As filed with the SEC on . Registration No. 33-20000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-6
Post-Effective Amendment No. 17
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
----------
Variable Appreciable Life Insurance Contracts--The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1995 was filed on
February 29, 1996.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on pursuant to paragraph (b) of Rule 485
---------------------------
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[X] on December 31 , 1996 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; Contract Fees and Charges; How the
Contract Fund Changes with Investment Experience;
How a Contract's Death Benefit Will Vary; Surrender of
a Contract; Lapse and Reinstatement; When Proceeds
are Paid; Other Standard Contract Provisions; Voting
Rights; Withdrawal of Excess Cash Surrender Value;
Increases in Face Amount; Decreases in Face Amount;
Riders; The Prudential Series Fund, Inc.
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.; Contract Fees and Charges; Reduction of
Charges for Concurrent Sales to Several Individuals;
Sale of the Contract and Sales Commissions
14. Brief Description of the Contract; Requirements for
Issuance of a Contract
15. Brief Description of the Contract; Allocation of
Premiums; Transfers; Dollar Cost Averaging; Fixed-Rate
Option; Information About the Account, the Real
Property Account and the Fixed Rate Option
16. Brief Description of the Contract; Detailed Information
About the Contract
17. Surrender of a Contract; When Proceeds are Paid
18. The Prudential Variable Appreciable Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
23. Not Applicable
24. Other Standard Contract Provisions
25. Brief Description of the Contract
26. Brief Description of the Contract; Contract Fees and
Charges
27. The Prudential Insurance Company of America; The
Prudential Series Fund, Inc.
28. 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 the Contract Fund Changes With
Investment Experience; How a 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
53. Tax Treatment of Contract Benefits
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
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 IN PROSPECTUS
<PAGE>
PRUDENTIAL'S
VARIABLE
APPRECIABLE LIFE(R)
INSURANCE
DECEMBER 31, 1996
PROSPECTUS
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
PVAL-1 ED 12-96 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CATALOG NO. 646960S
<PAGE>
PROSPECTUS
December 31, 1996
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
Variable
APPRECIABLE
LIFE(R)___________________
INSURANCE CONTRACTS
This prospectus describes two forms of a variable life insurance contract
offered by The Prudential Insurance Company of America under the name Variable
APPRECIABLE LIFE(R) Insurance. The first form provides a death benefit that
generally remains fixed in an amount chosen by the purchaser and cash surrender
values that vary daily. The second form also provides cash surrender values that
vary daily and a death benefit that will also vary daily. Under both forms of
contract, the death benefit will never be less than the "face amount" of
insurance chosen by the purchaser. 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 fifteen available subaccounts of The Prudential Variable Appreciable Account:
o MONEY MARKET
O DIVERSIFIED BOND
O GOVERNMENT INCOME
O ZERO COUPON BOND 2000
O ZERO COUPON BOND 2005
O CONSERVATIVE BALANCED
O FLEXIBLE MANAGED
O HIGH YIELD BOND
O STOCK INDEX
O EQUITY INCOME
O EQUITY
O PRUDENTIAL JENNISON
O SMALL CAPITALIZATION STOCK
O GLOBAL
O NATURAL RESOURCES
each of which invests in a corresponding portfolio of The Prudential Series
Fund, Inc. 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"), described in a prospectus attached to this one. Additional investment
options may be added in the future. 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 portfolios. Interest
is credited daily on any portion of the premium payment allocated to the
fixed-rate option at rates periodically declared by Prudential in its sole
discretion but never less than an effective annual rate of 4%. This prospectus
describes the Contract generally and The Prudential Variable Appreciable
Account.
Although it is advantageous to the purchaser to pay a Scheduled Premium amount
on the dates due, which are at least once a year but may be more often,
purchasers have considerable flexibility as to when and in what amounts they pay
premiums.
Before you sign an application to purchase this life insurance contract, you
should read this prospectus with care and have any questions you may have
answered by your Prudential representative. If you do purchase the contract, you
should retain this prospectus for future reference, together with the contract
itself that you will receive.
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
*APPRECIABLE LIFE is a registered mark of Prudential.
PVAL-1 Ed 12-96
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
INTRODUCTION AND SUMMARY.......................................................................................................1
Brief Description of the Contract.....................................................................................1
Variable Appreciable Life Insurance Contracts.........................................................................3
GENERAL INFORMATION ABOUT 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................................................................5
The Fixed-Rate Option.................................................................................................6
Which Investment Option Should Be Selected?...........................................................................6
DETAILED INFORMATION ABOUT THE CONTRACT........................................................................................7
Requirements for Issuance of a Contract...............................................................................7
Short-Term Cancellation Right or "Free Look"..........................................................................7
Contract Forms........................................................................................................7
Contract Date.........................................................................................................8
Premiums .............................................................................................................8
Allocation of Premiums................................................................................................9
Transfers.............................................................................................................9
Dollar Cost Averaging................................................................................................10
Contract Fees and Charges............................................................................................10
Reduction of Charges for Concurrent Sales to Several Individuals.....................................................13
How the Contract Fund Changes with Investment Experience.............................................................13
How a Contract's Death Benefit Will Vary.............................................................................14
Increases in Face Amount.............................................................................................15
Decreases in Face Amount.............................................................................................16
Withdrawal of Excess Cash Surrender Value............................................................................17
Surrender of a Contract..............................................................................................17
When Proceeds Are Paid...............................................................................................18
Living Needs Benefit.................................................................................................18
Hypothetical Illustrations of Death Benefits and Cash Surrender Values...............................................19
Contract Loans.......................................................................................................20
Lapse and Reinstatement..............................................................................................21
Voting Rights........................................................................................................22
Substitution of Series Fund Shares...................................................................................22
Reports to Contract Owners...........................................................................................22
Tax Treatment of Contract Benefits...................................................................................23
Tax-Qualified Pension Plans..........................................................................................24
Riders ............................................................................................................24
Participation in Divisible Surplus...................................................................................25
Other Standard Contract Provisions...................................................................................25
Paying Premiums by Payroll Deduction.................................................................................25
Unisex Premiums and Benefits.........................................................................................26
Sales to Persons 14 Years of Age or Younger..........................................................................26
Exchange of Fixed-Dollar Contract to Variable Contract...............................................................26
Sale of the Contract and Sales Commissions...........................................................................26
State Regulation.....................................................................................................27
Experts ............................................................................................................27
Litigation...........................................................................................................27
Additional Information...............................................................................................27
Financial Statements.................................................................................................27
DIRECTORS AND OFFICERS OF PRUDENTIAL..........................................................................................28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT...........................................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA AND SUBSIDIARIES...........................................................................................B1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE
SERIES FUND, AND THE PROSPECTUS FOR THE REAL PROPERTY ACCOUNT.
<PAGE>
INTRODUCTION AND SUMMARY
This section provides only an overview of the more significant provisions of the
Contract. It omits details which are provided in the rest of this prospectus.
As you read this prospectus you should keep in mind that you are considering the
purchase of a life insurance contract. Because it is VARIABLE LIFE INSURANCE --
and variable life insurance has significant investment aspects and requires you
to make investment decisions -- it is also a "security." That is why you have
been given this prospectus. Securities which are offered to the public must be
registered with the Securities and Exchange Commission, and the prospectus that
is a part of the registration statement must be given to all prospective buyers.
But because a substantial part of your premium pays for life insurance that will
pay to your beneficiary, in the event of your death, an amount far exceeding
your total premium payments, you should not buy this contract unless a major
reason for the purchase is to provide life insurance protection. Because the
contract provides whole-life permanent insurance, it also serves a second
important objective. It can be expected to provide an increasing cash surrender
value that can be used during your lifetime.
BRIEF DESCRIPTION OF THE CONTRACT
The Variable APPRECIABLE LIFE Insurance Contract (referred to from now on as the
"Contract") is issued and sold by The Prudential Insurance Company of America
("Prudential"). The Contract is a form of flexible premium variable life
insurance. It is built around a Contract Fund, the amount of which changes every
business day. That amount represents the value of your Contract on that day
although you will have to pay a surrender charge if you decide to surrender the
Contract during the first ten Contract years.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Prudential has established a
separate account, like a separate division within the Company, called The
Prudential Variable Appreciable Account (the "Account"). Whenever you pay a
premium, Prudential first deducts certain charges (described below) and, unless
you decide otherwise (as explained below) puts the remainder -- often called the
"net premium" -- into the Account, where it is combined with the net premiums
from all other contracts like this one. The money in the Account, including your
Contract Fund, is then invested in the following way. The Account is divided
into fifteen subaccounts and you must decide which subaccount or subaccounts
will hold the assets of your Contract Fund. The money allocated to each
subaccount is immediately invested in a corresponding portfolio of The
Prudential Series Fund, Inc. (the "Series Fund"), a series mutual fund for which
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 DIVERSIFIED BOND PORTFOLIO is
invested primarily in high quality medium-term corporate and government debt
securities. The GOVERNMENT INCOME PORTFOLIO is invested primarily in U.S.
Government Securities including intermediate and long-term U.S. Treasury
securities and debt obligations issued by agencies of or instrumentalities
established, sponsored or guaranteed by the U.S. Government. The two ZERO COUPON
BOND PORTFOLIOS -- 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 CONSERVATIVE BALANCED PORTFOLIO is invested in a mix of money
market instruments, fixed income securities, and common stocks, in proportions
believed by the investment manager to be appropriate for an investor who desires
diversification of investment and prefers a relatively lower risk of loss and a
correspondingly reduced chance of high appreciation. The FLEXIBLE MANAGED
PORTFOLIO is invested in a mix of money market instruments, fixed income
securities, and common stocks, in proportions believed by the investment manager
to be appropriate for an investor desiring diversification of investment who is
willing to accept a relatively high level of loss in an effort to achieve
greater appreciation. The HIGH YIELD BOND PORTFOLIO is invested primarily in
high yield fixed income securities of medium to lower quality, also known as
high risk bonds. The STOCK INDEX PORTFOLIO is invested in common stocks selected
to duplicate the price and yield performance of the Standard & Poor's 500
Composite Stock Price Index. The EQUITY INCOME PORTFOLIO is invested primarily
in common stocks and convertible securities that provide favorable prospects for
investment income returns above those of the Standard & Poor's 500 Stock Index
or the NYSE Composite Index. The EQUITY PORTFOLIO is invested primarily in
common stocks. The PRUDENTIAL JENNISON PORTFOLIO is invested primarily in equity
securities of established companies with above-average growth prospects. The
SMALL CAPITALIZATION STOCK PORTFOLIO is invested primarily in equity securities
of publicly-traded companies with small market capitalization. The GLOBAL
PORTFOLIO is invested in common stocks and common stock equivalents (such as
convertible debt securities) of foreign and domestic insurers. 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.
1
<PAGE>
Further information about the Series Fund portfolios can be found under THE
PRUDENTIAL SERIES FUND, INC. on page 4 and in the attached prospectus for the
Series Fund.
You also have two additional options which are regulated differently from the
other fifteen because neither one is an investment company registered under the
Investment Company Act of 1940. The first of these is a FIXED-RATE OPTION that
increases the portion of your Contract Fund allocated to this option at a
guaranteed rate of interest. The remaining option is a REAL PROPERTY OPTION
which invests in income-producing real property. It is described in a separate
prospectus that is attached to this one. Thus your Contract Fund value changes
every day depending upon the change in the value of the particular portfolios
(or the other two investment options) that you have selected for the investment
of your Contract Fund.
Although the selection of any of the investment portfolios or of the real
property option offers the possibility that your Contract Fund value will
increase if there is favorable investment performance, you are subject to the
risk that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?,
page 6. If you select the fixed-rate option, you are credited with a stated rate
of interest but you assume the risk that this rate may change in later years,
although it will never be lower than an effective annual rate of 4%.
Prudential deducts certain charges from each premium payment and from the
amounts held in the designated investment options. In addition, 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 CONTRACT FEES AND CHARGES, on page 10. In brief, and
subject to that fuller description, the following diagram outlines the charges
which may be made:
-----------------------
PREMIUM PAYMENT
-----------------------
---------------------------------
o less charge for taxes
attributable to premiums
o less $2 processing fee
---------------------------------
- --------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
o To be invested in one or a combination of:
o The Investment Portfolios of the Series Fund described below
o The Fixed-Rate Option
o The Real Property Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY CHARGES
o Management fees and expenses are deducted from the assets of the Series Fund.
o A daily charge equivalent to an annual rate of up to 0.9% is deducted from
the assets of the variable investment options for mortality and expense
risks.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o A sales charge is currently deducted from the Contract Fund in the amount
of 1/2 of 1% of the primary annual premium.
o The Contract Fund is reduced by a guaranteed minimum death benefit risk
charge of not more than $0.01 per $1,000 of the face amount of insurance.
o The Contract Fund is reduced by an administrative charge of up to $3 per
Contract and $0.03 per $1,000 of face amount of insurance; if the face
amount of the Contract is greater than $100,000, the charge is reduced.
o A charge for anticipated mortality is deducted, with the maximum charge
based on the Non-Smoker/Smoker 1980 CSO Tables.
o If the Contract includes riders, a deduction from the Contract Fund will be
made for charges applicable to those riders; a deduction will also be made
if the rating class of the insured results in an extra charge.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred sales charge is assessed; the maximum contingent
deferred sales charge during the first 5 years is 50% of the first year's
primary annual premium but this charge is both subject to other important
limitations and reduced for Contracts that have been in force for more than
5 years.
o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred administrative charge is assessed; during the first 5
years, this charge equals $5 per $1,000 of face amount and it begins to
decline uniformly after the fifth Contract year so that it disappears on
the tenth Contract anniversary.
o An administrative processing charge of up to $15 will be made in connection
with each withdrawal of excess cash surrender value or a decrease in face
amount.
- --------------------------------------------------------------------------------
An important feature of the Contract is its death benefit. You have a choice of
two different forms of the Contract which differ in the amount of the death
benefit. Under Contract Form A the death benefit will generally be equal to the
face amount of insurance. It can never be less than this amount, but it is
possible, after the Contract has been held for many years, that the Contract
Fund will become so large that Prudential -- to meet certain requirements of the
Internal Revenue Code -- will increase the death benefit. Under Contract Form B,
the death benefit will increase and decrease as the amount of the Contract Fund
varies with the investment performance of the selected options. However, the
death benefit under Form B, as is true under Form A, will never be less than the
initial face amount and it may also increase to satisfy Internal Revenue Code
requirements. Throughout this prospectus the word "Contract" refers to both Form
A and B unless specifically stated otherwise. Under both Form A and B Contracts
there is no guaranteed minimum cash surrender value.
Your Contract sets forth an annual Scheduled Premium or one that is payable more
frequently, such as monthly. Prudential guarantees that, if the Scheduled
Premiums are paid when due (or if missed premiums are paid later, with interest)
and there are no withdrawals, the Contract will not lapse because of unfavorable
investment experience.
Your Scheduled Premium consists of two amounts. The first or initial amount is
payable from the time you purchase your Contract until the Contract anniversary
immediately following your 65th birthday or the Contract's seventh anniversary,
whichever is later (the "Premium Change Date"). The second amount is the
guaranteed maximum amount payable after the Premium Change Date. See PREMIUMS,
page 8.
The payment of premiums in excess of scheduled premiums may cause the Contract
to become a Modified Endowment Contract for federal income tax purposes. See
PREMIUMS, page 8 and TAX TREATMENT OF CONTRACT BENEFITS, page 23.
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS
The Prudential Variable APPRECIABLE LIFE Insurance Contract is a form of life
insurance that provides much of the flexibility of variable universal life,
however, with two important distinctions. First, Prudential guarantees that if
the Scheduled Premiums are paid when due, or within the grace period (or missed
premiums are paid later with interest), the Contract will not lapse and the face
amount of insurance will be paid upon the death of the insured even if, because
of unfavorable investment experience, the Contract Fund value should drop to
below zero. Second, if all premiums are not paid when due (or made up), the
Contract will not lapse as long as the Contract Fund is higher than a stated
amount set forth in a table in the Contract -- an amount that increases each
year and in later years becomes quite high; it is called the "Tabular Contract
Fund." The Contract lapses when the Contract Fund falls to below this stated
amount, rather than when it drops to zero. Thus, when a Variable APPRECIABLE
LIFE Contract lapses, it may still have considerable value and you will,
therefore, have a substantial incentive to reinstate it, as well as an
opportunity to make a considered decision whether to do so or to take, in one
form or another, the cash surrender value. In effect, Prudential provides an
early and timely warning against the imprudent use of the flexibility provided
by the Contract.
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 8.
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. The Contract, including the application attached
to it, constitutes the entire agreement between the owner and Prudential and
should be retained.
3
<PAGE>
GENERAL INFORMATION ABOUT 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 ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. Prudential
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.
Prudential's consolidated financial statements begin on page B1 and should be
considered only as bearing upon Prudential's ability to meet its obligations
under the Contracts.
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
The Prudential Variable Appreciable Account (the "Account") was established on
August 11, 1987 under New Jersey law as a separate investment account. The
Account meets the definition of a "separate account" under the federal
securities laws. The Account holds assets that are segregated from all of
Prudential's other assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Prudential. Prudential is also the legal
owner of the assets in the Account. Prudential will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Prudential conducts. In addition to these assets, the Account's assets may
include funds contributed by Prudential to commence operation of the Account and
may include accumulations of the charges Prudential makes against the Account.
From time to time these additional assets may be withdrawn by Prudential.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Prudential. The Account's financial statements begin on page A1.
Currently, you may invest in one or a combination of fifteen available
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 PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain
subsidiary insurers that offer variable life insurance and variable annuity
contracts. The Account will purchase and redeem shares from the Series Fund at
net asset value. Shares will be redeemed to the extent necessary for Prudential
to provide benefits under the Contract and to transfer assets from one
subaccount to another, as requested by Contract owners. Any dividend or capital
gain distribution received from a portfolio of the Series Fund will be
reinvested immediately at net asset value in shares of that portfolio and
retained as assets of the corresponding subaccount.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is Prudential Plaza,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corporation ("Jennison"),
under which Jennison furnishes investment advisory services in connection with
the management of the Prudential Jennison Portfolio. Further detail is provided
in the prospectus and statement of additional information for the Series Fund.
Prudential, PIC, and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
As an investment advisor, Prudential charges the Series Fund a daily management
fee as compensation for its services. The total expenses of each portfolio for
the year 1995 expressed as a percentage of the average assets during the year
are shown below:
4
<PAGE>
- -------------------------------------------------------------------------------
Investment Other Total
Portfolio Advisory Expenses* Expenses*
Fee
- -------------------------------------------------------------------------------
Money Market ......................... 0.40% 0.04% 0.44%
Diversified Bond ..................... 0.40% 0.04% 0.44%
Government Income .................... 0.40% 0.05% 0.45%
Zero Coupon Bond 2000 ................ 0.40% 0.00% 0.40%
Zero Coupon Bond 2005 ................ 0.40% 0.00% 0.40%
Conservative Balanced ................ 0.55% 0.03% 0.58%
Flexible Managed ..................... 0.60% 0.03% 0.63%
High Yield Bond ...................... 0.55% 0.06% 0.61%
Stock Index .......................... 0.35% 0.03% 0.38%
Equity Income ........................ 0.40% 0.03% 0.43%
Equity ............................... 0.45% 0.03% 0.48%
Prudential Jennison .................. 0.60% 0.19% 0.79%
Small Capitalization Stock ........... 0.40% 0.20% 0.60%
Global ............................... 0.75% 0.31% 1.06%
Natural Resources .................... 0.45% 0.05% 0.50%
- -------------------------------------------------------------------------------
* For some of the portfolios, the actual expenses were higher than those
shown in the second and third columns. Prudential currently makes
payments to the following six subaccounts so 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, Equity Income, and Natural Resources
Portfolios will not exceed the investment advisory 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
0.48% for the Zero Coupon Bond Portfolio 2000, 0.49% for the Zero Coupon
Bond Portfolio 2005. No such adjustments were necessary for the High
Yield Bond, Stock Index, Equity Income and Natural Resources Portfolios
during 1995. Prudential intends to continue making these adjustments in
the future, although it retains the right to stop doing so.
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 foresee any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE MET.
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Prudential Variable Contract Real Property Account (the "Real Property
Account") is a separate account of Prudential that, through a general
partnership formed by 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. It is not registered as an investment company under
the Investment Company Act of 1940 and is therefore not subject to the same
regulation as the Series Fund. 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
Prudential, under which Prudential selects the properties and other investments
held by the Partnership. 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.
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A full description of the Real Property Account, its management, policies, and
restrictions, its charges and expenses, the risks associated with 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.
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 Prudential has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, interests in the fixed-rate option
are not subject to the provisions of these Acts, and Prudential has been advised
that the staff of the Securities and Exchange Commission has not reviewed the
disclosure in this prospectus relating to the fixed-rate option. Any inaccurate
or misleading disclosure regarding the fixed-rate option may, however, subject
Prudential and its directors to civil liability if that results in any damage.
As explained earlier, you may elect to allocate, either initially or by
transfer, all or part of the amount credited under the Contract to the
fixed-rate option, and the amount so allocated or transferred becomes part of
Prudential's general assets. Sometimes this is referred to as Prudential's
general account, which consists of all assets owned by Prudential other than
those in the Account and in other separate accounts that have been or may be
established by Prudential. Subject to applicable law, Prudential has sole
discretion over the investment of the assets of the general account, and
Contract owners do not share in the investment experience of those assets.
Instead, Prudential guarantees that the part of the Contract Fund allocated to
the fixed-rate option will accrue interest daily at an effective annual rate
that Prudential declares periodically. This rate may not be less than an
effective annual rate of 4%. Currently, declared interest rates remain in effect
from the date money is allocated to the fixed-rate option until the Monthly date
in the same month in the following year. See CONTRACT DATE, page 8. Thereafter,
a new crediting rate will be declared each year and will remain in effect for
the calendar year. Prudential reserves the right to change this practice.
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. At least annually and on request, you will be advised of the interest
rates that currently apply to your Contract.
Transfers from the fixed-rate option are subject to strict limits. (See
TRANSFERS, page 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 18).
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, Equity Income, Equity, Prudential Jennison, Small Capitalization
Stock, Global, or Natural Resources Portfolios may be desirable options if you
are willing to accept such volatility in your Contract values. Each of these
equity portfolios involves somewhat different policies and investment risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Government Income or
Diversified Bond Portfolios. There may be times when you desire even greater
safety of principal and may then prefer the Money Market Portfolio or the
fixed-rate option, recognizing that the level of short-term rates may change
rather rapidly. Money invested in a Zero Coupon Bond Portfolio and held to its
liquidation date will realize a predictable return, although the portfolio's
value may fluctuate significantly with changes in interest rates prior to its
liquidation date. If you are willing to take risks and possibly achieve a higher
total return, you may prefer the High Yield Bond Portfolio, recognizing that
with higher yielding, lower quality bonds the risks are greater. You may wish to
divide your invested premium among two or more of the portfolios. You may wish
to obtain diversification by relying on Prudential's judgment for an appropriate
asset mix by choosing the Conservative Balanced or Flexible Managed Portfolios.
The Real Property Account permits you to diversify your investment under the
Contract to include an interest in a pool of income-producing real property, and
real estate is often considered to be a hedge against inflation.
You should make a choice that takes into account how willing you are to accept
investment risks, the manner in which your other assets are invested, and your
own predictions about what investment results are likely to be in the future.
Prudential does recommend AGAINST frequent transfers among the several options
as experience generally indicates that "market timing" investing, particularly
by non-professional investors, is likely to prove unsuccessful.
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DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The Contract may generally be issued on insureds below the age of 81. Generally,
the minimum initial guaranteed death benefit that can be applied for is $60,000;
however, higher minimums apply to insureds over the age of 75. Insureds 14 years
of age or less may apply for a minimum initial guaranteed death benefit of
$40,000, which will increase by 50% at age 21 (see SALES TO PERSONS 14 YEARS OF
AGE OR YOUNGER, page 26). Before issuing any Contract, Prudential requires
evidence of insurability, which may include a medical examination. Non-Smokers
who meet preferred underwriting requirements are offered the most favorable
premium rate. A higher premium is charged if an extra mortality risk is
involved. Certain classes of Contracts, for example a Contract issued in
connection with a tax-qualified pension plan, may be issued on a "guaranteed
issue" basis and may have a lower minimum initial death benefit than a Contract
which is individually underwritten. These are the current underwriting
requirements. Prudential reserves the right to change them on a
non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it, within 45 days after Part I of the application for insurance is
signed, or within 10 days after 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
Prudential Home Office specified in the Contract. A Contract returned according
to this provision shall be deemed void from the beginning. You will then receive
a refund of all premium payments made, plus or minus any change due to
investment experience. However, if applicable law so requires, if you exercise
your short-term cancellation right, you will receive a refund of all premium
payments made, with no adjustment for investment experience.
CONTRACT FORMS
You may select either of two forms of the Contract. The Scheduled Premiums shown
in the Contract will be the same for a given insured, regardless of which
Contract Form is chosen. 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, unless the death benefit is increased to ensure that the Contract
meets the Internal Revenue Code's definition of life insurance. See HOW A
CONTRACT'S DEATH BENEFIT WILL VARY, page 14. Favorable investment results of the
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 THE CONTRACT FUND CHANGES WITH INVESTMENT
EXPERIENCE, page 13.
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 and, over time, in a lesser increase
in the cash surrender value than under the Form A Contract. See HOW THE CONTRACT
FUND CHANGES WITH INVESTMENT EXPERIENCE, page 13 and HOW A CONTRACT'S DEATH
BENEFIT WILL VARY, page 14. 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.
You should select the form that best meets your needs and objectives. All
permanent insurance provides both protection for beneficiaries in the event of
death and the opportunity to accumulate savings for possible use in later years.
Prudential's Variable APPRECIABLE LIFE Contract provides more flexible
investment opportunities than do more conventional life insurance policies
because it permits you to decide how the assets held under the Contract will be
invested, because it permits considerable flexibility in determining the amount
and timing of premium payments, because it permits adjustment of the face amount
of insurance (subject, in the case of an increase, to evidence of insurability),
and because favorable investment returns result in an increase in Contract
values. Purchasers who prefer to have favorable investment results and greater
than Scheduled Premiums reflected in part in the form of an increased death
benefit should choose Contract Form B. Purchasers who are satisfied with the
amount of their insurance coverage and wish to have favorable investment results
and additional premiums reflected to the maximum extent in increasing cash
surrender values should choose Contract Form A.
In choosing a Contract form, you should also consider whether you 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 comply with the Internal Revenue Code's definition of life
insurance. 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 17.
Withdrawal of part of the cash surrender value may have tax consequences, see
TAX TREATMENT OF CONTRACT BENEFITS, page 23.
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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 and
the date of any medical examination. If the first premium is not paid with the
application, the Contract Date will ordinarily be the date the first premium is
paid and the Contract is delivered. It may be advantageous for a Contract owner
to have an earlier Contract Date when that will result in the use by Prudential
of a lower issue age in determining the amount of the Scheduled Premium.
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. Prudential will
require the payment of all premiums that would have been due had the application
date coincided with the back-dated Contract Date. No Contract may be back-dated
to a date prior to that which is in accordance with Prudential's regulations.
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. The term Monthly Date means the day of each month that is the same as
the Contract Date.
PREMIUMS
As already explained, if you pay your Scheduled Premiums when due and take no
withdrawals, the Contract will not lapse because of unfavorable investment
experience. If you pay premiums other than on a monthly basis, you will receive
a notice that a premium is due about 3 weeks before each due date. If you pay
premiums monthly, you will receive each year a book with 12 coupons that will
serve as a reminder. With Prudential's consent, you may change the frequency of
premium payments.
You may elect to have monthly premiums paid automatically under the "Pru-Matic
Premium Plan" by pre-authorized transfers from a bank checking account. Some
Contract owners may also be eligible to have monthly premiums paid by
pre-authorized deductions from an employer's payroll.
As stated above, your Contract sets forth two Scheduled Premium amounts. Your
first or initial amount is payable from the time you purchase your Contract
until the Contract anniversary immediately following your 65th birthday or the
Contract's 7th anniversary, whichever is later (the "Premium Change Date"). If
your Contract Fund, net of any excess premiums, on the Premium Change Date is
higher than it would have been had all Scheduled Premiums been paid when due,
maximum contractual charges been deducted, and only a net rate of return of 4%
been earned, then the second Scheduled Premium Amount will be lower than the
maximum amount stated in your Contract. You will be told what the amount of your
second Scheduled Premium will be. For examples of what the second Scheduled
Premium might be, see Footnote 3 to the tables on pages T1 through T4.
A significant feature of this Contract is that it permits you to pay greater
than Scheduled Premiums. This may be done by making occasional unscheduled
premium payments or on a periodic basis. If you wish, you may select a higher
contemplated premium than the Scheduled Premium. Prudential will then bill you
for the chosen premium. 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. 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. The payment of premiums in excess of Scheduled Premiums
may cause the Contract to become a Modified Endowment Contract. If this happens,
loans and other distributions which would otherwise not be taxable events will
be subject to federal income taxation. See TAX TREATMENT OF CONTRACT BENEFITS,
page 23.
If you elect to add a "rider" to your Contract that provides additional benefits
(see RIDERS, page 24), the Scheduled Premium may be increased. Some riders
provide additional term insurance in a stated amount that does not vary with
investment experience. One of these "term riders" also allows you to choose
different insurance amounts in different years. For these riders, you may choose
to pay a billed premium higher than your initial Scheduled Premium. Under some
circumstances this could result in a higher cash surrender value and death
benefit than if the same premium had been paid under a Contract with the same
death benefit but without the rider. After several years, however, even if the
billed premiums are paid on time, the Contract could lose its guarantee against
lapse and, after many more years, could have lower cash surrender values.
The Contract allows you to choose a level premium option. In that case, the
Scheduled Premium, (the amount of which can be quoted by your Prudential
representative), will be higher and the Scheduled Premium will not increase at
age 65 (or 7 years after issue, if later). If that level Scheduled Premium is
paid when due or within the grace period (or missed premiums are paid later with
interest) and there are no withdrawals, the Contract will not lapse because of
unfavorable investment experience.
Prudential will generally accept any premium payment if the payment is at least
$25. 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. See HOW
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A CONTRACT'S DEATH BENEFIT WILL VARY, page 14. The flexibility of premium
payments provides Contract owners with different opportunities under the two
Forms of the Contract. Greater than scheduled payments under a Form A Contract
increase the Contract Fund. Greater than scheduled payments under a Form B
Contract increase both the Contract Fund and the death benefit, but generally,
any future increases in the Contract Fund will be less than under a Form A
Contract. This is because the monthly mortality charges under the Form B
Contract will be higher to compensate for the higher amount of insurance. For
all Contracts, the privilege of making large or additional premium payments
offers a way of investing amounts which accumulate without current income
taxation.
Unless you elect otherwise, your Contract will include a "waiver of premium"
provision under which Prudential will pay your Scheduled Premiums if you incur a
disability before age 60 that lasts over six months. If the disability begins
after you become 60 and before you are 65, premiums will be paid only until the
first Contract anniversary following your 65th birthday. The waiver of premium
provision does not apply if you become disabled after your 65th birthday.
ALLOCATION OF PREMIUMS
On the Contract Date, the $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 CONTRACT FEES AND CHARGES, page 10. The
remainder of the initial 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 initial premium in excess of the Scheduled Premium is
generally placed in the selected investment options on the date of receipt, but
not earlier than the Contract Date. Thus, to the extent that Prudential receives
the initial premium prior to the Contract Date, there will be a period during
which it will not be invested. All subsequent premium payments, after the
deductions from premiums, when received by Prudential will be placed in the
subaccounts, the fixed-rate option or the Real Property Account in accordance
with the allocation previously designated. Provided the Contract is not in
default, you may change the way in which subsequent premiums are allocated by
giving written notice to the Prudential Home Office stated in the Contract. You
may also change the way in which subsequent premiums are allocated by
telephoning your Prudential Home Office, provided you are enrolled to use the
Telephone Transfer System. There is no charge for reallocating future premiums.
If any part of the invested portion of a premium is allocated to a particular
investment option, that portion must be at least 10% on the date the allocation
takes effect. All percentage allocations must be in whole numbers. For example,
33% can be selected but 33 1/3% cannot. Of course, the total allocation of all
selected investment options must equal 100%.
TRANSFERS
If the Contract is not in default, or if the Contract is in force as variable
reduced paid-up insurance (see LAPSE AND REINSTATEMENT, page 21), you 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.
Currently, you may make additional transfers with our consent. There is no
charge. All or a portion of the amount credited to a subaccount may be
transferred.
In addition, the total amount credited to a Contract held in the subaccounts or
the Real Property Account may be transferred to the fixed-rate option at any
time during the first two Contract years. If you wish to convert your variable
Contract to a fixed-benefit Contract in this manner, you must request a complete
transfer of funds to the fixed-rate option and also change your allocation
instructions regarding future premiums.
Transfers among subaccounts will take effect as of the end of the valuation
period (usually the business day) in which a proper transfer request is received
at your 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. You may
transfer amounts by proper written notice to your Prudential Home Office, or by
telephone, provided you are enrolled to use the Telephone Transfer System. You
will automatically be enrolled to use the Telephone Transfer System unless you
elect not to have this privilege. Prudential has adopted procedures designed to
ensure that requests by telephone are genuine. Prudential will not be held
liable for following telephone instructions that we reasonably believe to be
genuine. Prudential cannot guarantee that you will be able to get through to
complete a telephone transfer during peak periods such as periods of drastic
economic or market change.
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 owner directs that it be transferred to
another subaccount. 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.
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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 received prior to the Contract anniversary will be effected on
the Contract anniversary. Transfer requests received within the 30-day period
beginning on the Contract anniversary will be effected as of the end of the
valuation period in which a proper transfer request is received at your
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.
DOLLAR COST AVERAGING
A feature called Dollar Cost Averaging ("DCA") is available to Contract owners.
If you wish, premiums may be allocated to the portion of the Money Market
Subaccount used for this feature (the "DCA account"), and designated dollar
amounts will be transferred monthly from the DCA account to other investment
options available under the Contract, excluding the Money Market Subaccount and
the fixed-rate option, but including the Real Property Account. Automatic
monthly transfers must be at least 3% of the amount allocated to the DCA account
(that is, if you designate $5,000, the minimum monthly transfer is $150), with a
minimum of $20 transferred into any one investment option. These amounts are
subject to change at Prudential's discretion. The minimum transfer amount will
only be recalculated if the amount designated for transfer is increased.
When you establish DCA at issue, you must allocate to the DCA account the
greater of $2,000 or 10% of the initial premium payment. When you establish DCA
after issue, you must allocate to the DCA account at least $2,000. These
minimums are subject to change at Prudential's discretion. After DCA has been
established and as long as the DCA account has a positive balance, you may
allocate or transfer amounts to the DCA account, subject to the limitations on
premium payments and transfers generally. In addition, if you pay premiums on an
annual or semi-annual basis, and you have already established DCA, your premium
allocation instructions may include an allocation of all or a portion of all
your premium payments to the DCA account.
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 ("NYSE") is
open on that date. A valuation period is 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 4:15 p.m. New York City time on
each day during which the New York Stock Exchange is open. If the NYSE is not
open on the Monthly Date, the transfer will take effect as of the end of the
valuation period on the next day that the NYSE is open. If the Monthly Date does
not occur in a particular month (e.g., February 30), the transfer will take
effect as of the end of the valuation period on the last day of the month that
the NYSE is open. Automatic monthly transfers will continue until the balance in
the DCA account reaches zero, or until the Contract owner gives notification of
a change in allocation or cancellation of the feature. If you have an
outstanding premium allocation to the DCA account, but your DCA option has
previously been canceled, premiums allocated to the DCA account will be
allocated to the Money Market Subaccount. Currently there is no charge for using
the DCA feature.
CONTRACT FEES AND CHARGES
This section provides a detailed description of each charge that is described
briefly in the chart on page 2, and an explanation of the purpose of the charge.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, will be the highest charge that
Prudential is entitled to make under the Contract. The "current charge" is the
lower amount that Prudential is now charging. However, if circumstances change,
Prudential reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.
A Contract owner may add several "riders" to the Contract which provide
additional benefits, which are charged for separately. The statement and
description of charges that follows assumes there are no riders to the Contract.
DEDUCTIONS FROM PREMIUMS
(a) A charge for taxes attributable to premiums is deducted from each premium
payment. That charge is currently made up of two parts. The first part is in an
amount equal to the state or local premium tax. It varies from state to state
and generally ranges from 0.75% to 5% (but in some instances can exceed 5%) of
the premium received by Prudential. The second part is a charge for federal
income taxes measured by premiums and it is equal to 1.25% of the premium.
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. During 1995 and 1994,
Prudential deducted a total of approximately $23,620,000 and $22,131,000,
respectively, in taxes attributable to premiums.
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(b) A charge of $2 is deducted from each premium payment to cover the cost of
collecting and processing premiums. Thus, if you pay premiums annually, this
charge will be $2 per year. If you pay premiums monthly, the charge will be $24
per year. If you pay premiums more frequently, for example under a payroll
deduction plan with your employer, the charge may be more than $24 per year.
During 1995 and 1994, Prudential received a total of approximately $29,170,000
and $28,372,000, respectively, in processing charges.
DEDUCTIONS FROM PORTFOLIOS
(a) An investment advisory fee is deducted daily from each portfolio at a rate,
on an annualized basis, from 0.35% for the Stock Index Portfolio to 0.75% for
the Global Portfolio.
(b) The expenses incurred in conducting the investment operations of the
portfolios (such as custodian fees and preparation and distribution of annual
reports) are paid out of the portfolio's income. These expenses also vary from
portfolio to portfolio.
MONTHLY DEDUCTIONS FROM CONTRACT FUND
The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].
(a) An administrative charge of $3 plus $0.03 per $1,000 per month of face
amount of insurance is deducted each month. Thus, for a Contract with $60,000
face amount, the charge is $3 plus $1.80 for a total of $4.80. The charge is
intended to pay for processing claims, keeping records, and communicating with
Contract owners. The current charge for Contracts with face amounts greater than
$100,000 is lower. The $0.03 per $1,000 portion of the charge is reduced to
$0.01 per $1,000 for that part of the face amount that exceeds $100,000 and will
not exceed $12. During 1995 and 1994, Prudential received a total of
approximately $60,000,000, and $56,055,000, respectively, in monthly
administrative charges.
(b) A mortality charge is deducted that is intended to be used to pay death
benefits. When an insured dies, the amount payable to the beneficiary is larger
than the Contract Fund and significantly larger if the insured dies in the early
years of a Contract. The mortality charges collected from all Contract owners
enables Prudential to pay the death benefit for the few insureds who die. The
maximum mortality charge is determined by multiplying the "net amount at risk"
under a Contract (the amount by which the Contract's death benefit exceeds the
Contract Fund) by a rate based upon the insured's current attained age and sex
(except where unisex rates apply) and the anticipated mortality for that class
of persons. The anticipated mortality is based upon mortality tables published
by The National Association of Insurance Commissioners called the
Non-Smoker/Smoker 1980 CSO Tables. Generally, Prudential's current mortality
charge is lower than the maximum for insureds 32 years of age and older. In
addition, for insureds of all ages, if a Contract has a face amount of at least
$100,000 and the insured under the Contract has met strict underwriting
requirements and qualifies for a "select rating" basis for the particular risk
classification, the current mortality charges may be lower still.
Certain Contracts, for example Contracts issued in connection with tax-qualified
pension plans, may be issued on a "guaranteed issue" basis and may have current
mortality charges which are different from those mortality charges for Contracts
which are individually underwritten. These Contracts with different current
mortality charges may be offered to categories of individuals meeting
eligibility guidelines determined by Prudential.
(c) A sales charge, often called a sales load, is deducted to pay part of the
costs Prudential incurs in selling the Contracts, including commissions,
advertising and the printing and distribution of prospectuses and sales
literature. The charge is equal to 0.5% of the "primary annual premium" which is
equal to the Scheduled Premium that would be payable if premiums were being paid
annually, less the two deductions from premiums (taxes attributable to premiums
and the $2 processing charge), and less the $3 part of the monthly deduction
described in (a) above. The deduction is made whether the Contract owner is
paying premiums annually or more frequently. It is lower on Contracts issued on
insureds over 60 years of age. At present this sales charge is made only during
the first five Contract years. However, Prudential reserves the right to make
this charge in all Contract years. To summarize, for most Contracts, this charge
is somewhat less than 6% of the annual Scheduled Premium for each of the first
five Contract years and it may but probably will not continue to be charged
after that.
There is a second sales load, which will be charged only if a Contract lapses or
is surrendered before the end of the 10th Contract year. It is often described
as a contingent deferred sales load ("CDSL") and is described below under
SURRENDER OR WITHDRAWAL CHARGES. During 1995 and 1994, Prudential received a
total of approximately $102,068,000 and $96,357,000, in sales charges.
(d) A charge of $0.01 per $1000 of face amount of insurance is made to
compensate Prudential for the risk it assumes by guaranteeing that, no matter
how unfavorable investment experience may be, the death benefit will never be
less than the guaranteed minimum death benefit so long as Scheduled Premiums are
paid on or before the due date or during the grace period. This charge and the
administrative charge described in (a) above may be
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<PAGE>
calculated together. During 1995 and 1994, Prudential received a total of
approximately $10,377,000 and $9,487,000, respectively, for this risk charge.
(e) If a rider is added to the basic Contract, or if an insured is in a
substandard risk classification (for example, a person in a hazardous
occupation), the annual Scheduled Premium will be increased and the additional
charges will be deducted monthly.
(f) A charge may be deducted to cover federal, state or local taxes (other than
"taxes attributable to premiums" described above) that are imposed upon the
operations of the Account. At present no such taxes are imposed and no charge is
made.
The earnings of the Account are taxed as part of the operations of Prudential.
No charge is being made currently to the Account for Company federal income
taxes. Prudential will review the question of a charge to the Account for
Company federal income taxes periodically. Such a charge may be made in future
years for any federal income taxes that would be attributable to the Contracts.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day a charge is deducted from the assets of each of the subaccounts and/or
the Real Property Account (the "variable investment options") in an amount
equivalent to an effective annual rate of 0.9%. For Contracts with face amounts
of $100,000 or more, the current charge is 0.6%. This charge is intended to
compensate Prudential for assuming mortality and expense risks under the
Contract. The mortality risk assumed is that insureds may live for shorter
periods of time than Prudential estimated when it determined what mortality
charge to make. The expense risk assumed is that expenses incurred in issuing
and administering the Contract will be greater than Prudential estimated in
fixing its administrative charges. Prudential will realize a profit from this
risk charge to the extent it is not needed to provide benefits and pay expenses
under the Contracts. During 1995 and 1994, Prudential received a total of
approximately $22,308,000 and $16,959,000, respectively, in mortality and
expense risk charges. This charge is not assessed against amounts allocated to
the fixed-rate option.
SURRENDER OR WITHDRAWAL CHARGES
(a) An additional sales load, the contingent deferred sales load (the CDSL) is
assessed 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. No such charge is applicable to the death benefit, no matter when that
may become payable. Subject to the additional limitations described below, for
Contracts that lapse or are surrendered during the first 5 Contract years the
charge will be equal to 50% of the first year's primary annual premium. The
primary annual premium is equal to the Scheduled Premium that would be payable
if premiums were being paid annually, less the two deductions from premiums
(taxes attributable to premiums and the $2 processing charge), and less the $3
part of the monthly administrative charge. In the next 5 Contract years that
percentage is reduced uniformly on a daily basis until it reaches zero on the
tenth Contract anniversary. Thus, for Contracts surrendered at the end of the
sixth year, the maximum deferred sales charge will be 40% of the first year's
primary annual premium, for Contracts surrendered at the end of year 7, the
maximum deferred sales charge will be 30% of the first year's primary annual
premium, and so forth.
The contingent deferred sales load is also subject to a further limit at older
issue ages (approximately above age 67) in order to comply with certain
requirements of state law. Specifically, the contingent deferred sales load for
such insureds is no more than $32.50 per $1,000 of face amount.
The sales load is subject to a further important limitation that may,
particularly for Contracts that lapse or are surrendered within the first 5 or 6
years, result in a lower contingent deferred sales load than that described
above. (This limitation might also, under unusual circumstances, apply to reduce
the monthly sales load deductions described in item (c) under MONTHLY DEDUCTIONS
FROM CONTRACT FUND, above.) The limitation is applied in order to conform with
the requirements of the Investment Company Act of 1940 and regulations adopted
thereunder, which limit the amount of non-refundable sales load that may be
charged on contracts within the first 2 years.
The limitation is as follows: (Every Contract has associated with it a Guideline
Annual Premium ("GAP"), which is an amount, generally larger than the gross
annual scheduled premium for the Contract, determined actuarially in accordance
with a definition set forth in a regulation of the Securities and Exchange
Commission.) The maximum aggregate sales load that Prudential will charge (that
is, the sum of the monthly sales load deduction and the contingent deferred
sales charge) will not be more than 30% of the premiums actually paid until
those premiums total one GAP plus no more than 9% of the next premiums paid
until total premiums are equal to 5 GAPS, plus no more than 6% of all subsequent
premiums. If the sales charges described above would at any time exceed this
maximum amount then the charge, to the extent of any excess, will not be made.
The amount of this charge can be more easily understood by reference to the
following table which shows the sales loads that would be paid by a 35 year old
man under a Form B Contract with $100,000 face amount of insurance, both through
the monthly deductions from the Contract Fund described above and upon the
surrender
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<PAGE>
of the Contract. If the Contract is partially surrendered or the face amount is
decreased during the first 10 years, a proportionate amount of the contingent
deferred sales charge will be deducted from the Contract Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Cumulative
Total Sales
Cumulative Load as
Surrender, Cumulative Sales Load Contingent Total Per-
Last Day of Scheduled Deducted Deferred Sales centage of
Year No. Premiums from Sales Load Scheduled
Paid Contract Load Premiums
Fund Paid
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $ 894.06 $ 49.56 $218.66 $268.22 30.00%
2 1,788.12 99.12 367.64 466.76 26.10%
3 2,682.18 148.68 398.55 547.23 20.40%
4 3,576.24 198.24 414.00 612.24 17.12%
5 4,470.30 247.80 414.00 661.80 14.80%
6 5,364.36 247.80 331.00 578.80 10.79%
7 6,258.42 247.80 248.00 495.80 7.92%
8 7,152.48 247.80 166.00 413.80 5.79%
9 8,046.54 247.80 83.00 330.80 4.11%
10 8,940.60 247.80 0.00 247.80 2.77%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The percentages shown in the last column will not be appreciably different for
insureds of different ages.
(b) An administrative charge of $5 per $1,000 of face amount of insurance is
deducted upon lapse or surrender to cover the cost of processing applications,
conducting medical examinations, determining insurability and the insured's
rating class, and establishing records. However, this charge is reduced
beginning on the Contract's fifth anniversary and declines daily at a constant
rate until it disappears entirely on the tenth Contract anniversary. If the
Contract is partially surrendered or the face amount is decreased during the
first 10 years, a proportionate amount of the charge will be deducted from the
Contract Fund. During 1995 and 1994, Prudential received a total of
approximately $9,266,000 and $7,971,000, respectively, from surrendered or
lapsed Contracts. Prudential does not expect to make a profit on this charge.
TRANSACTION CHARGES
There may be transaction charges if certain events take place. Examples are: the
face amount of insurance is decreased or part of the cash surrender value is
withdrawn. Prudential is entitled under the Contract to charge a fee in these
situations, which will generally be $15 or less. Currently, it waives the fee in
some instances. These fees are described at the appropriate place in this
prospectus.
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS
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.
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 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 Prudential on a uniform basis. Prudential's
reductions in charges for these sales will not be unfairly discriminatory to the
interests of any individual Contract owners.
HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE
As explained above, after the tenth Contract year (and 10 years from an increase
in face amount), there will no longer be a surrender charge and, if there is no
Contract loan, the cash surrender value will be equal to the Contract Fund. This
section, therefore, also describes how the cash surrender value of the Contract
will change with investment experience.
On the Contract Date, the Contract Fund value is the initial premium less the
deductions from premiums and the first monthly deductions. See CONTRACT FEES AND
CHARGES, page 10. This amount is placed in the investment options designated by
you. Thereafter the Contract Fund value changes daily, reflecting increases or
decreases
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<PAGE>
in the value of the securities in which the assets of the subaccount have been
invested, the performance of the Real Property Account if that option has been
selected, and interest credited on any amounts allocated to the fixed-rate
option. It is also reduced by the daily asset charge for mortality and expense
risks assessed against the variable investment options. The Contract Fund value
also increases to reflect the receipt of additional premium payments and is
decreased by the monthly deductions.
A Contract's cash surrender value on any date will be the Contract Fund value
reduced by the withdrawal charges, if any, and by any Contract debt. Upon
request, Prudential will tell you the cash surrender value of your Contract. It
is possible, although highly unlikely, that the cash surrender value of a
Contract could decline to zero because of unfavorable investment performance,
even if you continue to pay Scheduled Premiums when due.
The tables on pages T1 through T4 of this prospectus illustrate what the death
benefit and cash surrender values would be for a representative Contract,
assuming uniform hypothetical investment results in the selected portfolio[s],
and also provide information about the aggregate premiums payable under the
Contract. The tables also show, if the level premium option has not been chosen,
the maximum Scheduled Premium that may be payable for the period after the
insured reaches the age of 65 for the illustrated Contract under each of the
assumed investment returns.
HOW 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 satisfy tax requirements.
Under a Form A Contract, the guaranteed minimum death benefit is equal to the
face amount of insurance. (However, should the death benefit become payable
while a Contract loan is outstanding, the debt will be deducted from the death
benefit.) 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 it is necessary to 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 net single premium is used only in the
calculation of the death benefit, not for premium payment purposes. The
following is a table of illustrative net single premiums for $1 of death benefit
under Contracts issued on insureds in the preferred rating class.
--------------------------------------------------------------------
Increase in Insurance
Male Net Single Amount Per $1
Attained Age Premium Increase in Contract Fund
--------------------------------------------------------------------
5 .09151 $10.93
25 .17000 $ 5.88
35 .23700 $ 4.22
55 .45209 $ 2.21
65 .59468 $ 1.68
--------------------------------------------------------------------
--------------------------------------------------------------------
Increase in Insurance
Female Net Single Amount Per $1
Attained Age Premium Increase in Contract Fund
--------------------------------------------------------------------
5 .07919 $12.63
25 .15112 $ 6.62
35 .21127 $ 4.73
55 .40090 $ 2.49
65 .53639 $ 1.86
--------------------------------------------------------------------
Whenever the death benefit is determined in this way, 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.
Under a Form B Contract, the death benefit will vary with investment experience.
Assuming no withdrawals, the death benefit will be equal to the face amount of
insurance plus the amount (if any) by which the Contract Fund value exceeds the
applicable "Tabular Contract Fund value" for the Contract (subject to an
exception described
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<PAGE>
below under which the death benefit is higher). Each Contract contains a table
that sets forth the Tabular Contract Fund value as of the end of each of the
first 20 years of the Contract. Tabular Contract Fund values between Contract
anniversaries are determined by interpolation. The Tabular Contract Fund value
for each Contract year is an amount that is slightly less than the Contract Fund
value that would result as of the end of such year if only scheduled premiums
were paid, they were paid when due, the selected investment options earned a net
return at a uniform rate of 4% per year, full mortality charges based upon the
1980 CSO Table were deducted, maximum sales load and expense charges were
deducted, and there was no Contract debt.
Thus, under a Form B Contract with no withdrawals, the death benefit will equal
the face amount if the Contract Fund equals the Tabular Contract Fund value. If,
due to investment results greater than a net return of 4%, or to payment of
greater than scheduled premiums, or to smaller than maximum charges, the
Contract Fund value is a given amount greater than the Tabular Contract Fund
value, the death benefit will be the face amount plus that excess amount. If,
due to investment results less favorable than a net return of 4%, the Contract
Fund value is less than the tabular Contract Fund value, the death benefit will
not fall below the initial face amount stated in the Contract; however, this
unfavorable investment experience must first be offset by favorable performance
or additional payments that bring the Contract Fund up to the tabular level
before favorable investment results or additional payments will increase the
death benefit. Again, the death benefit will reflect a deduction for the amount
of any Contract debt. See CONTRACT LOANS, page 20.
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 a
greater amount in order to ensure that the Contract will satisfy the Internal
Revenue Code's definition of life insurance. Thus, the death benefit 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.
You may also increase or decrease the face amount of your Contract, subject to
certain conditions. See INCREASES IN FACE AMOUNT and DECREASES IN FACE AMOUNT,
below.
INCREASES IN FACE AMOUNT
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 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 $25,000, while the minimum for a new Contract is
$60,000; monthly fees are lower because only a single $3 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; the monthly
expense charge of $0.03 per $1,000 of face amount may be lower if the increase
is to a face amount greater than $100,000; 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.
You may elect to increase the face amount of your Contract no earlier than the
first anniversary of the Contract. The following conditions must be met: (1) you
must ask for the increase in writing on an appropriate form; (2) the amount of
the increase in face amount must be at least $25,000; (3) the insured must
supply evidence of insurability for the increase satisfactory to Prudential; (4)
if Prudential requests, you 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) you must pay an appropriate premium at the time of the increase; (7)
Prudential has the right to deny more than one increase in a Contract year; and
(8) if 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, Prudential has
the right to deny the increase. An increase in face amount resulting in a total
face amount under the Contract of at least $100,000 may, subject to strict
underwriting requirements, render the Contract eligible for a select rating.
Upon an increase in face amount, Prudential will recompute the Contract's
scheduled premiums, contingent deferred sales and administrative charges,
tabular values, and monthly deductions from the Contract Fund. You have a
choice, limited only by applicable state law, as to whether the recomputation
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 you select for the recomputation.
Prudential will tell you the amount of the required payment. If 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 23.
Therefore, before increasing the face amount, you should consult with your
Prudential representative.
15
<PAGE>
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 you apply for
it, the date satisfactory evidence of insurability is provided to Prudential or
the date designated by you, provided the necessary payment is made on or before
that date.
Prudential will supply you with pages which show the increased face amount, the
effective date of the increase, and the recomputed items described two
paragraphs above. 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 STANDARD CONTRACT PROVISIONS,
page 25) will run from the effective date of the increase.
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
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, as described in item (a)
under SURRENDER OR WITHDRAWAL CHARGES, page 12, 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 contingent deferred sales and administrative charges,
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 7. The "free-look" right would have 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, you 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. You 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 at any time within 2 years after the
increase in face amount.
DECREASES IN FACE AMOUNT
You may effect a partial surrender of a Contract (see Surrender of a Contract,
page 17) or a partial withdrawal of excess cash surrender value (see Withdrawal
of Excess Cash Surrender Value, page 17). You also have the additional option of
decreasing the face amount (which is also the guaranteed minimum death benefit)
of your Contract without withdrawing any such 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
deduction of a proportionate part of the then applicable contingent deferred
sales and administrative charges, if any. Scheduled premiums for the Contract
will also be proportionately reduced. The Contracts of owners who exercise the
right to reduce face amount will be amended to show the new face amount, tabular
values, scheduled premiums, monthly charges, and, if applicable, the remaining
contingent deferred sales and administrative charges.
The minimum permissible decrease is $10,000. No decrease will be permitted that
causes the face amount of the Contract to drop below the minimum face amount
applicable to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A
CONTRACT, page 7. No reduction will be permitted to the extent that it would
cause the Contract to fail to qualify as "life insurance" for purposes of
Section 7702 of the Internal Revenue Code. If the face amount of a Contract in
force on a select rating basis is reduced below $100,000, it is no longer
eligible for the select
16
<PAGE>
rating. A decrease in face amount will generally be effected as of the Monthly
date immediately preceding receipt of a proper request to decrease face amount.
A decrease requested while the Contract is in default, however, will be effected
as of the Monthly date the Contract went into default. Monthly charges
previously deducted on the effective date of the decrease 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 the Contract might be
classified as a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 23. Before requesting any decreases in face amount, a Contract
owner should consult his or her Prudential representative.
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract in whole or in part. The
amount that you may withdraw is limited by the requirement that the Contract
Fund after withdrawal must not be less than the tabular Contract Fund value. (A
Table of Tabular Contract Fund Values is included in the Contract; the values
increase with each year the Contract remains in force.) But because the Contract
Fund may be made up in part by an outstanding Contract loan, there is a further
limitation that the amount withdrawn may not be larger than an amount sufficient
to reduce the cash surrender value to zero. The amount withdrawn must be at
least $2,000 under a Form A Contract (in which the death benefit is generally
equal to the face-amount of insurance) and at least $500 under a Form B Contract
(in which the death benefit varies daily). You 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, Prudential will tell you how
much you may withdraw. Withdrawal of part of the cash surrender value may have
tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 23. A temporary
need for funds may also be met by making a loan and you should consult your
Prudential representative about how best to meet your needs.
Under a Form A Contract, the face amount of insurance is reduced by not 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 the
minimum face amount applicable to the insured's Contract. See REQUIREMENTS FOR
ISSUANCE OF A CONTRACT, page 7. 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 23. Before making any withdrawal
which causes a decrease in face amount, you should consult with your 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,
scheduled premiums, 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
reduced. Neither the face amount of insurance nor the amount of scheduled
premiums will be changed due to a withdrawal of excess cash surrender value
under a Form B Contract. No surrender charges will be assessed upon a withdrawal
under a Form B Contract.
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, Prudential
treats withdrawals as a return of premium.
SURRENDER OF A CONTRACT
You may surrender a Contract in whole or in part for its cash surrender value
while the insured is living. 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 the original Contract
except that premiums will be based on the new face amount. You will be given a
new Contract document. The cash surrender value and the guaranteed minimum death
benefit of the new Contract will be proportionately reduced based upon the
reduction in the face amount of insurance. The new Contract must have a face
amount of insurance at least equal to the minimum face amount applicable to the
insured. Otherwise a partial surrender is not permitted. See REQUIREMENTS FOR
ISSUANCE OF A CONTRACT, page 7.
To surrender a Contract in whole or in part, you must deliver or mail it,
together with a written request, to your Prudential Home Office. The cash
surrender value of a surrendered or partially surrendered Contract (taking into
17
<PAGE>
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 23.
WHEN PROCEEDS ARE PAID
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, Prudential may delay payment of proceeds from the subaccount[s] and the
variable portion of the death benefit due under the Contract if the sale or
valuation of the Account's assets is not reasonably practicable because the New
York Stock Exchange is closed for other than a regular holiday or weekend,
trading is restricted by the SEC or the SEC declares that an emergency exists.
With respect to the amount of any cash surrender value allocated to the
fixed-rate option, and with respect to a Contract in force as fixed reduced
paid-up insurance, Prudential expects to pay the cash surrender value promptly
upon request. However, Prudential has the right to delay payment of such cash
surrender value for up to 6 months (or a shorter period if required by
applicable law). Prudential will pay interest of at least 3% a year if it delays
such a payment for 30 days or more (or a shorter period if required by
applicable law).
LIVING NEEDS BENEFIT
Contract applicants may elect to add the LIVING NEEDS BENEFIT(SM) to their
Contracts at issue, subject to Prudential's receipt of satisfactory evidence of
insurability. The benefit may vary state-by-state. It can generally be added
only to Contracts of $50,000 or more. There is no charge for adding the benefit
to the Contract. However, an administrative charge (not to exceed $150) will be
made at the time the LIVING NEEDS BENEFIT is paid.
Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows you to
elect to receive an accelerated payment of all or part of the Contract's death
benefit, adjusted to reflect current value, at a time when certain special needs
exist. The adjusted death benefit will always be less than the death benefit,
but will generally be greater than the Contract's cash surrender value. 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, Prudential will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a LIVING NEEDS
BENEFIT. You may (1) elect to receive the benefit in a single sum or (2) receive
equal monthly payments for 6 months. If the insured dies before all the payments
have been made, the present value of the remaining payments will be paid to the
beneficiary designated in the LIVING NEEDS BENEFIT claim form in a single sum.
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, Prudential will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. You may (1) elect to receive the
benefit in a single sum or (2) receive equal monthly payments for 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. Prudential reserves the right
to determine the minimum amount that may be accelerated.
No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit.
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. The
recently enacted Health Insurance Portability and Accountability Act of 1996
excludes from income, effective January 1, 1997, THE LIVING NEEDS BENEFIT if the
insured is (1) terminally ill or (2) chronically ill (although the exclusion in
the latter case may be limited). Contract owners should consult a qualified tax
advisor before electing to receive this benefit. Receipt of a LIVING NEEDS
BENEFIT payment may also affect a Contract owner's eligibility for certain
government benefits or entitlements.
18
<PAGE>
HYPOTHETICAL ILLUSTRATIONS OF DEATH BENEFITS AND CASH SURRENDER VALUES
The four tables that follow show how the death benefit and cash surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, each of which is
described below. All four tables assume, first, that a Contract with a face
amount of $100,000 has been bought on or after December 31, 1996 by a 35 year
old man with select rating in a preferred rating class. It is assumed that the
Scheduled Premium of $894.06 is paid on each anniversary date, and that the
deduction for taxes attributable to premiums is 3.25%. The first table assumes
that a Form A Contract has been purchased and the second table assumes that a
Form B Contract has been purchased. Both assume that the current charges will
continue for the indefinite future. The third and fourth tables are based upon
the same assumptions except that it is assumed that the maximum charges
permitted by the Contract have been made from the beginning. In effect, the
third and fourth tables represent a kind of "worst case" scenario.
Another assumption is that the Contract Fund has been invested in equal amounts
in each of the fifteen available portfolios of the Series Fund. Finally, there
are four assumptions, shown separately, about the average investment performance
of the portfolios. The first is that there will be a uniform 0% gross rate of
return, that is, that the average value of the Contract Fund will uniformly be
adversely affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. These, of course, are unrealistic assumptions since
actual returns will fluctuate from year to year. Nevertheless, these assumptions
help show how the Contract values change with investment experience.
The first column in the following tables shows the Contract year. The second
column, to provide context, shows what the aggregate amount would be if the
Scheduled Premiums had been invested in a savings account paying 4% compounded
interest. Of course, if that were done, there would be no life insurance
protection. The next four columns show the death benefit payable in each of the
years shown for the four different assumed investment returns. Note that a gross
return (as well as the net return) is shown at the top of each column. The gross
return represents the combined effect of income and capital appreciation of the
portfolios before any reduction is made for investment advisory fees or other
Series Fund expenses. The net return reflects an average total annual expenses
of the 15 portfolios of 0.55%, and the daily deduction from the Contract Fund of
0.6% per year for the first two tables, which are based on current charges, and
0.9% per year for the two tables that are based upon maximum charges. For
Contracts with face amounts of less than $100,000, the current charge is 0.9%
per year. Thus, assuming maximum charges, gross returns of 0%, 4%, 8% and 12%
are the equivalent of net returns of -1.45%, 2.55%, 6.55% and 10.55%
respectively. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Series Fund and under the
Contract.
The amounts shown assume that there is no loan. The cash surrender values shown
for the first 10 years reflect the surrender charges that would be deducted if
the Contract were surrendered in those years. For years after the tenth, the
cash surrender values are equal to the Contract Fund value.
Note that under the Form B Contract the death benefit changes to reflect
investment returns, while under the Form A Contract the death benefit increases
only when the cash surrender value becomes quite large. In later policy years,
the cash surrender values under the Form A Contract are slightly larger than
those under the Form B Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 year old man but would be inaccurate if made for a
35 year old woman or a 50 year old man. To take a second example, the death
benefit and cash surrender values under a $50,000 Contract cannot be determined
by dividing by two the amount shown in a table for a $100,000 Contract. Your
Prudential representative can provide you with a comparable hypothetical
illustration for a person of your own age, sex, and rating class. You can obtain
an illustration using premium amounts and payment patterns that you wish to
follow. You may use assumed gross returns different than those shown in the
tables, although they may not be higher than 12%.
19
<PAGE>
ILLUSTRATIONS
-------------
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE SELECT PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
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 ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.15% Net) (2.85% Net) (6.85% Net) (10.85% Net) (-1.15% Net) (2.85% Net) (6.85% Net) (10.85% Net)
------ ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,000 $100,000 $ 318 $ 398 $ 481 $ 566
3 $ 2,903 $100,000 $100,000 $100,000 $100,000 $ 833 $ 989 $ 1,155 $ 1,330
4 $ 3,948 $100,000 $100,000 $100,000 $100,000 $ 1,335 $ 1,591 $ 1,870 $ 2,172
5 $ 5,036 $100,000 $100,000 $100,000 $100,000 $ 1,822 $ 2,203 $ 2,628 $ 3,102
6 $ 6,167 $100,000 $100,000 $100,000 $100,000 $ 2,550 $ 3,080 $ 3,688 $ 4,385
7 $ 7,344 $100,000 $100,000 $100,000 $100,000 $ 3,268 $ 3,974 $ 4,807 $ 5,786
8 $ 8,568 $100,000 $100,000 $100,000 $100,000 $ 3,968 $ 4,877 $ 5,978 $ 7,308
9 $ 9,840 $100,000 $100,000 $100,000 $100,000 $ 4,652 $ 5,790 $ 7,207 $ 8,968
10 $ 11,164 $100,000 $100,000 $100,000 $100,000 $ 5,320 $ 6,715 $ 8,500 $ 10,781
15 $ 18,618 $100,000 $100,000 $100,000 $100,000 $ 7,494 $10,588 $ 15,147 $ 21,878
20 $ 27,688 $100,000 $100,000 $100,000 $100,000 $ 9,615 $15,140 $ 24,556 $ 40,718
25 $ 38,723 $100,000 $100,000 $100,000 $138,090 $11,115 $19,943 $ 37,405 $ 72,042
30 (Age 65) $ 52,149 $100,000 $100,000 $100,000 $205,747 $11,028 $24,097 $ 54,509 $122,353
35 $ 81,399 $100,000 $100,000 $116,773 $304,106 $27,561 $39,830 $ 77,962 $203,034
40 $116,985 $100,000 $100,000 $147,692 $449,290 $41,654 $56,893 $108,836 $331,086
45 $160,282 $100,000 $100,000 $186,235 $665,918 $52,552 $75,916 $148,517 $531,050
</TABLE>
(1) If premiums are paid more frequently than annually, the initial payments
would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The
ultimate payments would be $2,411.37 semi-annually, $1,218.60 quarterly or
$410.34 monthly. The death benefits and cash surrender values would be
slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) For a hypothetical gross investment return of 0%, the second Scheduled
Premium will be $4,726.61. For a gross return of 4%, the second Scheduled
Premium will be $3,186.84. For a gross return of 8%, the second Scheduled
Premium will be $894.06. For a gross return of 12%, the second Scheduled
Premium will be $894.06. The premiums accumulated at 4% interest in column 2
are those payable if the gross investment return is 4%. For an explanation
of why the scheduled premium may increase on the premium change date, see
Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY 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>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE SELECT PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
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 ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.15% Net) (2.85% Net) (6.85% Net) (10.85% Net) (-1.15% Net) (2.85% Net) (6.85% Net) (10.85% Net)
------ ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,019 $100,047 $100,076 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,035 $100,118 $100,203 $ 270 $ 350 $ 433 $ 519
3 $ 2,903 $100,000 $100,047 $100,213 $100,388 $ 788 $ 945 $ 1,110 $ 1,285
4 $ 3,948 $100,000 $100,058 $100,337 $100,640 $ 1,309 $ 1,565 $ 1,844 $ 2,147
5 $ 5,036 $100,000 $100,068 $100,493 $100,967 $ 1,831 $ 2,212 $ 2,637 $ 3,111
6 $ 6,167 $100,000 $100,126 $100,734 $101,430 $ 2,571 $ 3,101 $ 3,709 $ 4,405
7 $ 7,344 $100,000 $100,183 $101,015 $101,993 $ 3,293 $ 3,999 $ 4,831 $ 5,809
8 $ 8,568 $100,000 $100,242 $101,341 $102,669 $ 3,998 $ 4,907 $ 6,006 $ 7,334
9 $ 9,840 $100,000 $100,301 $101,715 $103,470 $ 4,686 $ 5,824 $ 7,238 $ 8,993
10 $ 11,164 $100,000 $100,363 $102,141 $104,411 $ 5,357 $ 6,751 $ 8,529 $ 10,799
15 $ 18,618 $100,000 $100,813 $105,324 $111,967 $ 7,564 $10,652 $ 15,163 $ 21,806
20 $ 27,688 $100,000 $102,140 $111,396 $127,218 $ 9,696 $15,204 $ 24,460 $ 40,282
25 $ 38,723 $100,000 $104,664 $121,605 $155,375 $11,193 $19,934 $ 36,875 $ 70,645
30 (Age 65) $ 52,149 $100,000 $108,800 $137,428 $204,550 $11,104 $23,800 $ 52,428 $119,550
35 $ 83,607 $100,000 $110,544 $142,073 $297,303 $27,620 $40,845 $ 72,374 $198,492
40 $121,881 $100,000 $113,972 $153,500 $439,401 $41,671 $58,799 $ 98,327 $323,799
45 $168,447 $100,000 $119,524 $174,286 $651,408 $52,549 $77,051 $131,813 $519,478
</TABLE>
(1) If premiums are paid more frequently than annually, the initial payments
would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The
ultimate payments would be $2,411.37 semi-annually, $1,218.60 quarterly or
$410.34 monthly. The death benefits and cash surrender values would be
slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) For a hypothetical gross investment return of 0%, the second Scheduled
Premium will be $4,726.61. For a gross return of 4%, the second Scheduled
Premium will be $3,578.94. For a gross return of 8%, the second Scheduled
Premium will be $894.06. For a gross return of 12%, the second Scheduled
Premium will be $894.06. The premiums accumulated at 4% interest in column 2
are those payable if the gross investment return is 4%. For an explanation
of why the scheduled premium may increase on the premium change date, see
Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY 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>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE SELECT PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
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 ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.45% Net) (2.55% Net) (6.55% Net) (10.55% Net) (-1.45% Net) (2.55% Net) (6.55% Net) (10.55% Net)
------ ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,000 $100,000 $ 267 $ 346 $ 427 $ 510
3 $ 2,903 $100,000 $100,000 $100,000 $100,000 $ 750 $ 902 $ 1,062 $ 1,232
4 $ 3,948 $100,000 $100,000 $100,000 $100,000 $1,215 $ 1,461 $ 1,730 $ 2,022
5 $ 5,036 $100,000 $100,000 $100,000 $100,000 $1,659 $ 2,024 $ 2,431 $ 2,886
6 $ 6,167 $100,000 $100,000 $100,000 $100,000 $2,288 $ 2,792 $ 3,372 $ 4,036
7 $ 7,344 $100,000 $100,000 $100,000 $100,000 $2,902 $ 3,567 $ 4,354 $ 5,281
8 $ 8,568 $100,000 $100,000 $100,000 $100,000 $3,491 $ 4,340 $ 5,371 $ 6,622
9 $ 9,840 $100,000 $100,000 $100,000 $100,000 $4,057 $ 5,110 $ 6,426 $ 8,069
10 $ 11,164 $100,000 $100,000 $100,000 $100,000 $4,597 $ 5,875 $ 7,519 $ 9,631
15 $ 18,618 $100,000 $100,000 $100,000 $100,000 $5,922 $ 8,626 $ 12,665 $ 18,694
20 $ 27,688 $100,000 $100,000 $100,000 $100,000 $6,196 $10,776 $ 18,817 $ 32,934
25 $ 38,723 $100,000 $100,000 $100,000 $106,835 $4,691 $11,467 $ 25,775 $ 55,736
30 (Age 65) $ 52,149 $100,000 $100,000 $100,000 $153,081 $ 114 $ 9,162 $ 33,113 $ 91,034
35 $ 90,072 $100,000 $100,000 $100,000 $214,200 $8,187 $21,463 $ 51,929 $143,009
40 $136,211 $100,000 $100,000 $105,742 $297,951 $8,551 $30,173 $ 77,922 $219,563
45 $192,347 $100,000 $100,000 $138,439 $412,067 $ 0 $30,745 $110,401 $328,611
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) For a hypothetical gross investment return of 0%, the premium after age 65
will be $4,726.61; for a gross return of 4% the premium after age 65 will be
$4,726.61; for a gross return of 8% the premium after age 65 will be
$2,950.08; for a gross return of 12% the premium after age 65 will be
$894.06. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why the
scheduled premium may increase on the premium change date, see Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY 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>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE SELECT PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
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 ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.45% Net) (2.55% Net) (6.55% Net) (10.55% Net) (-1.45% Net) (2.55% Net) (6.55% Net) (10.55% Net)
------ ------------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,020 $100,048 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,056 $100,139 $ 212 $ 290 $ 371 $ 454
3 $ 2,903 $100,000 $100,000 $100,108 $100,277 $ 694 $ 845 $ 1,005 $ 1,174
4 $ 3,948 $100,000 $100,000 $100,180 $100,471 $1,174 $ 1,420 $ 1,687 $ 1,978
5 $ 5,036 $100,000 $100,000 $100,273 $100,725 $1,649 $ 2,012 $ 2,417 $ 2,869
6 $ 6,167 $100,000 $100,000 $100,388 $101,048 $2,285 $ 2,787 $ 3,363 $ 4,023
7 $ 7,344 $100,000 $100,000 $100,526 $101,446 $2,899 $ 3,561 $ 4,342 $ 5,262
8 $ 8,568 $100,000 $100,000 $100,690 $101,929 $3,488 $ 4,333 $ 5,355 $ 6,594
9 $ 9,840 $100,000 $100,000 $100,882 $102,507 $4,054 $ 5,102 $ 6,405 $ 8,030
10 $ 11,164 $100,000 $100,000 $101,104 $103,189 $4,594 $ 5,866 $ 7,492 $ 9,577
15 $ 18,618 $100,000 $100,000 $102,733 $108,606 $5,919 $ 8,616 $ 12,572 $ 18,445
20 $ 27,688 $100,000 $100,000 $105,456 $118,899 $6,193 $10,765 $ 18,520 $ 31,963
25 $ 38,723 $100,000 $100,000 $109,605 $137,023 $4,688 $11,453 $ 24,875 $ 52,293
30 (Age 65) $ 52,149 $100,000 $100,000 $115,485 $167,449 $ 112 $ 9,145 $ 30,485 $ 82,449
35 $ 90,072 $100,000 $100,000 $120,259 $198,068 $8,184 $21,441 $ 50,560 $128,369
40 $136,211 $100,000 $100,000 $129,182 $269,782 $8,547 $30,141 $ 74,009 $198,805
45 $192,347 $100,000 $100,000 $143,749 $375,417 $ 0 $30,693 $101,276 $299,384
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) For a hypothetical gross investment return of 0%, the premium after age 65
will be $4,726.61; for a gross return of 4% the premium after age 65 will be
$4,726.61; for a gross return of 8% the premium after age 65 will be
$3,902.07; for a gross return of 12% the premium after age 65 will be
$1,135.16. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why the
scheduled premium may increase on the premium change date, see Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY 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>
CONTRACT LOANS
A Contract owner may borrow from 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 (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.
If you request a loan you may choose one of two interest rates. You may elect to
have interest charges accrued daily at a fixed effective annual rate of 5.5%.
Alternatively, you may elect a variable interest rate that changes from time to
time. You may switch from the fixed to variable interest loan provision, or
vice-versa, with Prudential's consent.
If you elect the variable loan interest rate provision, interest charged on any
loan will accrue daily at an annual rate Prudential determines at the start of
each Contract year (instead of at the fixed 5.5% rate). This interest rate will
not exceed the greatest of (1) the "Published Monthly Average" for the calendar
month ending two months before the calendar month of the Contract anniversary;
(2) 5%; or (3) the rate 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. For example, the Published Monthly Average in 1995 ranged
from 7.11% to 8.71%.
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, Prudential
will notify you of its intent to terminate the Contract in 61 days, within which
time you may repay all or enough of the loan to reduce it to below the cash
surrender value and thus keep the Contract in force. If you fail to keep the
Contract in force, the amount of unpaid Contract debt will be treated as a
distribution which may be taxable. See LAPSE AND REINSTATEMENT, page 21, and TAX
TREATMENT OF CONTRACT BENEFITS - PRE-DEATH DISTRIBUTIONS, page 23.
When a loan is made, an amount equal to the loan proceeds (the "loan amount")
will be transferred out of the subaccounts and the Real Property Account
(collectively, the "variable options"), and/or the fixed-rate option to
Prudential's general account. The investment options will normally be reduced
proportionally based on their balances at the time the loan is made. The loan
amount is treated as part of the Contract Fund. While a fixed-rate (5.5%) loan
is outstanding, the loan amount will be credited with the daily equivalent of an
annual return of 4% rather than with the actual rate of return of the variable
options or the fixed-rate option. While a loan made pursuant to the variable
loan interest rate provision is outstanding, the loan amount will be credited
with the daily equivalent of a rate that is 1% less than the loan interest rate
for the Contract year. If a loan remains outstanding at a time Prudential fixes
a new rate, the new interest rate will apply. When the loan is repaid, the
repayment is made to the investment options. The loan repayment is first divided
between the variable options as a group and the fixed-rate option in the same
proportions used for the transfer at the time the loan was made. The portion of
the loan repayment allocated to the variable options as a group is divided among
those options proportionately based on their balances at the time of loan
repayment. The portion of the loan repayment allocated to the fixed-rate option
will be credited with the lesser of the current rate applicable to new premium
payments and the current rate applicable to the portion of the fixed-rate option
from which the loan was made.
Choosing the variable rate option may mean a higher outlay of cash when interest
payments are made or when the loan is repaid, but it may also result in a
greater increase in the Contract Fund value.
A loan will not affect the amount of the premiums due. Should the death benefit
become payable while a loan is outstanding, or should the Contract be
surrendered, any Contract debt will be deducted from the death benefit or the
cash surrender value.
A loan will have an effect on a Contract's cash surrender value and may have an
effect on the death benefit, even if the loan is fully repaid, because the
investment results of the selected investment options will apply only to the
amount remaining invested under those options. The longer the loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If investment results are greater than the rate being
credited on the loan balance 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
20
<PAGE>
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, for example, a Contract issued on a 35 year old male, as illustrated
in the table on page T1, with an 8% gross investment return. Assume a $2,500
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 $8,354.53. This amount is
lower than the cash surrender value shown on that page for the end of Contract
year 10 because the loan amount was credited with the 4% assumed rate of return
rather than the 6.85% net return for the designated subaccount[s] resulting from
the 8% gross return in the underlying Series Fund. Loans from Modified Endowment
Contracts may be treated for tax purposes as distributions of income. See TAX
TREATMENT OF CONTRACT BENEFITS, page 23.
LAPSE AND REINSTATEMENT
As has already been explained, if Scheduled Premiums are paid on or before each
due date, or within the grace period after each due date, and there are no
withdrawals, a Contract will remain in force even if the investment results of
that Contract's variable investment option[s] have been so unfavorable that the
Contract Fund has decreased to zero or less.
In addition, even if a Scheduled Premium is not paid, the Contract will remain
in force as long as the Contract Fund on any Monthly Date is equal to or greater
than the Tabular Contract Fund value on the following Monthly Date. (A Table of
Tabular Contract Fund Values is included in the Contract; the values increase
with each year the Contract remains in force.) This could occur because of such
factors as favorable investment experience, deduction of current rather than
maximum charges, or the previous payment of greater than Scheduled Premiums.
However, if a Scheduled Premium is not paid, and the Contract Fund is
insufficient to keep the Contract in force, the Contract will go into default.
Should this happen, 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, page 23.
Neither transfers nor reallocations of premium payments may be made if a
Contract is in default.
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, Prudential requires renewed evidence of
insurability, and submission of certain payments due under the Contract.
If your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of Prudential prior to the
end of the 61 day grace period. You may also choose one of the three forms of
insurance described below for which no further premiums are payable.
FIXED EXTENDED TERM INSURANCE. The amount of insurance that would have been paid
on the date of default will continue for a stated period of time. You will be
told in writing how long that will be. The insurance amount will not change.
There will be a diminishing cash surrender value but no loan value. Extended
term insurance is not available to insureds in high risk classifications or
under Contracts issued in connection with tax-qualified pension plans.
FIXED REDUCED PAID-UP INSURANCE. This insurance continues for the lifetime of
the insured but at an insurance amount that is lower than that provided by fixed
extended term insurance. It will increase in amount only if dividends are paid
and it will decrease only if a Contract loan is taken. You will be told, if you
ask, what the amount of the insurance will be. Fixed paid-up insurance has a
cash surrender value and a loan value both of which will gradually increase in
value. It is possible for this Contract to be classified as a Modified Endowment
Contract if this option is exercised during the first 7 Contract years. See TAX
TREATMENT OF CONTRACT BENEFITS, page 23.
VARIABLE REDUCED PAID-UP INSURANCE. This is similar to fixed paid-up insurance
and will initially be in the same amount. The Contract Fund will continue to
vary to reflect the experience of the selected investment options. There will be
a new guaranteed minimum death benefit. Loans will be available subject to the
same rules that apply to premium-paying Contracts.
Variable paid-up insurance is not available to insureds in high risk rating
classes or if the new guaranteed amount is less than $5,000. It is possible for
this Contract to be classified as a Modified Endowment Contract if this option
is exercised during the first 7 Contract years. See TAX TREATMENT OF CONTRACT
BENEFITS, page 23.
WHAT HAPPENS IF NO REQUEST IS MADE? Except in the two situations described
below, if no request is made the "automatic option" will be fixed extended term
insurance. If that is not available to the insured, then fixed reduced paid-up
insurance will be provided. However, if variable reduced paid-up insurance is
available and the amount
21
<PAGE>
is at least as great as the amount of fixed extended term insurance, then the
automatic option will be variable reduced paid-up insurance. This could occur
when there is a Contract debt outstanding when the Contract lapses.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund.
Prudential is the legal owner of those shares and as such has the right to vote
on any matter voted on at Series Fund shareholders meetings. However, Prudential
will 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 indirectly owned by Prudential, will be voted in
the same proportion as shares in the respective portfolios for which
instructions are received.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter.
The number of shares in a portfolio for which you may give instructions is
determined by dividing the portion of your Contract Fund attributable to the
portfolio, by the value of one share of the portfolio. The number of votes for
which each Contract owner may give Prudential instructions will be determined as
of the record date chosen by the Board of Directors of the Series Fund.
Prudential will furnish Contract owners with proper forms and proxies to enable
them to give these instructions. Prudential reserves the right to modify the
manner in which the weight to be given voting instructions is calculated where
such a change is necessary to comply with current federal regulations.
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, 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 Prudential reasonably disapproves such changes in accordance with
applicable federal regulations. If Prudential does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.
Contract owners also share with the owners of all Prudential Contracts and
policies the right to vote in elections for members of the Board of Directors of
Prudential.
Substitution of Series Fund Shares
Although Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Prudential may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, 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), you will be sent a statement
that provides certain information pertinent to your own Contract. These
statements show all transactions during the year that affected the value of your
Contract Fund, including monthly changes attributable to investment experience.
That statement will also show the current death benefit, cash surrender value,
and loan values of your Contract. On request, you will be sent a current
statement in a form similar to that of the annual statement described above, but
Prudential may limit the number of such requests or impose a reasonable charge
if such requests are made too frequently.
You will also receive, usually at the end of February, an annual report of the
operations of the Series Fund. That report will list the investments held in
each portfolio and include audited financial statements for the Series Fund. A
semi-annual report with similar unaudited information will be sent to you,
usually at the end of August.
22
<PAGE>
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 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 Section 7702 of the
Internal Revenue Code (the "Code") and as long as the underlying investments for
the Contract satisfy diversification requirements set forth in Treasury
Regulations issued pursuant to Section 817(h) of the Code.
For further detail on diversification requirements, see DIVIDENDS,
DISTRIBUTIONS, AND TAXES in the attached prospectus for the Series Fund.
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.
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. The tax consequences
of a surrender may differ if the proceeds are received under any income
payment settlement option.
A withdrawal generally is not taxable unless it exceeds total premiums paid
to the date of withdrawal less the untaxed portion of any prior withdrawals.
However, under certain limited circumstances, in the first 15 Contract years
all or a portion of a withdrawal may be taxable if the Contract Fund exceeds
the total premiums paid less the untaxed 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 the 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 the 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.
23
<PAGE>
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are includible in
income to the extent that the Contract Fund prior to surrender charges
exceeds the gross premiums paid for the Contract increased by the amount of
any loans previously includible in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludible from
income. These rules may also apply to pre-death distributions, including
loans, made during the 2 year period prior to the Contract becoming a
Modified Endowment Contract.
In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10 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 or in certain other
circumstances. Contract owners who do not provide a social security number or
other taxpayer identification number will not be permitted to elect out of
withholding. All recipients of such amounts may be subject to penalties under
the estimated tax payment rules if withholding and estimated tax payments are
not sufficient.
OTHER TAX CONSIDERATIONS. Transfer of the Contract to a new owner or assignment
of the Contract may have tax consequences depending on the circumstances. In the
case of a transfer of the Contract for a valuable consideration, the death
benefit may be subject to federal income taxes under Section 101(a)(2) of the
Code. In addition, a transfer of the Contract to or the designation of a
beneficiary who is either 37 1/2 years younger than the Contract owner or a
grandchild of the Contract owner may have Generation Skipping Transfer tax
consequences under Section 2601 of the Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under Section 163 of the Code as personal interest or
under Section 264 of the Code. Contract owners should consult a tax advisor
regarding the application of these provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. Interest on Contract debt on a business-owned insurance policy is
generally not tax-deductible. An exception permits the deduction of interest on
policy loans on Contracts for up to 20 key persons. The interest deduction for
Contract debt on such loans is limited to a prescribed interest rate and a
maximum aggregate loan amount of $50,000 per key insured person. The Code also
imposes an indirect tax upon additions to the Contract Fund or the receipt of
death benefits under business-owned life insurance policies under certain
circumstances by way of the corporate alternative minimum tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
TAX-QUALIFIED PENSION PLANS
The Contracts may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Internal Revenue
Code. Such Contracts may be issued with a minimum face amount of $10,000, and
increases and decreases in face amount may be effected in minimum increments of
$10,000. The monthly charge for anticipated mortality costs and the scheduled
premiums under such Contracts will be the same for male and female insureds of a
particular age and underwriting classification. Illustrations reflecting such
premiums and charges will be given to purchasers of Contracts issued in
connection with qualified plans. Only certain of the riders normally available
with the Contracts are available to Contracts issued in connection with
qualified plans. Moreover, fixed reduced paid-up insurance and payment of the
cash surrender value are the only options on lapse available to Contracts issued
in connection with qualified plans. See LAPSE AND REINSTATEMENT, page 21.
Finally, Contracts issued in connection with qualified plans may not invest in
the Real Property Account.
Prior to purchase of a Contract in connection with a qualified plan, the
applicable tax rules relating to such plans and life insurance thereunder should
be examined in consultation with a qualified tax advisor.
RIDERS
Contract owners may be able to obtain additional fixed benefits which may
increase the Scheduled Premium. If they do cause an increase in the Scheduled
Premium, they will be charged for by making monthly deductions from the Contract
Fund. These optional insurance benefits will be described in what is known as a
"rider" to the
24
<PAGE>
Contract. One rider pays an additional amount if the insured dies in an
accident. Another waives certain premiums if the insured is disabled within the
meaning of the provision (or, in the case of a Contract issued on an insured
under the age of 15, if the applicant dies or becomes disabled within the
meaning of the provision). Others pay an additional amount if the insured dies
within a stated number of years after issue; similar benefits may be available
if the insured's spouse or child should die. The amounts of these benefits are
fully guaranteed at issue; they do not depend on the performance of the Account,
although they will no longer be available if the Contract should lapse. Certain
restrictions may apply; they are clearly described in the applicable rider.
Under other riders, which provide a fixed amount of term insurance in exchange
for increasing total scheduled annual premiums, the amount payable upon death of
the insured may be substantially increased for a given total initial annual
premium. The rider may be appropriate for Contract owners who reasonably expect
their incomes to increase regularly so that they will be able to afford the
increasing scheduled annual premiums or who may be willing to rely upon their
future Contract Fund values to prevent the Contract from lapsing in later years.
Certain term riders 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 amount of the premium credit.
Any Prudential representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from Prudential
upon written request.
PARTICIPATION IN DIVISIBLE SURPLUS
The Contract is eligible to be credited part of Prudential's divisible surplus
attributable to the Contracts, as determined by Prudential's Board of Directors.
That determination is made, with respect to the insurance contracts issued by
Prudential, every year. However, Prudential does not expect to credit any
dividends upon these Contracts because favorable investment performance will be
reflected in Contract values and because Prudential intends, if experience
indicates that current charges are greater than needed to cover expenses, to
reduce those charges further so that there will be no source of distributable
surplus attributable to these Contracts.
OTHER STANDARD CONTRACT PROVISIONS
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract Date or, with respect to any change in
the Contract that requires 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, 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, 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, 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, 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 Prudential's consent.
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.
PAYING PREMIUMS BY PAYROLL DEDUCTION
In addition to the annual, semi-annual, quarterly and monthly premium payment
modes, a payroll budget method of paying premiums may also be available under
certain Contracts. The employer generally deducts the necessary
25
<PAGE>
amounts from employee paychecks and sends premium payments to Prudential
monthly. Some Contracts sold using the payroll budget method may be eligible for
a guaranteed issue program under which the initial minimum death benefit is
$25,000 and the Contracts are based on unisex mortality tables. Any Prudential
representative authorized to sell this Contract can provide further details
concerning the payroll budget method of paying premiums.
UNISEX PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance 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. Prudential may offer the Contract with unisex mortality rates to employers
and employee organizations.
SALES TO PERSONS 14 YEARS OF AGE OR YOUNGER
Both Form A and Form B Contracts covering insureds of 14 years of age or less
contain a special provision providing that the face amount of insurance will
automatically be increased on the Contract anniversary after the insured's 21st
birthday to 150% of the initial face amount, so long as the Contract is not then
in default. The death benefit will also usually increase, at the same time, by
the same dollar amount. In certain circumstances, however, it may increase by a
smaller amount. See HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 14. This
increase in death benefit will also generally increase the net amount at risk
under the Contract, thus increasing the mortality charge deducted each month
from amounts invested under the Contract. See item (b) under MONTHLY DEDUCTIONS
FROM CONTRACT FUND, page 11. The automatic increase in the face amount of
insurance may affect future premium payments if the Contract owner wants to
avoid the Contract being classified as a Modified Endowment Contract. A Contract
owner should consult his or her Prudential representative before making
unscheduled premium payments.
EXCHANGE OF FIXED-DOLLAR CONTRACT TO VARIABLE CONTRACT
Prudential may, on a non-discriminatory basis, permit the owner of an
APPRECIABLE LIFE insurance policy issued by The Prudential (an APPRECIABLE LIFE
policy is a general account, universal life type policy with guaranteed minimum
values) to exchange his or her policy for a comparable Variable APPRECIABLE LIFE
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 an
APPRECIABLE LIFE insurance policy owner elects to exchange his or her policy for
a comparable Variable APPRECIABLE LIFE 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 an APPRECIABLE LIFE 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 an APPRECIABLE LIFE
Contract for a Variable APPRECIABLE LIFE Contract may impact the status of the
Contract as Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS,
page 23. A contract owner should consult with his or her tax advisor and
Prudential representative before making an exchange.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 1111 Durham
Avenue, 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 6% of the Scheduled Premiums for the second through tenth years,
and no more than 2% of the Scheduled Premiums thereafter. For insureds over 59
years of age, the commission will be lower. The representative may be required
to return all or part of the first year commission if the Contract is not
continued through the second year. Representatives with less than 3 years of
service may be paid on a different basis. Representatives who meet certain
productivity, profitability, and persistency standards with regard to the sale
of the Contract will be eligible for additional compensation.
26
<PAGE>
Sales expenses in any year are not equal to the deduction for sales load in that
year. 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 Prudential's surplus, which may include amounts derived from the mortality
and expense risk charge and the guaranteed minimum death benefit risk charge.
STATE REGULATION
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Prudential is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Prudential is required
to file with New Jersey and other jurisdictions a separate statement with
respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
EXPERTS
The audited 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.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Prudential. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
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 Prudential. Its address and
telephone number are on the cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Prudential, which should be considered only
as bearing upon the ability of Prudential to meet its obligations under the
Contracts.
27
<PAGE>
DIRECTORS AND OFFICERS OF PRUDENTIAL
The directors and certain officers of Prudential, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUDENTIAL
FRANKLIN E. AGNEW. Director.--Business Consultant. Address: USX Tower, Suite
660, 600 Grant Street, Pittsburgh, PA 15219.
FREDERIC K. BECKER, Director.--President, Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
WILLIAM W. BOESCHENSTEIN, Director.--Retired Chairman and Chief Executive
Officer, Owens-Corning Fiberglas Corporation. Address: One Seagate, Suite 1530,
Toledo, OH 43604.
LISLE C. CARTER, JR., Director.--Prudential Insurance Company of America.
Address: 751 Broad Street, Newark, NJ 07102-3777.
JAMES G. CULLEN, Director.--Vice Chairman, Bell Atlantic Corporation since 1995;
1993 to 1995: President, Bell Atlantic Corporation; Prior to 1993: President,
New Jersey Bell. Address: 1310 North Court House Road, 11th floor, Alexandria,
VA 22201.
CAROLYNE K. DAVIS, Director.--National and International Health Care Advisor,
Ernst & Young LLP. Address: 1225 Connecticut Avenue, NW, Washington, DC 20036.
ROGER A. ENRICO, Director.--Vice Chairman and Chief Executive Officer, Pepsico
Inc. since 1996; Vice Chairman, Pepsico, Inc., from 1993 to 1996; Chairman and
Chief Executive Officer, Pepsi Co. Worldwide Food, from 1991 to 1993. Address:
14841 North Dallas Parkway, Dallas, TX 75240.
ALLAN D. GILMOUR, Director.--Prudential Insurance Company of America. Address:
751 Broad Street, Newark, NJ 07102-3777.
WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, The
College Fund/UNCF. Address: 8260 Willow Oaks Corporate Drive, Fairfax, VA 22031.
JON F. HANSON, Director.--Chairman, Hampshire Management Company. 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. Address: 1775 Massachusetts Avenue, N.W.,
Washington, DC 20036-2188.
ALLEN F. JACOBSON, Director.--Retired Chairman and Chief Executive Officer,
Minnesota Mining & Manufacturing Co. Address: 30 Seventh Street East, St. Paul,
MN 55101-4901.
BURTON G. MALKIEL, Director.--Professor, Princeton University. Address:
Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton, NJ
08544-1021.
ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.
- --Chairman, President, and Chief Executive Officer, 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.--Retired President, Exxon Corporation. Address:
5959 Las Colinas Boulevard, Irving, TX 75039-2298.
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 and Chief Executive Officer, The
Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1A2, Canada.
JAMES A UNRUH, Director.--Chairman and Chief Executive Officer, Unisys
Corporation. Address: P.O. Box 500, Blue Bell, PA 19424-0001.
P. ROY VAGELOS, M.D., Director.--Former Chairman and Chief Executive Officer,
Merck & Co., Inc. Address: One Crossroads Drive, Bedminster, NJ 07921.
STANLEY C. VAN NESS, Director.--Attorney, Picco Herbert Kennedy (law firm).
Address: One State Street Square, Suite 1000, Trenton, NJ 08607-1388.
28
<PAGE>
PAUL A. VOLCKER, Director.--Business Consultant since 1996; Prior to 1996:
Chairman, Wolfensohn & Co., Inc. Address: 599 Lexington Avenue, New York, NY
10022.
JOSEPH H. WILLIAMS, Director.--Director, The Williams Companies since 1994;
Prior to 1994: Chairman and Chief Executive Officer, The Williams Companies.
Address: One Williams Center, Tulsa, OK 74172.
OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MARTIN A. BERKOWITZ, Senior Vice President and Comptroller.--Senior Vice
President and Chief Financial Officer of Prudential Investment Company since
1991.
SUSAN L. BLOUNT, Vice President and Secretary.--Vice President and Secretary of
Prudential since 1995; Prior to 1995: Assistant General Counsel for Prudential
Residential Services Company.
C. EDWARD CHAPLIN, Vice President and Treasurer.--Vice President and Treasurer
of Prudential since 1995; 1993 to 1995: Managing Director and Assistant
Treasurer of Prudential; 1992 to 1993: Vice President and Assistant Treasurer,
Banking and Cash Management for Prudential; Prior to 1992: Regional Vice
President of Prudential Mortgage Capital Company.
MARK B. GRIER, Chief Financial Officer.--Chief Financial Officer of Prudential
since 1995; Prior to 1995: Executive Vice President and Head of Global Markets,
Chase Manhattan Corporation.
29
<PAGE>
Financial statements to be filed pursuant to Rule 485(b).
30
<PAGE>
PRUDENTIAL'S
VARIABLE
APPRECIABLE LIFE(R)
INSURANCE
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
Insurance Program, purchased by The Prudential from Aetna Casualty & Surety
Company, CNA Insurance Companies, Lloyds of London, Great American Insurance
Company, Reliance Insurance Company, Corporate Officers & Directors Assurance
Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and
Zurich-American Insurance Company, provides reimbursement for "Loss" (as defined
in the policies) which the Company pays as indemnification to its directors or
officers resulting from any claim for any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties in their capacities as directors or officers of
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 uninsurable under the law
pursuant to which the policies are construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or fraudulent acts or omissions or the willful violation of any law
by a director or officer, (2) claims based on or attributable to directors or
officers gaining personal profit or advantage to which they were not legally
entitled, and (3) claims arising from actual or alleged performance of, or
failure to perform, services as, or in any capacity similar to, an investment
adviser, investment banker, underwriter, broker or dealer, as those terms are
defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules
or regulations thereunder, or any similar federal, state or local statute, rule
or regulation.
The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text
of The Prudential's by-law 26, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 1.A.(6)(b) of Post-Effective
Amendment No. 1 to Form S-6, Registration No. 33-61079, filed April 25, 1996, on
behalf of The Prudential Variable Appreciable Account.
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 39 pages.
The undertaking to file reports.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
None.
The following exhibits:
- -----------------------
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of Board of Directors of The Prudential Insurance
Company of America establishing The Prudential Variable
Appreciable Account. (Note 19)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and The Prudential Insurance Company of
America. (Note 9)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 19)
(c) Schedules of Sales Commissions. (Note 3)
(4) Not Applicable.
(5) Variable Appreciable 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 7)
(b) By-laws of The Prudential Insurance Company of America, as
amended August 8, 1995. (Note 18)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Appreciable Life Insurance
Contract. (Note 3)
(b) Supplement to the Application for Variable Appreciable
Life Insurance Contract. (Note 3)
(11) Form of Notice of Withdrawal Right. (Note 2)
(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 21)
(13) Available Contract Riders and Endorsements:
(a) Rider for Insured's Waiver of Premium Benefit. (Note 3)
(b) Rider for Applicant's Waiver of Premium Benefit. (Note 3)
(c) Rider for Insured's Accidental Death Benefit. (Note 3)
(d) Rider for Level Term Insurance Benefit on Life of Insured.
(Note 3)
(e) Rider for Decreasing Term Insurance Benefit on Life of
Insured. (Note 3)
II-2
<PAGE>
(f) Rider for Interim Term Insurance Benefit.
(Note 3)
(g) Rider for Option to Purchase Additional
Insurance on Life of Insured. (Note 3)
(h) Rider for Decreasing Term Insurance Benefit on
Life of Insured Spouse. (Note 3)
(i) Rider for Level Term Insurance Benefit on
Dependent Children. (Note 3)
(j) Rider for Level Term Insurance Benefit on
Dependent Children--from Term
Conversions. (Note 3)
(k) Rider for Level Term Insurance Benefit on
Dependent Children--from Term
Conversions or Attained Age Change. (Note 3)
(l) Endorsement defining Insured Spouse. (Note 3)
(m) Rider covering lack of Evidence of Insurability
on a Child. (Note 3)
(n) Rider modifying Waiver of Premium Benefit.
(Note 3)
(o) Rider to terminate a Supplementary Benefit.
(Note 3)
(p) Rider providing for election of Variable
Reduced Paid-up Insurance. (Note 3)
(q) Rider to provide for exclusion of Aviation
Risk. (Note 3)
(r) Rider to provide for exclusion of Military
Aviation Risk. (Note 3)
(s) Rider to provide for exclusion for War Risk.
(Note 3)
(t) Rider to provide for Reduced Paid-up Insurance.
(Note 3)
(u) Rider providing for Option to Exchange Policy.
(Note 3)
(v) Endorsement defining Ownership and Control of
the Contract. (Note 3)
(w) Rider providing for Modification of
Incontestability and Suicide Provisions.
(Note 3)
(x) Endorsement issued in connection with
Non-Smoker Qualified Contracts. (Note 3)
(y) Endorsement issued in connection with Smoker
Qualified Contracts. (Note 3)
(z) Home Office Endorsement. (Note 3)
(aa) Endorsement showing Basis of Computation for
Non-Smoker Contracts. (Note 3)
(bb) Endorsement showing Basis of Computation for
Smoker Contracts. (Note 3)
(cc) Rider for Term Insurance Benefit on Life of
Insured--Decreasing Amount After Three Years.
(Note 3)
(dd) Rider for Renewable Term Insurance Benefit on
Life of Insured. (Note 3)
(ee) Rider for Level Term Insurance Benefit on Life
of Insured Spouse. (Note 2)
(ff) Living Needs Benefit Rider
(i) for use in Florida. (Note 10)
(ii) for use in all approved jurisdictions
except Florida and New York. (Note 10)
(iii) for use in New York. (Note 15)
(gg) Rider for Renewable Term Insurance Benefit on
Life of Insured Spouse. (Note 12)
(hh) Rider for Level Term Insurance Benefit on Life
of Insured--Premium Increases Annually.
(Note 12)
(ii) Rider for Term Insurance Benefit on Life of
Insured--Decreasing Amount. (Note 14)
(jj) Rider for a Level Premium Option. (Note 15)
(kk) Payment of Unscheduled Premium Benefit
(Note 16)
(ll) Rider for Scheduled Term Insurance Benefit on
Life of Insured. (Note 16)
(mm) Endorsement altering the Assignment provision.
(Note 4)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 22)
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 22)
7. The Prudential's representations regarding mortality and expense risks
and sales loads. (Note 2)
8. Indemnification Agreement. (Note 15)
9. Powers of Attorney. (Note 20)
27. Financial Data Schedule. (Note 22)
II-3
<PAGE>
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed June 15, 1988.
(Note 3) Incorporated by reference to Registrant's Form S-6, filed February
4, 1988.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 14 to this
Registration Statement, filed February 15, 1995.
(Note 5) 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 6) Incorporated by reference to Post-Effective Amendment No. 1 to this
Registration Statement, filed September 1, 1988.
(Note 7) Incorporated by reference to Form S-6 Registration Statement,
Registration No. 33-61079, filed July 17, 1995 on behalf of The
Prudential Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed April 28, 1989.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 4 to this
Registration Statement, filed March 2, 1990.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 5 to this
Registration Statement, filed March 30, 1990.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 22 to Form
S-1, Registration No. 2-56179, filed April 27, 1989, on behalf of
The Prudential Insurance Company of America Variable Contract
Account--Investment Fund.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 6 to this
Registration Statement, filed March 1, 1991.
(Note 13) Incorporated by reference to Post-Effective Amendment No. 8 to this
Registration Statement, filed December 30, 1991.
(Note 14) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement, filed March 12, 1992.
(Note 15) Incorporated by reference to Post-Effective Amendment No. 11 to this
Registration Statement, filed April 8, 1993.
(Note 16) Incorporated by reference to Post-Effective Amendment No. 12 to this
Registration Statement, filed March 2, 1994.
(Note 17) Incorporated by reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed April 26, 1994.
(Note 18) Incorporated by reference to Post-Effective Amendment No. 1 to Form
S-6, Registration No. 33-61079, filed April 25, 1996 on behalf of
The Prudential Variable Appreciable Account.
(Note 19) Incorporated by reference to Post-Effective Amendment No. 15 to this
Registration Statement filed May 1, 1995.
(Note 20) Incorporated by reference to Pre-Effective Amendment No. 1 to Form
S-6, Registration No. 333-01031, filed August 22, 1996 on behalf of
The Prudential Group Variable Contract Account.
(Note 21) Incorporated by reference to Post-Effective Amendment No. 16 to this
Registration Statement, filed April 25, 1996.
(Note 22) To be filed by Post-Effective Amendment.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Prudential Variable Appreciable Account, has duly caused this Post-Effective
Amendment No. 17 to the 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 21st
day of October, 1996.
(Seal) THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
-------------------------- ----------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary Vice President and Actuary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 17 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 21st day of October, 1996.
SIGNATURE AND TITLE
/s/ *
- -------------------------------------
Arthur F. Ryan
Chairman of the Board, President and
Chief Executive Officer
/s/ *
- -------------------------------------
Martin A. Berkowitz
Senior Vice President and Comptroller
/s/ *
- ------------------------------------- *By: /s/ THOMAS C. CASTANO
Mark B. Grier -------------------------------------
Principal Financial Officer Thomas C. Castano
(Attorney-in-Fact)
/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/ *
- -------------------------------------
Roger A. Enrico
Director
/s/ *
- -------------------------------------
Allan D. Gilmour
Director
/s/ *
- -------------------------------------
William H. Gray, III
Director
/s/ *
- -------------------------------------
Jon F. Hanson
Director
/s/ *
- -------------------------------------
Constance J. Horner
Director
/s/ *
- -------------------------------------
Allen F. Jacobson
Director
/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------- -------------------------------------
Burton G. Malkiel Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -------------------------------------
James A. Unruh
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
