4.21942 67 1.60268
36 4.07931 68 1.56603
37 3.94401 69 1.53110
38 3.81346 70 1.49782
39 3.68773 71 1.46620
40 3.56660 72 1.43628
41 3.44995 73 1.40810
42 3.33768 74 1.38170
43 3.22957 75 1.35703
44 3.12550 76 1.33391
45 3.02527 77 1.31221
46 2.92887 78 1.29175
47 2.83608 79 1.27237
48 2.74681 80 1.25398
49 2.66086 81 1.23656
50 2.57819 82 1.22016
51 2.49876 83 1.20486
52 2.42243 84 1.19068
53 2.34925 85 1.17762
54 2.27911 86 1.16552
55 2.21196 87 1.15430
56 2.14768 88 1.14376
57 2.08617 89 1.13366
58 2.02726 90 1.12379
59 1.97080 91 1.11397
60 1.91682 92 1.10388
61 1.86519 93 1.09325
62 1.81588 94 1.08180
63 1.76886 95 1.06940
64 1.72412 96 1.05619
65 1.68159 97 1.04267
66 1.64113 98 1.02984
99 1.01976
VAL--DR--105 Page 6
II-33
<PAGE>
POLICY NO. XX XXX XXX
TABULAR VALUES
Tabular values are calculated based on the scheduled premiums, guaranteed
charges, an assumed rate of return or 4.0% per year (0.0l074598% a day), and no
contract debt. Actual values may be different than the tabular amounts shown
below.
Tabular
End of Tabular Tabular Reduced Extended
Contract Contract Cash Paid-up Insurance*
Year Fund Value Insurance Years Days
- -------- -------- ------- --------- ----- ----
1 53.35 0.00 0.00 0 0
2 108.45 45.40 180.00 3 152
3 165.30 102.25 390.00 7 4
4 223.85 160.80 593.00 9 308
5 284.25 221.20 789.00 12 32
6 346.35 295.90 1021.00 14 97
7 410.25 372.40 1243.00 15 330
3 476.00 450.80 1456.00 17 62
9 543.55 530.95 1660.00 18 52
10 613.00 613.00 1855.00 18 320
11 684.35 684.35 2005.00 19 67
12 757.50 757.50 2149.00 19 139
13 832.60 832.60 2287.00 19 180
14 909.65 909.65 2421.00 19 195
15 988.60 988.60 2549.00 19 189
16 1069.45 1069.45 2673.00 19 162
17 1152.10 1152.10 2791.00 19 117
18 1236.40 1236.40 2905.00 19 56
19 1322.20 1322.20 3014.00 18 346
20 1409.50 1409.50 3118.00 18 256
ATTAINED
AGE
- --------
60 1865.65 1865.65 3577.00 17 32
62 2055.70 2055.70 3733.00 16 123
65 2343.90 2343.90 3942.00 15 55
* There may be extra days of term insurance. We explain this under the
Extended Insurance provision.
The Nonforfeiture Factor, applicable during premium period, per $1,000 of
initial face amount equals 12.18282.
VAL--DR--105 Page 7
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<PAGE>
POLICY NO. XX XXX XXX
TABULAR VALUES
***** EXCLUSIONS *****
Loan values earn the guaranteed interest rate of 4%.
Additional amounts will not be credited on any contract continued under the
extended insurance option.
***** END OF EXCLUSIONS *****
VAL--DR--105 (NY) PAGE 7A
II-35
<PAGE>
- --------------------------------------------------------------------------------
PREMIUM PAYMENT
PAYMENT OF PREMIUMS
Premiums may be paid at our Home Office or to any of our authorized agents.
If we are asked to do so, we will give a signed receipt.
Premium payments will in most cases be credited as of the date of receipt
at our Home Office. In the following cases, part or all of a premium payment
will be credited as of a date other than the date of receipt:
1. If the first premium payment is received after the contract date,
the scheduled portion will be credited as of the contract date.
2. If the first premium payment is received before the contract date,
it will be credited as of the contract date.
3. If a premium payment is received during the 61-day period after a
scheduled premium due date and the premium account is negative by no more
than the scheduled premium then due, the portion of the payment needed to
bring the premium account up to zero will be credited to the premium
account, but not the contract fund, as of the due date.
4. If the contract is in default and premium payments are received
during the days of grace while the contract is in default, we will credit
to the contract fund and the premium account those parts of the premium
payments needed to end the default status as of the applicable monthly
dates.
BASIC PREMIUMS
We show the amount and frequency of the basic premiums in the Schedule of
Premiums in the contract data pages.
TAXES ATTRIBUTABLE TO PREMIUMS
The charge for taxes attributable to premiums is a percentage of each
premium paid. It will change only on a contract anniversary. At least sixty days
before the start of each contract year, we will determine the rate we will
charge for that contract year. We describe this charge in the contract data
pages under Adjustments to Premium Payments.
SCHEDULED PREMIUMS
The scheduled premiums are equal to the basic premiums plus the charge for
taxes attributable to premiums. The scheduled premiums will change if the basic
premiums change or the charge for taxes changes. We show the amount of the first
scheduled premium in the Schedule of Premiums. It is due on the contract date.
There is no insurance under this contract unless an amount at least equal to the
first scheduled premium is paid.
We guarantee that the contract will continue in full force if you pay all
scheduled premiums when due, you make no withdrawals, and any contract debt does
not exceed the cash value.
If you wish to pay, on a regular basis, premiums that are higher than the
scheduled premiums, we will bill you for the higher amount you choose. Or if you
wish, you may from time to time make a premium payment smaller than the
scheduled amount, subject to the minimum premium amount shown under the List of
Contract Limitations.
If scheduled premiums that are due are not paid, or if smaller payments are
made, the contract may then or at some future time go into default. Payment of
less than the scheduled premium increases the risk that the contract will end if
investment results are not favorable (see Default).
(VAL--DR--105) Page 8
II-36
<PAGE>
UNSCHEDULED PREMIUMS
We have the right to limit unscheduled premiums as shown under the List of
Contract Limitations. We also have the right to refuse any payment that
increases the insurance amount by more than it increases the contract fund.
Invested Premium Amount
This is the portion of each premium paid that we will add to the premium
account and the contract fund. It is equal to the premium paid adjusted as
described under Adjustments to Premium Payments.
ALLOCATIONS
You may allocate all or a part of your invested premium amount to one or
more of the investment options listed in the contract data pages. You may choose
to allocate nothing to a particular investment option. But any allocation you
make must be at least 10%; you may not choose a fractional percent.
The initial allocation of invested premium amounts is shown in the contract
data pages. You may change the allocation for future invested premium amounts at
any time if the contract is not in default. To do so, you must notify us in a
form that meets our needs. The change will take effect on the date we receive
your notice at our Home Office.
A premium might be paid when the contract fund is less than zero. In that
case we first use as much of the invested premium amount as we need to bring the
fund up to zero. We will then allocate any remainder of the invested premium
amount in accord with your most recent request.
- --------------------------------------------------------------------------------
DEFAULT AND REINSTATEMENT
DEFAULT
Unless the contract is already in the grace period, we will determine on
each monthly date whether the contract is in default. The contract is in default
if (1) there is a contract fund default, and (2) there is a premium account
deficit. We describe the calculations of the contract fund deficit and the
premium account deficit below.
CONTRACT FUND DEFICIT
To calculate the contract fund deficit, we will first deduct any applicable
charges from the contract fund and add any applicable credits to it. We will
then compute the amount which will grow to equal the tabular contract fund on
the next monthly date if, during the current contract month: (1) any investment
results are at the assumed rate and (2) we receive no premiums or loan
repayments, make no loans and grant no withdrawals. We will compare this amount
to the contract fund. If this amount is more than the contract fund, the
difference is the fund deficit.
PREMIUM ACCOUNT DEFICIT
If the premium account is less than zero, this is the amount which must be
added to the premium account to bring it to zero.
PREMIUM ACCOUNT
On the contract date, the premium account is equal to the invested premium
amount credited on that date, minus the basic premium then due, plus the charge
for payment processing. On any other day, the premium account is equal to:
1. what it was on the prior day; plus
2. if the premium account was greater than zero on the prior day,
interest on the excess at 4% a year; minus
3. if the premium account was less than zero on the prior day,
interest on the premium account deficit at 4% a year; plus
4. any invested premium amount credited on that day; minus
5. the invested premium amount generated by any basic premium due on
that day; minus
6. any withdrawals on that day.
If we credit a part of a payment as of a date prior to the date of receipt
as we describe under Payment of Premiums, the premium account for all days from
the crediting date to the date of receipt will be recalculated.
(VAL--DR--105) Page 9
II-37
<PAGE>
GRACE PERIOD
The days of grace begin on any monthly date, other than the contract date,
on which the contract goes into default. Within 30 days after any default we
will send you a notice that your contract is in default. We will indicate the
minimum payment required to bring the contract out of default and the length of
the grace period for making that payment.
We grant at least 61 days of grace from the date we mail you a notice of
default. During the days of grace we will continue to accept premiums and make
the charges we have set.
If at any time during the days of grace we have received payments that in
total are at least equal to the lesser of (a) the sum of the contract fund
deficit on the date of default and any additional contract fund deficits on any
subsequent monthly dates since the date of default, and (b) the sum of the
premium account deficit on the date of default and any scheduled premiums due
since the date of default, the default will end.
If at any time during the days of grace we have received payments that in
total are at least equal to the lesser of (a) the contract fund deficit on the
date of default and (b) the premium account deficit on the date of default, but
that are insufficient to end the default, here is what we will do. We will
determine a new default date which is the monthly date after the old default
date. We will grant at least 61 days of grace from the new default date.
If the contract is still in default when the days of grace are over, it
will end and have no value, except as we state under Benefits After the Grace
Period. Any premiums paid during the days of grace will remain in the contract
fund.
The Insured might die in the days of grace while the contract is in
default. If so, the amount needed to bring the contract out of default is due
us. We will make an adjustment so that the proceeds will not include that
amount.
This contract might have an extra benefit that insures someone other than
the Insured. And there might be a claim under that benefit while the Insured is
living and in the days of grace while the contract is in default. In this case,
we will subtract the amount needed to bring the contract out of default before
we settle the claim.
REINSTATEMENT
If this contract is still in default after the last day of grace, you may
reinstate it. All these conditions must be met:
1. The contract must not have been in default more than five years.
2. You must not have surrendered the contract for its net cash value.
3. You must give us any facts we need to satisfy us that the Insured
is insurable for the contract.
4. We must be paid a premium at least equal to the premium account
deficit on the first monthly date on which a scheduled premium is due after
the date of reinstatement.
5. If before reinstatement the contract is in force as reduced paid-up
insurance, any contract debt under reduced paid-up insurance must be repaid
with interest or carried over to the reinstated contract.
(VAL--DR--105) Page 10
II-38
<PAGE>
If we approve the reinstatement, these statements apply. The date of
reinstatement will be the date of your request or the date the required premium
is paid, if later. Daily and monthly charges and credits will start again as of
the date of reinstatement. We will deduct from the premium paid the charges from
premium payments described in the contract data pages, and any charges in
arrears, other than the charge for expected mortality, with 4% interest to the
date of reinstatement. The contract fund will be equal to the remainder, plus
the cash value of the contract immediately before reinstatement, plus a refund
of that part of any surrender charge deducted at the time of default which would
be charged if the contract were surrendered immediately after reinstatement.
If we consent, you may be able to reinstate the contract for a premium less
than that described above. We will deduct the same charges and adjust the
contract fund in the same manner. In that case, there will be a premium account
deficit and you may need to pay more than the scheduled premiums to guarantee
that the contract will not go into default again at some future time.
BENEFITS AFTER THE GRACE PERIOD
To determine any benefit for a contract still in default after the grace
period, we first calculate the net cash value as of the last day of the grace
period using the method described under Surrender.
If the contract has no value, it will end and have no further benefit. If
the contract does have value, we will use this value to provide extended term
insurance, fixed reduced paid-up insurance, or variable reduced paid-up
insurance. We describe each kind of insurance below.
EXTENDED INSURANCE
This will be term insurance on the Insured's life. We will pay the amount
of term insurance if the Insured dies in the term we describe below. Before the
end of the term there will be cash values but no loan value.
The amount of term insurance will be the insurance amount, minus any
contract debt. The term is a period of time that will start on the date the
contract goes into default. The length of the term will be what is provided by
the contract's net cash value.
There may be extra days of term insurance. This will occur if, on the due
date of the premium in default, the term of extended insurance provided by the
net cash value does not exceed 90 days, or the number of days for which premiums
have been paid, if less. The number of extra days will be 90 (or the number of
days for which premiums have been paid, if less), minus the number of days of
extended insurance that would be provided by the contract's value if there were
no contract debt. The extra days, if any, start on the day after the last day of
term insurance provided by the contract's value, if any. If there is no such
term insurance, they start on the date the contract goes into default. The term
insurance for the extra days has no cash value. There will be no extra days if
you replace the extended insurance with reduced paid-up insurance or if you
surrender the contract before the extra days start.
FIXED REDUCED PAID-UP INSURANCE
This will be paid-up life insurance on the Insured's life. This benefit
always applies if we issued the contract in a rating class for which we do not
provide extended insurance. In this case, the phrase No Extended Insurance will
appear under the heading Rating Class in the Contract Data pages. We will pay
the proceeds when the Insured dies. There will be cash values and loan values.
The amount of this insurance will be what is provided when we use the
contract's net cash value multiplied by the Insured's attained age factor as of
the last day of the grace period.
(VAL--DR--105) Page 11
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<PAGE>
VARIABLE REDUCED PAID-UP INSURANCE
Variable reduced paid-up insurance will apply instead of extended term
insurance or fixed reduced paid-up insurance if, on the last day of the grace
period:
1. The amount of paid-up insurance would be at least as great as the
amount of extended insurance; and
2. The contract is in a rating class permitting extended insurance.
This will be paid-up variable life insurance on the Insured's life. We will
pay the proceeds when the Insured dies. There will be cash values and loan
values. The amount of reduced paid-up insurance may change from day to day, as
we explain below, but it will not be less than the minimum guaranteed amount.
The minimum guaranteed amount of reduced paid-up insurance will be what is
provided by the contract's value multiplied by the Insured's attained age factor
as of the last day of the grace period. This rate depends on the Insured's issue
age and sex and on the length of time since the contract date. The amount of
reduced paid-up insurance will be the greater of (a) the minimum guaranteed
amount, and (b) the contract fund multiplied by the applicable attained age
factor.
CASH VALUE
We describe the cash value after the grace period under Surrender.
- --------------------------------------------------------------------------------
CONTRACT FUND
When you make your first premium payment, the invested premium amount, less
any charges due on that day, becomes your contract fund. Amounts are added to
and subtracted from the contract fund as described in the contract data pages.
The value of your contract fund is used to determine your loan and surrender
values, the amount you may withdraw, and the insurance amount. We also use the
contract fund value to determine whether or not the contract is in default.
COVERAGE AMOUNT
The coverage amount is used to determine the expected cost of mortality as
described under Adjustments To The Contract Fund. It is equal to the insurance
amount (see Insurance Amount) minus the contract fund.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNTS
SEPARATE ACCOUNT
The words separate account, when we use them in this contract without
qualification, mean any separate account we establish to support variable life
insurance contracts like this one. We list the separate accounts available to
you in the contract data pages. We may establish additional separate accounts.
We will notify you within one year if we do so.
INVESTMENT OPTIONS
A separate account may have one or more investment options. We list them in
the contract data pages. We may establish additional investment options. We will
notify you within one year if we do so.
(VAL--DR--105) Page 12
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<PAGE>
Income and realized and unrealized gains and losses from assets in each
investment option are credited to, or charged against, that investment option.
This is without regard to income, gains, or losses in our other investment
accounts.
SEPARATE ACCOUNT INVESTMENTS
We may invest the assets of different separate accounts in different ways.
But, when required, we will do so only with the consent of the SEC and/or of the
insurance regulator where this contract is delivered.
We will always keep assets in the separate accounts with a total value at
least equal to the amount of the variable investment options under contracts
like this one. To the extent those assets do not exceed that amount, we use them
only to support those contracts.
Assets held in a separate account shall not be chargable with liabilities
arising out of any other company business.
We will determine the value of the assets in each separate account and any
investment option at regular intervals, not less frequently than monthly.
CHANGE IN INVESTMENT POLICY
A portfolio of the fund might make a material change in its investment
policy. In that case, we will send you a notice of the change. Within 60 days
after you receive the notice, or within 60 days after the effective date of the
change, if later, you may transfer to the Fixed Account any amounts in the
investment option investing in that portfolio.
No material change in investment policy of a portfolio shall be made unless
we have filed such change with the insurance regulator where this contract is
delivered.
- --------------------------------------------------------------------------------
FIXED INVESTMENT OPTIONS
We list any fixed option available to you in the contract data pages. You
may allocate all or part of your invested premium amount to an available fixed
investment option. We credit fixed investment options with interest as we
describe below.
GUARANTEED INTEREST
On any portion of the contract fund in a fixed investment option, we will
credit interest each day at the daily equivalent of the guaranteed rate we show
under Adjustments To The Contract Fund in the contract data pages.
EXCESS INTEREST
We may credit excess interest in addition to the guaranteed interest on any
portion of the contract fund in a fixed investment option. The rate of any
excess interest will be determined from time to time and will continue
thereafter until we determine a new rate. We may use different rates of excess
interest for different portions of the contract fund. We may from time to time
guarantee rates of excess interest on some portions of the contract fund.
We may establish additional fixed investment options. We will notify you
within one year if we do so.
- --------------------------------------------------------------------------------
TRANSFERS
You have the right to transfer amounts into or out of investment options if
the contract is not in default, subject to certain restrictions that depend on
an investment's class. The investment class for each investment is shown under
the List of Investment Options in the contract data pages. To make a transfer,
you must ask us in a form that meets our needs. Unless otherwise restricted, the
transfer will take effect on the date we receive your notice at our Home Office.
CLASS ONE INVESTMENTS
You may transfer amounts into or out of these investments up to four times
in each contract year.
(VAL--DR--105)(NY) Page 13
II-41
<PAGE>
CLASS TWO INVESTMENTS
You may transfer amounts into these investments up to four times in each
contract year. Transfers out of these investments may be made only with our
consent.
In addition, the entire amount in all investment options may be transferred
to a fixed investment option at any time within the first two contract years.
- --------------------------------------------------------------------------------
SURRENDER
You may surrender this contract for its net cash value. To do so, you must
ask us in writing in a form that meets our needs. You must also send the
contract to us.
NET CASH VALUE
The net cash value at any time is the cash value at that time less any
contract debt.
After the grace period and within thirty days after an anniversary: (1) the
net cash value of any extended insurance will not be less than the net cash
value on that anniversary and (2) the net cash value of any fixed reduced
paid-up insurance will not be less than the net cash value on that anniversary,
adjusted for any loan you take out or pay back during those thirty days.
We will usually pay any net cash value within seven days after we receive
your request and the contract at our Home Office. But we have the right to
postpone paying the part of the proceeds that is to come from any investment
option provided by an account registered under the Investment Company Act of
1940 if the New York Stock Exchange is closed, or the SEC requires that trading
be restricted or declares an emergency. We have the right to postpone paying you
the remainder of the proceeds for up to six months. If we do so for more than
ten days, we will pay interest at the rate that then applies to Option 3
(Interest Payment) of the Settlement Options provision.
CASH VALUE
The cash value at any time is determined using one of three methods:
1. If the contract is not in default, the cash value on any date will
be the contract fund, before deduction of any monthly charges due on that
date, minus any surrender charge. The Schedule of Maximum Surrender Charges
for this contract is in the contract data pages.
2. If the contract is in default during its days of grace, we will
compute the cash value as of the date the contract went into default. But
we will adjust this value for any premium payments, withdrawals or
decreases in face amount you make in the days of grace.
3. If the contract is in default beyond its days of grace, the cash
value will be either: (1) the value on that date of any extended insurance
benefit then in force, or (2) the value on that date of any reduced paid-up
insurance benefit then in force.
TABULAR VALUES
We show tabular contract fund values and tabular cash values at the end of
contract years in the contract data pages.
If we need to compute tabular values at some time during the contract year
we will count the time from the start of the year. We will tell you the tabular
values for other durations if you ask for them.
(VAL--DR--105)(NY) Page 14
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<PAGE>
- --------------------------------------------------------------------------------
LOANS
You may borrow any amount up to the current loan value less any existing
contract debt, subject to the requirements below.
LOAN VALUE
If the contract is not in default, or if the contract is in force as
variable reduced paid-up insurance, the loan value at any time is equal to the
sum of (a) 90% of the portion of the cash value that is attributable to the
variable investment options, and (b) the balance of the cash value.
If the contract is in default during its days of grace, the loan value is
what it was on the date of default, adjusted for any withdrawals you make in the
days of grace.
If the contract is in force as fixed reduced paid-up insurance, the loan
value is equal to the amount which would grow at the loan interest rate to equal
the cash value on the next anniversary.
CONTRACT DEBT
Contract debt at any time means the loan on the contract, plus the interest
we have charged that is not yet due and that we have not yet added to the loan.
LOAN REQUIREMENTS
You may borrow from us on the contract if all these conditions are met:
1. The Insured is living.
2. The contract is in force other than as extended insurance.
3. The contract debt will not be more than the loan value.
4. As sole security for the loan, you assign the contract to us in a
form that meets our needs.
5. You borrow at least the minimum amount stated in the contract data
pages.
If there is already contract debt when you borrow from us, we will add the
new amount you borrow to that debt.
INTEREST CHARGE
The loan interest charge is 5 1/2% a year. We charge interest daily on any
loan. Interest is due on each contract anniversary, or when the loan is paid
back, whichever come first. If interest is not paid when due, it becomes part of
the loan. Then we start to charge interest on it, too.
REPAYMENT
All or part of any contract debt may be paid back at any time while the
Insured is living if the contract is not in default.
EFFECT OF A LOAN
When you take a loan, the amount of the loan continues to be a part of the
contract fund and is credited with interest at the guaranteed rate stated under
Adjustments To The Contract Fund.
We will reduce the portion of the contract fund allocated to the investment
options by the amount you borrow, and by loan interest that becomes part of the
loan because it is not paid when due.
We will take any loan proportionately from all investment options that
apply to the contract.
On each transaction date, if there is a contract loan outstanding, we will
increase the portion of the contract fund in the investment options by interest
credits accrued on the loan since the last transaction date. When you repay all
or part of a loan we will increase the portion of the contract fund in the
investment options by the amount of loan you repay, plus interest credits
accrued on the loan since the last transaction date. We will not increase the
portion of the contract fund allocated to the investment options by loan
interest that is paid before we make it part of the loan.
(VAL--DR--105) Page 15
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<PAGE>
EXCESS CONTRACT DEBT
If contract debt ever grows to be equal to or more than the cash value, all
the contract's benefits will end 61 days after we mail a notice to you and any
assignee we know of. Also, we may send a notice to the Insured's last known
address. In the notice we will state the amount that, if paid to us, will keep
the contract's benefits from ending for a limited time.
POSTPONEMENT OF LOAN
We will usually make a loan within seven days after we receive your request
at our Home Office. But we have the right to postpone paying that part of the
loan that comes from any investment option provided by an account registered
under the Investment Company Act of 1940 if the New York Stock Exchange is
closed, or the SEC requires that trading be restricted or declares an emergency.
We have the right to postpone paying you the remainder of the proceeds of a loan
for up to six months, unless it will be used to pay premiums on this or other
contracts with us.
- --------------------------------------------------------------------------------
WITHDRAWALS
WITHDRAWALS
You may make withdrawals from the contract. You may do so subject to these
conditions:
1. You must ask for the withdrawal in writing in a form that meets our
needs.
2. The amount withdrawn, plus the net cash value after withdrawal, may
not be more than the net cash value before withdrawal.
3. If the contract is in force on a premium-paying basis, the contract
fund after a withdrawal may not be less than the sum of the tabular
contract fund value, and the monthly charges for the next three monthly
dates shown under Adjustments To The Contract Fund.
4. If the contract is in force on a paid-up basis as described under
Optional Paid-Up Benefit, the recalculated guaranteed paid-up insurance
amount after withdrawal may not be less than the face amount.
5. You may not withdraw less than the minimum amount stated in the
contract data pages.
6. We may limit the number of withdrawals as shown under the List of
Contract Limitations.
7. If we ask you to do so, you must send us the contract to be
endorsed.
EFFECT ON INSURANCE AMOUNT
When you make a withdrawal while the contract is in force on a
premium-paying basis, your coverage amount may increase (see Contract Fund). If
it does, we will: (1) reduce your face amount to offset any increase, subject to
the minimum face amount shown in the contract data pages, and (2) recompute the
contract's basic premiums, maximum surrender charges, tabular values, monthly
deductions and expense charges. We will also send you new contract data pages.
EFFECT ON GUARANTEED PAID-UP INSURANCE AMOUNT
If the contract is in force on a paid-up basis as described under Optional
Paid-Up Benefit, we will recalculate your guaranteed paid-up insurance amount
after each withdrawal. We will use the then-current contract fund, the Insured's
attained age factor, and the present value of future monthly charges (see
Guaranteed Paid-Up Insurance Amount).
We will normally pay any withdrawal within seven days after we receive your
request at our Home Office. But we have the right to postpone paying the part of
the proceeds that is to come from any investment option provided by an account
registered under the Investment Company Act of 1940 if: (1) the New York Stock
Exchange is closed; or (2) the SEC requires that trading be restricted or
declares an emergency. We have the right to postpone paying you the remainder of
the proceeds for up to six months. If we do so for more than ten days, we will
pay interest at the rate that then applies to the Option 3 (Interest Payment) of
the Settlement Options provision.
An amount withdrawn may not be repaid, except as a premium subject to
charges.
We will tell you how much you may withdraw if you ask us.
(VAL--DR--105)(NY) Page 16
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<PAGE>
- --------------------------------------------------------------------------------
DEATH PROCEEDS
INSURANCE AMOUNT
Unless the optional paid-up benefit is in effect (see below), the insurance
amount on any date is equal to the greatest of: (1) the current face amount,
(2) the current face amount plus the contract fund before deduction of any
monthly charges due on that date, minus the tabular contract fund, and (3) the
contract fund before deduction of any monthly charges due on that date, times
the attained age factor that applies.
PROCEEDS ARISING FROM INSURED'S DEATH
If the contract is not in default, the proceeds arising from the Insured's
death equal the insurance amount, less any contract debt, plus the amount of any
supplementary benefits arising from the Insured's death. If the contract is in
default and the Insured dies in the grace period, the proceeds equal the
insurance amount plus the amount of any supplementary benefits arising from the
Insured's death, less any contract debt and the amount needed to pay charges
through the date of death. If the Insured dies after the grace period, we will
determine any proceeds as described under Benefit After the Grace Period.
PAYMENT OF DEATH CLAIM
We will ordinarily settle this contract in one sum as a death claim. You
may instead choose one of the options described under Settlement Options. We
will usually pay the proceeds within seven days after we receive at our Home
Office proof of death and any other information we need to pay the claim. But we
have the right to postpone paying the part of the proceeds in excess of the face
amount that is to come from a variable investment option if: (1) the New York
Stock Exchange is closed or (2) the SEC requires that trading be restricted or
declares an emergency.
- --------------------------------------------------------------------------------
OPTIONAL PAID-UP BENEFIT
After the first contract year, we will make your contract fully paid-up if
you ask us to and if you meet the following conditions:
1. Your request must be in writing in a form that meets our needs.
2. If we ask you to do so, you must send us the contract to be
endorsed.
3. We must not be paying premiums in accord with any payment of
premium benefit that may be included in the contract.
4. The guaranteed paid-up insurance amount must equal or exceed the
greater of the face amount and the face amount plus the contract fund
before deduction of any monthly charges due on that date minus the tabular
contract fund.
5. The contract must not be in default.
(VAL--DR--105)(NY) Page 17
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<PAGE>
GUARANTEED PAID-UP INSURANCE AMOUNT
When you request a change to paid-up insurance, we first calculate your
guaranteed paid-up insurance amount. To do this, we work with three numbers.
They are:
1. The value of your contract fund.
2. The applicable attained age factor.
3. The present value, using a 4% annual interest rate (0.01074598% a
day), of future monthly charges from the contract fund. These includes all
the monthly charges shown under Adjustments To The Contract Fund, except
charges for the expected cost of mortality, and any Payment Of Premium
supplementary benefit.
Here is how we do it:
We subtract the present value of future monthly charges from the
contract fund and multiply the result by the attained age factor that applies.
This gives us the guaranteed paid-up insurance amount.
PAID-UP INSURANCE AMOUNT
The paid-up insurance amount will be the greater of (1) the contract fund
multiplied by the attained age factor that applies, and (2) the guaranteed
paid-up insurance amount.
EFFECTS OF THE PAID-UP BENEFIT
If we approve your request, the following statements apply. The contract
will continue as paid up life insurance on the Insured's life. The contract fund
will continue to function as described under Adjustments To The Contract Fund,
except that any charge for a Payment Of Premium benefit will no longer be
deducted. The paid-up contract will have loan value and cash value. The
guaranteed paid-up insurance amount may be reduced if you request a withdrawal
(see Withdrawals). We may increase the guaranteed paid-up insurance amount if we
process any transaction that reduces the present value of future charges. You
may not make further premium payments without our permission. Existing contract
debt will be continued on the paid-up contract.
- --------------------------------------------------------------------------------
OPTIONAL REDUCED PAID--UP BENEFIT
We will use the net cash value to provide fixed reduced paid-up insurance
on the Insured's life if you ask us to do so at any time. You must meet the
Conditions 1, 2, 3 and 5 as shown in the Optional Paid-Up Benefit provision.
- --------------------------------------------------------------------------------
BENEFICIARY
You may designate or change a beneficiary. Your request must be in writing
and in a form that meets our needs. It will take effect only when we file it at
our Home Office; this will be after you send the contract to us to be endorsed,
if we ask you to do so. Then any previous beneficiarv's interest will end as of
the date of the request. It will end then even if the Insured is not living when
we file the request. Any beneficiary's interest is subject to the rights of any
assignee of whom we know.
When a beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. To show priority, we may use numbered classes, so that
the class with first priority is called class 1, the class with next priority is
called class 2, and so on. When we use numbered classes, these statements apply
to beneficiaries unless the form states otherwise:
1. One who survives the Insured will have the right to be paid only if
no one in a prior class survives the Insured.
(VAL--DR--105)(NY) Page 18
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<PAGE>
2. One who has the right to be paid will be the only one paid if no
one else in the same class survives the Insured.
3. Two or more in the same class who have the right to be paid will be
paid in equal shares.
4. If none survives the Insured, we will pay in one sum to the
Insured's estate.
Example: Suppose the class 1 beneficiary is Jane and the class 2
beneficiaries are Paul and John. We owe Jane the proceeds if she is living at
the Insured's death. We owe Paul and John the proceeds if they are living then
but Jane is not. But if only one of them is living, we owe him the proceeds. If
none of them is living we owe the Insured's estate.
Before we make a payment, we have the right to decide what proof we need of
the identity, age or any other facts about any persons designated as
beneficiaries. If beneficiaries are not designated by name and we make
payment(s) based on that proof, we will not have to make the payment(s) again.
- --------------------------------------------------------------------------------
SETTLEMENT OPTIONS
PAYEE DEFINED
In these provisions the word payee means a person who has a right to
receive a settlement under the contract. Such a person may be the Insured,
the owner, a beneficiary, or a contingent payee.
CHOOSING AN OPTION
A payee may choose an option for all or part of any proceeds or residue
that becomes payable to him or her in one sum. We describe residue below.
In some cases, a payee will need our consent to choose an option. We
describe these cases under Conditions.
OPTIONS DESCRIBED
Here are the options we offer. We may also consent to other arrangements.
OPTION 1 (INSTALMENTS FOR A FIXED PERIOD)
We will make equal payments for up to 25 years based on the Option 1 Table.
The payments will include interest at an effective rate of 3 1/2% a year. We may
credit more interest. If and while we do so, the payments will be larger.
OPTION 2 (LIFE INCOME)
We will make equal monthly payments for as long as the person on whose life
the settlement is based lives, with payments certain for the period chosen. The
choices are either ten years (10-Year Certain) or until the sum of the payments
equals the amount put under this option (Instalment Refund). The amount of each
payment will be based on the Option 2 Table and on the sex and age, on the due
date of the first payment, of the person on whose life the settlement is based.
But if a choice is made more than two years after the contract proceeds first
become payable, we may use the Option 2 rates in ordinary policies we regularly
issue, based on United States currency, on the due date of the first payment. On
request, we will quote the payment rates in policies we then issue. We must have
proof of the date of birth of the person on whose life the settlement is based.
The settlement will share in our surplus to the extent and in the way we decide.
OPTION 3 (INTEREST PAYMENT)
We will hold an amount at interest. We will pay interest at an effective
rate of at least 3% a year ($30.00 annually, $14.89 semi-annually, $ 7.42
quarterly or $2.47 monthly per $ 1,000). We may pay more interest.
OPTION 4 (INSTALMENTS OF A FIXED AMOUNT)
We will make equal annual, semi-annual, quarterly or monthly payments if
they total at least $90 a year for each $1,000 put under this option. We will
credit the unpaid balance with interest at an effective rate of at least 3 1/2%
a year. We may credit more interest. If we do so, the balance will be larger.
The final payment will be any balance equal to or less than one payment.
(VAL--DR--105) Page 19
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<PAGE>
OPTION 5 (NON-PARTICIPATING INCOME)
We will make payments like those of any annuity we then regularly issue
that: (1) is based on United States currency; (2) is bought by a single sum; (3)
does not provide for dividends; and (4) does not normally provide for deferral
of the first payment. The payment will be at least what we would pay under that
kind of annuity with its first payment due on its contract date. At least one of
the persons on whose life the Option 5 is based must be a payee. If a life
income is chosen, we must have proof of the date of birth of any person on whose
life the option is based. Option 5 cannot be chosen more than 30 days before the
due date of the first payment. On request, we will quote the payment that would
apply for any amount placed under the option at that time.
FIRST PAYMENT DUE DATE
Unless a different date is stated when the option is chosen: (1) the first
payment for Option 3 will be due at the end of the chosen payment interval; and
(2) the first payment for any of the other options will be due on the date the
option takes effect.
RESIDUE DESCRIBED
For Options 1 and 2, residue on any date means the then present value of
any unpaid payments certain. We will compute it at an effective interest rate of
3 1/2% a year. But we will use the rate we used to compute the actual Option 2
payments if they were not based on the table in this contract.
For Options 3 and 4, residue on any date means any unpaid balance with
interest to that date.
For Option 5, it means the then present value of any unpaid payments
certain. We will compute it at the interest rate to which we refer in Option 5.
For Options 2 and 5, residue does not include the value of any payments
that may become due after the certain period.
WITHDRAWAL OF RESIDUE
Unless otherwise stated when the option is chosen: (1) under Options 1 and
2, the residue may be withdrawn; and (2) under Options 3 and 4 all, or any part
not less than $100, of the residue may be withdrawn. If an Option 3 residue is
reduced to less than $ 1,000, we have the right to pay it in one sum. Under
Option 2, withdrawal of the residue will not affect any payments that may become
due after the certain period; the value of those payments cannot be withdrawn.
Instead, the payments will start again if they were based on the life of a
person who lives past the certain period.
For Option 5, the residue may not be withdrawn while the payee and any
other person on whose life the option is based is living. But, unless otherwise
stated, when the option is chosen, after the death of the last of them to die
any residue not already paid in one sum may be withdrawn.
DESIGNATING CONTINGENT PAYEE(S)
A payee under an option has the right, unless otherwise stated, to name or
change a contingent payee to receive any residue at that payee's death. This may
be done only if: (1) the payee has the full right to withdraw the residue, (2)
the residue would otherwise have been payable to that payee's estate at death,
or (3) a settlement with payments certain is being made in accord with Option 5.
A payee who has this right may choose, or change the choice of, an option
for all or part of the residue. In some cases, the payee will need our consent
to choose or change an option. We describe these cases under Conditions.
Any request to exercise any of these rights must be in writing and in a
form that meets our needs. It will take effect only when we file it at our Home
Office. Then the interest of anyone who is being removed will end as of the date
of the request, even if the payee who made the request is not living when we
file it.
(VAL--DR--105) Page 20
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<PAGE>
CHANGING OPTIONS
A payee under Option 1, 3, or 4 may choose another option for any sum that
the payee could withdraw on the date the chosen option is to start. That date
may be before the date the payee makes the choice only if we consent. In some
cases, the payee will need our consent to choose or change an option. We
describe these cases next.
CONDITIONS
Under any of these conditions, our consent is needed for an option to be
used for any person:
1. The person is not a natural person who will be paid in his or her
own right.
2. The person will be paid as assignee.
3. The amount to be held for the person under Option 3 is less than
$1,000.
4. Each payment to the person under the option would be less than $20.
5. The option is for residue arising other than at (a) the Insured's
death, or (b) the death of the beneficiary who was entitled to be paid as
of the date of the Insured's death.
6. The option is for proceeds that arise other than from the Insured's
death, and we are settling with an owner or any other person who is not the
Insured.
DEATH OF PAYEE
If a payee under an option dies and if no other distribution is shown, we
will pay any residue under that option in one sum to the payee's estate.
(VAL--DR--105) Page 21
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<PAGE>
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OPTION 1 TABLE
----------------------
MINIMUM AMOUNT OF
MONTHLY PAYMENT FOR
EACH $1,000, THE FIRST
PAYABLE IMMEDIATELY
----------------------
Number Monthly
of Years Payment
-------- -------
1 $84.65
2 43.05
3 29.19
4 22.27
5 18.12
6 15.35
7 13.38
8 11.90
9 10.75
10 9.83
11 9.09
12 8.46
13 7.94
14 7.49
15 7.10
16 6.76
17 6.47
18 6.20
19 5.97
20 5.75
21 5.56
22 5.39
23 5.24
24 5.09
25 4.96
Multiply the monthly amount
by 2.989 for quarterly, 5.952
for semi-annual or
11.804 for annual.
OPTION 2 TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MINIMUM AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000, THE FIRST
PAYABLE IMMEDIATELY
- --------------------------------------------------------------------------------------------------------
KIND OF LIFE INCOME KIND OF LIFE INCOME
------------------------------------ ------------------------------------
AGE 10-Year Instalment AGE 10-Year Instalment
LAST Certain Refund LAST Certain Refund
BIRTHDAY Male Female Male Female BIRTHDAY Male Female Male Female
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 $3.18 $3.11 $3.17 $3.10 45 $4.06 $3.82 $3.99 $3.78
and under 46 4.12 3.86 4.03 3.81
11 3.19 3.12 3.18 3.11 47 4.17 3.90 4.08 3.85
12 3.20 3.13 3.19 3.12 48 4.23 3.94 4.13 3.90
13 3.21 3.14 3.20 3.13 49 4.28 3.99 4.18 3.94
14 3.22 3.15 3.21 3.14
50 4.35 4.04 4.24 3.98
15 3.24 3.16 3.23 3.15 51 4.41 4.09 4.29 4.03
16 3.25 3.17 3.24 3.16 52 4.48 4.15 4.35 4.08
17 3.27 3.19 3.25 3.18 53 4.55 4.21 4.41 4.13
18 3.28 3.20 3.27 3.19 54 4.62 4.27 4.48 4.19
19 3.30 3.21 3.28 3.20
55 4.70 4.33 4.55 4.24
20 3.31 3.22 3.30 3.21 56 4.78 4.40 4.62 4.30
21 3.33 3.24 3.32 3.23 57 4.86 4.47 4.69 4.37
22 3.35 3.25 3.33 3.24 58 4.95 4.54 4.77 4.43
23 3.36 3.26 3.35 3.25 59 5.05 4.62 4.86 4.50
24 3.38 3.28 3.37 3.27
60 5.15 4.71 4.94 4.58
25 3.40 3.30 3.39 3.29 61 5.25 4.79 5.03 4.66
26 3.42 3.31 3.41 3.30 62 5.36 4.89 5.13 4.74
27 3.45 3.33 3.43 3.32 63 5.48 4.98 5.23 4.82
28 3.47 3.35 3.45 3.34 64 5.60 5.09 5.34 4.92
29 3.49 3.37 3.47 3.35
65 5.73 5.20 5.45 5.01
30 3.52 3.39 3.49 3.37 66 5.87 5.31 5.57 5.11
31 3.54 3.41 3.52 3.39 67 6.01 5.43 5.70 5.22
32 3.57 3.43 3.54 3.41 68 6.15 5.56 5.83 5.34
33 3.60 3.45 3.57 3.44 69 6.30 5.70 5.97 5.46
34 3.63 3.47 3.60 3.46
70 6.46 5.84 6.11 5.58
35 3.66 3.50 3.63 3.48 71 6.62 5.99 6.27 5.72
36 3.69 3.52 3.66 3.50 72 6.79 6.15 6.43 5.86
37 3.72 3.55 3.69 3.53 73 6.96 6.31 6.60 6.01
38 3.76 3.58 3.72 3.56 74 7.13 6.49 6.78 6.18
39 3.80 3.61 3.75 3.58
75 7.30 6.67 6.97 6.35
40 3.84 3.64 3.79 3.61 76 7.48 6.85 7.17 6.53
41 3.88 3.67 3.82 3.64 77 7.66 7.04 7.38 6.72
42 3.92 3.70 3.86 3.67 78 7.83 7.24 7.60 6.93
43 3.97 3.74 3.90 3.71 79 8.00 7.44 7.83 7.15
44 4.01 3.78 3.94 3.74
80 8.17 7.64 8.07 7.38
and over
- --------------------------------------------------------------------------------------------------------
</TABLE>
(VAL--DR--105) Page 22
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<PAGE>
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GENERAL PROVISIONS
DEFINITIONS
We define here some of the words and phrases used all through this
contract. We explain others, not defined here, in other parts of the text.
We, Our, Us and Company.--The company issuing this contract.
You and Your.--The owner of the contract.
Insured.--The person named as the Insured on the first page. He or she need
not be the owner.
SEC.--The Securities and Exchange Commission.
Issue Date.--The contract date.
Monthly Date.--The contract date and the same day as the contract date in
each later month.
Anniversary or Contract Anniversary.--The same day and month as the
contract date in each later year.
Contract Year.--A year that starts on the contract date or on an
anniversary.
Contract Month.--A month that starts on a monthly date.
Attained Age.--The Insured's attained age at any time is the issue age plus
the length of time since the contract date. You will find the issue age near the
top of page 3.
THE CONTRACT
This policy, and the attached copy of the application, form the whole
contract. We assume that all statements in the application were made to the best
of the knowledge and belief of the person(s) who make them; they are deemed to
be representations and not warranties. We rely on those statements when we issue
or change the contract. We will not use any statement, unless made in the
application, to try to void the contract or to deny a claim.
CONTRACT MODIFICATIONS
Only a Company officer with the rank or title of vice president or above
may agree to modify this contract, and then only in writing.
Ownership and Control
Unless we endorse this contract to say otherwise: (1) the owner of the
contract is the Insured; and (2) while the Insured is living the owner alone is
entitled to (a) any contract benefit and value, and (b) the exercise of any
right and privilege granted by the contract or by us.
SUICIDE EXCLUSION
If the Insured, whether sane or insane, dies by suicide within two years
from the issue date, we will pay no more under this contract than the sum of the
premiums paid.
CURRENCY
Any money we pay, or that is paid to us, must be in United States currency.
Any amount we owe will be payable at our Corporate Office.
MISSTATEMENT OF AGE OR SEX
If the Insured's stated age or sex or both are not correct, we will adjust
each benefit and any amount to be paid 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. Where required, we have given the
insurance regulator a detailed statement of how we will make these adjustments.
The Schedule of Premiums may show that basic premiums change or stop on a
certain date. We may have used that date because the Insured would attain a
certain age on that date. If we find that the issue age was wrong, we will
correct that date and, if necessary, the amount of any changed premiums.
INCONTESTABILITY
Except for default, we will not contest this contract after it has been in
force during the Insured's lifetime for two years from the issue date.
(VAL--DR--105)(NY) Page 23
II-51
<PAGE>
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 another insurance
company or to any employee benefit plan 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.
INTEREST INCLUDED IN DEATH PROCEEDS
Any proceeds that arise from the Insured's death will include interest from
the date of death according to the laws of the state where this contract is
delivered.
ANNUAL REPORT
Each year we will send you a report. It will show: (1) the death benefit;
(2) the amount of the contract fund in each investment option; (3) the net cash
value; (4) premiums paid, investment results, and charges deducted since the
last report; (5) any withdrawals since the last report; and (6) any contract
debt and the interest on the debt for the prior year. The report will also
include any other data that may be currently required where this contract is
delivered. No report will be sent if this contract is being continued under
fixed reduced paid-up insurance or extended term insurance.
You may ask for a similar report at some other time during the year. Or you
may request from time to time a report projecting results under your contract on
the basis of premium payment assumptions and assumed investment results. We have
the right to make a reasonable charge for reports such as these that you ask for
and to limit the scope and frequency of such requests.
CHANGE IN PLAN
You may be able to have this contract changed to another plan of life
insurance. But any change may be made only if we consent, and will be subject to
conditions and charges that are then determined.
- --------------------------------------------------------------------------------
BASIS OF COMPUTATION
MORTALITY TABLES DESCRIBED
(1) We base all net premiums and net values to which we refer in this
contract on the Insured's issue age and sex and on the length of time since the
contract date; (2) we use the mortality tables as stated on page 4, except for
Extended Term Insurance when we use the 1980 Commissioner's Smoker or Non-Smoker
Extended Term Mortality Table; (3) we use continuous functions based on age last
birthday; (4) we use an effective interest rate of 4.0% a year.
EXCLUSIONS
When we compute net values, tabular values, reduced paid-up insurance and
extended insurance, we exclude the value of any supplementary benefits and any
other extra benefits added by rider to this contract.
VALUES AFTER 20 CONTRACT YEARS
Tabular values not shown on page 7 will be computed using the standard
nonforfeiture method and the mortality tables and interest rate we describe
above. We show the nonforfeiture factors in the contract data pages.
MINIMUM LEGAL VALUES
The cash, loan and other values in this contract are at least as large as
those set by law where it is delivered. Where required, we have given the
insurance regulator a detailed statement of how we compute values and benefits.
When we use the term "net value" in regard to paid-up or extended insurance
we mean the present value of the future benefits.
- --------------------------------------------------------------------------------
SUPPLEMENTARY BENEFITS
In the following pages, you will find the forms that describe the
supplementary benefits, if any, listed in the contract data pages. Any
supplementary benefit ends as soon as the contract is in default past its days
of grace unless the form that describes it states otherwise.
(VAL--DR--105)(NY) Page 24
II-52
<PAGE>
ENDORSEMENTS
(Only we can endorse this contract.)
(VAL--DR--105) Page 25
II-53
<PAGE>
(VAL--DR--105) Page 26
II-54
EXHIBIT 1.A.(11)
SAMPLE -- PAGE 1
Pruco Life Insurance Company
of New Jersey
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
Insured Policy Number
XXXXXXXXXXXXXXXXXXXXXXXXX XX XXX XXX X-XXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXX Address XXXXXXXXXX
XXXXXXXXXXXXXXXXXX, XX XXXXX
NOTICE OF WITHDRAWAL RIGHT
In order to comply with the laws administered by the Securities and Exchange
Commission, we are sending you this notice. Please read it carefully and keep it
with your records.
You have recently purchased a PRUvider Variable Appreciable Life insurance
contract from Pruco Life. The benefits of this contract depend on the investment
experience of the selected investment options. The options of the Pruco Life
of New Jersey Variable Appreciable Account and a Fixed Interest Rate option are
currently available. These investment options are described in the Prospectus
that was given to you at the time of sale.
You have the right to examine and cancel this contract. Upon its return, you are
entitled to a refund of all premiums paid, plus or minus any change due to
investment performance in the value of the invested portions of such premiums.
However, if applicable state law so requires, you will receive a full refund of
all premiums paid, unadjusted for investment performance prior to cancellation.
The cancellation deadline is the latest of:
1. 10 days after you received the contract
2. 45 days from the date you completed PART 1 of the application
3. 10 days from the date of delivery of this notice.
In determining whether or not to cancel your contract, you should consider,
along with other factors such as the needs and other reasons which motivated you
to purchase this contract, the projected cost and your ability to make the
premium payments as stated in your contract. Please consult and review the
Prospectus you have received. The Prospectus describes the deductions from
premiums before amounts are allocated to the selected investment options. These
are:
A deduction of XX.XX% for applicable taxes
A per payment charge of $2.00
In addition, the Prospectus describes certain charges that are deducted
periodically from amounts allocated to the investment options. The Prospectus
also describes charges that may be assessed upon surrender.
If you decide to cancel your contract, complete the enclosed form and return it
along with your contract. The postmark of the returned contract must be on or
before the deadline described above.
II-55
<PAGE>
SAMPLE -- PAGE 2
INSTRUCTIONS
Please read carefully
If after reading the enclosed notice, you decide to return your contract for
cancellation, you must:
1. Sign and date the bottom portion of this form.
2. Mail this notice together with your contract to:
Pruco Life Insurance Company of New Jersey
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
3. Make certain that the postmark on the envelope is on or before the
latest date permitted for cancellation as described in the enclosed
notice.
4. Check the box at the bottom if you have not yet received your contract
when mailing this form.
TO BE FILLED OUT BY OWNER
To: Pruco Life
Pursuant to the terms of the notice previously furnished me by Pruco Life, I
hereby return the contract numbered below for cancellation and request a full
refund of all premiums paid by me. I release Pruco Life from any claims in
connection with the sale or issuance of this contract, and acknowledge that
Pruco Life's only liability is the refund of the premiums paid for the contract.
________________________________ _________________________________________
Date Signature of Contract Owner
_________________________________________
Contract Number
_________________________________________
Name of Insured (if other than owner)
[ ] I have not yet received the contract and, should it be received,
I will return it to Pruco Life.
II-56
- -------------------------------------------------------------------------------
EXHIBIT 1.A.(13)(a)
RIDER FOR INSURED'S PAYMENT OF PREMIUM BENEFIT
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data pages.
TOTAL DISABILITY BENEFIT
We will pay scheduled premiums into the contract for you on their due dates
while the insured is totally disabled. But this is subject to all the provisions
of this benefit and of the rest of this contract.
DISABILITY DEFINED
When we use the words disability and disabled in this benefit we mean total
disability and totally disabled. Here is how we define them: (1) until the
Insured has stayed disabled for two years, we mean that he or she cannot, due to
sickness or injury, engage in any occupation for remuneration or profit or do
any of the duties of his or her regular cccupation; but (2) after the Insured
has stayed disabled for two years, we mean that he or she cannot, due to
sickness or injury, do any gainful work for which he or she is reasonably fitted
by education, training, or experience.
Except for what we state in the next sentence, we will at no time regard an
Insured as disabled who is doing gainful work for which he or she is reasonably
fitted by education, training, or experience. We will regard an Insured as
disabled, even if working or able to work, if he or she incurs, during a period
in which premiums are eligible to be paid by us as we describe below, one of the
following: (1) permanent and complete blindness of both eyes; or (2) physical
severance of both hands at or above the wrists or both feet at or above the
ankles; or (3) physical severance of one hand at or above the wrist and one foot
at or above the ankle.
PREMIUMS ELIGIBLE TO BE PAID BY US
If the Insured becomes disabled before the first contract anniversary
after his or her 60th birthday and that disability begins: (1) on or after
the first contract anniversary following his or her 5th birthday, if the
contract date was before that birthday; or (2) on or after the contract date, if
that date was on or after his or her 5th birthday, we will pay all scheduled
premiums that fall due while he or she stays disabled.
If the Insured becomes disabled on or after the first contract anniversary
following his or her 60th birthday, we will pay only those scheduled premiums
that fall due before the first contract anniversary following his or her 65th
birthday and while he or she stays disabled.
If the Insured becomes disabled on or after the first contract anniversary
after his or her 65th birthday, we will not pay any scheduled premiums that fall
due in that period of disability.
CONDITIONS
Both of these conditions must be met: (1) The Insured must become disabled
while this contract is in force and not in default past the last day of the
grace period; (2) The Insured must stay disabled for a period of at least six
months while living.
EXCEPTIONS
We will not pay any scheduled premiums if the Insured becomes disabled
from: (1) an injury he causes to himself, or she causes to herself, on purpose;
or (2) sickness or injury due to service on or after the contract date in the
armed forces of any country(ies) at war. The word war means declared and
undeclared war and includes resistance to armed aggression.
SUCCESSIVE DISABILITIES
Here is what happens if the Insured has at least one scheduled premium paid
by us while disabled, then gets well so that he or she resumes making payments,
and then becomes disabled again. In this case, we will not apply the six-month
period that would otherwise be required by Condition (2) and will consider the
second period of disability to be part of the first period unless: (1) the
Insured has done gainful work, for which he or she is reasonably fitted, for at
least six months between the periods; or (2) the Insured became disabled the
second time from an entirely different cause.
If we do not apply the six-month period required by Condition (2), we also
will not count the days when there was no disability as part of the two year
period when disability means the Insured cannot do any of the duties of his or
her regular occupation.
VL 100A NY
II-57
<PAGE>
NOTICE AND PROOF OF CLAIM
Notice and proof of any claim must be given to us while the Insured is
living and disabled, or as soon as reasonably possible thereafter. If notice or
proof is not given as soon as reasonably possible, we will not pay any scheduled
premium due more than one year before the date the notice or proof is given to
us.
We may also require at reasonable times that the Insured is still disabled.
After he or she has been disabled for two years, we will not ask for proof of
continued disability more than once a year; and we will require no further proof
of continued disability after the first contract anniversary that follows the
Insured's 65th birthday if he or she has been continually disabled for at least
five years.
As a part of any proof, we have the right to require that the Insured be
examined at our expense by doctors of our choice.
WHEN WE WILL STOP PAYING PREMIUMS
We will stop paying scheduled premiums if: (1) disability ends; or (2) we
ask for proof that the Insured is disabled and we do not receive it; or (3) we
require that the Insured be examined and he or she fails to do so.
BENEFIT PREMIUMS AND CHARGES
We include the premiums for this benefit in the contract data pages. From
each premium payment, we make the deductions shown on those pages and the
balance is the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract data
pages.
UNSCHEDULED PREMIUMS DURING DISABILITY
You may make unscheduled premium payments if you wish, as provided in the
Unscheduled Premiums section of the contract even when we are paying scheduled
premiums that fall due during a period of disability.
TERMINATION
This benefit will end and we will make no more scheduled premium payments
for you on the earliest of:
1. the end of the last day of grace if the contract is in default; it will
not continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the end of the day before the first contract anniversary that follows
the Insured's 65th birthday, unless the Insured had stayed disabled
since before the first contract anniversary that follows the 60th
birthday;
3. the date the contract is surrendered under its Cash Value Option, if it
has one; and
4. the date the contract ends for any other reason.
If you do not make any withdrawals from the contract starting on the date
the Insured becomes disabled, the contract cannot go into default during the
period we are paying scheduled premiums into the contract.
This Supplementary Benefit rider attached to this contract on the Contract
Date
Pruco Life Insurance Company,
By /s/ SPECIMEN
----------------
Secretary
VL 100A NY
II-58
- --------------------------------------------------------------------------------
EXHIBIT 1.A.(13)(b)
RIDER FOR APPLICANT'S PAYMENT OF PREMIUM BENEFIT
This benefit is a part of this contract only if it is included in the list
of supplementary benefits or the contract data pages.
DEATH PROVISION
DEATH BENEFIT
We will pay scheduled premiums into the contract for you on their due dates
after the applicant's death but before the benefit termination date which we
show in the contract data pages. For us to do so, we must receive due proof that
he or she died: (1) before that date and (2) while this contract is in force and
not in default past the last day of the grace period. But this promise is
subject to all the provisions of this benefit and of the rest of this contract.
SUICIDE EXCLUSION
If the applicant dies by suicide within the period that we state in the
Suicide Exclusion under General Provisions and while this benefit is in force,
we will not pay, under this benefit, the scheduled premiums we describe above.
Instead, we will pay no more than the sum of the monthly charges deducted for
the benefit plus the charge for applicable taxes.
DISABILITY PROVISION
TOTAL DISABILITY BENEFIT
Before the benefit termination date, we will pay into the contract for you
on their due dates scheduled premiums that fall due while the applicant is
totally disabled. But this is subject to all the provisions of this benefit and
of the rest of this contract.
DISABILITY DEFINED
When we use the words disability and disabled in this benefit we mean total
disability and totally disabled. Here is how we define them: (1) until the
applicant has stayed disabled for two years, we mean that he or she cannot, due
to sickness or injury, do any of the duties of his or her regular occupation for
remuneration or profit; but (2) after the applicant has stayed disabled for two
years, we mean that he or she cannot, due to sickness or injury, do any gainful
work for which he or she is reasonably fitted by education, training, or
experience.
Except for what we state in the next sentence, we will at no time regard an
applicant as disabled who is doing gainful work for which he or she is
reasonably fitted by education, training, or experience. We will regard an
applicant as disabled, even if working or able to work, if he or she incurs,
during a period in which premiums are eligible to be paid as we describe below,
one of the following: (1) permanent and complete blindness of both eyes; or (2)
physical severance of both hands at or above the wrists or both feet at or above
the ankles; or (3) physical severance of one hand at or above the wrist and one
foot at or above the ankle.
PREMIUMS ELIGIBLE TO BE PAID BY US
If the applicant becomes disabled before the first contract anniversary
after his or her 65th birthday, we will pay only those scheduled premiums that
fall due: (1) while he or she stays disabled; and (2) before the benefit
termination date.
If the applicant becomes disabled on or after: (1) the first contract
anniversary after his or her 65th birthday, or (2) the benefit termination date,
we will not pay any scheduled premium that falls due in that period of
disability.
CONDITIONS
Both of these conditions must be met: (1) The applicant must become
disabled while this contract is in force and not in default past the last day of
the grace period. (2) The applicant must stay disabled for a period of at least
six months while living.
VL 150A NY
II-59
<PAGE>
EXCEPTIONS
We will not pay any scheduled premium if the applicant becomes disabled
from: (1) an injury he causes to himself, or she causes to herself, on purpose;
or (2) sickness or injury due to service on or after the contract date in the
armed forces of any country(ies) at war. The word war means declared or
undeclared war and includes resistance to armed aggression.
SUCCESSIVE DISABILITIES
Here is what happens if the applicant has at least one scheduled premium
paid by us while disabled, then gets well so that premium payment resumes, and
then becomes disabled again. In this case, we will not apply the six-month
period that would otherwise be required by Condition (2) and will consider the
second period of disability to be part of the first period unless: (1) the
applicant has done gainful work, for which he or she is reasonably fitted, for
at least six months between the periods; or (2) the applicant became disabled
the second time from an entirely different cause.
If we do not apply the six-month period required by Condition (2), we also
will not count the days when there was no disability as part of the two year
period when disability means the applicant cannot do any of the duties of his or
her regular occupation.
NOTICE AND PROOF OF CLAIM
Notice and proof of any claim must be given to us while the applicant is
living and disabled, or as soon as reasonably possible thereafter. If notice or
proof is not given as soon as reasonably possible, we will not pay any scheduled
premium due more than one year before the date the notice or proof is given to
us.
We may also require proof at reasonable times that the applicant is still
disabled. After he or she has been disabled for two years, we will not ask for
proof of continued disability more than once a year; and we will require no
further proof of continued disability after the first contract anniversary that
follows the applicant's 65th birthday if he or she has been continually disabled
for at least five years.
As a part of any proof, we have the right to require that the applicant be
examined at our expense by doctors of our choice.
WHEN WE WILL STOP PAYING PREMIUMS
We will stop paying scheduled premiums if: (1) disability ends; or (2) we
ask for proof that the applicant is disabled and we do not receive it; or (3) we
require that the applicant be examined and he or she fails to do so.
MISCELLANEOUS PROVISIONS
REINSTATEMENT
If this contract is reinstated, it will not include this benefit on the
life of the applicant unless we are given any facts we need to satisfy us that
he or she is insurable for the benefit.
MISSTATEMENT OF AGE Or Sex
If the applicant's stated age or sex or both are not correct, here is what
we will do. We will change each benefit and any amount payable to what the
premiums and charges would have bought for the correct age and sex.
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions shown on those pages and the balance is
the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract
data pages.
Benefit premiums and charges stop on the earlier of: (1) the first contract
anniversary after the Insured's 24th birthday, and (2) the last contract
anniversary before the benefit termination date.
VL 150A NY
II-60
<PAGE>
UNSCHEDULED PREMIUMS DURING DISABILITY
You may make unscheduled premium payments if you wish, as provided in the
Unscheduled Premiums section of the contract, even when we are paying scheduled
premiums that fall due during a period of the applicants' disability or because
of the applicants' death.
TERMINATION
This benefit will end on the earliest of:
1. the end of the last day of grace if the contract is in default; it will
not continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the end of the day that is the last premium due date before the benefit
termination date we show on the contract data pages;
3. the date the contract is surrendered under its Cash Value Option, if it
has one; and
4. the date the contract ends for any other reason.
If you do not make any withdrawals from the contract starting on the date
the applicant becomes disabled, the contract cannot go into default during the
period we are paying scheduled premiums into the contract.
Further, if you ask us in writing in the premium period, and we agree, we
will cancel the benefit as of the date to which premiums are paid. Contract
premiums due then and later will be reduced accordingly.
This Supplementary Benefit rider attached to this contract on the Contract
Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
------------------------
Secretary
VL 150A NY
II-61
EXHIBIT 1.A.(13)(c)
- --------------------------------------------------------------------------------
RIDER FOR INSURED'S ACCIDENTAL DEATH AND DISMEMBERMENT BENEFIT
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data page(s).
BENEFIT FOR ACCIDENTAL DEATH
We will pay twice the face amount for the Insured's accidental loss of
life. But our payment is subject to all the provisions of this benefit and of
the rest of this contract.
CONDITIONS
Both of these conditions must be met: (1) We must receive due proof that
the Insured's death was the direct result, independent of all other causes, of
accidental bodily injury that occurred on or after the contract date. (2) The
loss must occur (a) no more than 90 days after the injury; and (b) while the
contract is in force.
EXCLUSIONS
We will not pay for death caused or contributed to by: (1) suicide or
attempted suicide while sane or insane; or (2) infirmity or disease of mind or
body or treatment for it; or (3) any infection other than one caused by an
accidental cut or wound.
Even if death is caused by accidental bodily injury, we will not pay for it
under this benefit if it is caused or contributed to by: (1) service in the
armed forces of any country(ies) at war; or (2) war or any act of war; or (3)
travel by, or descent from, any aircraft if the Insured had any duties or acted
in any capacity other than as a passenger at any time during the flight. But we
will ignore (3) if all these statements are true of the aircraft: (a) It has
fixed wings and a permitted gross takeoff weight of at least 75,000 pounds. (b)
It is operated by an air carrier that is certificated under the laws of the
United States or Canada to carry passengers to or from places in those
countries. (c) It is not being operated for any armed forces for training or
other purposes. As used here, the word aircraft includes rocket craft or any
other vehicle for flight in or beyond the earth's atmosphere. The word war means
declared or undeclared war and includes resistance to armed aggression.
BENEFIT FOR ACCIDENTAL DISMEMBERMENT
We will pay the amount(s) we show below for any of the listed losses. But
our payments are subject to all the provisions of this benefit and of the rest
of this contract.
For the Insured's
Accidental Loss of: Payment:
Life. Twice the face amount
Both hands;
Both feet;
Sight of both eyes;
One hand and one foot; The face amount
One hand and sight of one eye;
One foot and sight of one eye.
One hand;
One foot; One-half the face amount
Sight of one eye.
As used here, loss of a hand means physical severance at or above the
wrist. Loss of a foot means physical severance at or above the ankle. Loss of
sight means permanent and complete blindness.
CONDITIONS
The following conditions must be met: (1) We must receive due proof that
the Insured's loss was the direct result, independent of all other causes, of
accidental bodily injury that occurred on or after the contract date. (2) The
injury must occur while the contract is in force.
VL 220A NY
II-62
<PAGE>
EXCLUSIONS
We will not pay for any loss caused or contributed to by: (1) suicide or
attempted suicide; or (2) infirmity or disease of mind or body or treatment for
it; or (3) any infection other than one caused by an accidental cut or wound.
Even if a loss is caused by accidental bodily injury, we will not pay for
it under this benefit if it is caused or contributed to by: (1) service in the
armed forces of any country(ies) at-war; or (2) war or any act of war; or (3)
travel by, or descent from, any aircraft if the Insured had any duties or acted
in any capacity other than as a passenger at any time during the flight. But we
will ignore (3) if all these statements are true of the aircraft: (a) It has
fixed wings and a permitted gross takeoff weight of at least 75,000 pounds. (b)
It is operated by an air carrier that is certificated under the laws of the
United States or Canada to carry passengers to or from places in those
countries. (c) It is not being operated for any armed forces for training or
other purposes. As used here, the word aircraft includes rocket craft or any
other vehicle for flight in or beyond the earth's atmosphere. The word war means
declared or undeclared war and includes resistance to armed aggression.
MISCELLANEOUS PROVISIONS
AMOUNT LIMITATION
We will not pay a total of more than twice the face amount for all losses
caused by the same accident.
MANNER OF PAYMENT
We will include in the proceeds of this contract any payment under this
rider for loss of life. For any other loss, we will make payment to whoever is
the owner as of the date of loss. If a payment is due the Insured under this
rider and he or she is not living when we pay, we have the choice of paying the
beneficiary for insurance payable upon the death of the Insured or the Insured's
estate.
PREMIUMS
We show the premiums for this rider on the contract data page(s).
Termination
This rider will end on the earliest of:
1. the end of the last day of grace if the contract is in default; it
will not continue if a benefit takes effect under any contract value
options provision that may be in the contract;
2. the date the contract is surrendered under its Cash Value Option,
if it has one; and
3. the date the contract ends for any other reason.
Further, if you ask us in writing, we will cancel the rider as of the first
monthly date on or after we receive your request. Contract premiums and monthly
charges due then and later will be reduced accordingly.
This Supplementary Benefit rider attached to this contract on the Contract
Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
-----------------------------------
Secretary
VL 220A NY
II-63
- --------------------------------------------------------------------------------
EXHIBIT 1.A.(13)(d)
RIDER FOR OPTION TO PURCHASE ADDITIONAL INSURANCE ON LIFE OF INSURED
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data pages.
BENEFIT
You have the right under this benefit to buy more insurance on the
Insured's life. You may do this for certain normal option dates and advance
option dates, as we explain below. You will not have to prove that the Insured
is insurable. We will provide term insurance for a period before any advance
option dates as we state under Term Insurance below. But these promises are
subject to all the provisions of the benefit and of the rest of this contract.
NORMAL OPTION DATES
These are the anniversaries of this contract on which the Insured's
attained age is 25, 28, 31, 34, 37, 40, 43, 46, 49 and 52.
You may buy a new contract for each normal option date if these four
statements apply: (1) You have not used your right for that date by buying a new
contract on an advance option date (we explain this below). (2) The Insured
signs an application for the new contract, and you sign it, too, if you are not
the Insured. (3) We receive the application and the first premium, less the
premium credit that we describe below, at our Home Office not more than 31 days
after the normal option date. (4) On the normal option date, or, if later, the
date we receive the application, the Insured is living and this contract is in
force and not in default past its days of grace. The new contract will take
effect on the later of those two dates. That date will be its contract date.
Your right to buy the new contract will end on the 31st day after the
normal option date. But this will not change your right to buy a new contract
for any later normal or advance option date.
ADVANCE OPTION DATES
Except as we state in the next paragraph, an advance option date is the
date three months after any of these events:
1. The Insured's marriage.
2. While the Insured is living, the birth of a live child of the Insured
for whom the Insured accepts legal responsibility.
3. The Insured's legal adoption of a child.
But the event must take place: (1) on or after the later of the date of
this contract and the date of Part 1 of its application; and (2) not later than
the date that is one month before the contract anniversary on which the
Insured's attained age is 52. If the event takes place less than three months
before that anniversary, the related advance option date will be that
anniversary and not the date three months after the event.
You may buy a new contract for each advance option date if these four
statements apply: (1) The Insured signs an application for the new contract, and
you sign it, too, if you are not the Insured. (2) We receive the application and
the first premium, less the premium credit that we describe below, at our Home
Office not later than the advance option date. (3) The Insured is living on the
advance option date. (4) This contract is in force on that date and not in
default past its days of grace. The new contract will take effect on the advance
option date. That will be its contract date.
Your right to buy the new contract will end on the advance option date. But
this will not change your right to buy a new contract for any later normal or
advance option date.
Each time you buy a new contract for an advance option date, you will have
used your right to buy a new contract for the next normal option date, if any,
for which you could otherwise have bought one. But even if you have used your
right to buy for all normal option dates, advance option dates may still occur
as we state above. If we let you combine two or more new contracts you can buy
under this benefit into one, you will use your right to buy new contracts for
the same number of future normal option dates as if the new contracts had not
been combined.
VL 140A
II-64
<PAGE>
TERM INSURANCE
For each event that gives rise to an advance option date, we will
automatically provide term insurance on the Insured's life, as long as this
contract is in force. Its amount will be the option amount. We will pay that
amount if the Insured dies on or after the date of the event but before: (1) the
advance option date; or (2) the date this benefit ends, if sooner. We will
include it in the proceeds of this contract. But if this contract limits or
excludes war or aviation risks, the term insurance will limit or exclude them in
the same way.
CONTRACT SPECIFICATIONS
The new contract you buy for a normal option date or advance option date
will be in the same rating class as this contract.
We will endorse the new contract to show that the period we state in its
Incontestability provision will start on the issue date of this contract. But if
this contract was reinstated before the date of the new contract, that period
will start on the date of the reinstatement. We will have the right to use the
statements that were made to us as the basis for reinstatement to contest the
new contract. The period during which we will have that right will be the period
we state in the Incontestability provision of the new contract.
We will endorse the new contract to show that the period we state in its Suicide
Exclusion provision will start on the issue date of this contract.
If this contract limits or excludes war or aviation risks, we have the
right to limit or exclude them in the new contract, too. If we do so, the
provision in the new contract will be the same one that we put in other
contracts like the new one on its contract date. We will set the issue age and
the premiums for the new contract in accord with our regular rules in use on its
contract date.
If the option amount for this Benefit which we show in the Contract Data
pages is less than $25,000, the new contract may be one we describe in paragraph
1 below. If the option amount is $25,000 or more, the new contract can be one we
describe in either of paragraphs 1 and 2.
1. A Life Paid Up at Age 85 plan. In this case the new contract will be
issued by The Prudential Insurance Company of America. Its face amount
will be the amount you ask for in your request. But it cannot be less
than $10,000, or more than the option amount for this Benefit.
2. A contract of life insurance of a kind regularly being issued by Pruco
Life Insurance Company at that time for $25,000 or more. Its face amount
will be the amount you ask for in your request. But it cannot be less
than $25,000 or more than the option amount for this Benefit.
We will not deny a benefit for paying premiums that we would have allowed
under this contract, and that we would otherwise allow under the new contract,
just because disability started before the contract date of the new contract.
But any premium to be paid for that disability under the new contract must be at
the frequency that was in effect for this contract when the disability started.
We will not pay any premium under the new contract unless it has a benefit
for paying premiums in the event of disability. This will be so even if we have
paid premiums under this contract.
If this contract has an accidental death benefit, or an accidental death
and dismemberment benefit, and we would regularly issue contracts like the new
contract with that benefit, we will put that kind of benefit in the new
contract, as we state in General below. But: (1) you must ask for it when you
apply for the new contract; and (2) the amount of any accidental death benefit
in the new contract will not be more than the face amount of the new contract.
VL 140A NY
II-65
<PAGE>
GENERAL
Any benefit for paying premiums in event of disability and any accidental
death benefit or accidental death and dismemberment benefit in the new contract
will be the same one, that we put in other contracts like it on its contract
date. In any of these paragraphs, when we use the phrases other contracts like
it and other contracts like the new contract, we mean contracts we would
regularly issue on the same plan and for the same rating class, amount, issue
age and sex.
CHANGES
On a normal or advance option date you may be able to buy a new contract of
life insurance other than in accord with the requirements that we state above.
Or you may be able to use the option to increase the amount of insurance under
this contract. But either may be done only if we consent, and will be subject to
conditions and charges that are then determined.
PREMIUM CREDIT
Premium credit will be allowed on the first premium for the new contract.
The credit will be at least $1 for each full $1,000 of face amount of the new
contract. If: (1) the new contract calls for premiums to be paid more often than
annually; and (2) the credit would be more than that first premium, you may
choose to have premiums paid less often to get the full credit.
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions shown on those pages and the balance is
the invested premiuim amount which is added to the contract fund. The premiums
for this benefit stop on the contract anniversary on which the Insured's
attained age is 52.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract data
pages. The charges for this benefit stop on the contract anniversary on which
the Insured's attained age is 52.
TERMINATION
This benefit will end on the earliest of:
1. the end of the last day of grace if the contract is in default; it will
not continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the 31st day affer the contract anniversary on which the Insured's
attained age is 52;
3. the date the contract is surrendered under its Cash Value Option, if it
has one; and
4. the date the contract ends for any other reason.
Further, if you ask us in writing, and we agree, we will cancel the benefit
as of the first monthly date on or after which we receive your request. Contract
premiums and monthly charges due then and later will be reduced accordingly.
This Supplementary Benefit rider attached to this contract on the Contract
Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
----------------
Secretary
VL 140A NY
II-66
EXHIBIT 1.A.(13)(e)
- --------------------------------------------------------------------------------
RIDER FOR TERM INSURANCE BENEFIT ON LIFE OF
INSURED--DECREASING AMOUNT
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data pages.
BENEFIT
We will pay an amount under this benefit if we receive due proof that the
insured died: (1) in the term period for the benefit; and (2) while this
contract is in force and not in default beyond the last day of the grace period.
Any proceeds under this contract that may arise from the Insured's death will
include this amount. But our payment is subject to all the provisions of the
benefit and of the rest of this contract.
We show the initial Amount of Term Insurance under this benefit on the
contract data pages. We also show the term period for the benefit there. It
starts on the contract date, which we show on the first page. The anniversary at
the end of the term period is part of that period.
AMOUNTS PAYABLE
The amount we will pay depends on when death occurs. In the Table of
Amounts of Insurance on the contract data pages we show the amount we will pay
if death occurs in a given contract year.
CONVERSION TO ANOTHER PLAN OF INSURANCE
RIGHT TO CONVERT
You may be able to exchange this benefit for a new contract of life
insurance on the Insured's life. You will not have to prove that the Insured is
insurable. When we use the phrase new contract in this provision, we mean the
contract for which this benefit may be exchanged.
CONDITIONS
Your right to make this exchange is subject to all these conditions: (1)
The amount we would have paid under this benefit if the Insured had died just
before the contract date of the new contract must be large enough to meet the
minimum for a new contract, as we describe under Contract Specifications. (2)
You must ask for the exchange in writing and in a form that meets our needs. (3)
You must send this contract to us to be endorsed. (4) We must have your request
and the contract at our Home Office while the benefit is in force and at least
five years before the end of its term period.
The new contract will not take effect unless the premium for it is paid
while the Insured is living and within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that: (1) the insurance under the
new contract took effect on its contract date; and (2) this benefit ended just
before that contract date.
PREMIUM CREDIT
If your request for a new contract is received at our Home Office before
the fifth anniversary of this contract, we will allow a credit on each premium
that is due or scheduled for payment during the first year of the new contract.
If, as of the date of the new contract, this contract has been in force for at
least one year, the total credit will be equal to the premiums for the term
insurance being converted that were due, on the premium mode in effect at the
time of conversion, during the twelve months preceding the date of the new
contract, less 20% of any of those premiums that were due prior to the first
anniversary of this contract. If, as of the contract date of the new contract,
this contract has been in force for less than one year, the total credit will be
reduced to reflect the actual time in force. (Extra premiums or charges for
extra risks or extra benefits other than a benefit for waiving premiums are not
considered in the calculation of this credit.) We will apply a portion of the
total credit to each due or scheduled first-year premium, in a proportion
related to the frequency of premium payments, on the date we receive payment of
the balance of that premium.
VL 130A NY
II-67
<PAGE>
Example: You might request an exchange during the second year of this
contract. Let us assume that premiums due or scheduled under the new contract
resulting from the exchange would be $100 monthly and that as of the date of the
new contract the premiums due for the previous twelve months for the term
insurance being converted were $280 (with no premium or charge for an extra risk
or for an extra benefit other than one for paying premiums). If $200 of the $280
was due prior to the first anniversary of this contract and $80 was due on or
after the first anniversary, the total premium credit would be $240 ($280 less
20% of $200). We would apply a credit of $20 (1/12 of $240) on each date on
which we receive payment of $80 for a monthly premium that is due or scheduled
for payment during the first year of the new contract. If all of the $280 was
due on or after the first contract anniversary of this contract, the total
premium credit would be the full $280.
CONTRACT DATE
The date of the new contract will be the date you ask for in your request.
But it may not be more than 61 days after the date of your request. It may not
be less than five years before the end of the term period for the benefit. And
it may not be more than 31 days before we have your request at our Home Office.
CONTRACT SPECIFICATIONS
The new contract will be in the same rating class as this contract. We will
set the issue age and the premiums for the new contract in accordance with our
regular rules in use on its contract date.
The contract may be any of of the following:
1. A Life Paid Up at Age 85 plan. In this case the new contract will be issued
by The Prudential Insurance Company of America. Its face amount will be the
amount you ask for in your request. But it cannot be less than $10,000 or
more than 80% of the amount we would have paid under this Benefit if the
Insured had died just before the contract date of the new contract. (Since
$10,000 is 80% of $12,500, the amount we would have paid must be at least
$12,500 for the exchange to be possible.)
2. A contract of life insurance of a kind regularly being issued by Pruco Life
Insurance Company at that time for $25,000 or more. Its face amount will
be the amount you ask for in your request. But it cannot be less than
$25,000 or more than 80% of the amount we would have paid under the Benefit
if the Insured had died just before the contract date of the new contract.
(Since $25,000 is 80% of $31,250, the amount we would have paid must be at
least $31,250 for this exchange to be possible.)
We will not deny a benefit for paying premiums that we would have allowed
under this contract, and that we would otherwise allow under the new contract,
just because disability started before the contract date of the new contract.
But any premium to be paid for that disability under the new contract must be at
the frequency that was in effect for this contract when the disability started.
We will not pay any premium under a new contract unless it has a benefit
for paying premiums in the event of disability. This will be so even if we have
paid premiums under this contract.
CHANGES
You may be able to have this benefit changed to a new contract of life
insurance other than in accord with the requirements for exchange that we state
above. But any change may be made only if we consent, and will be subject to
conditions and charges that are then determined.
II-68
VL 130A NY
<PAGE>
MISCELLANEOUS PROVISIONS
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions as shown in these pages and the balance
is the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is also shown on the contract data
pages.
Benefit premiums and monthly charges stop on the contract anniversary at
the end of the term period for this benefit.
TERMINATION
This benefit will end on the earliest of:
1. the end of its term period;
2. the end of the last day of grace if the contract is in default; it will not
continue if a benefit takes effect under any contract value options
provision that may be in the contract;
3. the end of the last day before the contract date of any other contract (a)
for which the benefit is exchanged, or (b) to which the benefit is changed;
4. the date the contract is surrendered under its Cash Value Option, if it has
one; and
5. the date the contract ends for any other reason.
Further, if you ask us in writing in the premium period, we will cancel the
benefit as of the first monthly date on or after we receive your request.
Contract premiums and monthly charges due then and later will be reduced
accordingly.
This Supplementary Benefit rider attached to this contract on the Contract Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
-------------------------
Secretary
VL 130A NY
II-69
EXHIBIT 1.A.(13)(f)
- --------------------------------------------------------------------------------
RIDER FOR TERM INSURANCE BENEFIT ON LIFE
INSURED SPOUSE--DECREASING AMOUNT
This benefit is a part of this contract only if it is included in the list of
supplementary benefits on the contract data pages.
BENEFIT
We will pay an amount under this benefit if we receive due proof that the
insured spouse died: (1) in the term period for the benefit; and (2) while this
contract is in force and not in default beyond the last day of the grace period.
We will pay this amount to the beneficiary for insurance payable upon the
insured spouse's death. But our payment is subject to all the provisions of the
benefit and of the rest of this contract. The phrase insured spouse means the
Insured's spouse named in the application for this contract.
We show the initial amount of term insurance under this benefit on the
contract data pages. We also show the term period for the benefit there. It
starts on the contract date, which we show on the first page. The anniversary at
the end of the term period is part of that period.
AMOUNTS PAYABLE
The amount we will pay depends on when death of the insured spouse occurs.
In the Table of Amounts of Insurance on the contract data page(s) we show the
amount we will pay if death occurs in a given contract year.
PAID-UP INSURANCE
PAID-UP INSURANCE ON LIFE OF INSURED SPOUSE
The Insured might die: (1) in the term period for this benefit; (2) while
this contract is in force and not in default past the last day of the grace
period; and (3) while the insured spouse is living. In this case, the insurance
on the life of the insured spouse under the benefit will become paid-up term
insurance for decreasing amounts. We will compute these amounts from the Table
of Amounts of Insurance. While the paid-up insurance is in effect, the contract
will remain in force until the end of the term period for the benefit. The
paid-up insurance will have cash values but no loan value.
If the Insured dies by suicide within the period which we state in the
Suicide Exclusion under General Provisions of the contract and our liability is
limited as we state for suicide in that provision, any provision for paid-up
insurance on the life of the insured spouse will not apply. Instead, we will
then offer to insure the insured spouse under a new contract of whole life or
endowment insurance, The new contract will be subject to conditions and charges
that are then determined, in accordance with regular rules in effect at the
time. Its amount will not be less than the greater of: (1) the amount of
insurance on the insured spouse's life under this contract, and (2) the lowest
amount offered for the plan of insurance to be provided by the new contract. And
proof that the insured spouse is insurable will not be required, unless the new
contract is to provide either an increased amount of insurance or a benefit that
did not apply to the insured spouse under this contract.
If this offer is not accepted, we will include the sum of the premiums paid
for this benefit as part of the contract premiums to be returned at the time of
settlement.
If this benefit becomes paid-up, it may be surrendered for its net cash
value. This will be the net value on the date of surrender of the paid-up
insurance. But, within 30 days after a contract anniversary, the net cash value
will not be less than it was on that anniversary. We base this net cash value on
the insured spouse's age and sex. The insured spouse's age at any time will be
his or her age last birthday on the contract date plus the length of time since
that date. We use the Commissioners 1980 Standard Ordinary Non-Smoker Mortality
Table. We use continuous functions based on age last birthday. We use an
effective interest rate of 4% a year.
We will usually pay any cash value promptly. But we have the right to
postpone paying it for up to six months. If we do so for more than 10 days, we
will pay interest at the rate that then applies to the Interest Payment Option
(see page 20). If we are asked for the values which apply, we will furnish them.
VL 181A NY
II-70
<PAGE>
CONVERSION TO ANOTHER PLAN OF INSURANCE
RIGHT TO CONVERT
While the Insured is living, you may be able to exchange this benefit for a
new contract of life insurance on the life of the insured spouse. In any of
these paragraphs, when we use the phrase new contract we mean the contract for
which the benefit may be exchanged. You will not have to prove that the insured
spouse is insurable.
CONDITIONS
Your right to make this exchange is subject to all these conditions: (1)
The amount we would have paid under this benefit if the insured spouse had died
just before the contract date of the new contract must be large enough to meet
the minimum for a new contract, as we describe under Contract Specifications.
(2) You must ask for the exchange in writing and in a form that meets our needs.
(3) You must send this contract to us to be endorsed. (4) We must have your
request and the contract at our Home Office while the benefit is in force and at
least five years before the end of its term period.
The new contract will not take effect unless the premium for it is paid
while the insured spouse is living and within 31 days after its contract date.
If the premium is paid as we state, it will be deemed that: (1) the insurance
under the new contract took effect on its contract date; and (2) this benefit
ended just before that contract date.
PREMIUM CREDIT
If your request for a new contract is received at our Home Office before
the fifth anniversary of this contract, we will allow a credit on each premium
that is due or scheduled for payment during the first year of the new contract.
If, as of the date of the new contract, this contract has been in force for at
least one year, the credit will be equal to 10% of the premium for the new
contract, excluding any premium or charge for an extra risk. If, as of the date
of the new contract, this contract has been in force for less than one year, the
credit will be equal to the credit determined in the preceding sentence,
multiplied by the number of months for which this contract has been in force,
divided by twelve. We will apply the credit to each due or scheduled first-year
premium on the date we receive payment of the balance of that premium.
Example: You might request an exchange during the third year of this
contract. Let us assume that premiums due or scheduled under the new contract
resulting from the exchange would be $100 monthly with no premium or charge for
an extra risk). We would apply a credit of $10 on each date on which we receive
payment of at least $90 for a monthly premium that is due or scheduled for
payment during the first year of the new contract. If you requested this
exchange after this contract had been in force for only 6 months, we would apply
a credit of $5 ($10 multiplied by 6, divided by 12) on each date on which we
receive payment of $95 for a monthly premium that is due or scheduled during the
first year of the new contract.
CONTRACT DATE
The date of the new contract will be the date you ask for in your request.
But it may not be more than 61 days after the date of your request. It may not
be less than five years before the end of the term period for the benefit. And
it may not be more than 31 days before we have your request at our Home Office.
CONTRACT SPECIFICATIONS
The new contract will be in the standard rating class. We will set the
issue age and the premiums for the new contract in accord with our regular rules
in use on its contract date.
The contract may be any of of the following:
1. A Life Paid Up at Age 85 plan. In this case the new contract will be issued
by The Prudential Insurance Company of America. Its face amount will be the
amount you ask for in your request. But it cannot be less than $10,000
or more than 80% of the amount we would have paid under this Benefit if the
Insured had died just before the contract date of the new contract. (Since
$10,000 is 80% of $12,500, the amount we would have paid must be at least
$12,500 for the exchange to be possible.)
2. A contract of life insurance of a kind regularly being issued by Pruco Life
Insurance Company at that time for $25,000 or more. Its face amount will be
the amount you ask for in your request. But it cannot be less than $25,000
or more than 80% of the amount we would have paid under the Benefit if the
Insured had died just before the contract date of the new contract. (Since
$25,000 is 80% of $31,250, the amount we would have paid must be at least
$31,250 for this exchange to be possible.)
VL 181A
II-71
<PAGE>
We will not pay any premium under a new contract unless the disability
started on or after its contract date. And we will not pay any premium under a
new contract unless it has a benefit for paying premiums in the event of
disability. This will be so even if we have paid premiums under this contract.
CHANGES
You may be able to have this benefit changed to a new contract of life
insurance other than in accord with the requirements for exchange that we state
above. But any change may be made only if we consent, and will be subject to
conditions and charges that are then determined.
MISCELLANEOUS PROVISIONS
OWNERSHIP AND CONTROL
Unless we endorse this contract to say otherwise, while the Insured is
living the owner alone may exercise all ownership and control of this contract.
This includes, but is not limited to, these rights: (1) to assign the contract;
and (2) to change any subsequent owner. A request for such a change must be in
writing to us at our Home Office and in a form that meets our needs. The change
will take effect only when we endorse the contract to show it.
Unless we endorse this contract to say otherwise: (1) while any insurance
is in force after the Insured's death, the owner of the contract will be the
insured spouse; and (2) the owner alone will be entitled to (a) any contract
benefit and value, and (b) the exercise of any right and privilege granted by
the contract or by us. But any insurance payable upon the Insured's death will
be payable to the beneficiary for that insurance.
BENEFICIARY
The word beneficiary where we use it in this contract without qualification
means the beneficiary for insurance payable upon the death of the Insured.
Unless we endorse this contract to say otherwise, the beneficiary for
insurance payable upon the death of the insured spouse will be the Insured if
living, otherwise the estate of the insured spouse.
The beneficiary for insurance payable upon the death of the insured spouse
may be changed. The request must be in writing and in a form that meets our
needs. It will take effect only when we file it at our Home Office; this will be
after the contract is sent to us to be endorsed, if we ask for it. Then any
previous beneficiary's interest in such insurance will end as of the date of the
request. It will end then even if the insured spouse is not living when we file
the request. Any beneficiary's interest is subject to the rights of any assignee
of whom we know.
MISSTATEMENT OF AGE OR SEX
If the insured spouse's stated age or sex or both are not correct, we will
change each benefit and any amount payable to what the premiums and charges
would have bought for the correct age and sex.
The Schedule of Premiums may show that premiums change or stop on a certain
date. We may have used that date because the insured spouse would attain a
certain age on that date. If we find that the issue age for the insured spouse
was wrong, we will correct that date.
SUICIDE EXCLUSION
If the insured spouse, dies by suicide within the period which we state in
the Suicide Exclusion under General Provisions and while this benefit is in
force, we will not pay the amount we describe under benefit above. Instead, we
will pay no more than the sum of the monthly charges deducted for this benefit
to the date of death plus the charge for applicable taxes. We will make that
payment in one sum.
REINSTATEMENT
If this contract is reinstated, it will not include the insurance that we
provide under this benefit on the life of the insured spouse unless we are given
any facts we need to satisfy us that the insured spouse is insurable for the
benefit.
VL 181A NY
II-72
<PAGE>
CONTRACT VALUE OPTIONS
If this contract has a Contract Value Options provision, it will apply only
during the Insured's lifetime. Any extended or reduced paid-up insurance that
may be described there is on the life of the Insured only.
CONTRACT LOANS
If this contract has a Loans provision, we will not consider any contract
debt when we determine the amount payable, if any, at the death of the insured
spouse.
INCONTESTABILITY
Except for default, we will not contest this benefit after it has been in
force during the insured spouse's lifetime for two years from the issue date.
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions shown on those pages and the balance is
the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract data
pages.
Benefit premiums and monthly charges stop on the earliest of: (1) the death
of the Insured, (2) the death of the insured spouse, and (3) the contract
anniversary at the end of the term period for this benefit.
TERMINATION
This benefit will end on the earliest of:
1. the end of the last day of grace if the contract is in default: it will not
continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the end of the last day before the contract date of any other contract (a)
for which the benefit is exchanged, or (b) to which the benefit is changed;
3. the date the contract is surrendered under its Cash Value Option, if it has
one, or the paid-up insurance, if any, under the benefit is surrendered;
and
4. the date the contract ends for any other reason.
Further, if you ask us in writing, and we agree, we will cancel the benefit
as of the first monthly date on or after we receive your request Contract
premiums and monthly charges due then and later will be reduced accordingly.
THIS SUPPLEMENTARY BENEFIT RIDER ATTACHED TO THIS CONTRACT ON THE CONTRACT
DATE
PRUCO LIFE
Insurance Company of New Jersey,
By DOROTHY K. LIGHT
Secretary
VL 181A NY
II-73
EXHIBIT 1.A(13)(g)
RIDER FOR LEVEL TERM INSURANCE BENEFIT ON DEPENDENT CHILDREN
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data pages.
BENEFIT
We will pay an amount under this benefit if we receive due proof that a
dependent child died: (1) before the term insurance provided by the benefit on
his or her life ends; and (2) while this contract is in force and not in default
past the last day of the grace period. But our payment is subject to all the
provisions of the benefit and of the rest of this contract.
The phrase dependent child means the Insured's child, stepchild or legally
adopted child who: (1) has reached the 15th day of life; and (2) has not
reached the first contract anniversary after his or her 25th birthday; and
either (3) is named in the application for this contract and on the date of the
application has not reached his or her 18th birthday; or (4) is acquired by the
Insured after the date of the application but before the child's 18th birthday.
We show the amount of term insurance under this benefit on the contract
data pages. The insurance on each dependent child's life will end on the earlier
of: (1) the end of the day before the first contract anniversary after the
child's 25th birthday; and (2) the end of the day before the first contract
anniversary after the Insured's 65th birthday.
PAID-UP INSURANCE
PAID-UP INSURANCE ON DEPENDENT CHILDREN
The Insured might die while this contract is in force and not in default
past the last day of the grace period. In this case, any term insurance provided
by this benefit on a dependent child's life will become paid-up term insurance.
While this paid-up insurance is in effect, the contract will remain in force.
The paid-up insurance will have cash values but no loan value.
If this benefit becomes paid-up, it may be surrendered for its net cash
value. This will be the net value on the date of surrender of the paid-up
insurance. But, within 30 days after a contract anniversary, the net cash value
will not be less than it was on that anniversary. To compute this net cash
value, we use the Commissioners 1980 Standard Ordinary Mortality Table. We use
continuous functions based on age last birthday. We use an effective interest
rate of 4% a year.
We will usually pay any cash value promptly. But we have the right to
postpone paying it for up to six months. If we do so for more than 10 days, we
will pay interest at the rate that then applies to the Interest Payment Option
(see page 20). If we are asked for the values which apply, we will furnish them.
CONVERSION OF INSURANCE ON DEPENDENT CHILDREN
RIGHT TO CONVERT
If the insurance on a dependent child ends as we state in the last
paragraph under benefit above, that child may be able to obtain a new contract
of life insurance on his or her life, in either this company or The Prudential
Insurance Company of America. In any of these paragraphs, when we use the phrase
the company we mean whichever of these companies may issue the new contract. It
will not be necessary to prove that the child is insurable.
CONDITIONS
The right to obtain a new contract is subject to all these conditions: (1)
The insurance on the child must end while this contract is in force and not in
default past the last day of the grace period. (2) The amount of the new
contract must meet the minimum as we describe under Contract Specifications. (3)
We must have a written application for the new contract at our Home Office no
later than the date the insurance on the child ends.
VL 182A NY
II-74
<PAGE>
The new contract will not take effect unless the premium for it is paid
while the child is living and within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that the insurance under the new
contract took effect on its contract date.
CONTRACT DATE
The date of the new contract will be the day after the date the insurance
on the dependent child ends.
CONTRACT SPECIFICATIONS
The new contract will be in the standard rating class. We will set the
issue age and the premiums for the new contract in accord with our regular rules
in use on its contract date.
We will endorse the new contract to show that the period we state in its
Incontestability provision will start on the date coverage of the child began
under this benefit. But if this contract was reinstated after the date the
coverage began but before the date of the new contract, that period will start
on the date of the most recent reinstatement. We will have the right to use the
statements that were made to us as the basis for reinstatement to contest the
new contract. The period during which we will have that right will be the period
we state in the Incontestability provision of the new contract.
We will endorse the new contract to show that the period we state in its
Suicide Exclusion provision will start on the date coverage of the child began
under this benefit.
THE CONTRACT MAY BE ANY ONE OF THE FOLLOWING:
1. A Life Paid Up at Age 85 plan (Life Paid Up at Age 65 plan if the issue age
for the new contract is less than 15 years). In this case the new contract
will be issued by The Prudential Insurance Company of America. Its face
amount will be the amount asked for in your request. But it cannot be less
than $5,000 or more than five times the amount of insurance on the child's
life under this Benefit.
2. A contract like the one to which this Benefit is attached, if Pruco Life
Insurance Company is regularly issuing such contracts at that time. Its
face amount will be the amount asked for in your request. But it cannot be
less than $50,000 or more than five times the amount of insurance on the
child's life under the Benefit.
3. A contract of life insurance of a kind regularly being issued by Pruco Life
Insurance Company at that time for $25,000 or more. Its face amount will be
the amount you ask for in your request. But it cannot be less than $25,000
or more than five times the amount of insurance on the child's life under
the Benefit.
The new contract will not have Supplementary Benefits other than as we
describe in this and in the next paragraph. If the company would include in
other contracts like the new contract a benefit for paying premiums in the event
of disability, here is what the company will do. Even though this contract does
not have such a benefit on the life of that child, the company will put it in
the new contract on his or her life. The benefit, if any, in the new contract
will be the same one, with the same provisions, that the company puts in other
contracts like it on its contract date. In this paragraph, when we use the
phrase other contracts like it, we mean contracts the company would regularly
issue on the same plan for the same rating class, amount, issue age and sex.
We will not pay any premium under a new contract unless the disability
started on or after its contract date. And we will not pay any premium under a
new contract unless it has a benefit for paying premiums in the event of
disability. This will be so even if we have paid premiums under this contract.
CHANGES
If the insurance on a dependent child ends as we state in the last
paragraph under benefit above, that child may be able to obtain a new contract
of life insurance other than in accord with the requirements we state in this
form. But this kind of change may be made only if we consent, and will be
subject to conditions and charges that are then determined.
VL 182A NY
II-75
<PAGE>
MISCELLANEOUS PROVISIONS
BENEFICIARY
The word beneficiary where we use it in this contract without qualification
means the beneficiary for insurance payable upon the death of the Insured.
Unless we endorse this contract to say otherwise, these two statements will
apply: (1) The beneficiary for insurance payable upon the death of a dependent
child will be the Insured if living, otherwise the beneficiary for this
insurance named in the application. (2) If no such beneficiary is living when
insurance under this benefit becomes payable, we will make the payment in one
sum to the estate of the later to die of the Insured and such beneficiary.
The beneficiary for insurance payable upon the death of a dependent child
may be changed. The request must be in writing and in a form that meets our
needs. It will take effect only when we file it at our Home Office; this will be
after the contract is sent to us to be endorsed, if we ask for it. Then any
previous beneficiary's interest in such insurance will end as of the date of the
request. It will end then even if the child is not living when we file the
request. Any beneficiary's interest is subject to the rights of any assignee of
whom we know. When a beneficiary is designated, any relationship shown is to the
Insured, unless otherwise stated.
REINSTATEMENT
If this contract is reinstated, it will not include the insurance that we
provide under this benefit on the dependent children unless you give us any
facts we need to satisfy us that each child who is to be insured on or within 15
days after the date of reinstatement is insurable for the benefit. If you do
not give us the facts we need for any child, the benefit may be reinstated if
all the other conditions are met to reinstate the contract. But you must send
the contract to us to be endorsed to show that the child is not insured under
the benefit.
CONTRACT VALUE OPTIONS
If this contract has a Contract Value Options provision, it will apply only
during the Insured's lifetime. Any extended or reduced paid-up insurance that
may be described there is on the life of the Insured only.
CONTRACT LOANS
If this contract has a Loans provision, we will not consider any contract
debt when we determine the amount payable, if any, at the death of a dependent
child.
INCONTESTABILITY
Except for non-payment of premium, we will not contest this benefit with
respect to the insurance on any dependent child's life after it has been in
force during the child's lifetime for two years from the issue date.
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions shown on those pages and the balance is
the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract data
pages.
Benefit premiums and monthly charges stop on the earlier of the death of
the Insured and the first contract anniversary after the Insured's 65th
birthday.
TERMINATION
This benefit will end on the earliest of:
1. the end of the last day of grace if the contract is in default; it will not
continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the end of the day before the first contract anniversary after the
Insured's 65th birthday;
3. the date the contract is surrendered under its Cash Value Option, if it has
one, or the paid-up insurance, if any, under the benefit is surrendered;
and
4. the date the contract ends for any other reason.
Further, if you ask us in writing in the premium period, and we agree, we
will cancel the benefit as of the first monthly date on or after we receive your
request. Contract premiums and monthly charges due then and later will be
reduced accordingly.
VL 182A NY
II-76
<PAGE>
MAXIMUM TOTAL AMOUNT OF INSURANCE ALLOWED BY LAW
A dependent child might die when his or her age is less than 14 years and
six months. And there might be other life insurance, with us or other companies,
payable on the child's life under a contract(s) that was issued and dated before
the insurance for the child took effect under this benefit. If so, the most we
could pay under this benefit for that death is the excess of: (1) the maximum
that is allowed to be paid in accord with the Table below, over (2) the amount
of the insurance on the child's life under (all) the other contract(s). If the
amount of insurance on the child's life under this benefit is greater than that
excess, we will reduce it by the difference, with appropriate adjustment of the
premium as filed with the Superintendent of Insurance of New York.
If the insurance under this benefit is more than we would be allowed to pay
upon a dependent child's death, you may wish to have us reduce it to what we
could pay, with appropriate adjustment of the premium as filed with the
Superintendent of Insurance of New York. To do so, you must ask us in writing
and in a form that meets our needs. You must also send the contract to us to be
endorsed.
When we compute insurance under this or other contracts we will not
include: (1) return premium benefits; (2) dividend additions; or (3) benefits
that are paid only for death by accident.
- --------------------------------------------------------------------------------
DEPENDENT CHILD'S AGE AT DEATH MAXIMUM AMOUNT ALLOWED
- --------------------------------------------------------------------------------
Less than four years and $5,000 or, if more, 25% of the amount of
six months life insurance in force on the life of the
Insured on the date the insurance for the
child takes effect under this benefit or a
similar one in the earlier contract.
- --------------------------------------------------------------------------------
Four years and six months or $10,000 or, if more, 50% of the amount of
more, but less than fourteen the life insurance in force on the life
years and six months of the Insured on the date the insurance
for the child takes effect under this
benefit or a similar one in the earlier
contract.
- --------------------------------------------------------------------------------
THIS SUPPLEMENTARY BENEFIT RIDER ATTACHED TO THIS CONTRACT ON THE CONTRACT DATE
Pruco Life Insurance Company of New Jersey,
By DOROTHY K. LIGHT
Secretary
VL 182A NY
II-77
EXHIBIT 1.A.(13)(h)
RIDER FOR LEVEL TERM INSURANCE BENEFIT
ON DEPENDENT CHILDREN
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data pages.
BENEFIT
We will pay an amount under this benefit if we receive due proof that a
dependent child died: (1) before the term insurance provided by the benefit on
his or her life ends; and (2) while this contract is in force and not in default
past the last day of the grace period. But our payment is subject to all the
provisions of the benefit and of the rest of this contract.
The phrase dependent child means the Insured's child, stepchild or legally
adopted child who: (1) has reached the 15th day of life; and (2) has not reached
the first contract anniversary after his or her 25th birthday; and either (3)
just before the contract date of this contract was insured under the earlier
contract from which this contract was exchanged or changed; or (4) is acquired
by the Insured on or after the date of this contract but before the child's 18th
birthday.
We show the amount of term insurance under this benefit on the contract
data pages. The insurance on each dependent child's life will end on the earlier
of: (1) the end of the day before the first contract anniversary after the
child's 25th birthday; and (2) the end of the day before the first contract
anniversary after the Insured's 65th birthday.
PAID-UP INSURANCE
PAID-UP INSURANCE ON DEPENDENT CHILDREN
The Insured might die while this contract is in force and not in default
past the last day of the grace period. In this case, any term insurance provided
by this benefit on a dependent child's life will become paid-up term insurance.
While this paid-up insurance is in effect, the contract will remain in force.
The paid-up insurance will have cash values but no loan value.
If this benefit becomes paid-up, it may be surrendered for its net cash
value. This will be the net value on the date of surrender of the paid-up
insurance. But, within 30 days after a contract anniversary, the net cash value
will not be less than it was on that anniversary. To compute this net cash
value, we use the Commissioners 1980 Standard Ordinary Mortality Table. We use
continuous functions based on age last birthday. We use an effective interest
rate of 4% a year.
We will usually pay any cash value promptly. But we have the right to
postpone paying it for up to six months. If we do so for more than 10 days, we
will pay interest at the rate that then applies to the Interest Payment Option
(see page 20). If we are asked for the values which apply, we will furnish them.
CONVERSION OF INSURANCE ON DEPENDENT CHILDREN
RIGHT TO CONVERT
If the insurance on a dependent child ends as we state in the last
paragraph under benefit above, that child may be able to obtain a new contract
of life insurance on his or her life in either this company or The Prudential
Insurance Company of America. In any of these paragraphs, when we use the phrase
the company we mean whichever of these companies may issue the new contract. It
will not be necessary to prove that the child is insurable.
CONDITIONS
The right to obtain a new contract is subject to all these conditions: (1)
The insurance on the child must end while this contract is in force and not in
default past the last day of the grace period. (2) The amount of the new
contract must meet the minimum as we describe under Contract Specifications. (3)
We must have a written application for the new contract at our Home Office no
later than the date the insurance on the child ends.
VL 184A NY
II-78
<PAGE>
The new contract will not take effect unless the premium for it is paid
while the child is living and within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that the insurance under the new
contract took effect on its contract date.
CONTRACT DATE
The date of the new contract will be the day after the date the insurance
on the dependent child ends.
CONTRACT SPECIFICATIONS
The new contract will be in the standard rating class. We will set the
issue age and the premiums for the new contract in accord with our regular rules
in use on its contract date.
We will endorse the new contract to show that the period we state in its
Incontestability provision will start on the date coverage of the child began
under this benefit or under a similar one in the earlier contract from which
this contract was exchanged or changed. But if this contract or the earlier
contract was reinstated after the date the coverage began but before the date of
the new contract, that period will start on the date of the most recent
reinstatement. We will have the right to use the statements that were made to us
as the basis for reinstatement to contest the new contract. The period during
which we will have that right will be the period we state in the
Incontestability provision of the new contract.
We will endorse the new contract to show that the period we state in its
Suicide Exclusion provision will start on the date coverage of the child began
under this benefit or under a similar one in the earlier contract.
The contract may be any one of the following:
1. A Life Paid Up at Age 85 plan (Life Paid Up at Age 65 plan if the issue age
for the new contract is less than 15 years). In this case the new contract
will be issued by The Prudential Insurance Company of America. Its face
amount will be the amount asked for in your request. But it cannot be less
than $5,000 or more than five times the amount of insurance on the child's
life under this Benefit.
2. A contract like the one to which this Benefit is attached, if Pruco Life
Insurance Company is regularly issuing such contracts at that time. Its
face amount will be the amount asked for in your request. But it cannot be
less than $50,000 or more than five times the amount of insurance on the
child's life under the Benefit.
3. A contract of life insurance of a kind regularly being issued by Pruco Life
Insurance Company at that time for $25,000 or more. Its face amount will be
the amount you ask for in your request. But it cannot be less than $25,000
or more than five times the amount of insurance on the child's life under
the Benefit.
The new contract will not have Supplementary Benefits other than as we
describe in this and in the next paragraph. If the company would include in
other contracts like the new contract a benefit for paying premiums in the event
of disability, here is what the company will do. Even though this contract does
not have such a benefit on the life of that child, the company will put it in
the new contract on his or her life. The benefit, if any, in the new contract
will be the same one, with the same provisions, that the company puts in other
contracts like it on its contract date. In this paragraph, when we use the
phrase other contracts like it, we mean contracts the company would regularly
issue on the same plan for the same rating class, amount, issue age and sex.
We will not pay any premium under a new contract unless the disability
started on or after its contract date. And we will not pay any premium under a
new contract unless it has a benefit for paying premiums in the event of
disability. This will be so even if we have paid premiums under this contract.
CHANGES
If the insurance on a dependent child ends as we state in the last
paragraph under benefit above, that child may be able to obtain a new contract
of life insurance other than in accord with the requirements we state in this
form. But this kind of change may be made only if we consent, and will be
subject to conditions and charges that are then determined.
VL 184A NY
II-79
<PAGE>
MISCELLANEOUS PROVISIONS
BENEFICIARY
The word beneficiary where we use it in this contract without qualification
means the beneficiary for insurance payable upon the death of the Insured.
Unless we endorse this contract to say otherwise, these two statements will
apply: (1) The beneficiary for insurance payable upon the death of a dependent
child will be the Insured if living, otherwise the beneficiary for insurance
payable upon the death of the Insured. (2) If no such beneficiary is living when
insurance under this benefit becomes payable, we will make the payment in one
sum to the estate of the later to die of the Insured and such beneficiary.
The beneficiary for insurance payable upon the death of a dependent child may be
changed. The request must be in writing and in a form that meets our needs. It
will take effect only when we file it at our Home Office; this will be after the
contract is sent to us to be endorsed, if we ask for it. Then any previous
beneficiary's interest in such insurance will end as of the date of the request.
It will end then even if the child is not living when we file the request. Any
beneficiary's interest is subject to the rights of any assignee of whom we know.
When a beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated.
REINSTATEMENT
If this contract is reinstated, it will not include the insurance that we
provide under this benefit on the dependent children unless you give us any
facts we need to satisfy us that each child who is to be insured on or within 15
days after the date of reinstatement is insurable for the benefit. If you do
not give us the facts we need for any child, the benefit may be reinstated if
all the other conditions are met to reinstate the contract. But you must send
the contract to us to be endorsed to show that the child is not insured under
the benefit.
CONTRACT VALUE OPTIONS
If this contract has a Contract Value Options provision, it will apply only
during the Insured's lifetime. Any extended or reduced paid-up insurance that
may be described there is on the life of the Insured only.
CONTRACT LOANS
If this contract has a Loans provision, we will not consider any contract
debt when we determine the amount payable, if any, at the death of a dependent
child.
INCONTESTABILITY
Except for non-payment of premium, we will not contest this benefit with
respect to the insurance on any dependent child's life after it has been in
force during the child's lifetime for two years from: (1) the date the level
term insurance benefit on dependent children began under the earliest contract;
or, if later, (2) the date of any rider that added the child for coverage under
any such earlier contract. But, in any case. if there was a later reinstatement
of any such earlier contract, then the two years will start on the date of the
most recent reinstatement.
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions shown on those pages and the balance is
the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract data
pages.
Benefit premiums and monthly charges stop on the earlier of the death of
the Insured and the first contract anniversary after the Insured's 65th
birthday.
TERMINATION
This benefit will end on the earliest of:
1. the end of the last day of grace if the contract is in default; it will not
continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the end of the day before the first contract anniversary after the
Insured's 65th birthday;
3. the date the contract is surrendered under its Cash Value Option, if it has
one, or the paid-up insurance, if any, under the benefit is surrendered;
and
4. the date the contract ends for any other reason.
VL 184A NY
II-80
<PAGE>
Further, if you ask us in writing in the premium period, and we agree, we
will cancel the benefit as of the first monthly date on or after we receive your
request. Contract premiums and monthly charges due then and later will be
reduced accordingly.
MAXIMUM TOTAL AMOUNT OF INSURANCE ALLOWED BY LAW
A dependent child might die when his or her age is less than 14 years and
six months. And there might be other life insurance, with us or other companies,
payable on the child's life under a contract(s) that was issued and dated before
the insurance for the child took effect under this benefit or under a similar
one in the earlier contract from which this contract was exchanged or changed.
If so, the most we could pay under this benefit for that death is the excess of:
(1) the maximum that is allowed to be paid in accord with the Table below, over
(2) the amount of the insurance on the child's life under (all) the other
contract(s). If the amount of insurance on the child's life under this benefit
is greater than that excess, we will reduce it by the difference, with
appropriate adjustment of the premium as filed with the Superintendent of
Insurance of New York.
If the insurance under this benefit is more than we would be allowed to pay
upon a dependent child's death, you may wish to have us reduce it to what we
could pay, with appropriate adjustment of the premium as filed with the
Superintendent of Insurance of New York. To do so, you must ask us in writing
and in a form that meets our needs. You must also send the contract to us to be
endorsed.
When we compute insurance under this or other contracts we will not
include: (1) return premium benefits; (2) dividend additions; or (3) benefits
that are paid only for death by accident.
- --------------------------------------------------------------------------------
DEPENDENT CHILD'S AGE AT DEATH MAXIMUM AMOUNT ALLOWED
- --------------------------------------------------------------------------------
Less than four years and $5,000 or, if more, 25% of the amount of
six months life insurance in force on the life of the
Insured on the date the insurance for the
child takes effect under this benefit or a
similar one in the earlier contract.
- --------------------------------------------------------------------------------
Four years and six months or $10,000 or, if more, 50% of the amount of
more, but less than fourteen the life insurance in force on the life
years and six months of the Insured on the date the insurance
for the child takes effect under this
benefit or a similar one in the earlier
contract.
- --------------------------------------------------------------------------------
This Supplementary Benefit rider attached to this contract on the Contract Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
-----------------------------
Secretary
VL 184A NY
II-81
EXHIBIT 1.A.(13)(h)
RIDER FOR LEVEL TERM INSURANCE BENEFIT
ON DEPENDENT CHILDREN
This benefit is a part of this contract only if it is included in the list
of supplementary benefits on the contract data pages.
BENEFIT
We will pay an amount under this benefit if we receive due proof that a
dependent child died: (1) before the term insurance provided by the benefit on
his or her life ends; and (2) while this contract is in force and not in default
past the last day of the grace period. But our payment is subject to all the
provisions of the benefit and of the rest of this contract.
The phrase dependent child means the Insured's child, stepchild or legally
adopted child who: (1) has reached the 15th day of life; and (2) has not reached
the first contract anniversary after his or her 25th birthday; and either (3)
just before the contract date of this contract was insured under the earlier
contract from which this contract was exchanged or changed; or (4) is acquired
by the Insured on or after the date of this contract but before the child's 18th
birthday.
We show the amount of term insurance under this benefit on the contract
data pages. The insurance on each dependent child's life will end on the earlier
of: (1) the end of the day before the first contract anniversary after the
child's 25th birthday; and (2) the end of the day before the first contract
anniversary after the Insured's 65th birthday.
PAID-UP INSURANCE
PAID-UP INSURANCE ON DEPENDENT CHILDREN
The Insured might die while this contract is in force and not in default
past the last day of the grace period. In this case, any term insurance provided
by this benefit on a dependent child's life will become paid-up term insurance.
While this paid-up insurance is in effect, the contract will remain in force.
The paid-up insurance will have cash values but no loan value.
If this benefit becomes paid-up, it may be surrendered for its net cash
value. This will be the net value on the date of surrender of the paid-up
insurance. But, within 30 days after a contract anniversary, the net cash value
will not be less than it was on that anniversary. To compute this net cash
value, we use the Commissioners 1980 Standard Ordinary Mortality Table. We use
continuous functions based on age last birthday. We use an effective interest
rate of 4% a year.
We will usually pay any cash value promptly. But we have the right to
postpone paying it for up to six months. If we do so for more than 10 days, we
will pay interest at the rate that then applies to the Interest Payment Option
(see page 20). If we are asked for the values which apply, we will furnish them.
CONVERSION OF INSURANCE ON DEPENDENT CHILDREN
RIGHT TO CONVERT
If the insurance on a dependent child ends as we state in the last
paragraph under benefit above, that child may be able to obtain a new contract
of life insurance on his or her life in either this company or The Prudential
Insurance Company of America. In any of these paragraphs, when we use the phrase
the company we mean whichever of these companies may issue the new contract. It
will not be necessary to prove that the child is insurable.
CONDITIONS
The right to obtain a new contract is subject to all these conditions: (1)
The insurance on the child must end while this contract is in force and not in
default past the last day of the grace period. (2) The amount of the new
contract must meet the minimum as we describe under Contract Specifications. (3)
We must have a written application for the new contract at our Home Office no
later than the date the insurance on the child ends.
VL 184A NY
II-82
<PAGE>
The new contract will not take effect unless the premium for it is paid
while the child is living and within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that the insurance under the new
contract took effect on its contract date.
CONTRACT DATE
The date of the new contract will be the day after the date the insurance
on the dependent child ends.
CONTRACT SPECIFICATIONS
The new contract will be in the standard rating class. We will set the
issue age and the premiums for the new contract in accord with our regular rules
in use on its contract date.
We will endorse the new contract to show that the period we state in its
Incontestability provision will start on the date coverage of the child began
under this benefit or under a similar one in the earlier contract from which
this contract was exchanged or changed. But if this contract or the earlier
contract was reinstated after the date the coverage began but before the date of
the new contract, that period will start on the date of the most recent
reinstatement. We will have the right to use the statements that were made to us
as the basis for reinstatement to contest the new contract. The period during
which we will have that right will be the period we state in the
Incontestability provision of the new contract.
We will endorse the new contract to show that the period we state in its
Suicide Exclusion provision will start on the date coverage of the child began
under this benefit or under a similar one in the earlier contract.
The contract may be any one of the following:
1. A Life Paid Up at Age 85 plan (Life Paid Up at Age 65 plan if the issue age
for the new contract is less than 15 years). In this case the new contract
will be issued by The Prudential Insurance Company of America. Its face
amount will be the amount asked for in your request. But it cannot be less
than $5,000 or more than five times the amount of insurance on the child's
life under this Benefit.
2. A contract like the one to which this Benefit is attached, if Pruco Life
Insurance Company is regularly issuing such contracts at that time. Its
face amount will be the amount asked for in your request. But it cannot be
less than $50,000 or more than five times the amount of insurance on the
child's life under the Benefit.
3. A contract of life insurance of a kind regularly being issued by Pruco Life
Insurance Company at that time for $25,000 or more. Its face amount will be
the amount you ask for in your request. But it cannot be less than $25,000
or more than five times the amount of insurance on the child's life under
the Benefit.
The new contract will not have Supplementary Benefits other than as we
describe in this and in the next paragraph. If the company would include in
other contracts like the new contract a benefit for paying premiums in the event
of disability, here is what the company will do. Even though this contract does
not have such a benefit on the life of that child, the company will put it in
the new contract on his or her life. The benefit, if any, in the new contract
will be the same one, with the same provisions, that the company puts in other
contracts like it on its contract date. In this paragraph, when we use the
phrase other contracts like it, we mean contracts the company would regularly
issue on the same plan for the same rating class, amount, issue age and sex.
We will not pay any premium under a new contract unless the disability
started on or after its contract date. And we will not pay any premium under a
new contract unless it has a benefit for paying premiums in the event of
disability. This will be so even if we have paid premiums under this contract.
CHANGES
If the insurance on a dependent child ends as we state in the last
paragraph under benefit above, that child may be able to obtain a new contract
of life insurance other than in accord with the requirements we state in this
form. But this kind of change may be made only if we consent, and will be
subject to conditions and charges that are then determined.
VL 184A NY
II-83
<PAGE>
MISCELLANEOUS PROVISIONS
BENEFICIARY
The word beneficiary where we use it in this contract without qualification
means the beneficiary for insurance payable upon the death of the Insured.
Unless we endorse this contract to say otherwise, these two statements will
apply: (1) The beneficiary for insurance payable upon the death of a dependent
child will be the Insured if living, otherwise the beneficiary for insurance
payable upon the death of the Insured. (2) If no such beneficiary is living when
insurance under this benefit becomes payable, we will make the payment in one
sum to the estate of the later to die of the Insured and such beneficiary.
The beneficiary for insurance payable upon the death of a dependent child may be
changed. The request must be in writing and in a form that meets our needs. It
will take effect only when we file it at our Home Office; this will be after the
contract is sent to us to be endorsed, if we ask for it. Then any previous
beneficiary's interest in such insurance will end as of the date of the request.
It will end then even if the child is not living when we file the request. Any
beneficiary's interest is subject to the rights of any assignee of whom we know.
When a beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated.
REINSTATEMENT
If this contract is reinstated, it will not include the insurance that we
provide under this benefit on the dependent children unless you give us any
facts we need to satisfy us that each child who is to be insured on or within 15
days after the date of reinstatement is insurable for the benefit. If you do
not give us the facts we need for any child, the benefit may be reinstated if
all the other conditions are met to reinstate the contract. But you must send
the contract to us to be endorsed to show that the child is not insured under
the benefit.
CONTRACT VALUE OPTIONS
If this contract has a Contract Value Options provision, it will apply only
during the Insured's lifetime. Any extended or reduced paid-up insurance that
may be described there is on the life of the Insured only.
CONTRACT LOANS
If this contract has a Loans provision, we will not consider any contract
debt when we determine the amount payable, if any, at the death of a dependent
child.
INCONTESTABILITY
Except for non-payment of premium, we will not contest this benefit with
respect to the insurance on any dependent child's life after it has been in
force during the child's lifetime for two years from: (1) the date the level
term insurance benefit on dependent children began under the earliest contract;
or, if later, (2) the date of any rider that added the child for coverage under
any such earlier contract. But, in any case. if there was a later reinstatement
of any such earlier contract, then the two years will start on the date of the
most recent reinstatement.
BENEFIT PREMIUMS AND CHARGES
We show the premiums for this benefit in the contract data pages. From each
premium payment, we make the deductions shown on those pages and the balance is
the invested premium amount which is added to the contract fund.
The monthly charge for this benefit is deducted on each monthly date from
the contract fund. The amount of that charge is included in the contract data
pages.
Benefit premiums and monthly charges stop on the earlier of the death of
the Insured and the first contract anniversary after the Insured's 65th
birthday.
TERMINATION
This benefit will end on the earliest of:
1. the end of the last day of grace if the contract is in default; it will not
continue if a benefit takes effect under any contract value options
provision that may be in the contract;
2. the end of the day before the first contract anniversary after the
Insured's 65th birthday;
3. the date the contract is surrendered under its Cash Value Option, if it has
one, or the paid-up insurance, if any, under the benefit is surrendered;
and
4. the date the contract ends for any other reason.
Further, if you ask us in writing in the premium period, and we agree, we
will cancel the benefit as of the first monthly date on or after we receive your
request. Contract premiums and monthly charges due then and later will be
reduced accordingly.
VL 184A NY
II-84
<PAGE>
MAXIMUM TOTAL AMOUNT OF INSURANCE ALLOWED BY LAW
A dependent child might die when his or her age is less than 14 years and
six months. And there might be other life insurance, with us or other companies,
payable on the child's life under a contract(s) that was issued and dated before
the insurance for the child took effect under this benefit or under a similar
one in the earlier contract from which this contract was exchanged or changed.
If so, the most we could pay under this benefit for that death is the excess of:
(1) the maximum that is allowed to be paid in accord with the Table below, over
(2) the amount of the insurance on the child's life under (all) the other
contract(s). If the amount of insurance on the child's life under this benefit
is greater than that excess, we will reduce it by the difference, with
appropriate adjustment of the premium as filed with the Superintendent of
Insurance of New York.
If the insurance under this benefit is more than we would be allowed to pay
upon a dependent child's death, you may wish to have us reduce it to what we
could pay, with appropriate adjustment of the premium as filed with the
Superintendent of Insurance of New York. To do so, you must ask us in writing
and in a form that meets our needs. You must also send the contract to us to be
endorsed.
When we compute insurance under this or other contracts we will not
include: (1) return premium benefits; (2) dividend additions; or (3) benefits
that are paid only for death by accident.
- --------------------------------------------------------------------------------
DEPENDENT CHILD'S AGE AT DEATH MAXIMUM AMOUNT ALLOWED
- --------------------------------------------------------------------------------
Less than four years and $5,000 or, if more, 25% of the amount of
six months life insurance in force on the life of the
Insured on the date the insurance for the
child takes effect under this benefit or a
similar one in the earlier contract.
- --------------------------------------------------------------------------------
Four years and six months or $10,000 or, if more, 50% of the amount of
more, but less than fourteen the life insurance in force on the life
years and six months of the Insured on the date the insurance
for the child takes effect under this
benefit or a similar one in the earlier
contract.
- --------------------------------------------------------------------------------
This Supplementary Benefit rider attached to this contract on the Contract Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
-----------------------------
Secretary
VL 184A NY
II-85
- --------------------------------------------------------------------------------
EXHIBIT 1.A.(13)(j)
SETTLEMENT OPTION TO PROVIDE ACCELERATION OF DEATH BENEFITS
Subject to all the provisions of this rider and of the rest of the
contract, we will make the payments described below if the Insured is terminally
ill or needs an organ transplant.
This rider is non-participating. Any dividend we pay under this contract will be
the same as the one we pay under a contract that is like this one in all other
respects but that does not have this rider.
DEFINITIONS
Convertible Proceeds.--The proceeds we would pay under this contract at the
death of the Insured, less any contract debt.
Benefit Base.--The amount we will pay under the terminal illness option or
the organ transplant option. It will be computed based on: (1) the amount of
convertible proceeds you place under the option, (2) a reduced life expectancy,
and (3) an interest rate no greater than the greater of:
(i) the yield on 90-day Treasury bills at the time of initial acceleration
of benefits, and
(ii) the current maximum adjustable policy loan interest rate based on the
greater of:
(a) Moody's Corporate Bond Yield Averages--Monthly Average Corporates--
published by Moody's Investors Service, Inc., or any successor
thereto, that is approved by the New York Superintendent of Insurance,
for the calendar month ending two month's before the date of
application for an accelerated payment, and
(b) the policy guaranteed cash value interest rate plus one percent per
annum.
When we compute the life expectancy and the benefit base, we will use our
assumptions. We may change those assumptions from time to time. We will
consider, among other things, the Insured's age and sex. We will also consider,
if they apply:
1. expected future premiums;
2. future dividends at the scale in effect when we make the computation;
3. continuation of any reduction in guaranteed charges;
4. continuation of the current rate of any excess interest credited on
contract values; and
5. a processing charge of up to $150.
The benefit base will be at least as great as the net cash value of the
contract multiplied by the percentage of the convertible proceeds placed under
the terminal illness option or the organ transplant option, whichever is
elected.
TERMINAL ILLNESS OPTION
You must give us evidence that satisfies us that the
Insured's life expectancy is 6 months or less; part of that evidence must be a
certification by a licensed physician.
We will pay you the benefit base in one sum.
ORGAN TRANSPLANT OPTION
To choose this option, you must give us evidence that satisfies us that the
Insured's life expectancy is 6 months or less unless the Insured receives a
vital organ transplant; part of that evidence must be a certification by a
licensed physician.
We will pay you the benefit base in one sum.
- ----------------
ORD 87241--93--P NY
- ----------------
II-86
<PAGE>
EFFECT ON CONTRACT
The convertible proceeds will be reduced by any amount converted under this
option.
If you convert only a part of your convertible proceeds, the contract will
stay in force and premiums will be reduced. For insurance included in the
convertible proceeds, values and the amount of insurance will be reduced in the
same proportion as the reduction in convertible proceeds. The new premiums will
be the ones that would apply if the contract had been issued at the reduced
amount, and the existing provisions for premium payment will continue to apply.
Insurance not included in the convertible proceeds will not be affected.
If you convert only a part of your convertible proceeds, the convertible
proceeds that remain must be at least $25,000.
If you convert all of your convertible proceeds, all other benefits under
the contract based on the Insured's life will end. Any insurance under the
contract on the life of someone other than the Insured will stay in effect; we
will waive all future premiums for that insurance.
CONDITIONS
Your right to be paid under one of these options is subject to the
following conditions:
1. The contract must be in force other than as extended insurance in the
last year of its term.
2. You must choose the option in writing in a form that meets our needs.
3. The contract must not be assigned except to us as security for a loan.
4. The minimum amount of convertible proceeds you may place under an option
is the amount needed to provide a benefit of either 25% of the face amount of
the contract or $50,000, whichever is less.
5. You must send us the contract.
6. The main purpose of life insurance is to meet your estate planning
needs. This benefit provides for the accelerated payment of life insurance
proceeds. It is not meant to cause you to involuntarily invade proceeds
ultimately payable to the named beneficiary. Accelerated death benefits will be
made available to you on a voluntary basis only. Therefore:
(a) If you are required by law to use this option to meet the claims of
creditors, whether in bankruptcy or otherwise, you are not eligible
for this benefit.
(b) If you are required by a government agency to use this option in order
to apply for, obtain, or keep a government benefit or entitlement, you
are not eligible for this benefit.
RIGHT TO CANCEL
If you ask us in writing and send us the contract, we will cancel this
rider.
Rider attached to and made a part of this contract on the Contract Date
Pruco Life Insurance Company of New Jersey,
By /s/ SPECIMEN
---------------------------
Secretary
- ----------------
ORD 87241--93--P NY
- ----------------
II-87
- --------------------------------------------------------------------------------
EXHIBIT 1.A.(13)(k)
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.
Pruco Life Insurance Company,
By /s/ SPECIMEN
----------------------------
Secretary
ORD 89224--94-P
II-88
Exhibit 3
April 25, 1997
Pruco Life Insurance Company
of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer and Assistant Secretary of Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"), I have
reviewed the establishment on January 13, 1984 of Pruco Life of New Jersey
Variable Appreciable Account (the "Account") by the Executive Committee of
the Board of Directors of Pruco Life of New Jersey 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 Pruco Life of New Jersey with the
Securities and Exchange Commission (Registration No.2-89780 and Registration
No.33-57186) 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) Pruco Life of New Jersey was duly organized under the laws of New
Jersey and is a validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of New
Jersey law.
(3) The portion of the assets held in the Account equal to the
reserve and other liabilities for variable benefits under the
variable appreciable life insurance contracts is not chargeable
with liabilities arising out of any other business Pruco Life of
New Jersey may conduct.
(41 The variable appreciable life insurance contracts are legal and
binding obligations of Pruco Life of New Jersey 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,
/s/
- -------------------------
Clifford F. Kirsch
II-89
Exhibit 6
April 25, 1997
Pruco Life Insurance Company of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company of New Jersey:
This opinion is furnished in connection with the registration by Pruco
Life Insurance Company of New Jersey of variable life insurance
contracts ("Contracts") under the Securities Act of 1933. The
prospectus included in Post-Effective Amendment No. 7 to Registration
Statement No. 33-57186 on Form S-6 describes the Contracts. I have
reviewed the Contract form 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
Contract. The rate structure of the Contract 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
assumptions stated in the illustration, is consistent with
the provisions of the 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 Pruco Life of New Jersey and its parent
company, 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 848 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,
/s/
- ------------------------------------
Nancy D. Davis, FSA, MAAA
Vice President and Assistant Actuary
The Prudential Insurance Company of America
II-90
EXHIBIT 7
INDEMNIFICATION AGREEMENT
WHEREAS, the staff of the Securities and Exchange Commission has approved
the use of a combined simplified prospectus and a combined statement of
additional information that will describe both a variable life insurance
contract and its underlying fund;
WHEREAS, Pruco Life of New Jersey Insurance Company ("PLNJ") and the Board
of Directors of The Prudential Series Fund ("Series Fund") agree that a combined
simplified prospectus and a combined simplified statement of additional
information for the Series Fund (Reg. No. 2-80896) and The PRUvider Variable
Appreciable Life Contract (Reg. No. 33-57186) (the "PRuvider Contract") will be
more comprehensible and will more effectively disclose to prospective purchasers
the material information relating to the PRuvider Contract and to the Series
Fund than the two separate prospectuses that are currently given to prospective
purchasers; and
WHEREAS, PLNJ recognizes that the Series Fund and the members of its Board
of Directors should have no responsibility for the accuracy of the statements in
the combined simplified prospectus, to the extent that those statements relate
to a PRuvider Contract rather than to the Series Fund, and that the Series Fund
and the members of its Board of Directors should have no obligation to verify
the accuracy or completeness of such statements, such obligation being solely
that of PLNJ as the issuer of the PRuvider Contracts and as the depositor
of the Pruco Life of New Jersey Variable Account;
NOW, THEREFORE, PLNJ hereby agrees that the Series Fund and the members
of the Board of Directors of the Series Fund shall not be liable for any loss or
damage resulting from any misstatement or misrepresentation or for any omission
of any material fact in the combined simplified prospectus that is part of the
registration statement for the Series Fund, Registration No. 2-80896, to the
extent that such misstatement, misrepresentation, or omission relates to the
PRuvider Contract or to any of its provisions or to the manner in which it is
administered.
PLNJ further agrees that it will indemnify the Series Fund and any or
all of the members of the Board of Directors of the Series Fund and shall hold
them harmless from all cost, damage and expense that they or any of them may
incur, including the expenses of legal counsel and any other expenses incurred
defending any claim that may be brought against them, arising from the inclusion
in the combined simplified prospectus or its statement of additional
information, of any information relating to the PRUvider Contract or from the
failure of that prospectus or statement of additional information to include any
information relating to the PRUvider Contract.
II-91
<PAGE>
Indemnification under this Agreement is conditioned upon the following:
The Series Fund and the directors of the Series Fund will promptly notify
PLNJ if any such claim is made against any of them. In addition, the Series
Fund and the directors of the Series Fund will use all reasonable care to
identify and notify PLNJ promptly concerning any situation which presents
or appears likely to present the probability of such a claim. PLNJ shall
have the option to defend the Series Fund and the members of the Board of
Directors of the Series Fund against any claim which may be the subject of
this Indemnification Agreement and, in the event that PLNJ so elects, it
will so notify them. Upon such notification, PLNJ shall take over complete
defense of the claim. In such situation, the Series Fund and the members of
the Board of Directors of the Series Fund shall fully cooperate with PLNJ
in the defense of such claim and they shall initiate no further legal or
other expenses for which they shall seek indemnification under this
Agreement. The Series Fund and the members of the Board of Directors of the
Series Fund shall in no case confess any claim or make any compromise in
any case in which PLNJ will be asked to provide indemnification under this
agreement except with PLNJ's prior written consent.
IN WITNESS WHEREOF, PLNJ has caused this agreement to be executed by
the officer designated below as of May 1, 1994, the effective date of the
registration statement that first includes the combined simplified prospectus
and the combined statement of additional information.
PRUCO LIFE OF NEW JERSEY
INSURANCE COMPANY
Witness:
________________________________ By________________________________
2
II-92
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
FINANCIAL DATA SCHEDULE
Article 6 of Regulation S-X
PRUvider Variable Appreciable Life Subaccounts of Pruco Life of New Jersey
Variable Appreciable Account
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 382,262
<INVESTMENTS-AT-VALUE> 435,688
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 435,688
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 25,344
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 435,688
<DIVIDEND-INCOME> 13,709
<INTEREST-INCOME> 0
<OTHER-INCOME> 37,523
<EXPENSES-NET> 1,537
<NET-INVESTMENT-INCOME> 12,172
<REALIZED-GAINS-CURRENT> 2,297
<APPREC-INCREASE-CURRENT> (1,488)
<NET-CHANGE-FROM-OPS> 50,504
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 43,989
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
