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