Filed with the Securities and Exchange Commission on June 3, 2008
Registration No. 333-136996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form S-3
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Post-Effective Amendment No. 7
Registration Statement Under The Securities Act of 1933*
PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
06-1241288
(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOSEPH D. EMANUEL, CHIEF LEGAL OFFICER
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 944-7504
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy To:
C. CHRISTOPHER SPRAGUE, ESQ.
One Corporate Drive, Shelton, Connecticut 06484 (203) 402-1233
Approximate date of commencement of proposed sale to the public:
June 4, 2008 or as soon as practicable after the effective date of this
Registration Statement
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following: [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering: [ ]
If this Form is a post-effective amendment pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same
offering: [ ]
If this Form is a registration statement pursuant to General Instruction I.D.
or a post-effective amendment thereto that shall become effective upon filing
with the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box: [ ]
If this Form is a post-effective amendment to a registration statement filed
pursuant to General Instruction I.D. filed to register additional securities or
additional classes of securities pursuant to rule 413(b) under the Securities
Act, check the following box: [ ]
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Calculation of Registration Fee
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Proposed
Title of each Proposed maximum
class of maximum aggregate
securities to Amount to be offering price offering Amount of
be registered registered per unit price** registration fee
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Market Value
Adjusted
Annuity
Contracts $2,000,000,000.00 $214,000
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* Securities are not issued in predetermined units
** Registration fee for these securities, in the amount of $214,000, was paid
at the time the securities were originally registered on Form S-3 as filed
by Prudential Annuities Life Insurance Corporation on August 30, 2006.
Prudential Annuities Distributors, Inc., the principal underwriter of these
contracts under a "best efforts" arrangement, will be reimbursed by Prudential
Annuities Life Assurance Corporation for its costs and expenses incurred in
connection with the sale of these contracts.
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PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION
A Prudential Financial Company
One Corporate Drive, Shelton, Connecticut 06484
ADVANCED SERIES XTRA CREDIT EIGHT/SM/ ("XT8")/SM/
Flexible Premium Deferred Annuities
PROSPECTUS: JUNE 4, 2008
This prospectus describes a flexible premium deferred annuity (the "Annuities"
or the "Annuity") offered by Prudential Annuities Life Assurance Corporation
("Prudential Annuities/SM/", "we", "our", or "us"). The Annuity may be offered
as an individual annuity contract or as an interest in a group annuity. The
Annuity has different features and benefits that may be appropriate for you
based on your financial situation, your age and how you intend to use the
Annuity. This Prospectus describes the important features of the Annuities and
what you should consider before purchasing the Annuity. The Prospectus also
describes the fees and charges you pay and product features such as the
availability of certain bonus amounts and basic death benefit protection.
These features are discussed more fully in the Prospectus. There may be
differences in compensation among different annuity products that could
influence a Financial Professional's decision as to which annuity to recommend
to you. In addition, selling broker-dealer firms through which the Annuity is
sold may decline to make available to their customers certain of the optional
features and investment options offered generally under the Annuity.
Alternatively, such firms may restrict the optional benefits that they do make
available to their customers (e.g., by imposing a lower maximum issue age for
certain optional benefits than what is prescribed generally under the
Annuity). Please speak to your Financial Professional for further details. The
Annuity or certain of its investment options and/or features may not be
available in all states. Administration of the Annuity may vary in accordance
with applicable state laws and regulations. For more information about
variations applicable to your state, please refer to your Annuity contract or
consult your Financial Professional. For some of the variations specific to
Annuities approved for sale by the New York State Insurance Department, see
Appendix D. Certain terms are capitalized in this Prospectus. Those terms are
either defined in the Glossary of Terms or in the context of the particular
section. Because this Annuity grants credit amounts with respect to your
Purchase Payments, the expenses of this Annuity may be higher than expenses
for an annuity without a credit. In addition, the amount of the credits that
you receive under this Annuity may be more than offset by the additional fees
and charges associated with the credit.
THE SUB-ACCOUNTS
Each Sub-account of Prudential Annuities Life Assurance Corporation Variable
Account B invests in an underlying mutual fund portfolio. Currently,
portfolios of the following underlying mutual funds are being offered: AIM
Variable Insurance Funds, Advanced Series Trust, Evergreen Variable Annuity
Trust, First Defined Portfolio Fund LLC, Nationwide Variable Insurance Trust,
The Prudential Series Fund, Franklin Templeton Variable Insurance Products
Trust and Wells Fargo Variable Trust. See the following page for the complete
list of Sub-accounts.
PLEASE READ THIS PROSPECTUS
Please read this Prospectus and the current prospectus for the underlying
mutual funds. Keep them for future reference. If you are purchasing an Annuity
as a replacement for an existing variable annuity or variable life coverage or
a fixed insurance policy, you should consider any surrender or penalty charges
you may incur when replacing your existing coverage and that this Annuity may
be subject to a contingent deferred sales charge if you elect to surrender the
Annuity or take a partial withdrawal. You should consider your need to access
the Annuity's Account Value and whether the Annuity's liquidity features will
satisfy that need.
AVAILABLE INFORMATION
We have also filed a Statement of Additional Information that is available
from us, without charge, upon your request. The contents of the Statement of
Additional Information are described on page 108. The Statement of Additional
Information is incorporated by reference into this prospectus. This Prospectus
is part of the registration statement we filed with the SEC regarding this
offering. Additional information on us and this offering is available in the
registration statement and the exhibits thereto. You may review and obtain
copies of these materials at no cost to you by contacting us. These documents,
as well as documents incorporated by reference, may also be obtained through
the SEC's Internet Website (http://www.sec.gov) for this registration
statement as well as for other registrants that file electronically with the
SEC.
These annuities are NOT deposits or obligations of, or issued, guaranteed or
endorsed by, any bank, are NOT insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or
any other agency. An investment in an annuity involves investment risks,
including possible loss of value, even with respect to amounts allocated to
the AST Money Market Sub-account.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
XTRA CREDIT(R) IS A REGISTERED TRADEMARK OF THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA AND IS USED UNDER LICENSE BY ITS AFFILIATES.
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FOR FURTHER INFORMATION CALL: 1-800-752-6342
Prospectus Dated: June 4, 2008 Statement of Additional Information
Dated: June 4, 2008
COREPROS XT8SAI
PLEASE SEE OUR PRIVACY POLICY AND OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE
STATEMENTS ATTACHED TO THE BACK COVER OF THIS PROSPECTUS.
INVESTMENT OPTIONS
Advanced Series Trust
AST Advanced Strategies
AST Aggressive Asset Allocation
AST AllianceBernstein Core Value
AST AllianceBernstein Growth & Income
AST American Century Income & Growth
AST American Century Strategic Allocation
AST Balanced Asset Allocation
AST Bond Portfolio 2015
AST Bond Portfolio 2018
AST Bond Portfolio 2019
AST Capital Growth Asset Allocation
AST Cohen & Steers Realty
AST Conservative Asset Allocation
AST CLS Growth Asset Allocation
AST CLS Moderate Asset Allocation
AST DeAM Large-Cap Value
AST DeAM Small-Cap Value
AST Federated Aggressive Growth
AST First Trust Balanced Target
AST First Trust Capital Appreciation Target
AST Goldman Sachs Concentrated Growth
AST Goldman Sachs Mid-Cap Growth
AST High Yield
AST Horizon Growth Asset Allocation
AST Horizon Moderate Asset Allocation
AST International Growth
AST International Value
AST Investment Grade Bond
AST JPMorgan International Equity
AST Large-Cap Value
AST Lord Abbett Bond Debenture
AST Marsico Capital Growth
AST MFS Global Equity
AST MFS Growth
AST Mid-Cap Value
AST Money Market
AST Neimann Capital Growth Asset Allocation
AST Neuberger Berman Mid-Cap Growth
AST Neuberger Berman Mid-Cap Value
AST Neuberger Berman Small-Cap Growth
AST PIMCO Limited Maturity Bond
AST PIMCO Total Return Bond
AST Preservation Asset Allocation
AST QMA US Equity Alpha
AST Small-Cap Growth
AST Small-Cap Value
AST T. Rowe Price Asset Allocation
AST T. Rowe Price Global Bond
AST T. Rowe Price Large-Cap Growth
AST T. Rowe Price Natural Resources
AST UBS Dynamic Alpha Strategy
AST Western Asset Core Plus Bond
INVESCO AIM Advisors, Inc.
AIM V.I. Dynamics Fund -- Series I shares
AIM V.I. Financial Services Fund -- Series I shares
AIM V.I. Global Health Care Fund -- Series I shares
AIM V.I. Technology Fund -- Series I shares
Evergreen Variable Annuity Trust
Growth
International Equity
Omega
First Defined Portfolio Fund, LLC
First Trust(R) Target Focus Four
Global Dividend Target 15
NASDAQ(R) Target 15
S&P(R) Target 24
Target Managed VIP
The Dow(R) Target Dividend
The Dow(R) DART 10
Value Line(R) Target 25
Franklin Templeton Variable Insurance Products Trust
Franklin Templeton VIP Founding Funds Allocation Fund
Nationwide Variable Insurance Trust
Gartmore NVIT Developing Markets Fund
Wells Fargo Variable Trust
Wells Fargo Advantage VT Equity Income
CONTENTS
INTRODUCTION......................................................................... 1
WHY WOULD I CHOOSE TO PURCHASE THE ANNUITY?......................................... 1
WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?................................... 1
HOW DO I PURCHASE THE ANNUITY?...................................................... 2
GLOSSARY OF TERMS.................................................................... 3
SUMMARY OF CONTRACT FEES AND CHARGES................................................. 6
EXPENSE EXAMPLES..................................................................... 13
INVESTMENT OPTIONS................................................................... 15
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO?................... 15
WHAT ARE THE FIXED ALLOCATIONS?..................................................... 29
FEES AND CHARGES..................................................................... 30
WHAT ARE THE CONTRACT FEES AND CHARGES?............................................. 30
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?........................................ 31
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION?........................... 32
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES........................................... 32
PURCHASING YOUR ANNUITY.............................................................. 33
WHAT ARE OUR REQUIREMENTS FOR PURCHASING ONE OF THE ANNUITIES?...................... 33
MANAGING YOUR ANNUITY................................................................ 34
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?..................... 34
MAY I RETURN MY ANNUITY IF I CHANGE MY MIND?........................................ 34
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?............................................ 35
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?........................ 35
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?.................... 35
MANAGING YOUR ACCOUNT VALUE.......................................................... 36
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?........................................ 36
HOW DO I RECEIVE CREDITS UNDER THE XT8 ANNUITY?..................................... 36
HOW ARE CREDITS APPLIED TO ACCOUNT VALUE UNDER THE XT8 ANNUITY?..................... 36
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.......... 37
DO YOU OFFER DOLLAR COST AVERAGING?................................................. 39
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?.................................... 39
ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE?........................................ 39
WHAT IS THE BALANCED INVESTMENT PROGRAM?............................................ 40
MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS? 40
MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT?............. 40
HOW DO THE FIXED ALLOCATIONS WORK?.................................................. 41
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?................................... 41
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.......................................... 42
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?...................................... 43
ACCESS TO ACCOUNT VALUE.............................................................. 44
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?.................................... 44
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?....................................... 44
CAN I WITHDRAW A PORTION OF MY ANNUITY?............................................. 44
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?....................................... 45
CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD?..... 45
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE
CODE?............................................................................. 45
WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?......... 45
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?........................................... 45
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?......................... 46
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?........................................ 46
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?................................ 47
HOW ARE ANNUITY PAYMENTS CALCULATED?................................................ 47
(i)
LIVING BENEFIT PROGRAMS................................................................. 48
DO YOU OFFER PROGRAMS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY
ARE ALIVE?........................................................................... 48
GUARANTEED RETURN OPTION PLUS 2008 (GRO PLUS 2008)..................................... 48
HIGHEST DAILY GUARANTEED RETURN OPTION (HD GRO)........................................ 51
GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB)........................................... 55
GUARANTEED MINIMUM INCOME BENEFIT (GMIB)............................................... 58
LIFETIME FIVE/SM/ INCOME BENEFIT (LIFETIME FIVE)....................................... 62
SPOUSAL LIFETIME FIVE/SM/ INCOME BENEFIT (SPOUSAL LIFETIME FIVE)....................... 67
HIGHEST DAILY LIFETIME FIVE/SM/ INCOME BENEFIT (HIGHEST DAILY LIFETIME FIVE)........... 70
HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (HIGHEST DAILY LIFETIME SEVEN)......... 77
SPOUSAL HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (SPOUSAL HIGHEST DAILY LIFETIME
SEVEN)............................................................................... 86
DEATH BENEFIT........................................................................... 95
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?.......................................... 95
BASIC DEATH BENEFIT.................................................................... 95
OPTIONAL DEATH BENEFITS................................................................ 95
PRUDENTIAL ANNUITIES'S ANNUITY REWARDS................................................. 99
PAYMENT OF DEATH BENEFITS.............................................................. 100
VALUING YOUR INVESTMENT................................................................. 103
HOW IS MY ACCOUNT VALUE DETERMINED?.................................................... 103
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?............................................. 103
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?............................................ 103
HOW DO YOU VALUE FIXED ALLOCATIONS?.................................................... 103
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?............................................ 103
TAX CONSIDERATIONS...................................................................... 105
GENERAL INFORMATION..................................................................... 113
HOW WILL I RECEIVE STATEMENTS AND REPORTS?............................................. 113
WHO IS PRUDENTIAL ANNUITIES?........................................................... 113
WHAT ARE SEPARATE ACCOUNTS?............................................................ 114
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?................................... 115
WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES?............................. 116
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 118
FINANCIAL STATEMENTS................................................................... 118
HOW TO CONTACT US...................................................................... 119
INDEMNIFICATION........................................................................ 119
LEGAL PROCEEDINGS...................................................................... 119
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.................................... 121
APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B................... A-1
APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS..................................... B-1
APPENDIX C - ASSET TRANSFER FORMULA UNDER HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT.... C-1
APPENDIX D - ANNUITIES APPROVED FOR SALE BY THE NEW YORK STATE INSURANCE DEPARTMENT..... D-1
APPENDIX E - ASSET TRANSFER FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO........... E-1
APPENDIX F - ASSET TRANSFER FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN AND SPOUSAL
HIGHEST DAILY LIFETIME SEVEN.......................................................... F-1
APPENDIX G - SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU........................ G-1
(ii)
INTRODUCTION
WHY WOULD I CHOOSE TO PURCHASE AN ANNUITY?
The Annuity is frequently used for retirement planning because they allow you
to accumulate retirement savings and also offer annuity payment options when
you are ready to begin receiving income. The Annuity also offers a choice of
different optional benefits, for an additional charge, that can provide
principal protection or guaranteed minimum income protection for Owners while
they are alive and one or more Death Benefits that can protect your retirement
savings if you die during a period of declining markets. The Annuity may be
used as an investment vehicle for "qualified" investments, including an IRA,
SEP-IRA, Roth IRA, Section 401(a) plans (defined benefit plans and defined
contribution plans such as 401(k), profit sharing and money purchase plans) or
Tax Sheltered annuities (or 403(b)). The Annuity may also be used as an
investment vehicle for "non-qualified" investments. The Annuity allows you to
invest your money in a number of Sub-accounts as well as in one or more Fixed
Allocations.
When an Annuity is purchased as a "non-qualified" investment, you generally
are not taxed on any investment gains the Annuity earns until you make a
withdrawal or begin to receive annuity payments. This feature, referred to as
"tax-deferral", can be beneficial to the growth of your Account Value because
money that would otherwise be needed to pay taxes on investment gains each
year remains invested and can earn additional money. However, because the
Annuity is designed for long-term retirement savings, a 10% penalty tax may be
applied on withdrawals you make before you reach age 59 1/2. Annuities
purchased as a non-qualified investment are not subject to the maximum
contribution limits that may apply to a qualified investment, and are not
subject to required minimum distributions after age 70 1/2.
When an Annuity is purchased as a "qualified" investment, you should consider
that the Annuity does not provide any tax advantages in addition to the
preferential treatment already available through your retirement plan under
the Internal Revenue Code. In other words, you need not invest in an Annuity
to gain the preferential tax treatment provided by your retirement plan. An
Annuity, however, may offer features and benefits in addition to providing tax
deferral that other investment vehicles may not offer, including Death Benefit
protection for your beneficiaries, lifetime income options and the ability to
make transfers between numerous variable investment options offered under the
Annuity. You should consult with your Financial Professional as to whether the
overall benefits and costs of the Annuity are appropriate considering your
overall financial plan.
WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
.. The Annuity is a "flexible premium deferred annuity." It is called
"flexible premium" because you have considerable flexibility in the timing
and amount of Purchase Payments. Generally, investors "defer" receiving
annuity payments until after an accumulation period.
.. The Annuity offers both Sub-accounts and Fixed Allocations. If you allocate
your Account Value to Sub-accounts, the value of your Annuity will vary
daily to reflect the investment performance of the underlying investment
options. Fixed Allocations of different durations are offered that are
guaranteed by us, but may have a Market Value Adjustment if you withdraw or
transfer your Account Value before the Maturity Date.
.. The Annuity features two distinct periods - the accumulation period and the
payout period. During the accumulation period your Account Value is
allocated to one or more investment options.
.. During the payout period, commonly called "annuitization," you can elect to
receive annuity payments (1) for life; (2) for life with a guaranteed
minimum number of payments; (3) based on joint lives; or (4) for a
guaranteed number of payments. We currently make annuity payments available
on a fixed basis only.
.. The Annuity offers optional income benefits, for an additional charge, that
can provide principal protection or guaranteed minimum income or withdrawal
protection for Owners while they are alive.
.. The Annuity offers a basic Death Benefit. It also offers optional Death
Benefits that provide an enhanced level of protection for your
beneficiary(ies) for an additional charge.
.. You are allowed to withdraw a limited amount of money from each Annuity on
an annual basis without any charges, although any optional guaranteed
benefit you elect may be reduced. Other product features allow you to
access your Account Value as necessary, although a charge may apply. You
will be subject to taxes on most withdrawals.
.. Transfers between investment options are tax-free. Currently, you may make
twenty transfers each year free of charge. We also offer several programs
that enable you to manage your Account Value as your financial needs and
investment performance change.
1
. We apply an additional amount (referred to as an XTra Credit/SM/,
Purchase Credit or Credit) to your Account Value with each Purchase
Payment you make, including your initial Purchase Payment and any
additional Purchase Payments during the first six Annuity Years.
. Please note that the total asset-based charges on the XT8 Annuity are
higher than many of our other annuities. In addition, the Contingent
Deferred Sales Charge (CDSC) on the XT8 Annuity is higher and is
deducted for a longer period of time as compared to our other annuities.
The XTra Credit/SM/ amount is included in your Account Value. However,
Prudential Annuities may take back all XTra Credit amounts if you return
your Annuity under the "free-look" provision. More information about the
"Free Look" may be found in the Glossary of Terms ("Free Look") and
under the section entitled: "May I Return My Annuity if I Change My
Mind?".
. In these situations, your Account Value could be substantially reduced.
The amount we take back will equal the XTra Credit, without adjustment
up or down for investment performance. Therefore, any gain on the XTra
Credit amount will not be taken back. But if there was a loss on the
XTra Credit, the amount we take back will still equal the amount of the
XTra Credit. Additional conditions and restrictions apply. We do not
deduct a CDSC in any situation where we take back the XTra Credit
amount. You may surrender your Annuity at any time, but surrender
charges (and penalties) may apply. (See "Access to My Account Value").
The maximum surrender charge under the Annuity is 9.0%. (See Summary of
Fees and Charges.)
. If replacing an annuity, please consider all charges associated with
that annuity. Credits applicable to bonus products should not be viewed
as an offset of any surrender charge that applies to any annuity
contract you currently own.
HOW DO I PURCHASE THE ANNUITY?
We sell the Annuity through licensed, registered Financial Professionals.
Unless we agree otherwise and subject to our rules, the Annuity has a minimum
initial Purchase Payment of $10,000. We may allow you to make a lower initial
Purchase Payment provided you establish an electronic funds transfer under
which Purchase Payments received in the first Annuity Year total at least the
minimum initial Purchase Payment for the Annuity purchased. Unless we agree
otherwise and subject to our rules, if the Annuity is owned by an individual
or individuals, the oldest of those Owners must not be older than age 75 as of
the Issue Date of the Annuity. If the Annuity is owned by an entity, the
annuitant must not be older than the maximum issue age, as of the Issue Date
of the Annuity unless we agree otherwise. The availability and level of
protection of certain optional benefits may vary based on the age of the Owner
or Annuitant on the Issue Date of the Annuity, the date the benefit is
elected, or the date of the Owner's death.
2
GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where
they appear. The description of those terms are not repeated in this Glossary
of Terms.
Account Value: The value of each allocation to a Sub-account (also referred to
as a "variable investment option") or a Fixed Allocation prior to the Annuity
Date, plus any earnings, and/or less any losses, distributions and charges.
The Account Value is calculated before we assess any applicable Contingent
Deferred Sales Charge ("CDSC" or "surrender charge") and/or, other than on an
annuity anniversary, any fee that is deducted from the Annuity annually in
arrears. The Account Value is determined separately for each Sub-account and
for each Fixed Allocation, and then totaled to determine the Account Value for
your entire Annuity. The Account Value of each Fixed Allocation on other than
its Maturity Date may be calculated using a market value adjustment. The
Account Value includes any Credits we applied to your Purchase Payments that
we are entitled to take back under certain circumstances. With respect to
Annuities with a Highest Daily Lifetime Five Income Benefit election, Account
Value includes the value of any allocation to the Benefit Fixed Rate Account.
Adjusted Purchase Payments: As used in the discussion of certain optional
benefits in this prospectus and elsewhere, Adjusted Purchase Payments are
Purchase Payments, increased by any Credits applied to your Account Value in
relation to such Purchase Payments, and decreased by any charges deducted from
such Purchase Payments.
Annuitization: The application of Account Value to one of the available
annuity options for the Owner to begin receiving periodic payments for life
(or joint lives), for a guaranteed minimum number of payments or for life with
a guaranteed minimum number of payments.
Annuity Date: The date you choose for annuity payments to commence. Unless we
agree otherwise, the Annuity Date must be no later than the first day of the
calendar month coinciding with or next following the later of: (a) the oldest
Owner's or Annuitant's 95th birthday, whichever occurs first, and (b) the
fifth anniversary of the Issue Date.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity
and each successive 12-month period thereafter.
Benefit Fixed Rate Account: An investment option offered as part of this
Annuity that is used only if you have elected the optional Highest Daily
Lifetime Five Income Benefit. Amounts allocated to the Benefit Fixed Rate
Account earn a fixed rate of interest, and are held within our general
account. You may not allocate Purchase Payments to the Benefit Fixed Rate
Account. Rather, Account Value is transferred to the Benefit Fixed Rate
Account only under the asset transfer feature of the Highest Daily Lifetime
Five Income Benefit.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Combination 5% Roll-Up and HAV Death Benefit: We offer an optional Death
Benefit that, for an additional cost, provides an enhanced level of protection
for your beneficiary(ies) by providing the greater of the Highest Anniversary
Value Death Benefit and a 5% annual increase on Purchase Payments adjusted for
withdrawals.
Contingent Deferred Sales Charge (CDSC): This is a sales charge that may be
deducted when you make a full or partial withdrawal under your Annuity. We
refer to this as a "contingent" charge because it is imposed only if you make
a withdrawal. The charge is a percentage of each applicable Purchase Payment
that is being withdrawn. The period during which a particular percentage
applies is measured from the Issue Date of the Annuity. See "Summary of
Contract Fees and Charges" for details on the CDSC.
Enhanced Beneficiary Protection Death Benefit: We offer an Optional Death
Benefit that, for an additional cost, provides an enhanced level of protection
for your beneficiary(ies) by providing amounts in addition to the basic Death
Benefit that can be used to offset federal and state taxes payable on any
taxable gains in your Annuity at the time of your death.
Fixed Allocation: An investment option that offers a fixed rate of interest
for a specified Guarantee Period during the accumulation period.
Free Look: Under state insurance laws, you have the right, during a limited
period of time, to examine your Annuity and decide if you want to keep it or
cancel it. This right is referred to as your "free look" right. The length of
this time period depends on the law of your state, and may vary depending on
whether your purchase is a replacement or not. Check your Annuity contract for
more details about your free look right.
3
Guaranteed Minimum Income Benefit (GMIB): We offer an optional benefit that,
for an additional cost, after a seven-year waiting period, guarantees your
ability to begin receiving income from your Annuity in the form of annuity
payments based on your total Purchase Payments and an annual increase of 5% on
such Purchase Payments adjusted for withdrawals (called the "Protected Income
Value"), regardless of the impact of market performance on your Account Value.
Guaranteed Minimum Withdrawal Benefit (GMWB): We offer an optional benefit
that, for an additional cost, guarantees your ability to withdraw amounts over
time equal to an initial principal value, regardless of the impact of market
performance on your Account Value.
Guarantee Period: A period of time during the accumulation period where we
credit a fixed rate of interest on a Fixed Allocation.
Guaranteed Plus 2008 (GRO Plus 2008)/Highest Daily Guaranteed Return
Option/SM/ (Highest Daily GRO)/SM/: Each of GRO Plus 2008 and Highest Daily
GRO is a separate optional benefit that, for an additional cost, guarantees a
minimum Account Value(s) at one or more future dates and that requires your
participation in an asset transfer program.
Highest Anniversary Value Death Benefit ("HAV"): We offer an optional Death
Benefit that, for an additional cost, provides an enhanced level of protection
for your beneficiary(ies) by providing a death benefit equal to the greater of
the basic Death Benefit and the Highest Anniversary Value, less proportional
withdrawals.
Highest Daily Lifetime Five/SM/ Income Benefit: We offer an optional benefit
that, for an additional cost, guarantees your ability to withdraw an annual
amount equal to a percentage of a principal value called the Total Protected
Withdrawal Value. Subject to our rules regarding the timing and amount of
withdrawals, we guarantee these withdrawal amounts, regardless of the impact
of market performance on your Account Value.
Highest Daily Lifetime Seven/SM/ Income Benefit: An optional feature available
for an additional charge that guarantees your ability to withdraw amounts
equal to a percentage of a principal value called the Protected Withdrawal
Value. Subject to our rules regarding the timing and amount of withdrawals, we
guarantee these withdrawal amounts, regardless of the impact of market
performance on your Account Value. Highest Daily Lifetime Seven is the same
class of optional benefit as our Highest Daily Lifetime Five Income Benefit,
but differs (among other things) with respect to how the Protected Withdrawal
Value is calculated and to how the lifetime withdrawals are calculated.
Highest Daily Value Death Benefit ("HDV"): We offer an optional Death Benefit
that, for an additional cost, provides an enhanced level of protection for
your beneficiary(ies) by providing a death benefit equal to the greater of the
basic Death Benefit and the Highest Daily Value, less proportional withdrawals.
Interim Value: The value of a Fixed Allocation on any date other than the
Maturity Date. The Interim Value is equal to the initial value allocated to
the Fixed Allocation plus all interest credited to the Fixed Allocation as of
the date calculated, less any transfers or withdrawals from the Fixed
Allocation.
Issue Date: The effective date of your Annuity.
Lifetime Five/SM/ Income Benefit: We offer an optional benefit that, for an
additional cost, guarantees your ability to withdraw an annual amount equal to
a percentage of an initial principal value called the Protected Withdrawal
Value. Subject to our rules regarding the timing and amount of withdrawals, we
guarantee these withdrawal amounts, regardless of the impact of market
performance on your Account Value.
MVA: A market value adjustment used in the determination of Account Value of
each Fixed Allocation on any day more than 30 days prior to the Maturity Date
of such Fixed Allocation.
Owner: With an Annuity issued as an individual annuity contract, the Owner is
either an eligible entity or person named as having ownership rights in
relation to the Annuity. With an Annuity issued as a certificate under a group
annuity contract, the "Owner" refers to the person or entity who has the
rights and benefits designated as to the "Participant" in the certificate.
Spousal Highest Daily Lifetime Seven/SM/ Income Benefit: The spousal version
of the Highest Daily Lifetime Seven Income Benefit. Spousal Highest Daily
Lifetime Seven is the same class of optional benefit as our Spousal Lifetime
Five Income Benefit, but differs (among other things) with respect to how the
Protected Withdrawal Value is calculated and to how the lifetime withdrawals
are calculated.
Spousal Lifetime Five/SM/ Income Benefit: We offer an optional benefit that,
for an additional cost, guarantees until the later death of two Designated
Lives (as defined in this Prospectus) the ability to withdraw an annual amount
equal to a percentage of an initial principal value called the Protected
Withdrawal Value. Subject to our rules regarding the timing and amount of
withdrawals, we guarantee these withdrawal amounts, regardless of the impact
of market performance on your Account Value.
4
Sub-Account: We issue your Annuity through our separate account. See "What is
the Separate Account?" under the General Information section. The separate
account invests in underlying mutual fund portfolios. From an accounting
perspective, we divide the separate account into a number of sections, each of
which corresponds to a particular underlying mutual fund portfolio. We refer
to each such section of our separate account as a "Sub-account".
Surrender Value: The value of your Annuity available upon surrender prior to
the Annuity Date. It equals the Account Value as of the date we price the
surrender minus any applicable CDSC, Annual Maintenance Fee, Tax Charge and
the charge for any optional benefits and any additional amounts we applied to
your Purchase Payments that we may be entitled to recover under certain
circumstances. The surrender value may be calculated using a MVA with respect
to amounts in any Fixed Allocation.
Unit: A measure used to calculate your Account Value in a Sub-account during
the accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or
any other day the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued.
5
SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and charges for the Annuities. Some fees and
charges are assessed against each Annuity while others are assessed against
assets allocated to the Sub-accounts. The fees and charges that are assessed
against an Annuity include any applicable Contingent Deferred Sales Charge,
Transfer Fee, Tax Charge and Annual Maintenance Fee. The charges that are
assessed against the Sub-accounts are the Mortality and Expense Risk charge,
the charge for Administration of the Annuity, and the charge for certain
optional benefits you elect. Certain optional benefits deduct a charge from
each Annuity based on a percentage of a "protected value." Each underlying
mutual fund portfolio assesses a fee for investment management, other expenses
and, with some mutual funds, a 12b-1 fee. The prospectus for each underlying
mutual fund provides more detailed information about the expenses for the
underlying mutual funds.
The following tables provide a summary of the fees and charges you will pay if
you surrender your Annuity or transfer Account Value among investment options.
These fees and charges are described in more detail within this Prospectus.
CONTINGENT DEFERRED SALES CHARGES FOR THE ANNUITY /1/
Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 Yr. 11+
--------------------------------------------------------------------
9.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
--------------------------------------------------------------------
1 The Contingent Deferred Sales Charges are assessed upon surrender or
withdrawal. The charge is a percentage of each applicable Purchase Payment
deducted upon surrender or withdrawal. The period during which a particular
percentage applies is measured from the Issue Date of the Annuity.
----------------------------------------
OTHER TRANSACTION FEES AND CHARGES
(assessed against the Annuity)
----------------------------------------
FEE/CHARGE XT8
----------------------------------------
Transfer Fee /1/ $15.00 maximum
currently, $10.00
----------------------------------------
Tax Charge /2/ 0% to 3.5%
----------------------------------------
1 Currently, we deduct the fee after the 20/th/ transfer each Annuity Year.
We guarantee that the number of charge free transfers per Annuity Year will
never be less than 8.
2 We reserve the right to deduct the charge either at the time the tax is
imposed, upon a full surrender of the Annuity, or upon annuitization.
6
The following table provides a summary of the periodic fees and charges you
will pay while you own your Annuity, excluding the underlying mutual fund
Portfolio annual expenses. These fees and charges are described in more detail
within this Prospectus.
----------------------------------------------------------------------------
PERIODIC FEES AND CHARGES
(assessed against each Annuity)
----------------------------------------------------------------------------
FEE/CHARGE XT8
Annual Maintenance Lesser of $35 or 2% of
Fee /1/ Account Value
--------------------------------------------
Beneficiary
Continuation
Option Only Lesser of $30 or 2%
----------------------------------------------------------------------------
ANNUAL FEES/CHARGES OF THE SUB-ACCOUNTS /2/
(assessed as a percentage of the daily net assets of the Sub-accounts)
----------------------------------------------------------------------------
FEE/CHARGE
Mortality & Expense 1.60%
Risk Charge /3/
----------------------------------------------------------------------------
Administration 0.15%
Charge /3/
----------------------------------------------------------------------------
Settlement Service
Charge /4/
Qualified; 1.40%
Non-qualified 1.00%
----------------------------------------------------------------------------
Total Annual Charges 1.75%
of the Sub-accounts
(excluding settlement
service charge)
----------------------------------------------------------------------------
1 Assessed annually on the Annuity's anniversary date or upon surrender. For
beneficiaries who elect the non-qualified Beneficiary Continuation Option,
the fee is only applicable if Account Value is less than $25,000.
2 These charges are deducted daily and apply to the Sub-accounts only.
3 The combination of the Mortality and Expense Risk Charge and Administration
Charge is referred to as the "Insurance Charge" elsewhere in this
Prospectus.
4 The Mortality & Expense Risk Charge and the Administration Charge do not
apply if you are a beneficiary under the Beneficiary Continuation Option.
The Settlement Service Charge applies only if your beneficiary elects the
Beneficiary Continuation Option. The 1.00% and 1.40% charges set forth
above are annual charges that are assessed against the Account Value in the
Sub-accounts.
7
The following table sets forth the charge for each optional benefit under the
Annuity. These fees would be in addition to the periodic fees and transaction
fees set forth in the tables above.
-------------------------------------------------------------------
YOUR OPTIONAL BENEFIT FEES AND CHARGES
/1/
-------------------------------------------------------------------
OPTIONAL BENEFIT OPTIONAL TOTAL
BENEFIT FEE/ ANNUAL
CHARGE CHARGE /2/
for XT8
-------------------------------------------------------------------
GUARANTEED RETURN OPTION PLUS 2008 0.75% maximum /3/ 2.10%
(GRO Plus 2008) 0.35% current
charge
-------------------------------------------------------------------
HIGHEST DAILY GUARANTEED RETURN 0.75% maximum /3/ 2.10%
OPTION (HD GRO) 0.35% current
charge
-------------------------------------------------------------------
GUARANTEED MINIMUM WITHDRAWAL BENEFIT 1.00% maximum /3/ 2.10%
(GMWB) 0.35% current
charge
-------------------------------------------------------------------
GUARANTEED MINIMUM INCOME BENEFIT 1.00% maximum /3/ 1.75% +
(GMIB) 0.50% current 0.50% of
charge PIV
-------------------------------------------------------------------
LIFETIME FIVE/SM/ INCOME BENEFIT 1.50% maximum /3/ 2.35%
0.60% current
charge
-------------------------------------------------------------------
SPOUSAL LIFETIME FIVE INCOME BENEFIT 1.50% maximum /3/ 2.50%
0.75% current
charge
-------------------------------------------------------------------
HIGHEST DAILY LIFETIME FIVE INCOME 1.50% maximum /3/ 2.35%
BENEFIT 0.60% current
charge
-------------------------------------------------------------------
HIGHEST DAILY LIFETIME SEVEN INCOME 1.50% maximum /3/ 1.75% +
BENEFIT 0.60% current 0.60% of
charge PWV
-------------------------------------------------------------------
HIGHEST DAILY LIFETIME SEVEN (2.00% maximum) 1.75% +
W/BENEFICIARY INCOME OPTION 0.95% current 0.95% of
charge* PWV
-------------------------------------------------------------------
SPOUSAL HIGHEST DAILY LIFETIME SEVEN 1.50% maximum /3/ 1.75% +
INCOME BENEFIT 0.75% current 0.75% of
charge PWV
-------------------------------------------------------------------
SPOUSAL HIGHEST DAILY LIFETIME SEVEN (2.00% maximum) 1.75% +
W/BENEFICIARY INCOME OPTION 0.95% current 0.95% of
charge* PWV
-------------------------------------------------------------------
HIGHEST DAILY LIFETIME SEVEN (2.00% maximum) 1.75% +
W/LIFETIME INCOME ACCELERATOR 0.95% current 0.95% of
charge* PWV
-------------------------------------------------------------------
ENHANCED BENEFICIARY PROTECTION DEATH 0.25% 2.00%
BENEFIT
-------------------------------------------------------------------
HIGHEST ANNIVERSARY VALUE DEATH 0.25% 2.00%
BENEFIT ("HAV")
-------------------------------------------------------------------
COMBINATION 5% ROLL-UP AND HAV DEATH 0.50% 2.25%
BENEFIT
-------------------------------------------------------------------
HIGHEST DAILY VALUE DEATH BENEFIT 0.50% 2.25%
("HDV")
-------------------------------------------------------------------
Please refer to the section of this Prospectus that describes each
optional benefit for a complete description of the benefit,
including any restrictions or limitations that may apply.
-------------------------------------------------------------------
HOW CHARGE IS DETERMINED
1 GRO PLUS 2008: Charge for this benefit is assessed against the average
daily net assets of the Sub-accounts. The total annual charge is 2.10% and
applies in all Annuity Years.
8
Highest Daily GRO: Charge for this benefit is assessed against the average
daily net assets of the Sub-accounts. The total annual charge is 2.10% and
applies in all Annuity Years.
Guaranteed Minimum Withdrawal Benefit: Charge for this benefit is assessed
against the average daily net assets of the Sub-accounts. The total annual
charge is 2.10% and applies in all Annuity Years.
Guaranteed Minimum Income Benefit: Charge for this benefit is assessed
against the GMIB Protected Income Value ("PIV"). As discussed in the
description of the benefit, the charge is taken out of the Sub-accounts and
the Fixed Allocations. The charge is 0.50% of PIV for GMIB and is in
addition to 1.75% annual charge.
Lifetime Five Income Benefit: Charge for this benefit is assessed against
the average daily net assets of the Sub-accounts. The total annual charge
is 2.35% and applies in all Annuity Years.
Spousal Lifetime Five Income Benefit: Charge for this benefit is assessed
against the average daily net assets of the Sub-accounts. The total annual
charge is 2.50% and applies in all Annuity Years.
Highest Daily Lifetime Five Income Benefit: Charge for this benefit is
assessed against the average daily net assets of the Sub-accounts. The
total annual charge is 2.35% and applies in all Annuity Years.
Highest Daily Lifetime Seven: Charge for this benefit is assessed against
the Protected Withdrawal Value ("PWV"). As discussed in the description of
the benefit, the charge is taken out of the Sub-accounts. The charge is
0.60% of PWV and is in addition to 1.75% annual charge.
Highest Daily Lifetime Seven With Beneficiary Income Option. Charge for
this benefit is assessed against the Protected Withdrawal Value ("PWV"). As
discussed in the description of the benefit, the charge is taken out of the
Sub-accounts. The charge is 0.95% of PWV and is in addition to 1.75% annual
charge in all Annuity Years.
* Highest Daily Lifetime Seven With Lifetime Income Accelerator. Charge for
this benefit is assessed against the Protected Withdrawal Value ("PWV"). As
discussed in the description of the benefit, the charge is taken out of the
Sub-accounts. The charge is 0.95% of PWV is in addition to 1.75% annual
charge for all Annuity Years.
Spousal Highest Daily Lifetime Seven: Charge for this benefit is assessed
against the Protected Withdrawal Value ("PWV"). As discussed in the
description of the benefit, the charge is taken out of the Sub-accounts.
The charge is 0.75% of PWV and is in addition to 1.75% annual charge.
Spousal Highest Daily Lifetime Seven With Beneficiary Income Option. Charge
for this benefit is assessed against the Protected Withdrawal Value
("PWV"). As discussed in the description of the benefit, the charge is
taken out of the Sub-accounts. The charge is 0.95% of PWV and is in
addition to 1.75% annual charge in Annuity Years.
Enhanced Beneficiary Protection Death Benefit: Charge for this benefit is
assessed against the average daily net assets of the Sub-accounts. The
total annual charge is 2.00% and applies in all Annuity Years.
Highest Anniversary Value Death Benefit: Charge for this benefit is
assessed against the average daily net assets of the Sub-accounts. The
total annual charge is 2.00% and applies in all Annuity Years.
Combination 5% roll-up and HAV Death Benefit: Charge for this benefit is
assessed against the average daily net assets of the Sub-accounts. The
total annual charge is 2.25% and applies in all Annuity Years.
Highest Daily Value Death Benefit: Charge for this benefit is assessed
against the average daily net assets of the Sub-accounts. The total annual
charge is 2.25% and applies in all Annuity Years.
2 The Total Annual Charge includes the Insurance Charge assessed against the
average daily net assets allocated to the Sub-accounts. If you elect more
than one optional benefit, the Total Annual Charge would be increased to
include the charge for each optional benefit. With respect to each of
Highest Daily Lifetime Seven and Spousal Highest Daily Lifetime Seven,
Highest Daily Lifetime Seven with Beneficiary Income Option, Spousal
Highest Daily Lifetime Seven with Beneficiary Income Option and Highest
Daily Lifetime Seven with Lifetime Income Accelerator, one-fourth of the
annual charge is deducted at the end of each quarter, where the quarters
are part of years that have as their anniversary the date that the benefit
was elected. These optional benefits are not available under the
Beneficiary Continuation Option.
3 We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up or reset under the benefit, or new election of
the benefit. However, we have no present intention of doing so.
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") as of
December 31, 2007. Each figure is stated as a percentage of the underlying
Portfolio's average daily net assets.
-------------------------------------------------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES
-------------------------------------------------
MINIMUM MAXIMUM
-------------------------------------------------
Total Portfolio Operating Expense 0.59% 2.11%
-------------------------------------------------
The following are the total annual expenses for each underlying mutual fund
("Portfolio") as of December 31, 2007, except as noted. The "Total Annual
Portfolio Operating Expenses" reflect the combination of the underlying
Portfolio's investment management fee, other expenses and any 12b-1 fees. Each
figure is stated as a percentage of the underlying Portfolio's average daily
net assets. There is no guarantee that actual expenses will be the same as
those shown in the table. For certain of the underlying Portfolios, a portion
of the management fee has been waived and/or other expenses have been
partially reimbursed. The existence of any such fee waivers and/or
reimbursements have been reflected in the footnotes. The following expenses
are deducted by the underlying Portfolio before it provides Prudential
Annuities with the daily net asset value. The underlying Portfolio information
was provided by the underlying mutual funds and has not been independently
verified by us. See the prospectuses or statements of additional information
of the underlying Portfolios for further details. The current prospectus and
statement of additional information for the underlying Portfolios can be
obtained by calling 1-800-752-6342.
9
- ------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES
(as a percentage of the average net assets of the underlying Portfolios)
- ------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2007
-----------------------------------------------------
UNDERLYING PORTFOLIO Acquired Total
Portfolio Annual
Management Other 12b-1 Fees & Portfolio
Fee/ (4)/ Expenses Fee Expenses/ (6)/ Expenses/ (3)/
- ------------------------------------------------------------------------------------------------------------
Advanced Series Trust /1,3/
AST Advanced Strategies 0.85% 0.15% 0.00% 0.04% 1.04%
AST Aggressive Asset Allocation /(2)/ 0.15% 0.03% 0.00% 0.96% 1.14%
AST AllianceBernstein Core Value 0.75% 0.11% 0.00% 0.00% 0.86%
AST AllianceBernstein Growth & Income 0.75% 0.08% 0.00% 0.00% 0.83%
AST American Century Income & Growth 0.75% 0.11% 0.00% 0.00% 0.86%
AST American Century Strategic Allocation 0.85% 0.25% 0.00% 0.00% 1.10%
AST Balanced Asset Allocation /(2)/ 0.15% 0.01% 0.00% 0.90% 1.06%
AST Bond Portfolio 2015 /(5)/ 0.65% 0.99% 0.00% 0.00% 1.64%
AST Bond Portfolio 2018 /(5)/ 0.65% 0.99% 0.00% 0.00% 1.64%
AST Bond Portfolio 2019 /(5)/ 0.65% 0.99% 0.00% 0.00% 1.64%
AST Capital Growth Asset Allocation /(2)/ 0.15% 0.01% 0.00% 0.93% 1.09%
AST CLS Growth Asset Allocation /(2,5)/ 0.30% 0.36% 0.00% 0.99% 1.65%
AST CLS Moderate Asset Allocation /(2,5)/ 0.30% 0.36% 0.00% 0.91% 1.57%
AST Cohen & Steers Realty Portfolio 1.00% 0.12% 0.00% 0.00% 1.12%
AST Conservative Asset Allocation /(2)/ 0.15% 0.02% 0.00% 0.87% 1.04%
AST DeAM Large-Cap Value 0.85% 0.11% 0.00% 0.00% 0.96%
AST DeAM Small-Cap Value 0.95% 0.18% 0.00% 0.00% 1.13%
AST Federated Aggressive Growth 0.95% 0.11% 0.00% 0.00% 1.06%
AST First Trust Balanced Target 0.85% 0.11% 0.00% 0.00% 0.96%
AST First Trust Capital Appreciation Target 0.85% 0.11% 0.00% 0.00% 0.96%
AST Goldman Sachs Concentrated Growth 0.90% 0.10% 0.00% 0.00% 1.00%
AST Goldman Sachs Mid-Cap Growth 1.00% 0.12% 0.00% 0.00% 1.12%
AST High Yield 0.75% 0.12% 0.00% 0.00% 0.87%
AST Horizon Growth Asset Allocation /(2,5)/ 0.30% 0.84% 0.00% 0.97% 2.11%
AST Horizon Moderate Asset Allocation /(2,5)/ 0.30% 0.57% 0.00% 0.90% 1.77%
AST International Growth 1.00% 0.11% 0.00% 0.00% 1.11%
AST International Value 1.00% 0.12% 0.00% 0.00% 1.12%
AST Investment Grade Bond /(5)/ 0.65% 0.99% 0.00% 0.00% 1.64%
AST JPMorgan International Equity 0.87% 0.13% 0.00% 0.00% 1.00%
AST Large-Cap Value 0.75% 0.08% 0.00% 0.00% 0.83%
AST Lord Abbett Bond-Debenture 0.80% 0.11% 0.00% 0.00% 0.91%
AST Marsico Capital Growth 0.90% 0.08% 0.00% 0.00% 0.98%
AST MFS Global Equity 1.00% 0.21% 0.00% 0.00% 1.21%
AST MFS Growth 0.90% 0.12% 0.00% 0.00% 1.02%
AST Mid-Cap Value 0.95% 0.14% 0.00% 0.00% 1.09%
AST Money Market 0.50% 0.09% 0.00% 0.00% 0.59%
AST Neuberger Berman Mid-Cap Growth 0.90% 0.10% 0.00% 0.00% 1.00%
AST Neuberger Berman Mid-Cap Value 0.89% 0.10% 0.00% 0.00% 0.99%
AST Neuberger Berman Small-Cap Growth 0.95% 0.12% 0.00% 0.00% 1.07%
AST Niemann Capital Growth Asset Allocation /(2,5)/ 0.30% 0.50% 0.00% 0.96% 1.76%
AST PIMCO Limited Maturity Bond 0.65% 0.11% 0.00% 0.00% 0.76%
AST PIMCO Total Return Bond 0.65% 0.09% 0.00% 0.00% 0.74%
AST Preservation Asset Allocation/ (2)/ 0.15% 0.03% 0.00% 0.82% 1.00%
AST QMA US Equity Alpha 1.00% 0.63% 0.00% 0.00% 1.63%
AST Small-Cap Growth 0.90% 0.15% 0.00% 0.00% 1.05%
AST Small-Cap Value 0.90% 0.10% 0.00% 0.00% 1.00%
AST T. Rowe Price Asset Allocation 0.85% 0.12% 0.00% 0.00% 0.97%
AST T. Rowe Price Global Bond 0.80% 0.13% 0.00% 0.00% 0.93%
AST T. Rowe Price Large-Cap Growth 0.88% 0.08% 0.00% 0.00% 0.96%
AST T. Rowe Price Natural Resources 0.90% 0.10% 0.00% 0.00% 1.00%
AST UBS Dynamic Alpha Strategy 1.00% 0.13% 0.00% 0.02% 1.15%
AST Western Asset Core Plus Bond /(5)/ 0.70% 0.10% 0.00% 0.02% 0.82%
10
- -------------------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES
(as a percentage of the average net assets of the underlying Portfolios)
- -------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2007
---------------------------------------------------------
UNDERLYING PORTFOLIO Acquired Total
Portfolio Annual
Management Other Fees & Portfolio
Fee/ (4)/ Expenses 12b-1 Fee Expenses/ (6)/ Expenses/ (3)/
- -------------------------------------------------------------------------------------------------------------------------
INVESCO AIM Variable Insurance Funds /(7, 8,9)/
AIM V.I. Dynamics Fund - Series I shares 0.75% 0.36% 0.00% 0.00% 1.11%
AIM V.I. Financial Services Fund - Series I shares 0.75% 0.36% 0.00% 0.00% 1.11%
AIM V.I. Global Health Care Fund - Series I shares 0.75% 0.32% 0.00% 0.01% 1.08%
AIM V.I. Technology Fund - Series I shares 0.75% 0.35% 0.00% 0.01% 1.11%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Evergreen Variable Annuity Trust /(10)/
Growth 0.70% 0.20% 0.00% 0.01% 0.91%
International Equity 0.39% 0.24% 0.00% 0.00% 0.63%
Omega 0.52% 0.19% 0.00% 0.00% 0.71%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
First Defined Portfolio Fund, LLC
First Trust(R) Target Focus Four /(11)/ 0.60% 1.07% 0.25% 0.00% 1.92%
Global Dividend Target 15 0.60% 0.54% 0.25% 0.00% 1.39%
NASDAQ(R) Target 15 0.60% 0.91% 0.25% 0.00% 1.76%
S&P(R) Target 24 0.60% 0.70% 0.25% 0.00% 1.55%
Target Managed VIP 0.60% 0.50% 0.25% 0.00% 1.35%
The Dow(R) DART 10 0.60% 0.71% 0.25% 0.00% 1.56%
The Dow(R) Target Dividend 0.60% 0.51% 0.25% 0.00% 1.36%
Value Line(R) Target 25 0.60% 0.56% 0.25% 0.00% 1.41%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products Trust
Franklin Templeton VIP Founding Funds Allocation Fund /(12)/ 0.00% 0.41% 0.35% 0.65% 1.41%
Management administration fee waivers/reductions: 0.28%
Net expenses after fee reimbursement/expense waiver: 1.13%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Nationwide Variable Insurance Trust
Gartmore NVIT Developing Markets Fund /(13)/ 1.05% 0.35% 0.25% N/A 1.65%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable Trust
Wells Fargo Advantage VT Equity Income Fund 0.55% 0.24% 0.25% 0.00% 1.04%
1 Shares of the Portfolios are generally purchased through variable insurance
products. The Fund has entered into arrangements with the issuers of the
variable insurance products offering the Portfolios under which the Fund
compensates the issuers 0.10% for providing ongoing services to Portfolio
shareholders in lieu of the Fund providing such services directly to
shareholders. Amounts paid under these arrangements are included in "Other
Expenses." Subject to the expense limitations set forth below, for each
Portfolio of the Fund other than the Dynamic and Tactical Asset Allocation
Portfolios, 0.03% of the 0.10% administrative services fee is voluntarily
waived. The Dynamic and Tactical Asset Allocation Portfolios do not
directly pay any portion of the 0.10% administrative service fee. The
Acquired Portfolios in which the Dynamic and Tactical Asset Allocation
Portfolios invest, however, are subject to the administrative services
fee. With respect to the AST QMA US Equity Alpha Portfolio, "Other
Expenses" includes dividend expenses on short sales and interest expenses
on short sales. Our reference above to the Dynamic Asset Allocation
Portfolios refers to these portfolios: AST Aggressive Asset Allocation, AST
Balanced Asset Allocation, AST Capital Growth Asset Allocation, AST
Conservative Asset Allocation, and AST Preservation Asset Allocation. Our
reference to the Tactical Asset Allocation Portfolios refers to these
portfolios: AST CLS Growth Asset Allocation, AST CLS Moderate Asset
Allocation, AST Horizon Growth Asset Allocation, AST Horizon Moderate Asset
Allocation, and AST Niemann Capital Growth Asset Allocation.
2 Some of the Portfolios invest in other investment companies (the Acquired
Portfolios). For example, each Dynamic Asset Allocation Portfolio and
Tactical Asset Allocation Portfolio invests primarily in shares of other
Portfolios of Advanced Series Trust. Investors in a Portfolio indirectly
bear the fees and expenses of the Acquired Portfolios. The expenses shown
under "Acquired Portfolio Fees and Expenses" represent a weighted average
of the expense ratios of the Acquired Portfolios in which each Portfolio
invested during the year ended December 31, 2007. The Dynamic Asset
Allocation Portfolios and Tactical Asset Allocation Portfolios do not pay
any transaction fees when purchasing or redeeming shares of the Acquired
Portfolios. Our reference above to the Dynamic Asset Allocation Portfolios
refers to these portfolios: AST Aggressive Asset Allocation, AST Balanced
Asset Allocation, AST Capital Growth Asset Allocation, AST Conservative
Asset Allocation, and AST Preservation Asset Allocation. Our reference to
the Tactical Asset Allocation Portfolios refers to these portfolios: AST
CLS Growth Asset Allocation, AST CLS Moderate Asset Allocation, AST Horizon
Growth Asset Allocation, AST Horizon Moderate Asset Allocation, and AST
Niemann Capital Growth Asset Allocation.
3 Prudential Investments LLC and AST Investment Services, Inc. have
voluntarily agreed to waive a portion of their management fee and/or limit
total expenses (expressed as an annual percentage of average daily
net assets) for certain Portfolios of the Fund. These arrangements, which
are set forth as
11
follows, may be discontinued or otherwise modified at any time. AST
American Century Strategic Allocation: 1.25%; AST Cohen & Steers
Realty: 1.45%; AST DeAM Small-Cap Value: 1.14%; AST Goldman Sachs
Concentrated Growth: 0.86%; AST Goldman Sachs Mid-Cap Growth: 1.12%; AST
High Yield: 0.88%; AST JPMorgan International Equity: 1.01%; AST
International Value: 1.50%; AST Large-Cap Value: 1.20%; AST Lord Abbett
Bond-Debenture: 0.88%; AST MFS Global Equity: 1.18%; AST MFS Growth: 1.35%;
AST Marsico Capital Growth: 1.35%; AST Mid-Cap Value: 1.45%; AST Money
Market: 0.56%; AST Neuberger Berman Mid-Cap Growth: 1.25%; AST Neuberger
Berman Mid-Cap Value: 1.25%; AST PIMCO Total Return Bond: contractual
Portfolio expense limit 1.05%, which can be discontinued or modified only
by amending the contract; AST PIMCO Limited Maturity Bond: 1.05%; AST T.
Rowe Price Asset Allocation: 1.25%; AST T. Rowe Price Natural
Resources: 1.35%; AST International Growth: 1.75%.
4 The management fee rate shown in the "management fees" column represents
the actual fee rate paid by the indicated Portfolio for the fiscal year
ended December 31, 2007, except that the fee rate shown does not reflect
the impact of any voluntary management fee waivers that may be applicable
and which would result in a reduction in the fee rate paid by the
Portfolio. The management fee rate for certain Portfolios may include
"breakpoints" which are reduced fee rates that are applicable at specified
levels of Portfolio assets; the effective fee rates shown in the table
reflect and incorporate any fee "breakpoints" which may be applicable.
5 The Tactical Asset Allocation Portfolios and Western Asset Core Plus Bond
Portfolio are based on estimated expenses for 2008 and current period
average daily net assets. The AST Bond Portfolio 2015, AST Bond Portfolio
2018, AST Bond Portfolio 2019 and the AST Investment Grade Bond Portfolio
are based on estimated expenses for 2008 at an estimated asset level.
6 Acquired Fund Fees and Expenses are not fees or expenses incurred by the
fund directly but are expenses of the investment companies in which the
fund invests. You incur these fees and expenses indirectly through the
valuation of the fund's investment in those investment companies. As a
result, the Total Annual Portfolio Operating Expenses listed above may
exceed the expense limit numbers. The impact of the acquired fund fees and
expenses are included in the total returns of the Fund.
7 The Fund's advisor has contractually agreed to waive advisory fees and/or
reimburse expenses of Series I shares to the extent necessary to limit
Total Annual Portfolio Operating Expenses (subject to the same exclusions
discussed above) of Series I shares to 1.30% of average daily net assets.
The expense limitation agreement is in effect through at least April 30,
2009.
8 Except as otherwise noted, figures shown in the table are for the year
ended December 31, 2007 and are expressed as a percentage of the Fund's
average daily net assets. There is no guarantee that actual expenses will
be the same as those shown in the table.
9 Effective July 1, 2007, AIM contractually agreed to waive 100% of the
advisory fee AIM receives from affiliated money market funds on investments
by the fund in such affiliated money market funds. The fee waivers reflect
this agreement. This waiver agreement is in effect through at least
April 30, 2009.
10 The Total Annual Portfolio Operating Expenses excludes expense reductions.
11 Effective on or about November 19, 2007, the Portfolio changed its name
from First Trust 10 Uncommon Values Portfolio to First Trust Target Focus
Four Portfolio. The Portfolio's investment strategy was also changed. The
above fees and expenses include the Portfolio's fees and expenses prior to
the name change and change in investment strategy.
12 Operating expenses are estimates based on Class 1 expenses for fiscal year
ended December 31, 2007, except for 12b-1 fees which are based on the Class
4 maximum contractual amounts. The Fund does not pay management fees but
will indirectly bear its proportionate share of any management fees and
other expenses paid by the underlying funds (or "acquired funds") in which
it will invest. Acquired funds' estimated fees and expenses are based on
the acquired funds' expenses for the fiscal year ended December 31, 2007.
Effective December 1, 2007, the administrator has contractually agreed to
waive or limit its fee to assume as its own expense certain expenses
otherwise payable by the Portfolio, excluding the portfolios' fees and
expenses, so that direct operating expenses of the Portfolio do not exceed
0.13% (other than certain non-routine expenses or costs, including those
relating to litigation, indemnification, reorganizations, and liquidations)
until April 30, 2009.
13 The Trust and the Adviser have entered into a written contract limiting
operating expenses to 1.40% for all share classes until May 1, 2009.
12
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in one
Prudential Annuities Annuity with the cost of investing in other Prudential
Annuities and/or other variable annuities.
Below are examples for each Annuity showing what you would pay in expenses at
the end of the stated time periods had you invested $10,000 in the Annuity and
your investment has a 5% return each year.
The examples reflect the following fees and charges for each Annuity as
described in "Summary of Contract Fees and Charges":
. Insurance Charge
. Contingent Deferred Sales Charge (when and if applicable)
. Annual Maintenance Fee
. The maximum combination of optional benefit charges
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum total annual operating expenses, and those expenses remain the
same each year*
. For each Sub-account charge, we deduct the maximum charge rather than
the current charge
. You make no withdrawals of Account Value
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Lifetime Five Income Benefit, the Highest Daily Value
Death Benefit and the Enhanced Beneficiary Protection Death Benefit
(which are the maximum combination of optional benefit charges)
. The Credit applicable to the Annuity is 6% of the Purchase Payment**
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all portfolios offered as Sub-accounts may be available depending
on optional benefit selection, the applicable jurisdiction and selling firm.
** The Credit that is applied to Purchase Payments received after the first
Annuity Year or for Purchase Payments under $100,000 (see "How do I Receive
Credits?") is less.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR
THEIR PORTFOLIOS - ACTUAL EXPENSES WILL BE LESS THAN THOSE SHOWN IF YOU ELECT
A DIFFERENT COMBINATION OF OPTIONAL BENEFITS THAN INDICATED IN THE EXAMPLES OR
IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
Expense Examples are provided as follows:
If you surrender your entire contract at the end of the applicable time
period: /1/
1 Year 3 Years
------------------------------------------------------
You would pay the following expenses on $1,544 $2,778
each $10,000 invested, assuming 5%
annual return on assets:
------------------------------------------------------
If you annuitize at the end of the applicable time period: /2/
1 Year 3 Years
------------------------------------------------------
You would pay the following expenses on N/A N/A
each $10,000 invested, assuming 5%
annual return on assets:
------------------------------------------------------
13
If you do not surrender your contract at the end of the applicable time period:
1 Year 3 Years
------------------------------------------------------
You would pay the following expenses on $680 $2,010
each $10,000 invested, assuming 5%
annual return on assets:
------------------------------------------------------
1 See "Summary of Contract Fees and Charges" for the CDSC schedule.
2 You may not annuitize in the first Three (3) Annuity Years.
14
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO?
Each variable investment option is a Sub-account of Prudential Annuities Life
Assurance Corporation Variable Account B (see "What are Separate Accounts" for
more detailed information). Each Sub-account invests exclusively in one
Portfolio. You should carefully read the prospectus for any Portfolio in which
you are interested. The following chart classifies each of the Portfolios
based on our assessment of their investment style (as of the date of this
Prospectus). The chart also provides a description of each Portfolio's
investment objective (in italics) and a short, summary description of their
key policies to assist you in determining which Portfolios may be of interest
to you. There is no guarantee that any underlying Portfolio will meet its
investment objective. Not all portfolios offered as Sub-accounts may be
available depending on optional benefit selection, the applicable jurisdiction
and selling firm. Thus, if you selected particular optional benefits, you
would be precluded from investing in certain portfolios and therefore would
not receive investment appreciation (or depreciation) affecting those
Portfolios. The Portfolios that you select are your choice - we do not provide
investment advice, and we do not recommend or endorse any particular
Portfolio. Please see the General Information section of this prospectus,
under the heading concerning "service fees" for a discussion of fees that we
may receive from underlying mutual funds and /or their affiliates.
The name of the advisor/sub-advisor for each Portfolio appears next to the
description. Those Portfolios whose name includes the prefix "AST" are
Portfolios of Advanced Series Trust. The investment managers for AST are AST
Investment Services, Inc., a Prudential Financial Company, and Prudential
Investments LLC, both of which are affiliated companies of Prudential
Annuities. However, a sub-advisor, as noted below, is engaged to conduct
day-to-day management.
The Portfolios are not publicly traded mutual funds. They are only available
as investment options in variable annuity contracts and variable life
insurance policies issued by insurance companies, or in some cases, to
participants in certain qualified retirement plans. However, some of the
Portfolios available as Sub-accounts under the Annuities are managed by the
same portfolio advisor or sub-advisor as a retail mutual fund of the same or
similar name that the Portfolio may have been modeled after at its inception.
Certain retail mutual funds may also have been modeled after a Portfolio.
While the investment objective and policies of the retail mutual funds and the
Portfolios may be substantially similar, the actual investments will differ to
varying degrees. Differences in the performance of the funds can be expected,
and in some cases could be substantial. You should not compare the performance
of a publicly traded mutual fund with the performance of any similarly named
Portfolio offered as a Sub-account. Details about the investment objectives,
policies, risks, costs and management of the Portfolios are found in the
prospectuses for the underlying mutual funds. Prospectuses are provided to
investors in the Sub-accounts as required by federal securities laws. The
current prospectus and statement of additional information for the underlying
Portfolios can also be obtained by calling 1-800-752-6342.
As a condition to your participating in certain of our optional benefits, we
limit the investment options to which you may allocate your Account Value.
Broadly speaking, we offer two groups of permitted funds. Under the first
group (Group I), your allowable investment options are more limited, but you
are not subject to mandatory quarterly re-balancing. Under the second group
(Group II), you may allocate your Account Value between a broader range of
investment options, but must participate in quarterly re-balancing. The set of
tables immediately below describes the first category of permitted investment
options. The second set of tables describes the second category, under which:
(a)you must allocate at least 20% of your Account Value to certain fixed
income portfolios (currently, the AST PIMCO Total Return Bond Portfolio and
the AST Western Asset Core Plus Bond Portfolio)
(b)you may allocate up to 80% in the equity and other portfolios listed in the
second table below
(c)on each quarter (or the next Valuation Day, if the quarter-end is not a
Valuation Day), we will automatically re-balance your Account Value, so
that the percentages devoted to each Portfolio remain the same as those in
effect on the immediately preceding quarter-end
(d)between quarter-ends, you may re-allocate your Account Value among the
investment options permitted within this category. If you reallocate, the
next quarterly rebalancing will restore the percentages to those of your
most recent reallocation.
While those who do not participate in any optional benefit generally may
invest in any of the investment options described in this prospectus, only
those who participate in Highest Daily Lifetime Seven and Spousal Highest
Daily Lifetime Seven may participate in the second category (along with its
attendant re-balancing requirement). This second category is called our
"Optional Allocation and Rebalancing Program." If you participate in the
Optional Allocation and Rebalancing Program, you may not participate in a
Dollar Cost Averaging Program or Automatic Rebalancing Program. We may modify
or terminate the Optional Allocation and Rebalancing Program at any time.
15
The following chart lists the currently available and permitted investment
options when you choose certain optional benefits:
Group I: Allowable Benefit Allocations
Optional Benefit Name* Permitted Portfolios:
Lifetime Five Income Benefit AST Capital Growth Asset Allocation Portfolio
Spousal Lifetime Five Income Benefit AST Balanced Asset Allocation Portfolio
Highest Daily Lifetime Five Income Benefit AST Conservative Asset Allocation Portfolio
Highest Daily Lifetime Seven Income Benefit AST Preservation Asset Allocation Portfolio
Spousal Highest Daily Lifetime Seven Income Benefit AST First Trust Balanced Target Portfolio
Highest Daily Value Death Benefit AST First Trust Capital Appreciation Target Portfolio
AST Advanced Strategies Portfolio
AST T. Rowe Price Asset Allocation Portfolio
AST UBS Dynamic Alpha Strategy Portfolio
AST American Century Strategic Allocation Portfolio
AST Niemann Capital Growth Asset Allocation Portfolio
AST CLS Growth Asset Allocation Portfolio
AST CLS Moderate Asset Allocation Portfolio
AST Horizon Growth Asset Allocation Portfolio
AST Horizon Moderate Asset Allocation Portfolio
Franklin Templeton VIP Founding Funds Allocation Fund
- - -------------------------------------------------------
Optional Benefit Name*
All investment options permitted, EXCEPT these:
Combo 5% Rollup & HAV Death Benefit Value Line(R) Target 25
Guaranteed Minimum Income Benefit AIM VI Technology
Guaranteed Minimum Withdrawal Benefit NASDAQ(R) Target 15
GRO PLUS 2008 Evergreen VA Growth
Highest Anniversary Value Death Benefit
Highest Daily GRO
- -------------------------------------------------------------------------------------------------------------
* Detailed Information regarding these optional benefits can be found in the
"Living Benefits" and "Death Benefit" sections of this Prospectus.
16
Group II: Optional Allocation and Rebalancing Program.
Optional Benefit Name* Permitted Portfolios:
AST Advanced Strategies
AST Aggressive Asset Allocation
AST AllianceBernstein Core Value
AST AllianceBernstein Growth & Income
AST American Century Income & Growth
AST American Century Strategic Allocation
AST Balanced Asset Allocation
AST Capital Growth Asset Allocation
AST CLS Growth Asset Allocation
AST CLS Moderate Asset Allocation
AST Cohen & Steers Realty
AST Conservative Asset Allocation
AST DeAM Large-Cap Value
AST DeAM Small-Cap Value
AST Federated Aggressive Growth
AST First Trust Balanced Target
Highest Daily Lifetime Seven AST First Trust Capital Appreciation Target
Spousal Highest Daily Lifetime Seven Benefit AST Goldman Sachs Concentrated Growth
AST Goldman Sachs Mid-Cap Growth
AST High Yield
AST Horizon Growth Asset Allocation
AST Horizon Moderate Asset Allocation
AST International Growth
AST International Value
AST JPMorgan International Equity
AST Large-Cap Value
AST Lord Abbett Bond-Debenture
AST Marsico Capital Growth
AST MFS Global Equity
AST MFS Growth
AST Mid-Cap Value
AST Money Market
AST Neuberger Berman Mid-Cap Growth
AST Neuberger Berman Mid-Cap Value
AST Neuberger Berman Small-Cap Growth
AST Niemann Capital Growth Asset Allocation
AST PIMCO Limited Maturity Bond
AST PIMCO Total Return Bond
AST Preservation Asset Allocation
AST QMA US Equity Alpha
AST Small-Cap Growth
AST Small-Cap Value
AST T. Rowe Price Asset Allocation
AST T. Rowe Price Global Bond
AST T. Rowe Price Large-Cap Growth
AST T. Rowe Price Natural Resources
AST UBS Dynamic Alpha Strategy
AST Western Asset Core Plus Bond
Franklin Templeton VIP Founding Funds
Allocation Fund
- -
* Detailed Information regarding these optional benefits can be found in the
"Living Benefits" and "Death Benefit" sections of this Prospectus.
17
-----------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
-----------------------------------------------------------------------
ADVANCED SERIES FUND
-----------------------------------------------------------------------
ASSET AST Advanced Strategies Portfolio: LSV Asset
ALLOCA seeks a high level of absolute Management;
TION/ return. The Portfolio invests Marsico Capital
BALANCED primarily in a diversified portfolio Management, LLC;
of equity and fixed income Pacific Investment
securities across different Management
investment categories and investment Company LLC
managers. The Portfolio pursues a (PIMCO); T. Rowe
combination of traditional and Price Associates,
non-traditional investment Inc.; William Blair
strategies. & Company, LLC
-----------------------------------------------------------------------
ASSET AST Aggressive Asset Allocation AST Investment
ALLOCA Portfolio: seeks the highest Services, Inc. &
TION/ potential total return consistent Prudential
BALANCED with its specified level of risk Investments LLC/
tolerance. The Portfolio will invest Prudential
its assets in several other Advanced Investments LLC
Series Trust Portfolios. Under
normal market conditions, the
Portfolio will devote approximately
100% of its net assets to underlying
portfolios investing primarily in
equity securities (with a range of
92.5% to 100%) and the remainder of
its net assets to underlying
portfolios investing primarily in
debt securities and money market
instruments (with a range of 0% -
7.5%).
-----------------------------------------------------------------------
LARGE AST AllianceBernstein Core Value AllianceBernstein
CAP Portfolio: seeks long-term capital L.P.
VALUE growth by investing primarily in
common stocks. The subadviser
expects that the majority of the
Portfolio's assets will be invested
in the common stocks of large
companies that appear to be
undervalued. Among other things, the
Portfolio seeks to identify
compelling buying opportunities
created when companies are
undervalued on the basis of investor
reactions to near-term problems or
circumstances even though their
long-term prospects remain sound.
The subadviser seeks to identify
individual companies with earnings
growth potential that may not be
recognized by the market at large.
-----------------------------------------------------------------------
LARGE AST AllianceBernstein Growth & AllianceBernstein
CAP Income Portfolio: seeks long-term L.P.
VALUE growth of capital and income while
attempting to avoid excessive
fluctuations in market value. The
Portfolio normally will invest in
common stocks (and securities
convertible into common stocks). The
subadviser will take a
value-oriented approach, in that it
will try to keep the Portfolio's
assets invested in securities that
are selling at reasonable valuations
in relation to their fundamental
business prospects.
-----------------------------------------------------------------------
LARGE AST American Century Income & Growth American Century
CAP Portfolio: seeks capital growth with Investment
VALUE current income as a secondary Management, Inc.
objective. The Portfolio invests
primarily in common stocks that
offer potential for capital growth,
and may, consistent with its
investment objective, invest in
stocks that offer potential for
current income. The subadviser
utilizes a quantitative management
technique with a goal of building an
equity portfolio that provides
better returns than the S&P 500
Index without taking on significant
additional risk and while attempting
to create a dividend yield that will
be greater than the S&P 500 Index.
-----------------------------------------------------------------------
ASSET AST American Century Strategic American Century
ALLOCA Allocation Portfolio: seeks Investment
TION/ long-term capital growth with some Management, Inc.
BALANCED regular income. The Portfolio will
invest, under normal circumstances,
in any type of U.S. or foreign
equity security that meets certain
fundamental and technical standards.
The portfolio managers will draw on
growth, value and quantitative
investment techniques in managing
the equity portion of the Portfolio
and diversify the Portfolio's
investments among small, medium and
large companies.
-----------------------------------------------------------------------
ASSET AST Balanced Asset Allocation AST Investment
ALLOCA Portfolio: seeks the highest Services, Inc. &
TION/ potential total return consistent Prudential
BALANCED with its specified level of risk Investments LLC/
tolerance. The Portfolio will invest Prudential
its assets in several other Advanced Investments LLC
Series Trust Portfolios. Under
normal market conditions, the
Portfolio will devote approximately
75% of its net assets to underlying
portfolios investing primarily in
equity securities (with a range of
67.5% to 80%), and 25% of its net
assets to underlying portfolios
investing primarily in debt
securities and money market
instruments (with a range of 20.0%
to 32.5%).
-----------------------------------------------------------------------
18
---------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
---------------------------------------------------------------------
FIXED AST Bond Portfolio 2015: seeks the Prudential
INCOME highest potential total return Investment
consistent with its specified level Management, Inc.
of risk tolerance to meet the
parameters established to support
the GRO benefits and maintain
liquidity to support changes in
market conditions for a fixed
maturity of 2015. Please note that
you may not make purchase payments
to this Portfolio, and that this
Portfolio is available only with
certain living benefits.
---------------------------------------------------------------------
FIXED AST Bond Portfolio 2018: seeks the Prudential
INCOME highest potential total return Investment
consistent with its specified level Management, Inc.
of risk tolerance to meet the
parameters established to support
the GRO benefits and maintain
liquidity to support changes in
market conditions for a fixed
maturity of 2018. Please note that
you may not make purchase payments
to this Portfolio, and that this
Portfolio is available only with
certain living benefits.
---------------------------------------------------------------------
FIXED AST Bond Portfolio 2019: seeks the Prudential
INCOME highest potential total return Investment
consistent with its specified level Management, Inc.
of risk tolerance to meet the
parameters established to support
the GRO benefits and maintain
liquidity to support changes in
market conditions for a fixed
maturity of 2019. Please note that
you may not make purchase payments
to this Portfolio, and that this
Portfolio is available only with
certain living benefits.
---------------------------------------------------------------------
ASSET AST Capital Growth Asset Allocation AST Investment
ALLOCA Portfolio: seeks the highest Services, Inc. &
TION/ potential total return consistent Prudential
BALANCED with its specified level of risk Investments LLC/
tolerance. The Portfolio will invest Prudential
its assets in several other Advanced Investments LLC
Series Trust Portfolios. Under
normal market conditions, the
Portfolio will devote approximately
65% of its net assets to underlying
portfolios investing primarily in
equity securities (with a range of
57.5% to 72.5%, and 35% of its net
assets to underlying portfolios
investing primarily in debt
securities and money market
instruments (with a range of 27.5%
to 42.5%).
---------------------------------------------------------------------
ASSET AST CLS Growth Asset Allocation CLS Investment
ALLOCA Portfolio: seeks the highest Firm, LLC
TION/ potential total return consistent
GROWTH with its specified level of risk
tolerance. Under normal
circumstances, at least 90% of the
Portfolio's assets will be invested
in other portfolios of Advanced
Series Trust (the underlying
portfolios) while no more than 10%
of the Portfolio's assets may be
invested in exchange traded funds
(ETFs). Under normal market
conditions, the Portfolio will
devote from 60% to 80% of its net
assets to underlying portfolios and
ETFs investing primarily in equity
securities, and from 20% to 40% of
its net assets to underlying
portfolios and ETFs investing
primarily in debt securities and
money market instruments.
---------------------------------------------------------------------
ASSET AST CLS Moderate Asset Allocation CLS Investment
ALLOCA Portfolio: seeks the highest Firm, LLC
TION/ potential total return consistent
GROWTH with its specified level of risk
tolerance. Under normal
circumstances, at least 90% of the
Portfolio's assets will be invested
in other portfolios of Advanced
Series Trust (the underlying
portfolios) while no more than 10%
of the Portfolio's assets may be
invested in exchange traded funds
(ETFs). Under normal market
conditions, the Portfolio will
devote from 40% to 60% of its net
assets to underlying portfolios and
ETFs investing primarily in equity
securities, and from 40% to 60% of
its net assets to underlying
portfolios and ETFs investing
primarily in debt securities and
money market instruments.
---------------------------------------------------------------------
SPECIALTY AST Cohen & Steers Realty Portfolio: Cohen & Steers
seeks to maximize total return Capital
through investment in real estate Management, Inc.
securities. The Portfolio pursues
its investment objective by
investing, under normal
circumstances, at least 80% of its
net assets in common stocks and
other equity securities issued by
real estate companies, such as real
estate investment trusts (REITs)..
Under normal circumstances, the
Portfolio will invest substantially
all of its assets in the equity
securities of real estate companies,
i.e., a company that derives at
least 50% of its revenues from the
ownership, construction, financing,
management or sale of real estate or
that has at least 50% of its assets
in real estate. Real estate
companies may include real estate
investment trusts (REITs).
---------------------------------------------------------------------
ASSET AST Conservative Asset Allocation AST Investment
ALLOCA Portfolio: seeks the highest Services, Inc. &
TION/ potential total return consistent Prudential
BALANCED with its specified level of risk Investments LLC/
tolerance. The Portfolio will invest Prudential
its assets in several other Advanced Investments LLC
Series Trust Portfolios. Under
normal market conditions, the
Portfolio will devote approximately
55% of its net assets to underlying
portfolios investing primarily in
equity securities (with a range of
47.5% to 62.5%), and 45% of its net
assets to underlying portfolios
investing primarily in debt
securities and money market
instruments (with a range of 37.5%
to 52.5%.
---------------------------------------------------------------------
19
-------------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
-------------------------------------------------------------------------
LARGE AST DeAM Large-Cap Value Portfolio: Deutsche
CAP seeks maximum growth of capital by Investment
VALUE investing primarily in the value Management
stocks of larger companies. The Americas, Inc.
Portfolio pursues its objective,
under normal market conditions, by
primarily investing at least 80% of
the value of its assets in the
equity securities of large-sized
companies included in the Russell
1000(R) Value Index. The subadviser
employs an investment strategy
designed to maintain a portfolio of
equity securities which approximates
the market risk of those stocks
included in the Russell 1000(R)
Value Index, but which attempts to
outperform the Russell 1000(R) Value
Index through active stock selection.
-------------------------------------------------------------------------
SMALL AST DeAM Small-Cap Value Portfolio: Deutsche
CAP seeks maximum growth of investors' Investment
VALUE capital by investing primarily in Management
the value stocks of smaller Americas, Inc.
companies. The Portfolio pursues its
objective, under normal market
conditions, by primarily investing
at least 80% of its total assets in
the equity securities of small-sized
companies included in the Russell
2000(R) Value Index. The subadviser
employs an investment strategy
designed to maintain a portfolio of
equity securities which approximates
the market risk of those stocks
included in the Russell 2000(R)
Value Index, but which attempts to
outperform the Russell 2000(R) Value
Index.
-------------------------------------------------------------------------
SMALL AST Federated Aggressive Growth Federated Equity
CAP Portfolio: seeks capital growth. The Management
GROWTH Portfolio pursues its investment Company of
objective by investing primarily in Pennsylvania/
the stocks of small companies that Federated Global
are traded on national security Investment
exchanges, NASDAQ stock exchange and Management Corp.;
the over-the-counter-market. Small Federated MDTA
companies will be defined as LLC
companies with market
capitalizations similar to companies
in the Russell 2000 Growth Index.
-------------------------------------------------------------------------
ASSET AST First Trust Balanced Target First Trust Advisors
ALLOCA Portfolio: seeks long-term capital L.P.
TION/ growth balanced by current income.
BALANCED The Portfolio seeks to achieve its
objective by investing approximately
65% in common stocks and
approximately 35% in fixed income
securities. The Portfolio allocates
the equity portion of the portfolio
across five uniquely specialized
strategies - The Dow(R) Target
Dividend, the Value Line(R) Target
25, the Global Dividend Target 15,
the NYSE(R) International Target 25,
and the Target Small Cap. Each
strategy employs a quantitative
approach by screening common stocks
for certain attributes and/or using
a multi-factor scoring system to
select the common stocks. The fixed
income allocation is determined by
the Dow Jones Income strategy which
utilizes certain screens to select
bonds from the Dow Jones Corporate
Bond Index or like-bonds not in the
index.
-------------------------------------------------------------------------
ASSET AST First Trust Capital Appreciation First Trust Advisors
ALLOCA Target Portfolio: seeks long-term L.P.
TION/ capital growth. The Portfolio seeks
BALANCED to achieve its objective by
investing approximately 80% in
common stocks and 20% in fixed
income securities. The portfolio
allocates the equity portion of the
portfolio across five uniquely
specialized strategies - the Value
Line(R) Target 25, the Global
Dividend Target 15, the Target Small
Cap, the Nasdaq(R) Target 15, and
the NYSE(R) International Target 25.
Each strategy employs a quantitative
approach by screening common stocks
for certain attributes and/or using
a multi-factor scoring system to
select the common stocks. The fixed
income allocation is determined by
the Dow Jones Income strategy which
utilizes certain screens to select
bonds from the Dow Jones Corporate
Bond Index or like-bonds not in the
index.
-------------------------------------------------------------------------
LARGE AST Goldman Sachs Concentrated Goldman Sachs
CAP Growth Portfolio: seeks long-term Asset Management,
GROWTH growth of capital. The Portfolio L.P.
will pursue its objective by
investing primarily in equity
securities of companies that the
subadviser believes have the
potential to achieve capital
appreciation over the long-term. The
Portfolio seeks to achieve its
investment objective by investing,
under normal circumstances, in
approximately 30 - 45 companies that
are considered by the subadviser to
be positioned for long-term growth.
-------------------------------------------------------------------------
20
----------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
----------------------------------------------------------------------
MID CAP AST Goldman Sachs Mid-Cap Growth Goldman Sachs
GROWTH Portfolio: seeks long-term capital Asset Management,
growth. The Portfolio pursues its L.P.
investment objective, by investing
primarily in equity securities
selected for their growth potential,
and normally invests at least 80% of
the value of its assets in
medium-sized companies. Medium-sized
companies are those whose market
capitalizations (measured at the
time of investment) fall within the
range of companies in the Russell
Mid-cap Growth Index. The subadviser
seeks to identify individual
companies with earnings growth
potential that may not be recognized
by the market at large.
----------------------------------------------------------------------
FIXED AST High Yield Portfolio: seeks Pacific Investment
INCOME maximum total return, consistent Management
with preservation of capital and Company LLC
prudent investment management. The (PIMCO)
Portfolio invests, under normal
circumstances, at least 80% of its
net assets plus any borrowings for
investment purposes (measured at
time of purchase) in high yield,
fixed-income securities that, at the
time of purchase, are non-investment
grade securities. Such securities
are commonly referred to as "junk
bonds".
----------------------------------------------------------------------
ASSET AST Horizon Growth Asset Allocation Horizon
ALLOCA Portfolio: seeks the highest Investments, LLC
TION/ potential total return consistent
GROWTH with its specified level of risk
tolerance. Under normal
circumstances, at least 90% of the
Portfolio's assets will be invested
in other portfolios of Advanced
Series Trust (the underlying
portfolios) while no more than 10%
of the Portfolio's assets may be
invested in exchange traded funds
(ETFs). Under normal market
conditions, the Portfolio will
devote from 60% to 80% of its net
assets to underlying portfolios and
ETFs investing primarily in equity
securities, and from 20% to 40% of
its net assets to underlying
portfolios and ETFs investing
primarily in debt securities and
money market instruments.
----------------------------------------------------------------------
ASSET AST Horizon Moderate Asset Horizon
ALLOCA Allocation Portfolio: seeks the Investments, LLC
TION/ highest potential total return
GROWTH consistent with its specified level
of risk tolerance. Under normal
circumstances, at least 90% of the
Portfolio's assets will be invested
in other portfolios of Advanced
Series Trust (the underlying
portfolios) while no more than 10%
of the Portfolio's assets may be
invested in exchange traded funds
(ETFs). Under normal market
conditions, the Portfolio will
devote from 40% to 60% of its net
assets to underlying portfolios and
ETFs investing primarily in equity
securities, and from 40% to 60% of
its net assets to underlying
portfolios and ETFs investing
primarily in debt securities and
money market instruments.
----------------------------------------------------------------------
INTER AST International Growth Portfolio: Marsico Capital
NATIONAL seeks long-term capital growth. Management, LLC;
EQUITY Under normal circumstances, the William Blair &
Portfolio invests at least 80% of Company, LLC
the value of its assets in
securities of issuers that are
economically tied to countries other
than the United States. Although the
Portfolio intends to invest at least
80% of its assets in the securities
of issuers located outside the
United States, it may at times
invest in U.S. issuers and it may
invest all of its assets in fewer
than five countries or even a single
country. The Portfolio looks
primarily for stocks of companies
whose earnings are growing at a
faster rate than other companies or
which offer attractive growth.
----------------------------------------------------------------------
INTER AST International Value Portfolio: LSV Asset
NATIONAL seeks long-term capital Management;
EQUITY appreciation. The Portfolio normally Thornburg
invests at least 80% of the Investment
Portfolio's assets in equity Management, Inc.
securities. The Portfolio will
invest at least 65% of its net
assets in the equity securities of
companies in at least three
different countries, without limit
as to the amount of assets that may
be invested in a single country.
----------------------------------------------------------------------
21
----------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
----------------------------------------------------------------------
FIXED AST Investment Grade Bond Portfolio: Prudential
INCOME seeks the highest potential total Investment
return consistent with its specified Management, Inc.
level of risk tolerance to meet the
parameters established to support
the Highest Daily Lifetime Seven
benefits and maintain liquidity to
support changes in market conditions
for a fixed duration (weighted
average maturity) of about 6 years.
Please note that you may not make
purchase payments to this Portfolio,
and that this Portfolio is available
only with certain living benefits.
----------------------------------------------------------------------
INTER AST JPMorgan International Equity J.P. Morgan
NATIONAL Portfolio: seeks long-term capital Investment
EQUITY growth by investing in a diversified Management, Inc.
portfolio of international equity
securities. The Portfolio seeks to
meet its objective by investing,
under normal market conditions, at
least 80% of its assets in a
diversified portfolio of equity
securities of companies located or
operating in developed non-U.S.
countries and emerging markets of
the world. The equity securities
will ordinarily be traded on a
recognized foreign securities
exchange or traded in a foreign
over-the-counter market in the
country where the issuer is
principally based, but may also be
traded in other countries including
the United States.
----------------------------------------------------------------------
LARGE AST Large-Cap Value Portfolio: seeks Dreman Value
CAP current income and long-term growth Management LLC;
VALUE of income, as well as capital Hotchkis and Wiley
appreciation. The Portfolio invests, Capital
under normal circumstances, at least Management LLC;
80% of its net assets in common J.P. Morgan
stocks of large capitalization Investment
companies. Large capitalization Management, Inc.
companies are those companies with
market capitalizations within the
market capitalization range of the
Russell 1000 Value Index.
----------------------------------------------------------------------
FIXED AST Lord Abbett Bond-Debenture Lord, Abbett & Co.
INCOME Portfolio: seeks high current income LLC
and the opportunity for capital
appreciation to produce a high total
return. The Portfolio invests, under
normal circumstances, at least 80%
of the value of its assets in fixed
income securities. The Portfolio
allocates its assets principally
among fixed income securities in
four market sectors: U.S. investment
grade securities, U.S. high yield
securities, foreign securities
(including emerging market
securities) and convertible
securities. Under normal
circumstances, the Portfolio invests
in each of the four sectors
described above. However, the
Portfolio may invest substantially
all of its assets in any one sector
at any time, subject to the
limitation that at least 20% of the
Portfolio's net assets must be
invested in any combination of
investment grade debt securities,
U.S. Government securities and cash
equivalents. The Portfolio may also
make significant investments in
mortgage-backed securities. Although
the Portfolio expects to maintain a
weighted average maturity in the
range of five to twelve years, there
are no restrictions on the overall
Portfolio or on individual
securities. The Portfolio may invest
up to 20% of its net assets in
equity securities.
----------------------------------------------------------------------
LARGE AST Marsico Capital Growth Marsico Capital
CAP Portfolio: seeks capital growth. Management, LLC
GROWTH Income realization is not an
investment objective and any income
realized on the Portfolio's
investments, therefore, will be
incidental to the Portfolio's
objective. The Portfolio will pursue
its objective by investing primarily
in common stocks of large companies
that are selected for their growth
potential. Large capitalization
companies are companies with market
capitalizations within the market
capitalization range of the Russell
1000 Growth Index. In selecting
investments for the Portfolio, the
subadviser uses an approach that
combines "top down" macroeconomic
analysis with "bottom up" stock
selection. The "top down" approach
identifies sectors, industries and
companies that may benefit from the
trends the subadviser has observed.
The subadviser then looks for
individual companies with earnings
growth potential that may not be
recognized by the market at large,
utilizing a "bottom up" stock
selection process. The Portfolio
will normally hold a core position
of between 35 and 50 common stocks.
The Portfolio may hold a limited
number of additional common stocks
at times when the Portfolio manager
is accumulating new positions,
phasing out existing or responding
to exceptional market conditions.
----------------------------------------------------------------------
22
-----------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
-----------------------------------------------------------------------
INTER AST MFS Global Equity Portfolio: Massachusetts
NATIONAL seeks capital growth. Under normal Financial Services
EQUITY circumstances the Portfolio invests Company
at least 80% of its assets in equity
securities. The Portfolio will
invest in the securities of U.S. and
foreign issuers (including issuers
in emerging market countries). While
the portfolio may invest its assets
in companies of any size, the
Portfolio generally focuses on
companies with relatively large
market capitalizations relative to
the markets in which they are traded.
-----------------------------------------------------------------------
LARGE AST MFS Growth Portfolio: seeks Massachusetts
CAP long-term capital growth and future, Financial Services
GROWTH rather than current income. Under Company
normal market conditions, the
Portfolio invests at least 80% of
its net assets in common stocks and
related securities, such as
preferred stocks, convertible
securities and depositary receipts,
of companies that the subadviser
believes offer better than average
prospects for long-term growth. The
subadviser uses a "bottom up" as
opposed to a "top down" investment
style in managing the Portfolio.
-----------------------------------------------------------------------
MID CAP AST Mid Cap Value Portfolio: seeks EARNEST Partners
VALUE to provide capital growth by LLC; WEDGE
investing primarily in Capital
mid-capitalization stocks that Management, LLP
appear to be undervalued. The
Portfolio generally invests, under
normal circumstances, at least 80%
of the value of its net assets in
mid- capitalization companies.
Mid-capitalization companies are
generally those that have market
capitalizations, at the time of
purchase, within the market
capitalization range of companies
included in the Russell Midcap Value
Index during the previous 12-months
based on month-end data.
-----------------------------------------------------------------------
FIXED AST Money Market Portfolio: seeks Prudential
INCOME high current income while Investment
maintaining high levels of Management, Inc.
liquidity. The Portfolio invests in
high-quality, short-term, U.S.
dollar denominated corporate, bank
and government obligations. The
Portfolio will invest in securities
which have effective maturities of
not more than 397 days.
-----------------------------------------------------------------------
MID CAP AST Neuberger Berman Mid-Cap Growth Neuberger Berman
GROWTH Portfolio: seeks capital growth. Management Inc.
Under normal market conditions, the
Portfolio invests at least 80% of
its net assets in the common stocks
of mid-capitalization companies.
Mid-capitalization companies are
those companies whose market
capitalization is within the range
of market capitalizations of
companies in the Russell Midcap(R)
Growth Index. Using fundamental
research and quantitative analysis,
the subadviser looks for
fast-growing companies that are in
new or rapidly evolving industries.
-----------------------------------------------------------------------
MID CAP AST Neuberger Berman Mid-Cap Value Neuberger Berman
VALUE Portfolio: seeks capital growth. Management Inc.
Under normal market conditions, the
Portfolio invests at least 80% of
its net assets in the common stocks
of medium capitalization companies.
For purposes of the Portfolio,
companies with market
capitalizations that fall within the
range of the Russell Midcap(R) Index
at the time of investment are
considered medium capitalization
companies. Some of the Portfolio's
assets may be invested in the
securities of large-cap companies as
well as in small-cap companies.
Under the Portfolio's value-oriented
investment approach, the subadviser
looks for well-managed companies
whose stock prices are undervalued
and that may rise in price before
other investors realize their worth.
-----------------------------------------------------------------------
SMALL AST Neuberger Berman Small-Cap Neuberger Berman
CAP Growth Portfolio: seeks maximum Management Inc.
GROWTH growth of investors' capital from a
portfolio of growth stocks of
smaller companies. The Portfolio
pursues its objective, under normal
circumstances, by primarily
investing at least 80% of its total
assets in the equity securities of
small-sized companies included in
the Russell 2000 Growth(R) Index.
-----------------------------------------------------------------------
ASSET AST Niemann Capital Growth Asset Neimann Capital
ALLOCA Allocation Portfolio: seeks the Management Inc.
TION/ highest potential total return
GROWTH consistent with its specified level
of risk tolerance. Under normal
circumstances, at least 90% of the
Portfolio's assets will be invested
in other portfolios of Advanced
Series Trust (the underlying
portfolios) while no more than 10%
of the Portfolio's assets may be
invested in exchange traded funds
(ETFs). Under normal market
conditions, the Portfolio will
devote from 60% to 80% of its net
assets to underlying portfolios and
ETFs investing primarily in equity
securities, and from 20% to 40% of
its net assets to underlying
portfolios and ETFs investing
primarily in debt securities and
money market instruments.
-----------------------------------------------------------------------
23
----------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
----------------------------------------------------------------------
FIXED AST PIMCO Limited Maturity Bond Pacific Investment
INCOME Portfolio: seeks to maximize total Management
return consistent with preservation Company LLC
of capital and prudent investment (PIMCO)
management. The Portfolio will
invest in a portfolio of
fixed-income investment instruments
of varying maturities. The average
portfolio duration of the Portfolio
generally will vary within a one- to
three- year time frame based on the
subadviser's forecast for interest
rates.
----------------------------------------------------------------------
FIXED AST PIMCO Total Return Bond Pacific Investment
INCOME Portfolio: seeks to maximize total Management
return consistent with preservation Company LLC
of capital and prudent investment (PIMCO)
management. The Portfolio will
invest in a portfolio of
fixed-income investment instruments
of varying maturities.
----------------------------------------------------------------------
ASSET AST Preservation Asset Allocation AST Investment
ALLOCA Portfolio: seeks the highest Services, Inc. &
TION/ potential total return consistent Prudential
BALANCED with its specified level of risk Investments LLC/
tolerance. The Portfolio will invest Prudential
its assets in several other Advanced Investments LLC
Series Trust Portfolios. Under
normal market conditions, the
Portfolio will devote approximately
35% of its net assets to underlying
portfolios investing primarily in
equity securities (with a range of
27.5% to 42.5%), and 65% of its net
assets to underlying portfolios
investing primarily in debt
securities and money market
instruments (with a range of 57.5%
to 72.5%.
----------------------------------------------------------------------
LARGE AST QMA US Equity Portfolio Quantitative
CAP (formerly known as AST Management
BLEND AllianceBernstein Managed Index 500 Associates LLC
Portfolio): seeks to produce returns
that exceed those of the benchmark.
The portfolio utilizes a long/short
investment strategy and will
normally invest at least 80% of its
net assets plus borrowings in equity
and equity related securities of
issuers traded on a securities
exchange or market in the US. The
benchmark index is the Russell
1000(R) which is comprised of stocks
representing more than 90% of the
market cap of the US market and
includes the largest 1000 securities
in the Russell 3000(R) index.
----------------------------------------------------------------------
SMALL AST Small-Cap Growth Portfolio: Eagle Asset
CAP seeks long-term capital growth. The Management;
GROWTH Portfolio pursues its objective by Neuberger Berman
investing, under normal Management Inc.
circumstances, at least 80% of the
value of its assets in
small-capitalization companies.
Small-capitalization companies are
those companies with a market
capitalization, at the time of
purchase, no larger than the largest
capitalized company included in the
Russell 2000(R) Index at the time of
the Portfolio's investment.
----------------------------------------------------------------------
SMALL AST Small-Cap Value Portfolio: seeks ClearBridge
CAP to provide long-term capital growth Advisors, LLC;
VALUE by investing primarily in Dreman Value
small-capitalization stocks that Management LLC;
appear to be undervalued. The J.P. Morgan
Portfolio invests, under normal Investment
circumstances, at least 80% of the Management, Inc.;
value of its net assets in small Lee Munder
capitalization stocks. Small Investments, Ltd
capitalization stocks are the stocks
of companies with market
capitalization that are within the
market capitalization range of the
Russell 2000(R) Value Index.
----------------------------------------------------------------------
ASSET AST T. Rowe Price Asset Allocation T. Rowe Price
ALLOCA Portfolio: seeks a high level of Associates, Inc.
TION/ total return by investing primarily
BALANCED in a diversified portfolio of fixed
income and equity securities. The
Portfolio normally invests
approximately 60% of its total
assets in equity securities and 40%
in fixed income securities. This mix
may vary depending on the
subadviser's outlook for the
markets. The subadviser concentrates
common stock investments in larger,
more established companies, but the
Portfolio may include small and
medium-sized companies with good
growth prospects. The fixed income
portion of the Portfolio will be
allocated among investment grade
securities, high yield or "junk"
bonds, emerging market securities,
foreign high quality debt securities
and cash reserves.
----------------------------------------------------------------------
24
------------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
------------------------------------------------------------------------
FIXED AST T. Rowe Price Global Bond T. Rowe Price
INCOME Portfolio: seeks to provide high International, Inc.
current income and capital growth by
investing in high-quality foreign
and U.S. dollar-denominated bonds.
The Portfolio will invest at least
80% of its total assets in fixed
income securities. The Portfolio
invests in all types of bonds,
including those issued or guaranteed
by U.S. or foreign governments or
their agencies and by foreign
authorities, provinces and
municipalities as well as investment
grade corporate bonds, mortgage and
asset-backed securities, and
high-yield bonds of U.S. and foreign
issuers. The Portfolio generally
invests in countries where the
combination of fixed-income returns
and currency exchange rates appears
attractive, or, if the currency
trend is unfavorable, where the
subadviser believes that the
currency risk can be minimized
through hedging. The Portfolio may
also invest up to 20% of its assets
in the aggregate in below
investment-grade, high-risk bonds
("junk bonds"). In addition, the
Portfolio may invest up to 30% of
its assets in mortgage- related
(including mortgage dollar rolls and
derivatives, such as collateralized
mortgage obligations and stripped
mortgage securities) and
asset-backed securities.
------------------------------------------------------------------------
LARGE AST T. Rowe Price Large-Cap Growth T. Rowe Price
CAP Portfolio: seeks long-term growth of Associates, Inc.
GROWTH capital by investing predominantly
in the equity securities of a
limited number of large, carefully
selected, high-quality U.S.
companies that are judged likely to
achieve superior earnings growth.
The Portfolio takes a growth
approach to investment selection and
normally invests at least 80% of its
net assets in the common stocks of
large companies. Large companies are
defined as those whose market cap is
larger than the median market cap of
companies in the Russell 1000 Growth
Index as of the time of purchase.
------------------------------------------------------------------------
SPECIALTY AST T. Rowe Price Natural Resources T. Rowe Price
Portfolio: seeks long-term capital Associates, Inc.
growth primarily through the common
stocks of companies that own or
develop natural resources (such as
energy products, precious metals and
forest products) and other basic
commodities. The Portfolio invests,
under normal circumstances, at least
80% of the value of its assets in
natural resource companies. The
Portfolio may also invest in
non-resource companies with the
potential for growth. The Portfolio
looks for companies that have the
ability to expand production, to
maintain superior exploration
programs and production facilities,
and the potential to accumulate new
resources. Although at least 50% of
Portfolio assets will be invested in
U.S. securities, up to 50% of total
assets also may be invested in
foreign securities.
------------------------------------------------------------------------
ASSET AST UBS Dynamic Alpha Portfolio: UBS Global Asset
ALLOCA seeks to maximize total return, Management
TION/ consisting of capital appreciation (Americas) Inc.
BALANCED and current income. The Portfolio
invests in securities and financial
instruments to gain exposure to
global equity, global fixed income
and cash equivalent markets,
including global currencies. The
Portfolio may invest in equity and
fixed income securities of issuers
located within and outside the
United States or in open-end
investment companies advised by UBS
Global Asset Management (Americas)
Inc., the Portfolio's subadviser, to
gain exposure to certain global
equity and global fixed income
markets.
------------------------------------------------------------------------
FIXED AST Western Asset Core Plus Bond Western Asset
INCOME Portfolio: seeks to maximize total Management
return, consistent with prudent Company
investment management and liquidity
needs, by investing to obtain its
average specified duration. The
Portfolio's current target average
duration is generally 2.5 to 7
years. The Portfolio pursues this
objective by investing in all major
fixed income sectors with a bias
towards non-Treasuries.
------------------------------------------------------------------------
25
------------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
------------------------------------------------------------------------
INVESCO AIM VARIABLE INSURANCE FUNDS
------------------------------------------------------------------------
MID CAP AIM Variable Insurance Funds - AIM Advisor: Invesco
GROWTH V.I. Dynamics Fund - Series I Aim Advisors, Inc.
shares: The investment objective is
long-term capital growth. The Sub-advisor:
Portfolio pursues its objective by Advisory entities
normally investing at least 65% of affiliated with
its assets in equity securities of Invesco Aim
mid-sized companies that are Advisors, Inc.
included in the Russell Midcap(R)
Growth Index at the time of purchase.
------------------------------------------------------------------------
SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco
V.I. Financial Services Fund - Aim Advisors, Inc.
Series I shares: The investment
objective is capital growth. The Sub-advisor:
Portfolio normally invests at least Advisory entities
80% of its net assets, plus the affiliated with
amount of any borrowings for Invesco Aim
investment purposes, in equity Advisors, Inc.
securities of issuers engaged
primarily in financial
services-related industries.
------------------------------------------------------------------------
SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco
V.I. Global Health Care Fund - Aim Advisors, Inc.
Series I shares: The investment
objective is capital growth. The Sub-advisor:
Portfolio normally invests at least Advisory entities
80% of its net assets in securities affiliated with
of health care industry companies. Invesco Aim
Advisors, Inc.
------------------------------------------------------------------------
SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco
V.I. Technology Fund - Series I Aim Advisors, Inc.
shares: The investment objective is
capital growth. The Portfolio
normally invests at least 80% of its
net assets, plus the amount of any
borrowings for investment purposes,
in equity securities and
equity-related instruments of
companies engaged in
technology-related industries.
Companies in technology-related
industries include, but are not
limited to, those involved in the
design, manufacture, distribution,
licensing, or provision of various
applied technologies, hardware,
software, semiconductors,
telecommunications equipment and
services and service-related
companies in information technology.
------------------------------------------------------------------------
EVERGREEN VARIABLE ANNUITY TRUST
------------------------------------------------------------------------
SMALL Evergreen VA Growth: seeks long-term Evergreen
CAP capital growth. The Portfolio Investment
GROWTH invests at least 75% of its assets Management
in common stocks of small- and Company, LLC
medium-sized companies (i.e.,
companies whose market
capitalizations fall within the
market capitalization range of the
companies tracked by the Russell
2000(R) Growth Index, measured at
the time of purchase). The remaining
portion of the Portfolio's assets
may be invested in companies of any
size. The Portfolio's managers
employ a growth-style of equity
management and will generally seek
to purchase stocks of companies that
have demonstrated earnings growth
potential which they believe is not
yet reflected in the stock's market
price. The Portfolio's managers
consider potential earnings growth
above the average earnings growth of
companies included in the Russell
2000(R) Growth Index as a key factor
in selecting investments.
------------------------------------------------------------------------
INTER Evergreen VA International Equity: Evergreen
NATIONAL seeks long-term capital growth and Investment
EQUITY secondarily, modest income. The Management
Portfolio will normally invest at Company, LLC
least 80% of its assets in equity
securities issued by, in the
manager's opinion, established and
quality non-U.S. companies located
in countries with developed markets.
The Portfolio may purchase
securities across all market
capitalizations. The Portfolio
normally invests at least 65% of its
assets in securities of companies in
at least three countries (other than
the U.S.). The Portfolio may also
invest in emerging markets. The
Portfolio's managers seek both
growth and value opportunities For
growth investments, the Portfolio's
manager seeks, among other things,
good business models, good
management and growth in cash flows.
For value investments, the
Portfolio's manager seeks, among
other things, companies that are
undervalued in the marketplace
compared to their assets. The
Portfolio normally intends to seek
modest income from dividends paid by
its equity holdings. Other than cash
and cash equivalents, the Portfolio
intends to invest substantially all
of its assets in the securities of
non-U.S. issuers.
------------------------------------------------------------------------
26
-------------------------------------------------------------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
-------------------------------------------------------------------------
SPECIALTY Evergreen VA Omega: seeks long-term Evergreen
capital growth. The Portfolio Investment
invests primarily, and under normal Management
conditions substantially all of its Company, LLC
assets, in common stocks of U.S.
companies across any market
capitalizations. The Portfolio's
manager employs a growth style of
equity management that seeks to
emphasizes companies with cash flow
growth, sustainable competitive
advantages, returns on invested
capital above their cost of capital
and the ability to manage for
profitable growth that can create
long-term value for shareholders.
-------------------------------------------------------------------------
FIRST DEFINED PORTFOLIO FUND, LLC
-------------------------------------------------------------------------
SPECIALTY First Trust Target Focus Four First Trust Advisors
Portfolio (formerly, First Trust 10 L.P.
Uncommon Values Portfolio): seeks to
provide above-average capital
appreciation. The Portfolio seeks to
achieve its objective by investing
in the common stocks of companies
which are selected by applying four
separate uniquely specialized
strategies. (the "Focus Four
Strategy"). The Focus Four Strategy
adheres to a disciplined investment
process that targets the following
four strategies: The Dow(R) Target
Dividend Strategy, Value Line(R)
Target 25 Strategy, S&P Target SMid
60 Strategy, and NYSE(R)
International Target 25 Strategy.
-------------------------------------------------------------------------
SPECIALTY Global Dividend Target 15 Portfolio: First Trust Advisors
seeks to provide above-average total L.P.
return. The Portfolio seeks to
achieve its objective by investing
in common stocks issued by companies
that are expected to provide income
and to have the potential for
capital appreciation. The Portfolio
invests primarily in the common
stocks of the companies which are
components of the Dow Jones
Industrial Average/sm/ ("DJIA/sm/"),
the Financial Times Industrial
Ordinary Share Index ("FT Index")
and the Hang Seng Index. The
Portfolio primarily consists of
common stocks of the five companies
with the lowest per share stock
prices of the ten companies in each
of the DJIA/sm/, FT Index and Hang
Seng Index, respectively, that have
the highest dividend yields in the
respective index on or about the
applicable stock selection date.
Each security is initially equally
weighted in the portfolio.
-------------------------------------------------------------------------
SPECIALTY NASDAQ(R) Target 15 Portfolio: seeks First Trust Advisors
to provide above-average total L.P.
return. Beginning with the stocks in
the NASDAQ-100 Index(R) on or about
the applicable stock selection date,
the Portfolio selects fifteen stocks
based on a multi-factor model. A
modified market capitalization
approach is used to weight each
security in the portfolio.
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SPECIALTY S&P(R) Target 24 Portfolio: seeks to First Trust Advisors
provide above-average total return. L.P.
Beginning with the stocks in the
Standard & Poor's 500 Index ("S&P
500 Index"), on or about the
applicable stock selection date, the
Portfolio selects three stocks from
each of the eight largest economic
sectors of the S&P 500 Index. The
twenty four stocks are selected
based on a multi-factor model and a
modified market capitalization
approach is used to weight each
security in the portfolio.
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SPECIALTY Target Managed VIP Portfolio: seeks First Trust Advisors
to provide above-average total L.P.
return. The Portfolio seeks to
achieve its objective by investing
in common stocks of the companies
that are identified based on six
uniquely specialized strategies -
The Dow(R) DART 5, the European
Target 20, the NASDAQ(R) Target 15,
the S&P(R) Target 24, the Target
Small- Cap and the Value Line(R)
Target 25. Each strategy employs a
quantitative approach by screening
common stocks for certain attributes
and/or using a multi-factor scoring
system to select the common stocks.
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SPECIALTY The Dow(R) Target Dividend First Trust Advisors
Portfolio: seeks to provide L.P.
above-average total return. The
Portfolio seeks to achieve its
objective by investing in common
stocks issued by companies that are
expected to provide income and to
have the potential for capital
appreciation. Beginning with the
stocks in The Dow Jones Select
Dividend Index/sm/, on or about the
applicable stock selection date, the
Portfolio selects twenty common
stocks based on a multi-factor
model. Each security is initially
equally weighted in the portfolio.
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27
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
---------------------------------------------------------------------------
SPECIALTY The Dow(R) DART 10 Portfolio: seeks First Trust Advisors
to provide above-average total L.P.
return. The Portfolio seeks to
achieve its objective by investing
in common stocks issued by companies
that are expected to provide income
and to have the potential for
capital appreciation. The Portfolio
invests primarily in the common
stocks of the ten companies in the
DJIA that have the highest combined
dividend yields and buyback ratios
on or about the applicable stock
selection date. Each security is
initially equally weighted in the
portfolio.
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SPECIALTY Value Line(R) Target 25 Portfolio: First Trust Advisors
seeks to provide above-average L.P.
capital appreciation. The Portfolio
seeks to achieve its objective by
investing in 25 of the 100 common
stocks that Value Line(R) gives a #1
ranking for Timelines/tm/ which have
recently exhibited certain positive
financial attributes. Value Line(R)
ranks approximately 1,700 stocks of
which 100 are given their #1 ranking
for Timeliness(TM) which measures
Value Line's view of their probable
price performance during the next
six to 12 months relative to the
others. Beginning with the 100
stocks that Value Line(R) ranks #1
for Timeliness(TM), on or about the
applicable stock selection date, the
Portfolio selects twenty five stocks
based on a multi-factor model. A
modified market capitalization
approach is used to weight each
security in the portfolio.
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FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
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MODERATE Franklin Templeton Founding Funds Franklin Templeton
ALLOCATION Allocation Fund: Seeks capital Services, LLC
appreciation, with income as a
secondary goal. The Fund normally
invests equal portions in Class 1
shares of Franklin Income Securities
Fund; Mutual Shares Securities Fund;
and Templeton Growth Securities Fund.
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NATIONWIDE VARIABLE INSURANCE TRUST
---------------------------------------------------------------------------
INTER Gartmore NVIT Developing Markets NWD Management
NATIONAL Fund: seeks long-term capital & Research Trust/
EQUITY appreciation, under normal Gartmore Global
conditions by investing at least 80% Partners
of the value of its net assets in
equity securities of companies of
any size based in the world's
developing market countries. Under
normal market conditions,
investments are maintained in at
least six countries at all times
with no more than 35% of the value
of its net assets invested in
securities of any one country.
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WELLS FARGO VARIABLE TRUST
---------------------------------------------------------------------------
LARGE Wells Fargo Advantage VT Equity Wells Fargo Funds
CAP Income Fund: Seeks long-term capital Management, LLC,
VALUE appreciation and dividend income. adviser;
The Portfolio invests principally in Wells Capital
equity securities of large- Management
capitalization companies, which they Incorporated,
define as companies with market subadviser
capitalizations of $3 billion or
more.
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"Dow Jones Industrial Average/SM/", "DJIA/SM/", "Dow Industrials/SM/", "The
Dow/SM/", and "The Dow 10/SM/" and the other Dow indices are service marks of
Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use for
certain purposes by First Trust Advisors L.P. ("First Trust"). The portfolios,
including, and in particular the Target Managed VIP portfolio The Dow/SM/ DART
10 portfolio, and The Dow/SM/ Target Dividend Portfolio are not endorsed, sold
or promoted by Dow Jones, and Dow Jones makes no representation regarding the
advisability of investing in such products.
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by First Trust on behalf of the S&P Target 24 Portfolio and the Target Managed
VIP Portfolio. The Portfolios are not sponsored, endorsed, managed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the Portfolio.
"The Nasdaq 100(R)", "Nasdaq-100 Index(R)", "Nasdaq Stock Market(R)", and
"Nasdaq(R)" are trade or service marks of The Nasdaq Stock Market, Inc. (which
with its affiliates are the "Corporations") and have been licensed for use by
First Trust. The Nasdaq Target 15 Portfolio and Target Managed VIP Portfolio
have not been passed on by the Corporations as to its legality or suitability.
The Nasdaq Target 15 Portfolio and Target Managed VIP Portfolio are not
issued, endorsed, sponsored, managed, sold or promoted by the Corporations.
The Corporations make no warranties and bear no liability with respect to the
Nasdaq Target 15 Portfolio or the Target Managed VIP Portfolio.
"Value Line(R)," "The Value Line Investment Survey," and "Value Line
Timeliness/TM/ Ranking System" are registered trademarks of Value Line
Securities, Inc. or Value Line Publishing, Inc. The Target Managed VIP(R)
Portfolio and Value Line Target 25 Portfolio are not sponsored, recommended,
sold or promoted by Value Line Publishing, Inc., Value Line, Inc. or Value
Line Securities, Inc. ("Value Line"). Value Line makes no representation
regarding the advisability of investing in the Portfolio.
28
"Value Line Publishing, Inc.'s ("VLPI") only relationship to First Trust
Advisors L.P. or the Portfolio is VLPI's licensing to First Trust Advisors
L.P. of certain VLPI trademarks and trade names and the Value Line Timeliness
Ranking System (the "System"), which is composed by VLPI without regard to
First Trust Advisors L.P., the Portfolio or any investor. First Trust
Advisors, L.P. has sub-licensed certain VLPI trademarks and trade names to
Prudential Investments LLC. VLPI has no obligation to take the needs of First
Trust Advisors L.P., Prudential Investments LLC or any investor in the
Portfolio into consideration in composing the System. The Portfolio's results
may differ from the hypothetical or published results of the Value Line
Timeliness Ranking System. VLPI is not responsible for, and has not
participated in, the determination of the prices and composition of the
Portfolio or the timing of the issuance for sale of the Portfolio or in the
calculation of the equations by which the Portfolio is to be converted into
cash. VLPI MAKES NO WARRANTY CONCERNING THE SYSTEM, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM USAGE
OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE, AND VLPI MAKES NO
WARRANTY AS TO THE POTENTIAL PROFITS OR ANY OTHER BENEFITS THAT MAY BE
ACHIEVED BY USING THE SYSTEM OR ANY INFORMATION OR MATERIALS GENERATED
THEREFROM. VLPI DOES NOT WARRANT THAT THE SYSTEM WILL MEET ANY REQUIREMENTS OR
THAT IT WILL BE ACCURATE OR ERROR-FREE. VLPI ALSO DOES NOT GUARANTEE ANY USES,
INFORMATION, DATA OR OTHER RESULTS GENERATED FROM THE SYSTEM. VLPI HAS NO
OBLIGATION OR LIABILITY (I) IN CONNECTION WITH THE ADMINISTRATION, MARKETING
OR TRADING OF THE PORTFOLIO; OR (II) FOR ANY LOSS, DAMAGE, COST OR EXPENSE
SUFFERED OR INCURRED BY ANY INVESTOR OR OTHER PERSON OR ENTITY IN CONNECTION
WITH THE PORTFOLIO, AND IN NO EVENT SHALL VLPI BE LIABLE FOR ANY LOST PROFITS
OR OTHER CONSEQUENTIAL, SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR EXEMPLARY
DAMAGES IN CONNECTION WITH THE PORTFOLIO."
WHAT ARE THE FIXED ALLOCATIONS?
We offer Fixed Allocations of different durations during the accumulation
period. These "Fixed Allocations" earn a guaranteed fixed rate of interest for
a specified period of time, called the "Guarantee Period." In most states, we
offer Fixed Allocations with Guarantee Periods from 1 to 10 years. We may also
offer special purpose Fixed Allocations for use with certain optional
investment programs. We guarantee the fixed rate for the entire Guarantee
Period. However, if you withdraw or transfer Account Value before the end of
the Guarantee Period, we will adjust the value of your withdrawal or transfer
based on a formula, called a "Market Value Adjustment." The Market Value
Adjustment can either be positive or negative, depending on the movement of
applicable interest rates payable on Strips of the appropriate duration.
Please refer to the section entitled "How does the Market Value Adjustment
Work?" for a description of the formula along with examples of how it is
calculated. You may allocate Account Value to more than one Fixed Allocation
at a time.
Fixed Allocations may not be available in all states. Availability of Fixed
Allocations is subject to change and may differ by state and by the annuity
product you purchase. Please call Prudential Annuities at 1-800-752-6342 to
determine availability of Fixed Allocations in your state and for your annuity
product. We may restrict your ability to allocate Account Value to Fixed
Allocations if you elect certain optional benefits. The interest rate that we
credit to the Fixed Allocations may be reduced by an amount that corresponds
to the asset-based charges assessed against the Sub-accounts.
29
FEES AND CHARGES
The charges under the Annuity are designed to cover, in the aggregate, our
direct and indirect costs of selling, administering and providing benefits
under the Annuity. They are also designed, in the aggregate, to compensate us
for the risks of loss we assume. If, as we expect, the charges that we collect
from the Annuities exceed our total costs in connection with the Annuities, we
will earn a profit. Otherwise we will incur a loss. For example, Prudential
Annuities may make a profit on the Insurance Charge if, over time, the actual
costs of providing the guaranteed insurance obligations under an Annuity are
less than the amount we deduct for the Insurance Charge. To the extent we make
a profit on the Insurance Charge, such profit may be used for any other
corporate purpose, including payment of other expenses that Prudential
Annuities incurs in promoting, distributing, issuing and administering an
Annuity and to offset a portion of the costs associated with offering any
Credits which are funded through Prudential Annuities' general account.
The rates of certain of our charges have been set with reference to estimates
of the amount of specific types of expenses or risks that we will incur. In
most cases, this prospectus identifies such expenses or risks in the name of
the charge; however, the fact that any charge bears the name of, or is
designed primarily to defray a particular expense or risk does not mean that
the amount we collect from that charge will never be more than the amount of
such expense or risk, nor does it mean that we may not also be compensated for
such expense or risk out of any other charges we are permitted to deduct by
the terms of the Annuity. A portion of the proceeds that Prudential Annuities
receives from charges that apply to the Sub-accounts may include amounts based
on market appreciation of the Sub-account values including appreciation on
amounts that represent any Credits.
WHAT ARE THE CONTRACT FEES AND CHARGES?
Contingent Deferred Sales Charge: We do not deduct a sales charge from
Purchase Payments you make to your Annuity. However, we may deduct a CDSC if
you surrender your Annuity or when you make a partial withdrawal. The CDSC
reimburses us for expenses related to sales of the Annuity, including
commissions, marketing materials and other promotional expenses. The CDSC is
calculated as a percentage of your Purchase Payment being surrendered or
withdrawn during the applicable Annuity Year. For purposes of calculating the
CDSC, we consider the year following the Issue Date of your Annuity as Year 1.
The amount of the CDSC decreases over time, measured from the Issue Date of
the Annuity. The CDSC percentages are shown under "Summary of Contract Fees
and Charges". If you purchase the Annuity and make a withdrawal that is
subject to a CDSC, we may use part of that CDSC to recoup our costs of
providing the Credit. However, we do not impose any CDSC on your withdrawal of
a Credit amount.
With respect to a partial withdrawal, we calculate the CDSC by assuming that
any available free withdrawal amount is taken out first (see How Much Can I
Withdraw as a Free Withdrawal?). If the free withdrawal amount is not
sufficient, we then assume that withdrawals are taken from Purchase Payments
that have not been previously withdrawn, on a first-in, first-out basis, and
subsequently from any other Account Value in the Annuity.
For purposes of calculating any applicable CDSC on a surrender, the Purchase
Payments being withdrawn may be greater than your remaining Account Value or
the amount of your withdrawal request. This is most likely to occur if you
have made prior partial withdrawals or if your Account Value has declined in
value due to negative market performance. In that scenario, we would determine
the CDSC amount as the applicable percentage of the Purchase Payments being
withdrawn, rather than as a percentage of the remaining Account Value or
withdrawal request. Thus, the CDSC would be greater than if it were calculated
as a percentage of remaining Account Value or withdrawal amount.
We may waive any applicable CDSC under certain circumstances including certain
medically-related circumstances or when taking a Minimum Distribution from an
Annuity purchased as a "qualified" investment. Free Withdrawals,
Medically-Related Surrenders and Minimum Distributions are each explained more
fully in the section entitled "Access to Your Account Value".
Transfer Fee: Currently, you may make twenty (20) free transfers between
investment options each Annuity Year. We will charge $10.00 for each transfer
after the twentieth in each Annuity Year. We do not consider transfers made as
part of a Dollar Cost Averaging, Automatic Rebalancing or asset allocation
program when we count the twenty free transfers. All transfers made on the
same day will be treated as one (1) transfer. Renewals or transfers of Account
Value from a Fixed Allocation at the end of its Guarantee Period are not
subject to the Transfer Fee and are not counted toward the twenty free
transfers. We may reduce the number of free transfers allowable each Annuity
Year (subject to a minimum of eight) without charging a Transfer Fee unless
you make use of electronic means to transmit your transfer requests. We may
eliminate the Transfer Fee for transfer requests transmitted electronically or
through other means that reduce our processing costs. If you are enrolled in
any program that does not permit transfer requests to be transmitted
electronically, the Transfer Fee will not be waived.
Annual Maintenance Fee: During the accumulation period we deduct an Annual
Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account
Value invested in the Sub-accounts, whichever is less. This fee will be
deducted annually on the anniversary of the Issue Date of your Annuity or, if
you surrender your Annuity during the Annuity Year, the fee is deducted at the
time of surrender. We do not impose the Annual Maintenance Fee upon
annuitization, the payment of a Death Benefit, or a
30
medically-related full surrender. We may increase the Annual Maintenance Fee.
However, any increase will only apply to Annuities issued after the date of
the increase. For beneficiaries that elect the Beneficiary Continuation
Option, the Annual Maintenance Fee is the lesser of $30 or 2% of Account
Value. For a non-qualified Beneficiary Continuation Option, the fee is only
applicable if the Account Value is less than $25,000 at the time the fee is
assessed.
Tax Charge: Several states and some municipalities charge premium taxes or
similar taxes on annuities that we are required to pay. The amount of tax will
vary from jurisdiction to jurisdiction and is subject to change. The tax
charge currently ranges up to 3 1/2% of your Purchase Payments and is designed
to approximate the taxes that we are required to pay. We reserve the right to
deduct the charge either at the time the tax is imposed, upon a full surrender
of the Annuity, or upon annuitization. We may assess a charge against the
Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed
upon the separate accounts.
We will pay company income taxes on the taxable corporate earnings created by
this separate account product. While we may consider company income taxes when
pricing our products, we do not currently include such income taxes in the tax
charges you pay under the Annuity. We will periodically review the issue of
charging for these taxes and may impose a charge in the future.
In calculating our corporate income tax liability, we derive certain corporate
income tax benefits associated with the investment of company assets,
including separate account assets, which are treated as company assets under
applicable income tax law. These benefits reduce our overall corporate income
tax liability. Under current law, such benefits may include foreign tax
credits and corporate dividends received deductions. We do not pass these tax
benefits through to holders of the separate account annuity contracts because
(i) the contract owners are not the owners of the assets generating these
benefits under applicable income tax law and (ii) we do not currently include
company income taxes in the tax charges you pay under the contract.
Insurance Charge: We deduct an Insurance Charge daily. The charge is assessed
against the daily assets allocated to the Sub-accounts and is equal to the
amount indicated under "Summary of Contract Fees and Charges". The Insurance
Charge is the combination of the Mortality & Expense Risk Charge and the
Administration Charge. The Insurance Charge is intended to compensate
Prudential Annuities for providing the insurance benefits under each Annuity,
including each Annuity's basic Death Benefit that provides guaranteed benefits
to your beneficiaries even if the market declines and the risk that persons we
guarantee annuity payments to will live longer than our assumptions. The
charge also covers administrative costs associated with providing the Annuity
benefits, including preparation of the contract and prospectus, confirmation
statements, annual account statements and annual reports, legal and accounting
fees as well as various related expenses. Finally, the charge covers the risk
that our assumptions about the mortality risks and expenses under each Annuity
are incorrect and that we have agreed not to increase these charges over time
despite our actual costs. We may increase the portion of the total Insurance
Charge that is deducted for administrative costs; however, any increase will
only apply to Annuities issued after the date of the increase.
The Insurance Charge is not deducted against assets allocated to a Fixed
Allocation. However, the amount we credit to Fixed Allocations may also
reflect similar assumptions about the insurance guarantees provided under each
Annuity and the administrative costs associated with providing the Annuity
benefits.
Optional Benefits for which we assess a charge: Generally, if you elect to
purchase certain optional benefits, we will deduct an additional charge on a
daily basis from your Account Value allocated to the Sub-accounts. The
additional charge is included in the daily calculation of the Unit Price for
each Sub-account. We may assess charges for other optional benefits on a
different basis. Please refer to the section entitled "Summary of Contract
Fees and Charges" for the list of charges for each Optional Benefit.
Settlement Service Charge: If your beneficiary takes the death benefit under a
Beneficiary Continuation Option, we deduct a Settlement Service Charge. The
charge is assessed daily against the average assets allocated to the
Sub-accounts and is equal to an annual charge of 1.00% for non-qualified
Annuities and 1.40% for qualified Annuities.
Fees and expenses incurred by the Portfolios: Each Portfolio incurs total
annual operating expenses comprised of an investment management fee, other
expenses and any distribution and service (12b-1) fees that may apply. These
fees and expenses are reflected daily by each Portfolio before it provides
Prudential Annuities with the net asset value as of the close of business each
day. More detailed information about fees and expenses can be found in the
prospectuses for the Portfolios.
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
No specific fees or expenses are deducted when determining the rate we credit
to a Fixed Allocation. However, for some of the same reasons that we deduct
the Insurance Charge against Account Value allocated to the Sub-accounts, we
also take into consideration mortality, expense, administration, profit and
other factors in determining the interest rates we credit to Fixed
Allocations. Any CDSC or Tax Charge applies to amounts that are taken from the
Sub-accounts or the Fixed Allocations. A Market Value Adjustment may also
apply to transfers, certain withdrawals, surrender or annuitization from a
Fixed Allocation.
31
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION?
If you select a fixed payment option, the amount of each fixed payment will
depend on the Account Value of your Annuity when you elected to annuitize.
There is no specific charge deducted from these payments; however, the amount
of each annuity payment reflects assumptions about our insurance expenses. If
you select a variable payment option that we may offer, then the amount of
your benefits will reflect changes in the value of your Annuity and will be
subject to charges that apply under the variable immediate annuity option.
Also, a tax charge may apply (see "Tax Charge" above). Currently, we only
offer fixed payment options.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in
which the particular fee or charge is deducted. For example, we may reduce the
amount of any CDSC or the length of time it applies, reduce or eliminate the
amount of the Annual Maintenance Fee or reduce the portion of the total
Insurance Charge that is deducted as an Administration Charge. Generally,
these types of changes will be based on a reduction to our sales, maintenance
or administrative expenses due to the nature of the individual or group
purchasing the Annuity. Some of the factors we might consider in making such a
decision are: (a) the size and type of group; (b) the number of Annuities
purchased by an Owner; (c) the amount of Purchase Payments or likelihood of
additional Purchase Payments; (d) whether an annuity is reinstated pursuant to
our rules; and/or (e) other transactions where sales, maintenance or
administrative expenses are likely to be reduced. We will not discriminate
unfairly between Annuity purchasers if and when we reduce any fees and charges.
32
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING ONE OF THE ANNUITIES?
Initial Purchase Payment: Unless we agree otherwise and subject to our rules,
you must make a minimum initial Purchase Payment of $10,000. However, if you
decide to make payments under a systematic investment or an electronic funds
transfer program, we may accept a lower initial Purchase Payment provided
that, within the first Annuity Year, your subsequent Purchase Payments plus
your initial Purchase Payment total $10,000.
Where allowed by law, we must approve any initial and additional Purchase
Payments of $1,000,000 or more. We may apply certain limitations and/or
restrictions on an Annuity as a condition of our acceptance, including
limiting the liquidity features or the Death Benefit protection provided under
an Annuity, limiting the right to make additional Purchase Payments, changing
the number of transfers allowable under an Annuity or restricting the
Sub-accounts or Fixed Allocations that are available. Other limitations and/or
restrictions may apply. Applicable laws designed to counter terrorists and
prevent money laundering might, in certain circumstances, require us to block
a contract owner's ability to make certain transactions, and thereby refuse to
accept Purchase Payments or requests for transfers, partial withdrawals, total
withdrawals, death benefits, or income payments until instructions are
received from the appropriate regulator. We also may be required to provide
additional information about you and your Annuity to government regulators.
Except as noted below, Purchase Payments must be submitted by check drawn on a
U.S. bank, in U.S. dollars, and made payable to Prudential Annuities. Purchase
Payments may also be submitted via 1035 exchange or direct transfer of funds.
Under certain circumstances, Purchase Payments may be transmitted to
Prudential Annuities via wiring funds through your Financial Professional's
broker-dealer firm. Additional Purchase Payments may also be applied to your
Annuity under an electronic funds transfer arrangement where you authorize us
to deduct money directly from your bank account. We may reject any payment if
it is received in an unacceptable form. Our acceptance of a check is subject
to our ability to collect funds.
Age Restrictions: Unless we agree otherwise and subject to our rules, the
Owner (or Annuitant if entity owned) must not be older than a maximum issue
age as of the Issue Date of the Annuity of age 75. If an Annuity is owned
jointly, the oldest of the Owners must not be older than the maximum issue age
on the Issue Date. You should consider your need to access your Account Value
and whether the Annuity's liquidity features will satisfy that need. If you
take a distribution prior to age 59 1/2, you may be subject to a 10% penalty
in addition to ordinary income taxes on any gain. The availability and level
of protection of certain optional benefits may vary based on the age of the
Owner on the Issue Date of the Annuity or the date of the Owner's death.
Owner, Annuitant and Beneficiary Designations: We will ask you to name the
Owner(s), Annuitant and one or more Beneficiaries for your Annuity.
. Owner: The Owner(s) holds all rights under the Annuity. You may name up
to two Owners in which case all ownership rights are held jointly.
Generally, joint owners are required to act jointly; however, if each
owner provides us with an instruction that we find acceptable, we will
permit each owner to act separately. All information and documents that
we are required to send you will be sent to the first named owner. This
Annuity does not provide a right of survivorship. Refer to the Glossary
of Terms for a complete description of the term "Owner."
. Annuitant: The Annuitant is the person upon whose life we continue to
make annuity payments. You must name an Annuitant who is a natural
person. We do not accept a designation of joint Annuitants during the
accumulation period. In limited circumstances and where allowed by law,
you may name one or more Contingent Annuitants. Generally, a Contingent
Annuitant will become the Annuitant if the Annuitant dies before the
Annuity Date. Please refer to the discussion of "Considerations for
Contingent Annuitants" in the Tax Considerations section of the
Prospectus.
. Beneficiary: The Beneficiary is the person(s) or entity you name to
receive the Death Benefit. Your Beneficiary Designation should be the
exact name of your beneficiary, not only a reference to the
beneficiary's relationship to you. If you use a designation of
"surviving spouse," we will pay the Death Benefit to the individual that
is your spouse at the time of your death (as defined under the federal
tax laws and regulations). If no beneficiary is named the Death Benefit
will be paid to you or your estate.
Your right to make certain designations may be limited if your Annuity is to
be used as an IRA or other "qualified" investment that is given beneficial tax
treatment under the Code. You should seek competent tax advice on the income,
estate and gift tax implications of your designations.
33
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Owner, Annuitant and Beneficiary Designations by sending us
a request in writing in a form acceptable to us. Upon an ownership change, any
automated investment or withdrawal programs will be canceled. The new owner
must submit the applicable program enrollment if they wish to participate in
such a program. Where allowed by law, such changes will be subject to our
acceptance. Some of the changes we will not accept include, but are not
limited to:
. a new Owner subsequent to the death of the Owner or the first of any
joint Owners to die, except where a spouse Beneficiary has become the
Owner as a result of an Owner's death;
. a new Annuitant subsequent to the Annuity Date;
. for "non-qualified" investments, a new Annuitant prior to the Annuity
Date if the Annuity is owned by an entity; and
. a change in Beneficiary if the Owner had previously made the designation
irrevocable.
There are also restrictions on designation changes when you have elected
certain optional benefits. See the "Living Benefit Programs" and "Death
Benefits" sections of this Prospectus for any such restrictions.
Spousal Designations
If an Annuity is co-owned by spouses, we will assume that the sole primary
Beneficiary is the surviving spouse that was named as the co-owner unless you
elect an alternative Beneficiary Designation. Unless you elect an alternative
Beneficiary Designation, upon the death of either spousal Owner, the surviving
spouse may elect to assume ownership of the Annuity instead of taking the
Death Benefit payment. The Death Benefit that would have been payable will be
the new Account Value of the Annuity as of the date of due proof of death and
any required proof of a spousal relationship. As of the date the assumption is
effective, the surviving spouse will have all the rights and benefits that
would be available under the Annuity to a new purchaser of the same attained
age. For purposes of determining any future Death Benefit for the beneficiary
of the surviving spouse, the new Account Value will be considered as the
initial Purchase Payment. No CDSC will apply to the new Account Value.
However, any additional Purchase Payments applied after the date the
assumption is effective will be subject to all provisions of the Annuity,
including the CDSC when applicable.
Spousal assumption is also permitted, subject to our rules and regulatory
approval, if the Annuity is held by a custodial account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Internal Revenue Code ("Code") (or any
successor Code section thereto) ("Custodial Account") and, on the date of the
Annuitant's death, the spouse of the Annuitant is (1) the Contingent Annuitant
under the Annuity and (2) the beneficiary of the Custodial Account. The
ability to continue the Annuity in this manner will result in the Annuity no
longer qualifying for tax deferral under the Code. However, such tax deferral
should result from the ownership of the Annuity by the Custodial Account.
Please consult your tax or legal adviser.
We define a spouse the same as under federal tax laws and regulations.
Contingent Annuitant
Generally, if an Annuity is owned by an entity and the entity has named a
Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon
the death of the Annuitant, and no Death Benefit is payable. Unless we agree
otherwise, the Annuity is only eligible to have a Contingent Annuitant
designation if the entity which owns the Annuity is (1) a plan described in
Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section
thereto); (2) an entity described in Code Section 72(u)(1) (or any successor
Code section thereto); or (3) a Custodial Account, as described in the above
section.
Where the Annuity is held by a Custodial Account, the Contingent Annuitant
will not automatically become the Annuitant upon the death of the Annuitant.
Upon the death of the Annuitant, the Custodial Account will have the choice,
subject to our rules, to either elect to receive the Death Benefit or elect to
continue the Annuity. If the Custodial Account elects to receive the Death
Benefit, the Account Value of the Annuity as of the date of due proof of death
of the Annuitant will reflect the amount that would have been payable had a
Death Benefit been paid. See the section above entitled "Spousal Designations"
for more information about how the Annuity can be continued by a Custodial
Account.
MAY I RETURN MY ANNUITY IF I CHANGE MY MIND?
If after purchasing your Annuity you change your mind and decide that you do
not want it, you may return it to us within a certain period of time known as
a right to cancel period. This is often referred to as a "free look."
Depending on the state in which you purchased your Annuity and, in some
states, if you purchased the Annuity as a replacement for a prior contract,
the right to cancel period may be ten (10) days, or longer, measured from the
time that you received your Annuity. If you return your Annuity during the
applicable period, we will refund your current Account Value plus any tax
charge deducted, less any applicable federal and state income tax withholding
and depending on your state's requirements, any applicable insurance charges
deducted. The amount returned to you may be higher or lower than the Purchase
Payment(s) applied during the right to cancel period. Where required by law,
we will return your Purchase Payments applied during the right to cancel
period if they are greater than your current Account
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Value. Such amounts returned will be less any applicable federal and state
income tax withholding. If you return your Annuity, we will not return any
XTra Credits we applied to your Annuity based on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
Unless we agree otherwise and subject to our rules, the minimum amount that we
accept as an additional Purchase Payment is $100 unless you participate in our
Systematic Investment Plan or a periodic Purchase Payment program. Purchase
Payments made while you participate in an asset allocation program will be
allocated in accordance with such program.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to
deduct money directly from your bank account and applying it to your Annuity.
We call our electronic funds transfer program the "Systematic Investment
Plan." Purchase Payments made through electronic funds transfer may only be
allocated to the Sub-accounts when applied. Different allocation requirements
may apply in connection with certain optional benefits. We may allow you to
invest in your Annuity with a lower initial Purchase Payment, as long as you
authorize payments through an electronic funds transfer that will equal at
least the minimum Purchase Payment set forth above during the first 12 months
of your Annuity. We may suspend or cancel electronic funds transfer privileges
if sufficient funds are not available from the applicable financial
institution on any date that a transaction is scheduled to occur.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of qualified
investments. If your employer sponsors such a program, we may agree to accept
periodic Purchase Payments through a salary reduction program as long as the
allocations are made only to Sub-accounts and the periodic Purchase Payments
received in the first year total at least the minimum Purchase Payment set
forth above.
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MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing
initial and subsequent Purchase Payments.)
Initial Purchase Payment: Once we accept your application, we invest your
Purchase Payment in your Annuity according to your instructions for allocating
your Account Value. The Purchase Payment is your initial Purchase Payment
minus any tax charges that may apply. You can allocate Account Value to one or
more Sub-accounts or Fixed Allocations. Investment restrictions will apply if
you elect certain optional benefits.
Subsequent Purchase Payments: Unless you participate in an asset allocation
program, or unless you have provided us with other specific allocation
instructions for one, more than one, or all subsequent Purchase Payments, we
will allocate any additional Purchase Payments you make according to your
initial Purchase Payment allocation instructions. If you so instruct us, we
will allocate subsequent Purchase Payments according to any new allocation
instructions. Unless you tell us otherwise, Purchase Payments made while you
participate in an asset allocation program will be allocated in accordance
with such program.
HOW DO I RECEIVE CREDITS UNDER THE ANNUITY?
We apply a "Credit" to your Annuity's Account Value each time you make a
Purchase Payment during the first six (6) Annuity Years. The amount of the
Credit is payable from our general account. The amount of the Credit depends
on the Annuity Year in which the Purchase Payment(s) is made, and the amount
of the Purchase Payment according to the table below:
CREDIT
(Cumulative CREDIT
Purchase (Cumulative
Payments Purchase Payments
ANNUITY $100,000 or Less than
YEAR Greater) $100,000)
-------------------------------------
1 8.00% 6.00%
2 6.00% 5.00%
3 4.00% 4.00%
4 3.00% 3.00%
5 2.00% 2.00%
6 1.00% 1.00%
7+ 0.00% 0.00%
-------------------------------------
HOW ARE CREDITS APPLIED TO ACCOUNT VALUE UNDER THE ANNUITY?
Each Credit is allocated to your Account Value at the time the Purchase
Payment is applied to your Account Value. The amount of the Credit is
allocated to the investment options in the same ratio as the applicable
Purchase Payment is applied.
If your Annuity is being funded with an initial Purchase Payments that
includes a transfer of assets, as we define through our administrative
procedures, and the total initial Purchase Payment equals or exceeds $100,000,
we will Credit you with the higher Credit described in the chart above.
Examples of Applying Credits
Initial Purchase Payment
Assume you make an initial Purchase Payment of $75,000 and your Annuity is
issued on January 2, 2009. Since the cumulative Purchase Payments are less
than $100,000 and the contract is in the first Annuity Year, we would apply a
6% Credit to your Purchase Payment and allocate the amount of the Credit
($4500 = $75,000 X .060) to your Account Value in the proportion that your
Purchase Payment is allocated.
Initial Purchase Payment With Transfer of Assets
Assume you make an initial Purchase Payment of $105,000 (which consists of a
check for $75,000 and exchange paperwork indicating additional purchase
payments of $30,000) and your Annuity is issued on January 2, 2009 with the
receipt of the check for $75,000. On January 16, 2009 the remaining $30,000,
as indicated by the exchange paperwork, is received. Since the cumulative
Purchase Payments are greater than $100,000 and the contract is in the first
Annuity Year, we would apply an 8% Credit to the January 2, 2009 portion or
your Purchase Payment and allocate the amount of the Credit ($6,000= $75,000 x
.08) to your Account Value on January 2, 2009 and we would apply an 8% Credit
to the January 16, 2009 portion of your Purchase Payment and allocate the
amount of the Credit ($2,400= $30,000 x .080) to your Account Value on January
16, 2009.
Additional Purchase Payment in Annuity Year 1
Assume that you make an additional Purchase Payment of $30,000 on March 5,
2009. The cumulative Purchase Payments are greater than $100,000; therefore we
would apply an 8.0% Credit to your March 5, 2009 Purchase Payment and allocate
the amount of the Credit ($2400 = $30,000 X .08) to your Account Value.
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Additional Purchase Payment in Annuity Year 6
Assume that you make an additional Purchase Payment of $25,000 on February 6,
2010. The cumulative Purchase Payments are greater than $100,000 and the
contract is in the second year; therefore we would apply a 1.0% Credit to your
Purchase Payment and allocate the amount of the Credit ($1,500 = $25,000 X
.01) to your Account Value.
Recapture as XTra Credits
The amount of any XTra Credits applied to your Annuity Account Value can be
taken back by Prudential Annuities: if you elect to "free look" your Annuity,
the amount returned to you will not include the amount of any XTra Credits.
We have filed an application with the SEC that, if granted, will allow us to
recapture the XTra Credit amounts under this Annuity (a) if you return the
Annuity during the "free look" period or (b) if the XTra Credit amount was
granted within 12 months immediately before a death that triggers payment of
the Annuity's death benefit or (c) if the XTra Credit amount was granted
within 12 months immediately prior to your exercise of the medically-related
surrender provision of the Annuity. Until we receive such an exemptive order,
we will recapture the XTra Credits under this Annuity only if you exercise the
free look right, but will adjust the amount we recapture for any charges, and
negative investment experience, with respect to the XTra Credit amount.
The Account Value may be substantially reduced if Prudential Annuities takes
back the XTra Credit amount under these circumstances. The amount we take back
will equal the XTra Credit, without adjustment up or down for investment
performance. Therefore, any gain on the XTra Credit amount will not be taken
back. But if there was a loss on the XTra Credit, the amount we take back will
still equal amount of the XTra Credit. We do not deduct a CDSC in any
situation where we take back the XTra Credit amount. The total asset-based
charges on this Annuity (including the Insurance Charge) are higher than many
of our other annuities, including other annuities we offer that apply credits
to Purchase Payments.
We have filed an application with the SEC that, if granted, will allow us to
recapture the XTra Credit amounts under this Annuity (a) if you return the
Annuity during the "free look" period or (b) if the XTra Credit amount was
granted within 12 months immediately before a death that triggers payment of
the Annuity's death benefit or (c) if the XTra Credit amount was granted
within 12 months immediately prior to your exercise of the medically-related
surrender provision of the Annuity. Until we receive such an exemptive order,
we will recapture the XTra Credits under this Annuity only if you exercise the
free look right, but will adjust the amount we recapture for any charges, and
negative investment experience, with respect to the XTra Credit amount.
General Information about Credits
. We do not consider Credits to be "investment in the contract" for income
tax purposes.
. You may not withdraw the amount of any Credits under the Free Withdrawal
provision. The Free Withdrawal provision only applies to withdrawals of
Purchase Payments.
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between
investment options subject to the restrictions outlined below. Transfers are
not subject to taxation on any gain. We may require a minimum of $500 in each
Sub-account you allocate Account Value to at the time of any allocation or
transfer. If you request a transfer and, as a result of the transfer, there
would be less than $500 in the Sub-account, we may transfer the remaining
Account Value in the Sub-account pro-rata to the other investment options to
which you transferred.
Currently, we charge $10.00 for each transfer after the twentieth
(20/th/) transfer in each Annuity Year. Transfers made as part of a Dollar
Cost Averaging, Automatic Rebalancing or asset allocation program do not count
toward the twenty free transfer limit. Renewals or transfers of Account Value
from a Fixed Allocation at the end of its Guarantee Period are not subject to
the transfer charge. We may reduce the number of free transfers allowable each
Annuity Year (subject to a minimum of eight) without charging a Transfer Fee.
We may also increase the Transfer Fee that we charge to $20.00 for each
transfer after the number of free transfers has been used up. We may eliminate
the Transfer Fee for transfer requests transmitted electronically or through
other means that reduce our processing costs. If enrolled in any program that
does not permit transfer requests to be transmitted electronically, the
Transfer Fee will not be waived.
Once you have made 20 transfers among the Sub-accounts during an Annuity Year,
we will accept any additional transfer request during that year only if the
request is submitted to us in writing with an original signature and otherwise
is in good order. For purposes of this 20 transfer limit, we (i) do not view a
facsimile transmission as a "writing", (ii) will treat multiple transfer
requests submitted on the same Valuation Day as a single transfer, and
(iii) do not count any transfer that solely involves one of our systematic
programs, such as asset allocation and automated withdrawals.
Frequent transfers among Sub-accounts in response to short-term fluctuations
in markets, sometimes called "market timing," can make it very difficult for a
Portfolio manager to manage a Portfolio's investments. Frequent transfers may
cause the Portfolio to hold more cash than otherwise necessary, disrupt
management strategies, increase transaction costs, or affect performance.
In light of the risks posed to Owners and other investors by frequent
transfers, we reserve the right to limit the number of transfers in any
Annuity Year for all existing or new Owners and to take the other actions
discussed below. We also reserve the right to limit
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the number of transfers in any Annuity Year or to refuse any transfer request
for an Owner or certain Owners if: (a) we believe that excessive transfer
activity (as we define it) or a specific transfer request or group of transfer
requests may have a detrimental effect on Unit Values or the share prices of
the Portfolios; or (b) we are informed by a Portfolio (e.g., by the
Portfolio's portfolio manager) that the purchase or redemption of shares in
the Portfolio must be restricted because the Portfolio believes the transfer
activity to which such purchase and redemption relates would have a
detrimental effect on the share prices of the affected Portfolio. Without
limiting the above, the most likely scenario where either of the above could
occur would be if the aggregate amount of a trade or trades represented a
relatively large proportion of the total assets of a particular Portfolio. In
furtherance of our general authority to restrict transfers as described above,
and without limiting other actions we may take in the future, we have adopted
the following specific restrictions:
.. With respect to each Sub-account (other than the AST Money Market
Sub-account), we track amounts exceeding a certain dollar threshold that
were transferred into the Sub-account. If you transfer such amount into a
particular Sub-account, and within 30 calendar days thereafter transfer
(the "Transfer Out") all or a portion of that amount into another
Sub-account, then upon the Transfer Out, the former Sub-account becomes
restricted (the "Restricted Sub-account"). Specifically, we will not permit
subsequent transfers into the Restricted Sub-account for 90 calendar days
after the Transfer Out if the Restricted Sub-account invests in a
non-international Portfolio, or 180 calendar days after the Transfer Out if
the Restricted Sub-account invests in an international Portfolio. For
purposes of this rule, we (i) do not count transfers made in connection
with one of our systematic programs, such as asset allocation and automated
withdrawals and (ii) do not categorize as a transfer the first transfer
that you make after the Issue Date, if you make that transfer within 30
calendar days after the Issue Date. Even if an amount becomes restricted
under the foregoing rules, you are still free to redeem the amount from
your Annuity at any time.
.. We reserve the right to effect exchanges on a delayed basis for all
contracts. That is, we may price an exchange involving the Sub-accounts on
the Valuation Day subsequent to the Valuation Day on which the exchange
request was received. Before implementing such a practice, we would issue a
separate written notice to Owners that explains the practice in detail.
If we deny one or more transfer requests under the foregoing rules, we will
inform you or your Financial Professional promptly of the circumstances
concerning the denial.
There are contract owners of different variable annuity contracts that are
funded through the same Separate Account that are not subject to the
above-referenced transfer restrictions and, therefore, might make more
numerous and frequent transfers than contract owners who are subject to such
limitations. Finally, there are contract owners of other variable annuity
contracts or variable life contracts that are issued by Prudential Annuities
as well as other insurance companies that have the same underlying mutual fund
portfolios available to them. Since some contract owners are not subject to
the same transfer restrictions, unfavorable consequences associated with such
frequent trading within the underlying mutual fund (e.g., greater portfolio
turnover, higher transaction costs, or performance or tax issues) may affect
all contract owners. Similarly, while contracts managed by a Financial
Professional or third party investment advisor are subject to the restrictions
on transfers between investment options that are discussed above, if the
advisor manages a number of contracts in the same fashion unfavorable
consequences may be associated with management activity since it may involve
the movement of a substantial portion of an underlying mutual fund's assets
which may affect all contract owners invested in the affected options. Apart
from jurisdiction-specific and contract differences in transfer restrictions,
we will apply these rules uniformly (including contracts managed by a
Financial Professional or third party investment advisor), and will not waive
a transfer restriction for any contract owner.
Although our transfer restrictions are designed to prevent excessive
transfers, they are not capable of preventing every potential occurrence of
excessive transfer activity.
The Portfolios have adopted their own policies and procedures with respect to
excessive trading of their respective shares, and we reserve the right to
enforce any such current or future policies and procedures. The prospectuses
for the Portfolios describe any such policies and procedures, which may be
more or less restrictive than the policies and procedures we have adopted.
Under SEC rules, we are required to: (1) enter into a written agreement with
each Portfolio or its principal underwriter or its transfer agent that
obligates us to provide to the Portfolio promptly upon request certain
information about the trading activity of individual contract owners, and
(2) execute instructions from the Portfolio to restrict or prohibit further
purchases or transfers by specific contract owners who violate the excessive
trading policies established by the Portfolio. In addition, you should be
aware that some Portfolios may receive "omnibus" purchase and redemption
orders from other insurance companies or intermediaries such as retirement
plans. The omnibus orders reflect the aggregation and netting of multiple
orders from individual owners of variable insurance contracts and/or
individual retirement plan participants. The omnibus nature of these orders
may limit the Portfolios in their ability to apply their excessive trading
policies and procedures. In addition, the other insurance companies and/or
retirement plans may have different policies and procedures or may not have
any such policies and procedures because of contractual limitations. For these
reasons, we cannot guarantee that the Portfolios (and thus contract owners)
will not be harmed by transfer activity relating to other insurance companies
and/or retirement plans that may invest in the Portfolios.
A Portfolio also may assess a short term trading fee in connection with a
transfer out of the Sub-account investing in that Portfolio that occurs within
a certain number of days following the date of allocation to the Sub-account.
Each Portfolio determines the amount of the short term trading fee and when
the fee is imposed. The fee is retained by or paid to the Portfolio and is not
retained by us. The fee will be deducted from your Account Value, to the
extent allowed by law. At present, no Portfolio has adopted a short-term
trading fee.
38
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar
Cost Averaging allows you to systematically transfer an amount periodically
from one investment option to one or more other investment options. You can
choose to transfer earnings only, principal plus earnings or a flat dollar
amount. You may elect a Dollar Cost Averaging program that transfers amounts
monthly, quarterly, semi-annually, or annually from Sub-accounts, or a program
that transfers amounts monthly from Fixed Allocations. By investing amounts on
a regular basis instead of investing the total amount at one time, Dollar Cost
Averaging may decrease the effect of market fluctuation on the investment of
your Purchase Payment. This may result in a lower average cost of units over
time. However, there is no guarantee that Dollar Cost Averaging will result in
a profit or protect against a loss in a declining market. There is no minimum
Account Value required to enroll in a Dollar Cost Averaging program and we do
not deduct a charge for participating in a Dollar Cost Averaging program.
You can Dollar Cost Average from Sub-accounts or Fixed Allocations. Dollar
Cost Averaging from Fixed Allocations is subject to a number of rules that
include, but are not limited to the following:
. You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3
years.
. You may only Dollar Cost Average earnings or principal plus earnings. If
transferring principal plus earnings, the program must be designed to
last the entire Guarantee Period for the Fixed Allocation.
. Dollar Cost Averaging transfers from Fixed Allocations are not subject
to a Market Value Adjustment.
NOTE: When a Dollar Cost Averaging program is established from a Fixed
Allocation, the fixed rate of interest we credit to your Account Value is
applied to a declining balance due to the transfers of Account Value to the
Sub-accounts during the Guarantee Period. This will reduce the effective rate
of return on the Fixed Allocation over the Guarantee Period.
The Dollar Cost Averaging program is not available if you have elected an
automatic rebalancing program or an asset allocation program. Dollar Cost
Averaging from Fixed Allocations also is not available if you elect certain
optional benefits.
Prudential Annuities may offer Fixed Allocations with Guarantee Periods of 6
months or 12 months exclusively for use with a Dollar Cost Averaging program
("DCA Fixed Allocations"). DCA Fixed Allocations are designed to automatically
transfer Account Value in either 6 or 12 payments under a Dollar Cost
Averaging program. Dollar Cost Averaging transfers will be effected on the
date the DCA Fixed Dollar Allocation is established and each month following
until the entire principal amount plus earnings is transferred. DCA Fixed
Allocations may only be established with your initial Purchase Payment or
additional Purchase Payments. You may not transfer existing Account Value to a
DCA Fixed Allocation. We reserve the right to terminate offering these special
purpose Fixed Allocations at any time.
Account Value allocated to the DCA Fixed Allocation will be transferred to the
Sub-accounts you choose under the Dollar Cost Averaging program. If you
terminate the Dollar Cost Averaging program before the entire principal amount
plus earnings has been transferred to the Sub-account(s), you must transfer
all remaining Account Value to any other investment option. Unless you provide
alternate instructions at the time you terminate the Dollar Cost Averaging
program, Account Value will be transferred to the AST Money Market
Sub-account. Transfers from Fixed Allocations as part of a Dollar Cost
Averaging program are not subject to a Market Value Adjustment. However, a
Market Value Adjustment will apply if you terminate the Dollar Cost Averaging
program before the entire principal amount plus earnings has been transferred
to the Sub-account(s).
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?
Yes. During the accumulation period, we offer Automatic Rebalancing among the
Sub-accounts you choose. You can choose to have your Account Value rebalanced
monthly, quarterly, semi-annually, or annually. On the appropriate date, the
Sub-accounts you chose are rebalanced to the allocation percentages you
requested. With Automatic Rebalancing, we transfer the appropriate amount from
the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return
your allocations to the percentages you request. For example, over time the
performance of the Sub-accounts will differ, causing your percentage
allocations to shift.
Any transfer to or from any Sub-account that is not part of your Automatic
Rebalancing program, will be made; however, that Sub-account will not become
part of your rebalancing program unless we receive instructions from you
indicating that you would like such option to become part of the program.
There is no minimum Account Value required to enroll in Automatic Rebalancing.
All rebalancing transfers as part of an Automatic Rebalancing program are not
included when counting the number of transfers each year toward the maximum
number of free transfers. We do not deduct a charge for participating in an
Automatic Rebalancing program. Participation in the Automatic Rebalancing
program may be restricted if you are enrolled in certain other optional
programs. Sub-accounts that are part of a Systematic Withdrawal program or
Dollar Cost Averaging program will be excluded from an Automatic Rebalancing
program.
ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE?
We currently do not offer any asset allocation programs for use with your
Annuity.
39
WHAT IS THE BALANCED INVESTMENT PROGRAM?
We offer a balanced investment program where a portion of your Account Value
is allocated to a Fixed Allocation and the remaining Account Value is
allocated to the Sub-accounts that you select. When you enroll in the Balanced
Investment Program, you choose the duration that you wish the program to last.
This determines the duration of the Guarantee Period for the Fixed Allocation.
Based on the fixed rate for the Guarantee Period chosen, we calculate the
portion of your Account Value that must be allocated to the Fixed Allocation
to grow to a specific "principal amount" (such as your initial Purchase
Payment). We determine the amount based on the rates then in effect for the
Guarantee Period you choose. If you continue the program until the end of the
Guarantee Period and make no withdrawals or transfers, at the end of the
Guarantee Period, the Fixed Allocation will have grown to equal the "principal
amount". Withdrawals or transfers from the Fixed Allocation before the end of
the Guarantee Period will terminate the program and may be subject to a Market
Value Adjustment. You can transfer the Account Value that is not allocated to
the Fixed Allocation between any of the Sub-accounts available under your
Annuity. Account Value you allocate to the Sub-accounts is subject to market
fluctuations and may increase or decrease in value. We do not deduct a charge
for participating in the Balanced Investment Program.
Example
Assume you invest $100,000. You choose a 10-year program and allocate a
portion of your Account Value to a Fixed Allocation with a 10-year
Guarantee Period. The rate for the 10-year Guarantee Period is 2.50%*.
Based on the fixed interest rate for the Guarantee Period chosen, the
factor is 0.781198 for determining how much of your Account Value will be
allocated to the Fixed Allocation. That means that $78,120 will be
allocated to the Fixed Allocation and the remaining Account Value
($21,880) will be allocated to the Sub-accounts. Assuming that you do not
make any withdrawals or transfers from the Fixed Allocation, it will grow
to $100,000 at the end of the Guarantee Period. Of course we cannot
predict the value of the remaining Account Value that was allocated to
the Sub-accounts.
* The rate in this example is hypothetical and may not reflect the current
rate for Guarantee Periods of this duration.
MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION
INSTRUCTIONS?
Yes. Subject to our rules, your Financial Professional may forward
instructions regarding the allocation of your Account Value, and request
financial transactions involving investment options. If your Financial
Professional has this authority, we deem that all transactions that are
directed by your Financial Professional with respect to your Annuity have been
authorized by you. You must contact us immediately if and when you revoke such
authority. We will not be responsible for acting on instructions from your
Financial Professional until we receive notification of the revocation of such
person's authority. We may also suspend, cancel or limit these privileges at
any time. We will notify you if we do.
MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT?
Yes. You may engage your own investment advisor to manage your account. These
investment advisors may be firms or persons who also are appointed by us, or
whose affiliated broker-dealers are appointed by us, as authorized sellers of
the Annuities. Even if this is the case, however, please note that the
investment advisor you engage to provide advice and/or make transfers for you,
is not acting on our behalf, but rather is acting on your behalf. We do not
offer advice about how to allocate your Account Value under any circumstance.
As such, we are not responsible for any recommendations such investment
advisors make, any investment models or asset allocation programs they choose
to follow or any specific transfers they make on your behalf. Please note that
if you have engaged a third-party investment advisor to provide asset
allocation services with respect to your Annuity, we do not allow you to elect
an optional benefit that requires investment in an asset allocation Portfolio
and/or that involves mandatory Account Value transfers (e.g. Highest Daily
GRO).
You will receive confirmations of transactions that affect your Annuity.
It is your responsibility to arrange for the payment of the advisory fee
charged by your investment advisor. Similarly, it is your responsibility to
understand the advisory services provided by your investment advisor and the
advisory fee charged for the services.
We or an affiliate of ours may provide administrative support to licensed,
registered Financial Professionals or Investment advisors who you authorize to
make financial transactions on your behalf. We may require Financial
Professionals or investment advisors, who are authorized by multiple contract
owners to make financial transactions, to enter into an administrative
agreement with Prudential Annuities as a condition of our accepting
transactions on your behalf. The administrative agreement may impose
limitations on the Financial Professional's or investment advisor's ability to
request financial transactions on your behalf. These limitations are intended
to minimize the detrimental impact of a Financial Professional who is in a
position to transfer large amounts of money for multiple clients in a
particular Portfolio or type of portfolio or to comply with specific
restrictions or limitations imposed by a Portfolio(s) of Prudential Annuities.
Please Note: Annuities where your Financial Professional or investment advisor
has the authority to forward instruction on financial transactions are also
subject to the restrictions on transfers between investment options that are
discussed in the section entitled "ARE THERE RESTRICTIONS OR CHARGES ON
TRANSFERS BETWEEN INVESTMENT OPTIONS?" Since
40
transfer activity directed by a Financial Professional or third party
investment adviser may result in unfavorable consequences to all contract
owners invested in the affected options, we reserve the right to limit the
investment options available to a particular Owner where such authority as
described above has been given to a Financial Professional or investment
advisor or impose other transfer restrictions we deem necessary. The
administrative agreement may limit the available investment options, require
advance notice of large transactions, or impose other trading limitations on
your Financial Professional. Your Financial Professional will be informed of
all such restrictions on an ongoing basis. We may also require that your
Financial Professional transmit all financial transactions using the
electronic trading functionality available through our Internet website
(www.prudentialannuities.com).
Limitations that we may impose on your Financial Professional or investment
advisor under the terms of the administrative agreement do not apply to
financial transactions requested by an Owner on their own behalf, except as
otherwise described in this Prospectus.
HOW DO THE FIXED ALLOCATIONS WORK?
We credit a fixed interest rate to the Fixed Allocation throughout a set
period of time called a "Guarantee Period." Fixed Allocations currently are
offered with Guarantee Periods from 1 to 10 years. We may make Fixed
Allocations of different durations available in the future, including Fixed
Allocations offered exclusively for use with certain optional investment
programs. Fixed Allocations may not be available in all states and may not
always be available for all Guarantee Periods depending on market factors and
other considerations.
The interest rate credited to a Fixed Allocation is the rate in effect when
the Guarantee Period begins and does not change during the Guarantee Period.
The rates are an effective annual rate of interest. We determine the interest
rates for the various Guarantee Periods. At the time that we confirm your
Fixed Allocation, we will advise you of the interest rate in effect and the
date your Fixed Allocation matures. We may change the rates we credit new
Fixed Allocations at any time. Any change in interest rate does not affect
Fixed Allocations that were in effect before the date of the change. To
inquire as to the current rates for Fixed Allocations, please call
1-800-752-6342.
A Guarantee Period for a Fixed Allocation begins:
. when all or part of a net Purchase Payment is allocated to that
particular Guarantee Period;
. upon transfer of any of your Account Value to a Fixed Allocation for
that particular Guarantee Period; or
. when you "renew" a Fixed Allocation by electing a new Guarantee Period.
To the extent permitted by law, we may establish different interest rates for
Fixed Allocations offered to a class of Owners who choose to participate in
various optional investment programs we make available. This may include, but
is not limited to, Owners who elect to use Fixed Allocations under a dollar
cost averaging program (see "Do You Offer Dollar Cost Averaging?") or the
Balanced Investment Program.
The interest rate credited to Fixed Allocations offered to this class of
purchasers may be different than those offered to other purchasers who choose
the same Guarantee Period but who do not participate in an optional investment
program. Any such program is at our sole discretion.
Prudential Annuities may offer Fixed Allocations with Guarantee Periods of 3
months or 6 months exclusively for use as a short-term Fixed Allocation
("Short-term Fixed Allocations"). Short-term Fixed Allocations may only be
established with your initial Purchase Payment or additional Purchase
Payments. You may not transfer existing Account Value to a Short-term Fixed
Allocation. We reserve the right to terminate offering these special purpose
Fixed Allocations at any time.
On the Maturity Date of the Short-term Fixed Allocation, the Account Value
will be transferred to the Sub-account(s) you choose at the inception of the
program. If no instructions are provided, such Account Value will be
transferred to the AST Money Market Sub-account. Short-term Fixed Allocations
may not be renewed on the Maturity Date. If you surrender the Annuity or
transfer any Account Value from the Short-term Fixed Allocation to any other
investment option before the end of the Guarantee Period, a Market Value
Adjustment will apply.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for
Fixed Allocations. Generally the interest rates we offer for Fixed Allocations
will reflect the investment returns available on the types of investments we
make to support our fixed rate guarantees. These investment types may include
cash, debt securities guaranteed by the United States government and its
agencies and instrumentalities, money market instruments, corporate debt
obligations of different durations, private placements, asset-backed
obligations and municipal bonds. In determining rates we also consider factors
such as the length of the Guarantee Period for the Fixed Allocation,
regulatory and tax requirements, liquidity of the markets for the type of
investments we make, commissions, administrative and investment expenses, our
insurance risks in relation to the Fixed Allocations, general economic trends
and competition. Some of these considerations are similar to those we consider
in determining the Insurance Charge that we deduct from Account Value
allocated to the Sub-accounts. The interest rate that we credit to the Fixed
Allocations may be reduced by an amount that corresponds to the asset-based
charges assessed against the Sub-accounts.
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We will credit interest on a new Fixed Allocation in an existing Annuity at a
rate not less than the rate we are then crediting to Fixed Allocations for the
same Guarantee Period selected by new Annuity purchasers in the same class.
The interest rate we credit for a Fixed Allocation is subject to a minimum.
Please refer to the Statement of Additional Information. In certain states the
interest rate may be subject to a minimum under state law or regulation.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation more than 30
days before the end of its Guarantee Period, we will adjust the value of your
investment based on a formula, called a "Market Value Adjustment" or "MVA".
The amount of any Market Value Adjustment can be either positive or negative,
depending on the movement of a combination of Strip Yields on Strips and an
Option-adjusted Spread (each as defined below) between the time that you
purchase the Fixed Allocation and the time you make a transfer or withdrawal.
The Market Value Adjustment formula compares the combination of Strip Yields
for Strips and the Option-adjusted Spreads as of the date the Guarantee Period
began with the combination of Strip Yields for Strips and the Option-adjusted
Spreads as of the date the MVA is being calculated. In certain states the
amount of any Market Value Adjustment may be limited under state law or
regulation. If your Annuity is governed by the laws of that state, any Market
Value Adjustment that applies will be subject to our rules for complying with
such law or regulation.
.. "Strips" are a form of security where ownership of the interest portion of
United States Treasury securities are separated from ownership of the
underlying principal amount or corpus.
.. "Strip Yields" are the yields payable on coupon Strips of United States
Treasury securities.
.. "Option-adjusted Spread" is the difference between the yields on corporate
debt securities (adjusted to disregard options on such securities) and
government debt securities of comparable duration. We currently use the
Merrill Lynch 1 to 10 year Investment Grade Corporate Bond Index of
Option-adjusted Spreads.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation to determine
the Account Value of the Fixed Allocation on a particular date. The formula is
as follows:
[(1+I) / (1+J+0.0010)]/N/365/
where:
I is the Strip Yield as of the start date of the Guarantee Period for
coupon Strips maturing at the end of the applicable Guarantee Period
plus the Option-adjusted Spread. If there are no Strips maturing at
that time, we will use the Strip Yield for the Strips maturing as soon
as possible after the Guarantee Period ends.
J is the Strip Yield as of the date the MVA formula is being applied
for coupon Strips maturing at the end of the applicable Guarantee
Period plus the Option-adjusted Spread. If there are no Strips maturing
at that time, we will use the Strip Yield for the Strips maturing as
soon as possible after the Guarantee Period ends.
N is the number of days remaining in the original Guarantee Period.
If you surrender your Annuity under the right to cancel provision, the MVA
formula is:
[(1 + I)/(1 + J)]/N/365/
MVA Examples
The following hypothetical examples show the effect of the MVA in determining
Account Value. Assume the following:
. You allocate $50,000 into a Fixed Allocation (we refer to this as the
"Allocation Date" in these examples) with a Guarantee Period of 5 years
(we refer to this as the "Maturity Date" in these examples).
. The Strip Yields for coupon Strips beginning on Allocation Date and
maturing on Maturity Date plus the Option-adjusted Spread is 5.50% (I =
5.50%).
. You make no withdrawals or transfers until you decide to withdraw the
entire Fixed Allocation after exactly three (3) years, at which point
730 days remain before the Maturity Date (N = 730).
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Example of Positive MVA
Assume that at the time you request the withdrawal, the Strip Yields for
Strips maturing on the Maturity Date plus the Option-adjusted Spread is 4.00%
(J = 4.00%). Based on these assumptions, the MVA would be calculated as
follows:
MVA Factor = [(1+I)/(1+J+0.0010)]/N/365/ = [1.055/1.041]/2/ = 1.027078
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $59,448.56
Example of Negative MVA
Assume that at the time you request the withdrawal, the Strip Yields for
Strips maturing on the Maturity Date plus the Option-adjusted Spread is 7.00%
(J = 7.00%). Based on these assumptions, the MVA would be calculated as
follows:
MVA Factor = [(1+I)/(1+J+0.0010)]/N/365/ = [1.055/1.071]/2/ = 0.970345
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $56,164.78.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee
Period. Before the Maturity Date, you may choose to renew the Fixed Allocation
for a new Guarantee Period of the same or different length or you may transfer
all or part of that Fixed Allocation's Account Value to another Fixed
Allocation or to one or more Sub-accounts. We will not charge a MVA if you
choose to renew a Fixed Allocation on its Maturity Date or transfer the
Account Value to one or more Sub-accounts. We will notify you before the end
of the Guarantee Period about the fixed interest rates that we are currently
crediting to all Fixed Allocations that are being offered. The rates being
credited to Fixed Allocations may change before the Maturity Date.
If you do not specify how you want a Fixed Allocation to be allocated on its
Maturity Date, we will then transfer the Account Value of the Fixed Allocation
to the AST Money Market Sub-account. You can then elect to allocate the
Account Value to any of the Sub-accounts or to a new Fixed Allocation.
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ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation period you can access your Account Value through
partial withdrawals, Systematic Withdrawals, and where required for tax
purposes, Minimum Distributions. You can also surrender your Annuity at any
time. We may deduct a portion of the Account Value being withdrawn or
surrendered as a CDSC, if applicable. If you surrender your Annuity, in
addition to any CDSC, we may deduct the Annual Maintenance Fee, any Tax Charge
that applies and the charge for any optional benefits. We may also apply a
Market Value Adjustment to any Fixed Allocations being withdrawn or
surrendered. Certain amounts may be available to you each Annuity Year that
are not subject to a CDSC. These are called "Free Withdrawals." Unless you
notify us differently, withdrawals are taken pro-rata based on the Account
Value in the investment options at the time we receive your withdrawal
request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations.")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any
"gain" in your Annuity and second as a return of your "tax basis", if any.
Distributions from your Annuity are generally subject to ordinary income
taxation on the amount of any investment gain unless the distribution
qualifies as a non-taxable exchange or transfer. If you take a distribution
prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain. You may wish to consult a
professional tax advisor for advice before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as
ordinary income at the tax rate you are subject to at the time of the payment.
The Code and regulations have "exclusionary rules" that we use to determine
what portion of each annuity payment should be treated as a return of any tax
basis you have in your Annuity. Once the tax basis in your Annuity has been
distributed, the remaining annuity payments are taxable as ordinary income.
The tax basis in your Annuity may be based on the tax-basis from a prior
contract in the case of a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation period.
. To meet liquidity needs, you can withdraw a limited amount from your
Annuity during each Annuity Year without application of any CDSC. We
call this the "Free Withdrawal" amount. The Free Withdrawal amount is
not available if you choose to surrender your Annuity. Amounts withdrawn
as a Free Withdrawal do not reduce the amount of CDSC that may apply
upon a subsequent withdrawal or surrender of your Annuity. After any
partial withdrawal, your Annuity must have a Surrender Value of at least
$1,000, or we may treat the partial withdrawal request as a request to
fully surrender your Annuity. The minimum Free Withdrawal you may
request is $100.
. You can also make withdrawals in excess of the Free Withdrawal amount.
The minimum partial withdrawal you may request is $100.
To determine if a CDSC applies to partial withdrawals, we:
1. First determine what, if any, amounts qualify as a Free Withdrawal. These
amounts are not subject to the CDSC.
2. Next determine what, if any, remaining amounts are withdrawals of Purchase
Payments. Amounts in excess of the Free Withdrawal amount will be treated
as withdrawals of Purchase Payments unless all Purchase Payments have been
previously withdrawn. These amounts are subject to the CDSC. Purchase
Payments are withdrawn on a first in, first out basis.
3. Withdraw any remaining amounts from any other Account Value. These amounts
are not subject to the CDSC.
You may request a withdrawal for an exact dollar amount after deduction of any
CDSC that applies (called a "net withdrawal") or request a gross withdrawal
from which we will deduct any CDSC that applies, resulting in less money being
payable to you than the amount you requested. If you request a net withdrawal,
the amount deducted from your Account Value to pay the CDSC may also be
subject to a CDSC.
Partial withdrawals may also be available following annuitization but only if
you choose certain annuity payment options. (Note, however, that we do not
permit commutation once annuity payments have commenced).
To request the forms necessary to make a withdrawal from your Annuity, call
1-800-752-6342 or visit our Internet Website at www.prudentialannuities.com.
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HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during each Annuity Year is equal to 10% of
all Purchase Payments that are subject to a CDSC. Withdrawals made within an
Annuity Year reduce the Free Withdrawal amount available for the remainder of
the Annuity Year. If you do not make a withdrawal during an Annuity Year, you
are not allowed to carry over the Free Withdrawal amount to the next Annuity
Year.
CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic
Withdrawals of earnings only or a flat dollar amount. Systematic Withdrawals
may be subject to a CDSC. We will determine whether a CDSC applies and the
amount in the same way as we would for a partial withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the
Sub-accounts or Fixed Allocations. Generally, Systematic Withdrawals from
Fixed Allocations are limited to earnings accrued after the program of
Systematic Withdrawals begins, or payments of fixed dollar amounts that do not
exceed such earnings. Systematic Withdrawals are available on a monthly,
quarterly, semi-annual or annual basis.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled
Systematic Withdrawal is for less than $100 (which may occur under a program
that provides payment of an amount equal to the earnings in your Annuity for
the period requested), we may postpone the withdrawal and add the expected
amount to the amount that is to be withdrawn on the next scheduled Systematic
Withdrawal.
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL
REVENUE CODE?
Yes. If your Annuity is used as a funding vehicle for certain retirement plans
that receive special tax treatment under Sections 401, 403(b), 408 or 408A of
the Code, Section 72(t) of the Code may provide an exception to the 10%
penalty tax on distributions made prior to age 59 1/2 if you elect to receive
distributions as a series of "substantially equal periodic payments".
Distributions received under these provisions in any Annuity Year that exceed
the maximum amount available as a free withdrawal will be subject to any
applicable CDSC. We may apply a Market Value Adjustment to any Fixed
Allocations. To request a program that complies with Sections 72(t), you must
provide us with certain required information in writing on a form acceptable
to us. We may require advance notice to allow us to calculate the amount of
72(t) withdrawals. The Surrender Value of your Annuity must be at least
$20,000 before we will allow you to begin a program for withdrawals under
Sections 72(t). The minimum amount for any such withdrawal is $100 and
payments may be made monthly, quarterly, semi-annually or annually.
You may also annuitize your contract and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments before age 59 1/2 that are not subject to the 10% penalty.
WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?
(See "Tax Considerations" for a further discussion of Required Minimum
Distributions.)
Required Minimum Distributions are a type of Systematic Withdrawal we allow to
meet distribution requirements under Sections 401, 403(b) or 408 of the Code.
Required Minimum Distribution rules do not apply to Roth IRAs during the
Owner's lifetime. Under the Code, you may be required to begin receiving
periodic amounts from your Annuity. In such case, we will allow you to make
Systematic Withdrawals in amounts that satisfy the Required Minimum
Distribution rules under the Code. We do not assess a CDSC on Required Minimum
Distributions from your Annuity if you are required by law to take such
Required Minimum Distributions from your Annuity at the time it is taken.
However, a CDSC (if applicable) may be assessed on that portion of a
Systematic Withdrawal that is taken to satisfy the Required Minimum
Distribution provisions in relation to other savings or investment plans under
other qualified retirement plans not maintained with Prudential Annuities.
The amount of the Required Minimum Distribution for your particular situation
may depend on other annuities, savings or investments. We will only calculate
the amount of your Required Minimum Distribution based on the value of your
Annuity. We require three (3) days advance written notice to calculate and
process the amount of your payments. You may elect to have Required Minimum
Distributions paid out monthly, quarterly, semi-annually or annually. The $100
minimum amount that applies to Systematic Withdrawals applies to monthly
Required Minimum Distributions but does not apply to Required Minimum
Distributions taken out on a quarterly, semi-annual or annual basis.
You may also annuitize your contract and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments and satisfying the Required Minimum Distribution provisions under the
Code.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation period you can surrender your Annuity at any
time. Upon surrender, you will receive the Surrender Value. Upon surrender of
your Annuity, you will no longer have any rights under the surrendered Annuity.
45
For purposes of calculating any applicable CDSC on surrender, the Purchase
Payments being withdrawn may be greater than your remaining Account Value or
the amount of your withdrawal request. This is most likely to occur if you
have made prior withdrawals under the Free Withdrawal provision or if your
Account Value has declined in value due to negative market performance. In
that scenario, we would determine the CDSC amount as the applicable percentage
of the Purchase Payments being withdrawn, rather than as a percentage of the
remaining Account Value or withdrawal request. Thus, the CDSC would be greater
than if it were calculated as a percentage of remaining Account Value or
withdrawal amount. We may apply a Market Value Adjustment to any Fixed
Allocations.
Under certain annuity payment options, you may be allowed to surrender your
Annuity for its then current value.
To request the forms necessary to surrender your Annuity, call 1-800-752-6342
or visit our Internet Website at www.prudentialannuities.com.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender all or part of your
Annuity prior to the Annuity Date without application of any otherwise
applicable CDSC upon occurrence of a medically-related "Contingency Event" as
described below. We may apply a Market Value Adjustment to any Fixed
Allocations. If you request a full surrender, the amount payable will be your
Account Value.
This waiver of any applicable CDSC is subject to our rules in place at the
time of your request, which currently include but are not limited to the
following:
. The Annuitant must have been named or any change of Annuitant must have
been accepted by us, prior to the "Contingency Event" described below in
order to qualify for a medically-related surrender;
. the Annuitant must be alive as of the date we pay the proceeds of such
surrender request;
. if the Owner is one or more natural persons, all such Owners must also
be alive at such time;
. we must receive satisfactory proof of the Annuitant's confinement in a
Medical Care Facility or Fatal Illness in writing on a form satisfactory
to us; and
. no additional Purchase Payments can be made to the Annuity.
A "Contingency Event" occurs if the Annuitant is:
. first confined in a "Medical Care Facility" while your Annuity is in
force and remains confined for at least 90 days in a row; or
. first diagnosed as having a "Fatal Illness" while your Annuity is in
force.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as
additional terms and conditions, are provided in your Annuity. Specific
details and definitions in relation to this benefit may differ in certain
jurisdictions.
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?
We currently make available annuity options that provide fixed annuity
payments or adjustable annuity payments. Your Annuity provides certain fixed
annuity payment options. We do not guarantee to continue to make available any
other option other than the fixed annuity payment options set forth in your
Annuity. Fixed options provide the same amount with each payment. Adjustable
options provide a fixed payment that is periodically adjusted based on current
interest rates. Please refer to the "Living Benefits" section below for a
description of annuity options that are available when you elect one of the
living benefits. For additional information on annuity payment options you may
request a Statement of Additional Information.
You may choose an Annuity Date, an annuity option and the frequency of annuity
payments. You may change your choices before the Annuity Date under the terms
of your contract. A maximum Annuity Date may be required by law or under the
terms of your Annuity. The Annuity Date may depend on the annuity option you
choose. Certain annuity options may not be available depending on the age of
the Annuitant. See section below entitled "How and When Do I Choose the
Annuity Payment Option?"
Certain of these annuity options may be available to Beneficiaries who choose
to receive the Death Benefit proceeds as a series of payments instead of a
lump sum payment.
You may not annuitize within the first three Annuity Years.
Option 1
Payments for Life: Under this option, income is payable periodically until the
death of the "key life". The "key life" (as used in this section) is the
person or persons upon whose life annuity payments are based. No additional
annuity payments are made after
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the death of the key life. Since no minimum number of payments is guaranteed,
this option offers the largest amount of periodic payments of the life
contingent annuity options. It is possible that only one payment will be
payable if the death of the key life occurs before the date the second payment
was due, and no other payments nor death benefits would be payable. Under this
option, you cannot make a partial or full surrender of the annuity.
Option 2
Payments Based on Joint Lives: Under this option, income is payable
periodically during the joint lifetime of two key lives, and thereafter during
the remaining lifetime of the survivor, ceasing with the last payment prior to
the survivor's death. No minimum number of payments is guaranteed under this
option. It is possible that only one payment will be payable if the death of
all the key lives occurs before the date the second payment was due, and no
other payments or death benefits would be payable. Under this option, you
cannot make a partial or full surrender of the annuity.
Option 3
Payments for Life with a Certain Period: Under this option, income is payable
until the death of the key life. However, if the key life dies before the end
of the period selected (5, 10 or 15 years), the remaining payments are paid to
the Beneficiary until the end of such period. Under this option, you cannot
make a partial or full surrender of the annuity.
Option 4
Fixed Payments for a Certain Period: Under this option, income is payable
periodically for a specified number of years. If the payee dies before the end
of the specified number of years, the remaining payments are paid to the
Beneficiary until the end of such period. Note that under this option,
payments are not based on any assumptions of life expectancy. Therefore, that
portion of the Insurance Charge assessed to cover the risk that key lives
outlive our expectations provides no benefit to an Owner selecting this
option. Under this option, you cannot make a partial or full surrender of the
annuity.
We may make different annuity payment options available in the future. We do
not guarantee to continue to make available any other option other than the
fixed annuity payment options set forth in your contract.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or
an annuity with a certain period of at least 5 years if any CDSC would apply
were you to surrender your Annuity on the Annuity Date. Certain annuity
payment options may not be available if your Annuity Date occurs during the
period that a CDSC would apply.
You have a right to choose your Annuity Date, provided it is no later than the
maximum Annuity Date that may be required by law or under the terms of your
Annuity.
. Unless we agree otherwise, the Annuity Date you choose must be no later
than the first day of the calendar month coinciding with or next
following the later of: (a) the oldest Owner's or Annuitant's 95/th/
birthday, whichever occurs first, and (b) the fifth anniversary of the
Issue Date. Certain states may have different requirements based on
applicable laws.
. If you do not provide us with your Annuity Date, the maximum date as
described above will be the default date; and, unless you instruct us
otherwise, we will pay you the annuity payments and the annuity
payments, where allowed by law, will be calculated on a fixed basis
under Option 3, Payments for Life with 10 years certain.
Please note that annuitization essentially involves converting your Account
Value to an annuity payment stream, the length of which depends on the terms
of the applicable annuity option. Thus, once annuity payments begin, your
death benefit is determined solely under the terms of the applicable annuity
payment option, and you no longer participate in any optional living benefit
(unless you have annuitized under that benefit).
HOW ARE ANNUITY PAYMENTS CALCULATED?
Fixed Annuity Payments
If you choose to receive fixed annuity payments, you will receive equal
fixed-dollar payments throughout the period you select. The amount of the
fixed payment will vary depending on the annuity payment option and payment
frequency you select. Generally, the first annuity payment is determined by
multiplying the Account Value, minus any state premium taxes that may apply,
by the factor determined from our table of annuity rates. The table of annuity
rates differs based on the type of annuity chosen and the frequency of payment
selected. Our rates will not be less than our guaranteed minimum rates. These
guaranteed minimum rates are derived from the a2000 Individual Annuity
Mortality Table with an assumed interest rate of 3% per annum. Where required
by law or regulation, such annuity table will have rates that do not differ
according to the gender of the key life. Otherwise, the rates will differ
according to the gender of the key life.
Adjustable Annuity Payments
We may make an adjustable annuity payment option available. Adjustable annuity
payments are calculated similarly to fixed annuity payments except that on
every fifth (5/th/) anniversary of receiving annuity payments, the annuity
payment amount is adjusted upward or downward depending on the rate we are
currently crediting to annuity payments. The adjustment in the annuity payment
amount does not affect the duration of remaining annuity payments, only the
amount of each payment.
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LIVING BENEFIT PROGRAMS
DO YOU OFFER PROGRAMS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS
WHILE THEY ARE ALIVE?
Prudential Annuities offers different optional benefits, for an additional
charge, that can provide investment protection for Owners while they are
alive. Notwithstanding the additional protection provided under the optional
Living Benefit Programs, the additional cost has the impact of reducing net
performance of the investment options. Each optional benefit offers a distinct
type of guarantee, regardless of the performance of the Sub-accounts, that may
be appropriate for you depending on the manner in which you intend to make use
of your Annuity while you are alive. Depending on which optional benefit you
choose, you can have flexibility to invest in the Sub-accounts while:
.. protecting a principal amount from decreases in value as of specified
future dates due to investment performance;
.. taking withdrawals with a guarantee that you will be able to withdraw not
less than a principal amount over time;
.. guaranteeing a minimum amount of growth will be applied to your principal,
if it is to be used as the basis for certain types of lifetime income
payments or lifetime withdrawals; or
.. providing spousal continuation of certain benefits.
The "living benefits" that Prudential Annuities offers are the Guaranteed
Return Option Plus 2008 (GRO Plus 2008), the Highest Daily Guaranteed Return
Option (Highest Daily GRO), the Guaranteed Minimum Withdrawal Benefit (GMWB),
the Guaranteed Minimum Income Benefit (GMIB), the Lifetime Five Income
Benefit, the Spousal Lifetime Five Income Benefit, the Highest Daily Lifetime
Five Income Benefit, the Highest Daily Lifetime Seven Income Benefit and the
Spousal Highest Daily Lifetime Seven Income Benefit. In general, these
benefits fall into four basic categories:
Here is a general description of each kind of living benefit that we offer
under this Annuity:
.. Guaranteed Minimum Accumulation Benefits. The common characteristic of
these benefits is that a specified amount of your annuity value is
guaranteed at some point in the future. For example, under our Highest
Daily GRO benefit, we make an initial guarantee that your annuity value on
the day you start the benefit will not be any less ten years later. If your
annuity value is less on that date, we use our own funds to give you the
difference. Because the guarantee inherent in the guaranteed minimum
accumulation benefit does not take effect until a specified number of years
into the future, you should elect such a benefit only if your investment
time horizon is of at least that duration.
.. Guaranteed Minimum Income Benefit or ("GMIB"). As discussed elsewhere in
this prospectus, you have the right under your annuity to ask us to convert
your accumulated annuity value into a series of annuity payments.
Generally, the smaller the amount of your annuity value, the smaller the
amount of your annuity payments. GMIB addresses this risk, by guaranteeing
a certain amount of appreciation in the amount used to produce annuity
payments. Thus, even if your annuity value goes down in value, GMIB
guarantees that the amount we use to determine the amount of the annuity
payments will go up in value by the prescribed amount. You should select
GMIB only if you are prepared to delay your annuity payments for the
required waiting period and if you anticipate needing annuity payments.
.. Guaranteed Minimum Withdrawal Benefit. This benefit is designed for someone
who wants to access the annuity's value through withdrawals over time,
rather than by annuitizing. This benefit guarantees that a specified amount
will be available for withdrawal over time, even if the value of the
annuity itself has declined.
.. Lifetime Guaranteed Minimum Withdrawal Benefits. These benefits also are
designed for someone who wants to access the annuity's value through
withdrawals over time, rather than by annuitizing. These benefits differ,
however, in that the withdrawal amounts are guaranteed for life (or until
the second to die of spouses). The way that we establish the guaranteed
amount that, in turn, determines the amount of the annual lifetime payments
varies among these benefits. Under our Highest Daily Lifetime Seven
benefit, for example, the guaranteed amount generally is equal to your
annuity value, appreciated at seven percent annually.
Please refer to the benefit descriptions that follow for a complete
description of the terms, conditions and limitations of each optional benefit.
Investment restrictions apply if you elect certain optional living benefits.
See the chart in the "Investment Options" section of the Prospectus for a list
of investment options available and permitted with each benefit. You should
consult with your Financial Professional to determine if any of these optional
benefits may be appropriate for you based on your financial needs. There are
many factors to consider, but we note that among them you may want to evaluate
the tax implications of these different approaches to meeting your needs, both
between these benefits and in comparison to other potential solutions to your
needs (e.g., comparing the tax implications of the withdrawal benefit and
annuity payments).
GUARANTEED RETURN OPTION PLUS 2008/SM/ (GRO Plus 2008)/SM /
The GRO Plus 2008 benefit described below is only being offered in those
jurisdictions where we have received regulatory approval, and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Certain terms and conditions may differ between
jurisdictions once approved. You can elect this benefit on the Issue Date of
your Annuity, or at any time thereafter (unless you previously participated in
either this benefit or Highest Daily GRO, in which case your election must be
on an Annuity Anniversary). GRO Plus 2008 is not available if you participate
in any other optional living benefit. However, GRO Plus 2008 may be elected
together with any optional death benefit, other than the Highest Daily Value
Death Benefit.
48
Under GRO Plus 2008, we guarantee that the Account Value on the date that the
benefit is added to your Annuity (adjusted for subsequent Purchase Payments
and withdrawals as detailed below) will not be any less than that original
value on the seventh anniversary of benefit election and each anniversary
thereafter. We refer to this initial guarantee as the "base guarantee." In
addition to the base guarantee, GRO Plus 2008 offers the possibility of an
enhanced guarantee. You may lock in an enhanced guarantee once per "benefit
year" (i.e., a year beginning on the date you acquired the benefit and each
anniversary thereafter) if your Account Value on the Valuation Day exceeds the
amount of any outstanding base guarantee or enhanced guarantee. We guarantee
that the Account Value locked-in by that enhanced guarantee will not be any
less seven years later, and each anniversary of that date thereafter. In
addition, you may elect an automatic enhanced guarantee feature under which,
if Account Value on a benefit anniversary exceeds the highest existing
guarantee by 7% or more, we guarantee that such Account Value will not be any
less seven benefit anniversaries later and each benefit anniversary
thereafter. You may maintain only one enhanced guarantee in addition to your
base guarantee. Thus, when a new enhanced guarantee is created, it cancels any
existing enhanced guarantee. However, the fact that an enhanced guarantee was
effected automatically on a benefit anniversary does not prevent you from
"manually" locking-in an enhanced guarantee during the ensuing benefit year.
Please note that whenever an enhanced guarantee is created, we reserve the
right to increase your charge for GRO Plus 2008 if we have increased the
charge for new elections of the benefit generally. You may not lock in an
enhanced guarantee, either manually or through our optional automatic program,
within seven years of the date by which annuity payments must commence under
the terms of your Annuity (please see "How and When Do I Choose The Annuity
Payment Option?" for further information on your maximum Annuity Date).
In general, we refer to a date on which the Account Value is guaranteed to be
present as the "maturity date". If the Account Value on the maturity date is
less than the guaranteed amount, we will contribute funds from our general
account to bring your Account Value up to the guaranteed amount. If the
maturity date is not a Valuation Day, then we would contribute such an amount
on the next Valuation Day. We will allocate any such amount to each
Sub-account (other than the "Current AST bond portfolio Sub-account" described
below) in accordance with your current allocations instructions. Regardless of
whether we need to contribute funds at the end of a guarantee period, we will
at that time transfer all amounts held within the Current AST bond portfolio
Sub-account associated with the maturing guarantee to your other Sub-accounts,
on a pro rata basis. If the entire Account Value is invested in an AST bond
portfolio Sub-account, we will allocate according to your current allocation
instructions.
We increase both the base guarantee and any enhanced guarantee by the amount
of each Purchase Payment (and associated credits) made subsequent to the date
that the guarantee was established. For example, if the effective date of the
benefit was January 1, 2009 and the Account Value was $100,000 on that date,
then a $30,000 Purchase Payment made on March 30, 2010 would increase the base
guarantee amount to $130,000. As illustrated in the examples below, additional
Purchase Payments also increase an amount we refer to as the
"dollar-for-dollar corridor."
The dollar-for-dollar corridor is equal to 5% of the base guarantee amount
(i.e., 5% of the Account Value at benefit election). Thereafter, the
dollar-for-dollar corridor is adjusted only for subsequent Purchase Payments
(i.e., 5% of the Purchase Payment is added to the corridor amount) and "excess
withdrawals" (as described below). Thus, the creation of any enhanced
guarantee has no impact on the dollar-for-dollar corridor. Each "benefit
year", withdrawals that you make that are equal to or less than the
dollar-for-dollar corridor reduce both the amount of the dollar-for-dollar
corridor for that benefit year plus the base guarantee amount and the amount
of any enhanced guarantee by the exact amount of the withdrawal. However, if
you withdraw more than the dollar-for-dollar corridor in a given benefit year,
we use the portion of the withdrawal that exceeded the dollar-for-dollar
corridor to effect a proportional reduction to both the dollar-for-dollar
corridor itself and each guarantee amount. We calculate a proportional
reduction by (i) identifying the amount of the withdrawal that exceeded the
dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the
dollar-for-dollar amount from the Account Value prior to the withdrawal
(iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing
each guarantee amount, and the dollar-for-dollar corridor itself, by the
percentage derived in (iii). See examples of this calculation below.
Any partial withdrawals in payment of any third party investment advisory
service will be treated as withdrawals, and will reduce each guarantee amount
and the dollar-for-dollar corridor in the manner indicated above.
EXAMPLES
The following examples of dollar-for-dollar and proportional reductions assume
that: 1.) the Issue Date and the effective date of the GRO Plus/SM/ 2008
program are October 13, 2008; 2.) an initial Purchase Payment of $250,000
(includes any Credits); 3.) a base guarantee amount of $250,000; and 4.) a
dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here
are purely hypothetical and do not reflect the charge for GRO Plus 2008 or
other fees and charges.
Example 1. Dollar-for-dollar reduction
A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity
Year). No prior withdrawals have been taken. As the amount withdrawn is less
than the Dollar-for-dollar Limit:
.. The base guarantee amount is reduced by the amount withdrawn (i.e., by
$10,000, from $250,000 to $240,000).
.. The remaining dollar-for-dollar limit ("Remaining Limit") for the balance
of the first Annuity Year is also reduced by the amount withdrawn (from
$12,500 to $2,500).
49
Example 2. Dollar-for-dollar and proportional reductions
A second $10,000 withdrawal is taken on December 18, 2008 (still within the
first Annuity Year). The Account Value immediately before the withdrawal is
$180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from
Example 1:
.. the base guarantee amount is first reduced by the Remaining Limit (from
$240,000 to $237,500);
.. The result is then further reduced by the ratio of A to B, where:
-- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or
$7,500).
-- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or
$177,500).
The resulting base guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or
$227,464.79.
.. The Remaining Limit is set to zero (0) for the balance of the first Annuity
Year.
Key Feature - Allocation of Account Value
To allow us to make these guarantees, we monitor your Account Value according
to the formula that is set forth in the schedule supplement to the rider and
that also is set forth in Appendix E to this prospectus. Because the formula
is made part of your schedule supplement, the formula applicable to you may
not be altered once you elect the benefit. However, we do reserve the right to
amend the formula for newly-issued Annuities that elect GRO Plus 2008 and for
existing Annuities that elect the benefit in the future. This required
allocation mechanism helps us manage our financial exposure under GRO Plus
2008, by moving assets out of certain Sub-accounts in the event of securities
market declines. In essence, we seek to preserve the value of these assets, by
transferring them to a more stable option (i.e., one or more specified bond
portfolios of Advanced Series Trust). We refer to these bond portfolios
collectively as the "AST bond portfolios." The formula also contemplates the
transfer of assets from an AST bond portfolio to the other Sub-accounts in
certain other scenarios. The formula itself is the same as that used for our
Highest Daily GRO benefit, and is set forth in Appendix E to this prospectus.
A summary description of each AST Bond Portfolio appears within the prospectus
section entitled "What Are The Investment Objectives and Policies Of The
Portfolios? Upon the initial transfer of your Account Value into an AST Bond
Portfolio, we will send a prospectus for that Portfolio to you along with your
confirmation. In addition, you can find a copy of the AST Bond Portfolio
prospectus by going to www.prudentialannuities.com.
Each AST bond portfolio is unique, in that its underlying investments
generally mature at different times. For example, there would be an AST bond
portfolio whose underlying investments generally mature in 2015, an AST bond
portfolio whose underlying investments generally mature in 2016, and so forth.
We will introduce new AST bond portfolios in subsequent years, to correspond
generally to the length of new guarantee periods that are created under this
benefit (and the Highest Daily GRO benefit). If you have elected GRO Plus
2008, you may invest in an AST bond portfolio only by operation of the asset
transfer formula, and thus you may not allocate Purchase Payments to such a
Portfolio. Please see this prospectus and the prospectus for the Advanced
Series Trust for more information about each AST bond portfolio used with this
benefit.
Although we employ several AST bond portfolios for purposes of the benefit,
the formula described in the next paragraph operates so that your Account
Value may be allocated to only one AST bond portfolio Sub-account at one time.
In the description of the formula in the next paragraph, we refer to the AST
bond portfolio Sub-account in which you are invested immediately prior to any
potential asset transfer as the "Current AST bond portfolio Sub-account." The
formula may dictate that a transfer out of the Current AST Bond Portfolio
Sub-account be made, or alternatively may mandate a transfer into another AST
bond portfolio Sub-account. Any transfer into an AST bond portfolio
Sub-account will be directed to the AST bond portfolio Sub-account associated
with the "current liability" (we refer to that Sub-account as the "Transfer
AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio
Sub-account is associated with the current liability, then that Sub-account
would be the Transfer AST bond portfolio Sub-account, and we would simply
transfer additional assets into the Sub-account if such a transfer is dictated
by the formula. As indicated, the AST bond portfolios are employed with this
benefit to help us mitigate the financial risks under our guarantee. Thus, in
accordance with the formula, applicable to you under the benefit, we determine
which AST bond portfolio your Account Value is transferred to, and under what
circumstances a transfer is made.
In general, the asset transfer formula works as follows (please see Appendix
E). On each Valuation Day, the formula automatically performs an analysis with
respect to each guarantee amount that is outstanding. For each outstanding
guarantee, the formula begins by determining the present value on that
Valuation Day that, if appreciated at the applicable "discount rate", would
equal the applicable guarantee amount on the maturity date. As detailed in the
formula, the discount rate is an interest rate determined by taking a
benchmark index used within the financial services industry and then reducing
the rate determined by that index by a prescribed adjustment. Once selected,
we do not change the applicable benchmark index (although we do reserve the
right to use a new benchmark index if the original benchmark is discontinued).
The greatest of each such present value is referred to as the "current
liability" in the formula. The formula compares the current liability to the
amount of your Account Value held within the Current AST bond portfolio
Sub-account and to your Account Value held within the other Sub-accounts. If
the current liability, reduced by the amount held within the Current AST bond
portfolio Sub-account, and divided by the amount held within your other
Sub-accounts, exceeds an upper target value (currently, 0.85), then the
formula will make a transfer into the Transfer AST bond portfolio Sub-account,
in the amount dictated by the formula. If the current liability, reduced by
the amount held within the Current
50
AST bond portfolio Sub-account, and divided by the amount within your other
Sub-accounts, is less than a lower target value (currently, 0.79), then the
formula will transfer Account Value within the Current AST bond portfolio
Sub-account into the other Sub-accounts (other than the Transfer AST bond
portfolio Sub-account), in the amount dictated by the formula.
If a significant amount of your Account Value is systematically transferred to
an AST bond portfolio Sub-account to support the guarantee amounts during
periods of market declines, low interest rates, and/or as the guarantee nears
its maturity date, less of your Account Value may be available to participate
in the investment experience of the other Sub-accounts if there is a
subsequent market recovery. During periods closer to the maturity date of the
guarantee, a significant portion of your Account Value may be allocated to an
AST bond portfolio Sub-account to support any applicable guaranteed amount(s).
Election/Cancellation of the Program
GRO Plus 2008 can be elected on the Issue Date of your Annuity, or at any time
thereafter (unless you previously participated in either this benefit or
Highest Daily GRO, in which case your election must be on an Annuity
Anniversary). If you elect the benefit after the Issue Date of your Annuity,
the benefit will be effective as of the Valuation Day that we receive the
required documentation in good order at our home office, and the base
guarantee amount will equal the Account Value on that day. You may elect GRO
Plus 2008 only if the oldest of the Owner and Annuitant is 84 or younger on
the date of election (80 or younger, in New York).
You may cancel the GRO Plus 2008 benefit at any time. Upon cancellation, we
will transfer any Account Value that is held in an AST bond portfolio
Sub-account to the other Sub-accounts, according to your current allocation
instructions. GRO Plus 2008 will terminate automatically upon: (a) the death
of the Owner or the Annuitant (in an entity owned contract), unless the
Annuity is continued by the surviving spouse; (b) as of the date Account Value
is applied to begin annuity payments; (c) as of the anniversary of benefit
election that immediately precedes the contractually-mandated latest annuity
date, or (d) upon full surrender of the Annuity. If you elect to terminate the
program, GRO Plus 2008 will no longer provide any guarantees. The charge for
the GRO Plus 2008 program will no longer be deducted from your Account Value
upon termination of the program.
Special Considerations under GRO Plus 2008
This program is subject to certain rules and restrictions, including, but not
limited to the following:
. Upon inception of the program, 100% of your Account Value must be
allocated to the permitted Sub-accounts. The permitted Sub-accounts are
those described in the Investment Option section of the prospectus. No
fixed interest rate allocations may be in effect as of the date that you
elect to participate in the program.
. You cannot participate in any dollar cost averaging program that
transfers Account Value from a fixed interest rate option to a
Sub-account.
. Transfers between an AST bond portfolio Sub-account and your other
Sub-accounts under the program will not count toward the maximum number
of free transfers allowable under the Annuity.
. Any amounts applied to your Account Value by us on a maturity date will
not be treated as "investment in the contract" for income tax purposes.
. As the time remaining until the applicable maturity date gradually
decreases, the program may become increasingly sensitive to moves to an
AST bond portfolio Sub-account.
. We currently limit the Sub-accounts in which you may allocate Account
Value if you participate in this program. Moreover, if you are invested
in prohibited investment options and seek to acquire the benefit, we
will ask you to reallocate to permitted investment options as a
prerequisite to acquiring the benefit. Should we prohibit access to any
investment option, any transfers required to move Account Value to
eligible investment options will not be counted in determining the
number of free transfers during an Annuity Year. We may also require
that you allocate your Account Value according to an asset allocation
model.
Charges under the Program
We deduct a charge equal to 0.35% of the average daily net assets of the
Sub-accounts for participation in the GRO Plus 2008 program. The annual charge
is deducted daily. The charge is deducted to compensate us for: (a) the risk
that your Account Value on a maturity date is less than the amount guaranteed
and (b) administration of the program. We reserve the right to increase this
fee for newly-issued contracts or new elections of the benefit but such
increases shall not exceed the maximum charges set forth in the "Your Optional
Benefit Fees and Charges" tables.
HIGHEST DAILY GUARANTEED RETURN OPTION/SM/ (HD GRO)/SM/
The Highest Daily Guaranteed Return Option described below is only being
offered in those jurisdictions where we have received regulatory approval, and
will be offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. Certain terms and conditions may differ
between jurisdictions once approved. You can elect this benefit on the Issue
Date of your Annuity, or at any time thereafter (unless you previously
participated in this benefit, in which case your election must be on an
Annuity Anniversary). Highest Daily GRO is not available if you participate in
any other living benefit. However, Highest Daily GRO may be elected together
with any optional death benefit except for HDV.
51
Highest Daily GRO creates a series of separate guarantees, each of which is
based on the highest Account Value attained on a day during the applicable
time period. As each year of your participation in the benefit passes, we
create a new guarantee. Each guarantee then remains in existence until the
date on which it matures (unless the benefit terminates sooner). We refer to
each date on which the specified Account Value is guaranteed as the "maturity
date" for that guarantee.
The guarantees provided by the program exist only on the applicable maturity
date(s). However, due to the ongoing monitoring of your Account Value, and the
transfer of Account Value to support our future guarantees, the program may
provide some protection from significant market losses if you choose to
surrender your Annuity or begin receiving annuity payments prior to a maturity
date. For this same reason, the program may limit your ability to benefit from
market increases while it is in effect.
The initial guarantee is created on the day that the Highest Daily GRO benefit
is added to your Annuity. We guarantee that your Account Value on the tenth
anniversary of that day (we refer to each such anniversary as a "benefit
anniversary") will not be less than your Account Value on the day that the
Highest Daily GRO benefit was added to your Annuity. Each benefit anniversary
thereafter, we create a new guarantee. With respect to each such subsequent
guarantee, we identify the highest Account Value that occurred between the
date of that benefit anniversary and the date on which Highest Daily GRO was
added to your Annuity. We guarantee that your Account Value ten years after
that benefit anniversary will be no less than the highest daily Account Value
that occurred during that time period. The following example illustrates the
time period over which we identify the highest daily Account Value for
purposes of each subsequent guarantee under the benefit. If the date of
benefit election were January 1, 2009, we would create a guarantee on
January 1, 2012 based on the highest Account Value achieved between January 1,
2009 and January 1, 2012, and that guarantee would mature on January 1, 2022.
As described below, we adjust each of the guarantee amounts for purchase
payments and withdrawals.
In general, we refer to a date on which the Account Value is guaranteed to be
present as the "maturity date". If the Account Value on the maturity date is
less than the guaranteed amount, we will contribute funds from our general
account to bring your Account Value up to the guaranteed amount. If the
maturity date is not a Valuation Day, then we would contribute such an amount
on the next Valuation Day. We will allocate any such amount to each
Sub-account (other than the "Current AST bond portfolio Sub-account" described
below) in accordance with your current allocations instructions. Regardless of
whether we need to contribute funds at the end of a guarantee period, we will
at that time transfer all amounts held within the AST bond portfolio
Sub-account associated with the maturing guarantee to your other Sub-accounts,
on a pro rata basis. If the entire account value is invested in the AST bond
portfolio Sub-account, we will allocate according to your current allocation
instructions.
We increase the amount of each guarantee that has not yet reached its maturity
date, as well as the highest daily Account Value that we calculate to
establish a guarantee, by the amount of each Purchase Payment (and associated
Credits) made prior to the applicable maturity date. For example, if the
effective date of the benefit was January 1, 2009, and there was an initial
guaranteed amount that was set at $100,000 maturing January 1, 2019, and a
second guaranteed amount that was set at $120,000 maturing January 1, 2020,
then a $30,000 Purchase Payment made on March 30, 2010 would increase the
guaranteed amounts to $130,000 and $150,000, respectively. As illustrated in
the examples below, additional Purchase Payments also increase an amount we
refer to as the "dollar-for-dollar corridor."
We reflect the effect of withdrawals by reference to an amount called the
"dollar-for-dollar corridor." The dollar-for-dollar corridor is set initially
to equal 5% of the initial guaranteed amount (i.e., 5% of the Account Value at
benefit election). Each "benefit year" (i.e., a year that begins on the date
of election of Highest Daily GRO and each anniversary thereafter), withdrawals
that you make that are equal to or less than the dollar-for-dollar corridor
reduce (i) the amount of the dollar-for-dollar corridor for that benefit year
(ii) the amount of each outstanding guarantee amount, and (iii) the highest
daily Account Value that we calculate to establish a guarantee, by the exact
amount of the withdrawal. However, if you withdraw more than the
dollar-for-dollar corridor in a given benefit year, we use the portion of the
withdrawal that exceeded the dollar-for-dollar corridor to effect a
proportional reduction to both the dollar-for-dollar corridor itself and each
outstanding guaranteed amount, as well as the highest daily Account Value that
we calculate to establish a guarantee. We calculate a proportional reduction
by (i) identifying the amount of the withdrawal that exceeded the
dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the
dollar-for-dollar amount from the Account Value prior to the withdrawal
(iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing
each guaranteed amount, as well as the highest daily Account Value that we
calculate to establish a guarantee and the dollar for dollar corridor itself,
by the percentage derived in (iii). See examples of this calculation below.
Any partial withdrawals in payment of any third party investment advisory
service will be treated as withdrawals, and will reduce each applicable
guaranteed amount and the dollar-for-dollar corridor in the manner indicated
above.
EXAMPLES
The following examples of dollar-for-dollar and proportional reductions assume
that: 1.) the Issue Date and the effective date of the Highest Daily GRO
program are October 13, 2008; 2.) an initial Purchase Payment of $250,000
(includes any Credits); 3.) an initial guarantee amount of $250,000; and 4.) a
dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here
are purely hypothetical and do not reflect the charge for Highest Daily GRO or
other fees and charges.
52
Example 1. Dollar-for-dollar reduction
A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity
Year). No prior withdrawals have been taken. As the amount withdrawn is less
than the Dollar-for-dollar Limit:
.. The initial guarantee amount is reduced by the amount withdrawn (i.e., by
$10,000, from $250,000 to $240,000).
.. The remaining dollar-for-dollar limit ("Remaining Limit") for the balance
of the first Annuity Year is also reduced by the amount withdrawn (from
$12,500 to $2,500).
Example 2. Dollar-for-dollar and proportional reductions
A second $10,000 withdrawal is taken on December 18, 2008 (still within the
first Annuity Year). The Account Value immediately before the withdrawal is
$180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from
Example 1:
.. the initial guarantee amount is first reduced by the Remaining Limit (from
$240,000 to $237,500);
.. The result is then further reduced by the ratio of A to B, where:
-- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or
$7,500).
-- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or
$177,500).
The resulting initial guarantee amount is: $237,500 X (1 - $7,500 / $177,500),
or $227,464.79.
.. The Remaining Limit is set to zero (0) for the balance of the first Annuity
Year. The resulting dollar-for dollar corridor for the next Annuity Year is
calculated by multiplying the prior dollar-for-dollar corridor by the same
ratio by which we reduce the Guaranteed Amount above: $12,500 X (1 -
$7,500/$177,500), or $11,971.83.
Key Feature - Allocation of Account Value
To allow us to make these guarantees, we monitor your Account Value according
to the formula that is set forth in the schedule supplement to the rider and
that also is set forth in Appendix E to this prospectus. Because the formula
is made part of your schedule supplement, the formula may not be altered.
However, we do reserve the right to amend the formula for newly-issued annuity
contracts that elect Highest Daily GRO and for existing contracts that elect
the benefit post-issue. This required allocation mechanism helps us manage our
financial exposure under Highest Daily GRO, by moving assets out of certain
Sub-accounts in certain scenarios. In essence, we seek to preserve the value
of these assets, by transferring them to a more stable option (i.e., one of a
specified group of bond portfolios within Advanced Series Trust)
(collectively, the "AST Bond Portfolios"). The formula also contemplates the
transfer of assets from the AST Bond Portfolios to the other Sub-accounts in
other scenarios.
For purposes of operating the Highest Daily GRO formula, we have included as
investment options within this Annuity several AST bond portfolios. Each AST
bond portfolio is unique, in that its underlying investments generally mature
at the same time as each outstanding maturity date that exists under the
benefit. For example, there would be an AST bond portfolio whose underlying
investments generally mature in 2018 (corresponding to all guarantees that
mature in 2018), an AST Bond Portfolio whose underlying investments generally
mature in 2019 (corresponding to all guarantees that mature in 2019), and so
forth. We will introduce new AST bond portfolios in subsequent years, to
correspond generally to the length of new guarantee periods that are created
under this benefit. If you have elected Highest Daily GRO, you may invest in
an AST bond portfolio only by operation of the asset transfer formula, and
thus you may not allocate Purchase Payments to such a Portfolio. Please see
this prospectus and the prospectus for the Advanced Series Trust for more
information about each AST bond portfolio used with this benefit. A summary
description of each AST Bond Portfolio appears within the prospectus section
entitled "What Are The Investment Objectives and Policies Of The Portfolios?"
Upon the initial transfer of your Account Value into an AST Bond Portfolio, we
will send a prospectus for that Portfolio to you along with your confirmation.
In addition, you can find a copy of the AST Bond Portfolio prospectus by going
to www.prudentialannuities.com
Although we employ several AST bond portfolios for purposes of the benefit,
the formula described in the next paragraph operates so that your Account
Value may be allocated to only one AST bond portfolio Sub-account at one time.
In the description of the formula in the next paragraph, we refer to the AST
bond portfolio Sub-account in which you are invested immediately prior to any
potential asset transfer as the "Current AST bond portfolio Sub-account." The
formula may dictate that a transfer out of the Current AST bond portfolio
Sub-account be made, or alternatively may mandate a transfer into an AST bond
portfolio Sub-account. Any transfer into an AST bond portfolio Sub-account
will be directed to the AST bond portfolio Sub-account associated with the
"current liability" (we refer to that Sub-account as the "Transfer AST bond
portfolio Sub-account"). Note that if the Current AST bond portfolio
Sub-account is associated with the current liability, then that Sub-account
would be the Transfer AST bond portfolio Sub-account, and we would simply
transfer additional assets into the Sub-account if dictated by the formula.
In general, the asset transfer formula works as follows. On each Valuation
Day, the formula automatically performs an analysis with respect to each
guarantee that is outstanding. For each outstanding guarantee, the formula
begins by determining the present value on that Valuation Day that, if
appreciated at the applicable "discount rate", would equal the applicable
guarantee amount on the maturity date. As detailed in the formula, the
discount rate is an interest rate determined by taking a benchmark index used
within the financial services industry and then reducing that interest rate by
a prescribed adjustment. Once selected, we do not
53
change the applicable benchmark index (although we do reserve the right to use
a new benchmark index if the original benchmark is discontinued). The greatest
of each such present value is referred to as the "current liability" in the
formula. The formula compares the current liability to the amount of your
Account Value held within the Current AST bond portfolio Sub-account and to
your Account Value held within the other Sub-accounts. If the current
liability, reduced by the amount held within the Current AST bond portfolio
Sub-account, and divided by the amount held within your other Sub-accounts,
exceeds an upper target value (currently, 0.85), then the formula will make a
transfer into the Transfer AST bond portfolio Sub-account, in the amount
dictated by the formula. If the current liability, reduced by the amount held
within the Current AST bond portfolio Sub-account, and divided by the amount
within your other Sub-accounts, is less than a lower target value (currently,
0.79), then the formula will transfer Account Value within the Current AST
bond portfolio Sub-account into the other Sub-accounts (other than the
Transfer AST bond portfolio Sub-account), in the amount dictated by the
formula.
If a significant amount of your Account Value is systematically transferred to
an AST bond portfolio Sub-account to support the guarantee amounts during
periods of market declines, low interest rates, and/or as the guarantee nears
its maturity date, less of your Account Value may be available to participate
in the investment experience of the other Sub-accounts if there is a
subsequent market recovery. During periods closer to the maturity date of the
guarantee, a significant portion of your Account Value may be allocated to an
AST bond portfolio Sub-account to support any applicable guaranteed amount(s).
Election/Cancellation of the Program
Highest Daily GRO can be elected on the Issue Date of your Annuity, or at any
time thereafter (unless you previously participated in either this benefit or
GRO Plus 2008, in which case your election must be on an Annuity Anniversary).
If you elect the benefit after the Issue Date of your Annuity, the benefit
will be effective as of the Valuation Day that we receive the required
documentation in good order at our home office, and the initial guaranteed
amount will equal the Account Value on that day. You may elect Highest Daily
GRO only if the oldest of the Owner and Annuitant is 84 or younger on the date
of election (80 or younger, in New York).
You may cancel Highest Daily GRO at any time. Upon cancellation, we will
transfer any Account Value that is held in an AST bond portfolio Sub-account
to the other Sub-accounts, according to your current allocation instructions.
Highest Daily GRO will terminate automatically upon: (a) the death of the
Owner or the Annuitant (in an entity owned contract), unless the Annuity is
continued by the surviving spouse; (b) as of the date Account Value is applied
to begin annuity payments; (c) as of the anniversary of benefit election that
immediately precedes the contractually-mandated latest annuity date, or
(d) upon full surrender of the Annuity. If you elect to terminate the program,
Highest Daily GRO will no longer provide any guarantees. The charge for the
Highest Daily GRO program will no longer be deducted from your Account Value
upon termination of the program.
Special Considerations under Highest Daily GRO
This program is subject to certain rules and restrictions, including, but not
limited to the following:
. Upon inception of the program, 100% of your Account Value must be
allocated to the permitted Sub-accounts. The permitted Sub-accounts are
those described in the Investment Option section of this prospectus. No
fixed interest rate allocations may be in effect as of the date that you
elect to participate in the program.
. You cannot participate in any dollar cost averaging program that
transfers Account Value from a fixed interest rate option to a
Sub-account.
. Transfers from the other Sub-accounts to an AST bond portfolio
Sub-account or from an AST bond portfolio Sub-account to the other
Sub-accounts under the program will not count toward the maximum number
of free transfers allowable under the Annuity.
. Any amounts applied to your Account Value by us on a maturity date will
not be treated as "investment in the contract" for income tax purposes.
. As the time remaining until the applicable maturity date gradually
decreases, the program may become increasingly sensitive to moves to an
AST bond portfolio Sub-account.
. We currently limit the Sub-accounts in which you may allocate Account
Value if you participate in this program. We reserve the right to
transfer any Account Value in a prohibited investment option to an
eligible investment option. Should we prohibit access to any investment
option, any transfers required to move Account Value to eligible
investment options will not be counted in determining the number of free
transfers during an Annuity Year. We may also require that you allocate
your Account Value according to an asset allocation model.
Charges under the Program
We deduct an annual charge equal to 0.35% of the average daily net assets of
the Sub-accounts (including each AST bond portfolio Sub-account) for
participation in the Highest Daily GRO program. The charge is deducted daily.
The charge is deducted to compensate us for: (a) the risk that your Account
Value on the maturity date is less than the amount guaranteed and
(b) administration of the program. We reserve the right to increase this fee
for newly-issued contracts or new elections of the benefit.
54
GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB)
The Guaranteed Minimum Withdrawal Benefit program described below is only
being offered in those jurisdictions where we have received regulatory
approval and will be offered subsequently in other jurisdictions when we
receive regulatory approval in those jurisdictions. Certain terms and
conditions may differ between jurisdictions once approved. Currently, the
program can only be elected by new purchasers on the Issue Date of their
Annuity. We may offer the program to existing Annuity Owners in the future,
subject to our eligibility rules and restrictions. The Guaranteed Minimum
Withdrawal Benefit program is not available if you elect any other optional
living benefit.
We offer a program that guarantees your ability to withdraw amounts equal to
an initial principal value (called the "Protected Value"), regardless of the
impact of market performance on your Account Value, subject to our program
rules regarding the timing and amount of withdrawals. The program may be
appropriate if you intend to make periodic withdrawals from your Annuity and
wish to ensure that market performance will not affect your ability to protect
your principal. You are not required to make withdrawals as part of the
program - the guarantee is not lost if you withdraw less than the maximum
allowable amount of principal each year under the rules of the program. There
is an additional charge if you elect the GMWB program; however, the charge may
be waived under certain circumstances described below.
Key Feature - Protected Value
The Protected Value is the total amount that we guarantee will be available to
you through withdrawals from your Annuity and/or benefit payments, regardless
of the impact of market performance on your Account Value. The Protected Value
is reduced with each withdrawal you make until the Protected Value is reduced
to zero. When the Protected Value is reduced to zero due to your withdrawals,
the GMWB program terminates. Additionally, the Protected Value is used to
determine the maximum annual amount that you can withdraw from your Annuity,
called the Protected Annual Withdrawal Amount, without triggering an
adjustment in the Protected Value on a proportional basis. The Protected Value
is referred to as the "Benefit Base" in the rider we issue for this benefit.
The Protected Value is determined as of the date you make your first
withdrawal under your Annuity following your election of the GMWB program. The
initial Protected Value is equal to the greater of (A) the Account Value on
the date you elect the GMWB program, plus any additional Purchase Payments
(plus any Credits applied to such Purchase Payments) before the date of your
first withdrawal; or (B) the Account Value as of the date of the first
withdrawal from your Annuity. The Protected Value may be enhanced by increases
in your Account Value due to market performance during the period between your
election of the GMWB program and the date of your first withdrawal.
.. If you elect the GMWB program at the time you purchase your Annuity, the
Account Value will be your initial Purchase Payment (plus any Credits
applied to such Purchase Payments).
.. If we offer the GMWB program to existing Annuity Owners, the Account Value
on the anniversary of the Issue Date of your Annuity following your
election of the GMWB program will be used to determine the initial
Protected Value.
.. If you make additional Purchase Payments after your first withdrawal, the
Protected Value will be increased by the amount of the additional Purchase
Payment (plus any Credits applied to such Purchase Payments).
You may elect to step-up your Protected Value if, due to positive market
performance, your Account Value is greater than the Protected Value. You are
eligible to step-up the Protected Value on or after the 5/th/ Annuity
anniversary following the first withdrawal under the GMWB program. The
Protected Value can be stepped up again on or after the 5/th/ Annuity
anniversary following the preceding step-up. If you elect to step-up the
Protected Value, you must do so during the 30-day period prior to your
eligibility date. If you elect to step-up the Protected Value under the
program, and on the date you elect to step-up, the charges under the GMWB
program have changed for new purchasers, your program may be subject to the
new charge going forward.
Upon election of the step-up, we reset the Protected Value to be equal to the
then current Account Value. For example, assume your initial Protected Value
was $100,000 and you have made cumulative withdrawals of $40,000, reducing the
Protected Value to $60,000. On the date you are eligible to step-up the
Protected Value, your Account Value is equal to $75,000. You could elect to
step-up the Protected Value to $75,000 on the date you are eligible. Upon
election of the step-up, we also reset the Protected Annual Withdrawal Amount
(discussed immediately below) to be equal to the greater of (A) the Protected
Annual Withdrawal Amount immediately prior to the reset; and (B) 7% of the
Protected Value immediately after the reset.
Key Feature - Protected Annual Withdrawal Amount
The initial Protected Annual Withdrawal Amount is equal to 7% of the Protected
Value. Under the GMWB program, if your cumulative withdrawals each Annuity
Year are less than or equal to the Protected Annual Withdrawal Amount, your
Protected Value will be reduced on a "dollar-for-dollar" basis (the Protected
Value is reduced by the actual amount of the withdrawal, including any CDSC or
MVA that may apply). Cumulative withdrawals in any Annuity Year that exceed
the Protected Annual Withdrawal Amount trigger a proportional adjustment to
both the Protected Value and the Protected Annual Withdrawal Amount, as
described in the rider for this benefit (see the examples of this calculation
below). The Protected Annual Withdrawal Amount is referred to as the "Maximum
Annual Benefit" in the rider we issue for this benefit.
55
The GMWB program does not affect your ability to make withdrawals under your
Annuity or limit your ability to request withdrawals that exceed the Protected
Annual Withdrawal Amount. You are not required to withdraw all or any portion
of the Protected Annual Withdrawal Amount each Annuity Year.
.. If, cumulatively, you withdraw an amount less than the Protected Annual
Withdrawal Amount in any Annuity Year, you cannot carry-over the unused
portion of the Protected Annual Withdrawal Amount to subsequent Annuity
Years. However, because the Protected Value is only reduced by the actual
amount of withdrawals you make under these circumstances, any unused
Protected Annual Withdrawal Amount may extend the period of time until the
remaining Protected Value is reduced to zero.
.. Additional Purchase Payments will increase the Protected Annual Withdrawal
Amount by 7% of the applicable Purchase Payment (and any Credits we apply
to such Purchase Payments).
.. If the Protected Annual Withdrawal Amount after an adjustment exceeds the
Protected Value, the Protected Annual Withdrawal Amount will be set equal
to the Protected Value.
The following examples of dollar-for dollar and proportional reductions and
the reset of the Maximum Annual Benefit assume that: 1.) the Issue Date and
the effective date of the GMWB program are October 13, 2005; 2.) an initial
Purchase Payment of $250,000 (includes any Credits); 3.) a Protected Value of
$250,000; and 4.) a Protected Annual Withdrawal Amount of $17,500 (7% of
$250,000). The values set forth here are purely hypothetical and do not
reflect the charge for GMWB or any other fees and charges.
Example 1. Dollar-for-dollar reduction
A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity
Year). No prior withdrawals have been taken. As the amount withdrawn is less
than the Protected Annual Withdrawal Amount:
.. The Protected Value is reduced by the amount withdrawn (i.e., by $10,000,
from $250,000 to $240,000).
.. The remaining Protected Annual Withdrawal Amount for the balance of the
first Annuity Year is also reduced by the amount withdrawn (from $17,500 to
$7,500).
Example 2. Dollar-for-dollar and proportional reductions
A second $10,000 withdrawal is taken on December 13, 2005 (still within the
first Annuity Year). The Account Value immediately before the withdrawal is
$220,000. As the amount withdrawn exceeds the remaining Protected Annual
Withdrawal Amount of $7,500 from Example 1:
.. the Protected Value is first reduced by the remaining Protected Annual
Withdrawal Amount (from $240,000 to $232,500);
.. The result is then further reduced by the ratio of A to B, where:
-- A is the amount withdrawn less the remaining Protected Annual Withdrawal
Amount ($10,000 - $7,500, or $2,500).
-- B is the Account Value less the remaining Protected Annual Withdrawal
Amount ($220,000 - $7,500, or $212,500).
The resulting Protected Value is: $232,500 X (1 - $2,500/$212,500), or
$229,764.71.
.. the Protected Annual Withdrawal Amount is also reduced by the ratio of A to
B: The resulting Protected Annual Withdrawal Amount is: $17,500 X (1 -
$2,500/$212,500), or $17,294.12.
-- The remaining Protected Annual Withdrawal Amount is set to zero (0) for
the balance of the first Annuity Year.
Example 3. Reset of the Maximum Annual Benefit
A $10,000 withdrawal is made on October 13, 2006 (second Annuity Year). The
remaining Protected Annual Withdrawal Amount has been reset to the Protected
Annual Withdrawal Amount of $17,294.12 from Example 2. As the amount withdrawn
is less than the remaining Protected Annual Withdrawal Amount:
.. the Protected Value is reduced by the amount withdrawn (i.e., reduced by
$10,000, from $229,764.71 to $219,764.71).
.. the remaining Protected Annual Withdrawal Amount for the balance of the
second Annuity Year is also reduced by the amount withdrawn (from
$17,294.12 to $7,294.12).
BENEFITS UNDER THE GMWB PROGRAM
. In addition to any withdrawals you make under the GMWB program, market
performance may reduce your Account Value. If your Account Value is
equal to zero, and you have not received all of your Protected Value in
the form of withdrawals from your Annuity, we will continue to make
payments equal to the remaining Protected Value in the form of fixed,
periodic payments until the remainder of the Protected Value is paid, at
which time the rider terminates. The fixed, periodic payments will each
be equal to the Protected Annual Withdrawal Amount, except for the last
payment which may be equal to the remaining Protected Value. We will
determine the duration for which periodic payments will continue by
dividing the Protected Value by the Protected Annual Withdrawal Amount.
You will not have the right to make additional Purchase Payments or
receive the remaining Protected Value in a lump sum. You can elect the
frequency of payments, subject to our rules then in effect.
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. If the death benefit under your Annuity becomes payable before you have
received all of your Protected Value in the form of withdrawals from
your Annuity, your Beneficiary has the option to elect to receive the
remaining Protected Value as an alternate death benefit payout in lieu
of the amount payable under any other death benefit provided under your
Annuity. The remaining Protected Value will be payable in the form of
fixed, periodic payments. Your beneficiary can elect the frequency of
payments, subject to our rules then in effect. We will determine the
duration for which periodic payments will continue by dividing the
Protected Value by the Protected Annual Withdrawal Amount. The Protected
Value is not equal to the Account Value for purposes of the Annuity's
other death benefit options. The GMWB program does not increase or
decrease the amount otherwise payable under the Annuity's other death
benefit options. Generally, the GMWB program would be of value to your
Beneficiary only when the Protected Value at death exceeds any other
amount available as a death benefit.
. If you elect to begin receiving annuity payments before you have
received all of your Protected Value in the form of withdrawals from
your Annuity, an additional annuity payment option will be available
that makes fixed annuity payments for a certain period, determined by
dividing the Protected Value by the Protected Annual Withdrawal Amount.
If you elect to receive annuity payments calculated in this manner, the
assumed interest rate used to calculate such payments will be 0%, which
is less than the assumed interest rate on other annuity payment options
we offer. This 0% assumed interest rate results in lower annuity
payments than what would have been paid if the assumed interest rate was
higher than 0%. You can also elect to terminate the GMWB program and
begin receiving annuity payments based on your then current Account
Value (not the remaining Protected Value) under any of the available
annuity payment options.
Other Important Considerations
. Withdrawals under the GMWB program are subject to all of the terms and
conditions of your Annuity, including any CDSC and MVA that may apply.
. Withdrawals made while the GMWB program is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under your
Annuity.
. The GMWB program does not directly affect your Annuity's Account Value
or Surrender Value, but any withdrawal will decrease the Account Value
by the amount of the withdrawal. If you surrender your Annuity, you will
receive the current Surrender Value, not the Protected Value.
. You can make withdrawals from your Annuity while your Account Value is
greater than zero without purchasing the GMWB program. The GMWB program
provides a guarantee that if your Account Value declines due to market
performance, you will be able to receive your Protected Value in the
form of periodic benefit payments.
. We currently limit the Sub-accounts in which you may allocate Account
Value if you participate in this program. We reserve the right to
transfer any Account Value in a prohibited investment option to an
eligible investment option you designate. Should we prohibit access to
any investment option, any transfers required to move Account Value to
eligible investment options will not be counted in determining the
number of free transfers during an Annuity Year.
Election of the Program
Currently, the GMWB program can only be elected at the time that you purchase
your Annuity. In the future, we may offer existing Annuity Owners the option
to elect the GMWB program after the Issue Date of their Annuity, subject to
our eligibility rules and restrictions. If you elect the GMWB program after
the Issue Date of your Annuity, the program will be effective as of the next
anniversary date. Your Account Value as of such anniversary date will be used
to calculate the initial Protected Value and the initial Protected Annual
Withdrawal Amount.
We reserve the right to restrict the maximum amount of Protected Value that
may be covered under the GMWB program under this Annuity or any other
annuities that you own that are issued by Prudential Annuities or its
affiliated companies.
Termination of the Program
The program terminates automatically when your Protected Value reaches zero
based on your withdrawals. You may terminate the program at any time by
notifying us. If you terminate the program, any guarantee provided by the
benefit will terminate as of the date the termination is effective. The
program terminates upon your surrender of your Annuity, upon due proof of
death (unless your surviving spouse elects to continue your Annuity and the
GMWB program or your Beneficiary elects to receive the amounts payable under
the GMWB program in lieu of the death benefit) or upon your election to begin
receiving annuity payments.
The charge for the GMWB program will no longer be deducted from your Account
Value upon termination of the program.
Charges under the Program
Currently, we deduct a charge equal to 0.35% of the average daily net assets
of the Sub-accounts per year to purchase the GMWB program. The annual charge
is deducted daily.
.. If, during the seven years following the effective date of the program, you
do not make any withdrawals, and do not make any additional Purchase
Payments after a five-year period following the effective date of the
program, the program will remain in effect; however, we will waive the
annual charge going forward. If you make an additional Purchase Payment
following the
57
waiver of the annual charge, we will begin charging for the program. After
year seven (7) following the effective date of the program, withdrawals
will not cause a charge to be re-imposed.
.. If you elect to step-up the Protected Value under the program, and on the
date you elect to step-up, the charges under the program have changed for
new purchasers, your program may be subject to the new charge level for the
benefit.
Additional Tax Considerations for Qualified Contracts/Arrangements
If you purchase an Annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the required minimum distribution
rules under the Code provide that you begin receiving periodic amounts from
your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a
401(a) plan for which the participant is not a greater than 5 percent owner of
the employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
owner's lifetime. The amount required under the Code may exceed the Protected
Annual Withdrawal Amount, which will cause us to recalculate the Protected
Value and the Protected Annual Withdrawal Amount, resulting in a lower amount
payable in future Annuity Years. In addition, the amount and duration of
payments under the annuity payment and death benefit provisions may be
adjusted so that the payments do not trigger any penalty or excise taxes due
to tax considerations such as required minimum distribution provisions under
the tax law.
GUARANTEED MINIMUM INCOME BENEFIT (GMIB)
The Guaranteed Minimum Income Benefit program described below is only being
offered in those jurisdictions where we have received regulatory approval, and
will be offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. Certain terms and conditions may differ
between jurisdictions once approved. Currently, the program can only be
elected by new purchasers on the Issue Date of their Annuity. We may offer the
program to existing Annuity Owners in the future, subject to our eligibility
rules and restrictions. The Guaranteed Minimum Income Benefit program is not
available if you elect any other optional living benefit.
We offer a program that, after a seven-year waiting period, guarantees your
ability to begin receiving income from your Annuity in the form of annuity
payments based on a guaranteed minimum value (called the "Protected Income
Value") that increases after the waiting period begins, regardless of the
impact of market performance on your Account Value. The program may be
appropriate for you if you anticipate using your Annuity as a future source of
periodic fixed income payments for the remainder of your life and wish to
ensure that the basis upon which your income payments will be calculated will
achieve at least a minimum amount despite fluctuations in market performance.
There is an additional charge if you elect the GMIB program.
Key Feature - Protected Income Value
The Protected Income Value is the minimum amount that we guarantee will be
available (net of any applicable tax charge), after a waiting period of at
least seven years, as a basis to begin receiving fixed annuity payments. The
Protected Income Value is initially established on the effective date of the
GMIB program and is equal to your Account Value on such date. Currently, since
the GMIB program may only be elected at issue, the effective date is the Issue
Date of your Annuity. The Protected Income Value is increased daily based on
an annual growth rate of 5%, subject to the limitations described below. The
Protected Income Value is referred to as the "Protected Value" in the rider we
issue for this benefit. The 5% annual growth rate is referred to as the
"Roll-Up Percentage" in the rider we issue for this benefit.
The Protected Income Value is subject to a limit of 200% (2X) of the sum of
the Protected Income Value established on the effective date of the GMIB
program, or the effective date of any step-up value, plus any additional
Purchase Payments (and any Credit that is applied to such Purchase Payments)
made after the waiting period begins ("Maximum Protected Income Value"), minus
the sum of any reductions in the Protected Income Value due to withdrawals you
make from your Annuity after the waiting period begins.
. Subject to the maximum age/durational limits described immediately
below, we will no longer increase the Protected Income Value by the 5%
annual growth rate once you reach the Maximum Protected Income Value.
However, we will increase the Protected Income Value by the amount of
any additional Purchase Payments after you reach the Maximum Protected
Income Value. Further, if you make withdrawals after you reach the
Maximum Protected Income Value, we will reduce the Protected Income
Value and the Maximum Protected Income Value by the proportional impact
of the withdrawal on your Account Value.
. Subject to the Maximum Protected Income Value, we will no longer
increase the Protected Income Value by the 5% annual growth rate after
the later of the anniversary date on or immediately following the
Annuitant's 80/th/ birthday or the 7/th/ anniversary of the later of the
effective date of the GMIB program or the effective date of the most
recent step-up. However, we will increase the Protected Income Value by
the amount of any additional Purchase Payments (and any Credit that is
applied to such Purchase Payments). Further, if you make withdrawals
after the Annuitant reaches the maximum age/duration limits, we will
reduce the Protected Income Value and the Maximum Protected Income Value
by the proportional impact of the withdrawal on your Account Value.
. Subject to the Maximum Protected Income Value, if you make an additional
Purchase Payment, we will increase the Protected Income Value by the
amount of the Purchase Payment (and any Credit that is applied to such
Purchase Payment) and will apply the 5% annual growth rate on the new
amount from the date the Purchase Payment is applied.
58
. As described below, after the waiting period begins, cumulative
withdrawals each Annuity Year that are up to 5% of the Protected Income
Value on the prior anniversary of your Annuity will reduce the Protected
Income Value by the amount of the withdrawal. Cumulative withdrawals
each Annuity Year in excess of 5% of the Protected Income Value on the
prior anniversary of your Annuity will reduce the Protected Income Value
proportionately. All withdrawals after the Maximum Protected Income
Value is reached will reduce the Protected Income Value proportionately.
The 5% annual growth rate will be applied to the reduced Protected
Income Value from the date of the withdrawal.
Stepping-Up the Protected Income Value - You may elect to "step-up" or "reset"
your Protected Income Value if your Account Value is greater than the current
Protected Income Value. Upon exercise of the step-up provision, your initial
Protected Income Value will be reset equal to your current Account Value. From
the date that you elect to step-up the Protected Income Value, we will apply
the 5% annual growth rate to the stepped-up Protected Income Value, as
described above. You can exercise the step-up provision twice while the GMIB
program is in effect, and only while the Annuitant is less than age 76.
. A new seven-year waiting period will be established upon the effective
date of your election to step-up the Protected Income Value. You cannot
exercise your right to begin receiving annuity payments under the GMIB
program until the end of the new waiting period. In light of this
waiting period upon resets, it is not recommended that you reset your
GMIB if the required beginning date under IRS minimum distribution
requirements would commence during the 7 year waiting period. See "Tax
Considerations" section in this prospectus for additional information on
IRS requirements.
. The Maximum Protected Income Value will be reset as of the effective
date of any step-up. The new Maximum Protected Income Value will be
equal to 200% of the sum of the Protected Income Value as of the
effective date of the step-up plus any subsequent Purchase Payments (and
any Credit that is applied to such Purchase Payments), minus the impact
of any withdrawals after the date of the step-up.
. When determining the guaranteed annuity purchase rates for annuity
payments under the GMIB program, we will apply such rates based on the
number of years since the most recent step-up.
. If you elect to step-up the Protected Income Value under the program,
and on the date you elect to step-up, the charges under the GMIB program
have changed for new purchasers, your program may be subject to the new
charge going forward.
. A step-up will increase the dollar for dollar limit on the anniversary
of the Issue Date of the Annuity following such step-up.
Impact of Withdrawals on the Protected Income Value - Cumulative withdrawals
each Annuity Year up to 5% of the Protected Income Value will reduce the
Protected Income Value on a "dollar-for-dollar" basis (the Protected Income
Value is reduced by the actual amount of the withdrawal). Cumulative
withdrawals in any Annuity Year in excess of 5% of the Protected Income Value
will reduce the Protected Income Value proportionately (see the examples of
this calculation below). The 5% annual withdrawal amount is determined on each
anniversary of the Issue Date (or on the Issue Date for the first Annuity
Year) and applies to any withdrawals during the Annuity Year. This means that
the amount available for withdrawals each Annuity Year on a
"dollar-for-dollar" basis is adjusted on each Annuity anniversary to reflect
changes in the Protected Income Value during the prior Annuity Year.
The following examples of dollar-for-dollar and proportional reductions assume
that: 1.) the Issue Date and the effective date of the GMIB program are
October 13, 2005; 2.) an initial Purchase Payment of $250,000 (includes any
Credits); 3.) an initial Protected Income Value of $250,000; and 4.) a
dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here
are purely hypothetical and do not reflect the charge for GMIB or any other
fees and charges.
Example 1. Dollar-for-dollar reduction
A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity
Year). No prior withdrawals have been taken. Immediately prior to the
withdrawal, the Protected Income Value is $251,038.10 (the initial value
accumulated for 31 days at an annual effective rate of 5%). As the amount
withdrawn is less than the dollar-for-dollar limit:
.. the Protected Income Value is reduced by the amount withdrawn (i.e., by
$10,000, from $251,038.10 to $241,038.10).
.. the remaining dollar-for-dollar limit ("Remaining Limit") for the balance
of the first Annuity Year is also reduced by the amount withdrawn (from
$12,500 to $2,500).
Example 2. Dollar-for-dollar and proportional reductions
A second $10,000 withdrawal is taken on December 13, 2005 (still within the
first Annuity Year). Immediately before the withdrawal, the Account Value is
$220,000 and the Protected Income Value is $242,006.64. As the amount
withdrawn exceeds the Remaining Limit of $2,500 from Example 1:
.. the Protected Income Value is first reduced by the Remaining Limit (from
$242,006.64 to $239,506.64);
.. the result is then further reduced by the ratio of A to B, where:
-- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or
$7,500).
-- B is the Account Value less the Remaining Limit ($220,000 - $2,500, or
$217,500).
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The resulting Protected Income Value is: $239,506.64 X (1 - $7,500/$217,500),
or $231,247.79.
.. The Remaining Limit is set to zero (0) for the balance of the first Annuity
Year.
Example 3. Reset of the Dollar-for-dollar Limit
A $10,000 withdrawal is made on the first anniversary of the Issue Date,
October 13, 2006 (second Annuity Year). Prior to the withdrawal, the Protected
Income Value is $240,838.37. The Remaining Limit is reset to 5% of this
amount, or $12,041.92. As the amount withdrawn is less than the
dollar-for-dollar limit:
.. the Protected Income Value is reduced by the amount withdrawn (i.e.,
reduced by $10,000, from $240,838.37 to $230,838.37).
.. the Remaining Limit for the balance of the second Annuity Year is also
reduced by the amount withdrawn (from $12,041.92 to $2,041.92).
Key Feature - GMIB Annuity Payments
You can elect to apply the Protected Income Value to one of the available GMIB
Annuity Payment Options on any anniversary date following the initial waiting
period, or any subsequent waiting period established upon your election to
step-up the Protected Income Value. Once you have completed the waiting
period, you will have a 30-day period each year, prior to the Annuity
anniversary, during which you may elect to begin receiving annuity payments
under one of the available GMIB Annuity Payment Options. You must elect one of
the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue
Date on or immediately following the Annuitant's or your 95/th/ birthday
(whichever is sooner), except for Annuities used as a funding vehicle for an
IRA, SEP IRA or 403(b), in which case you must elect one of the GMIB Annuity
Payment Options by the anniversary of the Annuity's Issue Date on or
immediately following the Annuitant's 92/nd/ birthday.
Your Annuity or state law may require you to begin receiving annuity payments
at an earlier date.
The amount of each GMIB Annuity Payment will be determined based on the age
and, where permitted by law, sex of the Annuitant by applying the Protected
Income Value (net of any applicable tax charge that may be due) to the GMIB
Annuity Payment Option you choose. We use special annuity purchase rates to
calculate the amount of each payment due under the GMIB Annuity Payment
Options. These special rates for the GMIB Annuity Payment Options are
calculated using an assumed interest rate factor that provides for lower
growth in the value applied to produce annuity payments than if you elected an
annuity payment option that is not part of the GMIB program. These special
rates also are calculated using other factors such as "age setbacks" (use of
an age lower than the Annuitant's actual age) that result in lower payments
than would result if you elected an annuity payment option that is not part of
the GMIB program. Use of an age setback entails a longer assumed life for the
Annuitant which in turn results in lower annuity payments.
On the date that you elect to begin receiving GMIB Annuity Payments, we
guarantee that your payments will be calculated based on your Account Value
and our then current annuity purchase rates if the payment amount calculated
on this basis would be higher than it would be based on the Protected Income
Value and the special GMIB annuity purchase rates.
GMIB Annuity Payment Option 1 - Payments for Life with a Certain Period
Under this option, monthly annuity payments will be made until the death of
the Annuitant. If the Annuitant dies before having received 120 monthly
annuity payments, the remainder of the 120 monthly annuity payments will be
made to the Beneficiary.
GMIB Annuity Payment Option 2 - Payments for Joint Lives with a Certain Period
Under this option, monthly annuity payments will be made until the death of
both the Annuitant and the Joint Annuitant. If the Annuitant and the Joint
Annuitant die before having received 120 monthly annuity payments, the
remainder of the 120 monthly annuity payments will be made to the Beneficiary.
.. If the Annuitant dies first, we will continue to make payments until the
later of the death of the Joint Annuitant and the end of the period
certain. However, if the Joint Annuitant is still receiving annuity
payments following the end of the certain period, we will reduce the amount
of each subsequent payment to 50% of the original payment amount.
.. If the Joint Annuitant dies first, we will continue to make payments until
the later of the death of the Annuitant and the end of the period certain.
You cannot withdraw your Account Value or the Protected Income Value under
either GMIB Annuity Payment Option once annuity payments have begun. We may
make other payout frequencies available, such as quarterly, semi-annually or
annually.
Other Important Considerations
.. You should note that GMIB is designed to provide a type of insurance that
serves as a safety net only in the event your Account Value declines
significantly due to negative investment performance. If your Account Value
is not significantly affected by negative investment performance, it is
unlikely that the purchase of the GMIB will result in your receiving larger
annuity payments than if you had not purchased GMIB. This is because the
assumptions that we use in computing the GMIB, such as the annuity purchase
rates, (which include assumptions as to age-setbacks and assumed interest
rates), are
60
more conservative than the assumptions that we use in computing annuity
payout options outside of GMIB. Therefore, you may generate higher income
payments if you were to annuitize a lower Account Value at the current
annuity purchase rates, than if you were to annuitize under the GMIB with a
higher Protected Value than your Account Value but, at the annuity purchase
rates guaranteed under the GMIB. The GMIB program does not directly affect
an Annuity's Account Value, Surrender Value or the amount payable under
either the basic Death Benefit provision of the Annuity or any optional
Death Benefit provision. If you surrender your Annuity, you will receive
the current Surrender Value, not the Protected Income Value. The Protected
Income Value is only applicable if you elect to begin receiving annuity
payments under one of the GMIB annuity options after the waiting period.
.. Each Annuity offers other annuity payment options that you can elect which
do not impose an additional charge, but which do not offer to guarantee a
minimum value on which to make annuity payments.
.. Where allowed by law, we reserve the right to limit subsequent Purchase
Payments if we determine, at our sole discretion, that based on the timing
of your Purchase Payments and withdrawals, your Protected Income Value is
increasing in ways we did not intend. In determining whether to limit
Purchase Payments, we will look at Purchase Payments which are
disproportionately larger than your initial Purchase Payment and other
actions that may artificially increase the Protected Income Value.
.. We currently limit the Sub-accounts in which you may allocate Account Value
if you participate in this program. We reserve the right to transfer any
Account Value in a prohibited investment option to an eligible investment
option. Should we prohibit access to any investment option, any transfers
required to move Account Value to eligible investment options will not be
counted in determining the number of free transfers during an Annuity Year.
We may also require that you allocate your Account Value according to an
asset allocation model.
.. If you change the Annuitant after the effective date of the GMIB program,
the period of time during which we will apply the 5% annual growth rate may
be changed based on the age of the new Annuitant. If the new Annuitant
would not be eligible to elect the GMIB program based on his or her age at
the time of the change, then the GMIB program will terminate.
.. Annuity payments made under the GMIB program are subject to the same tax
treatment as any other annuity payment.
.. At the time you elect to begin receiving annuity payments under the GMIB
program or under any other annuity payment option we make available, the
protection provided by an Annuity's basic Death Benefit or any optional
Death Benefit provision you elected will no longer apply.
Election of the Program
Currently, the GMIB program can only be elected at the time that you purchase
your Annuity. The Annuitant must be age 75 or less as of the effective date of
the GMIB program. In the future, we may offer existing Annuity Owners the
option to elect the GMIB program after the Issue Date of their Annuity,
subject to our eligibility rules and restrictions. If you elect the GMIB
program after the Issue Date of your Annuity, the program will be effective as
of the date of election. Your Account Value as of that date will be used to
calculate the Protected Income Value as of the effective date of the program.
Termination of the Program
The GMIB program cannot be terminated by the Owner once elected. The GMIB
program automatically terminates as of the date your Annuity is fully
surrendered, on the date the Death Benefit is payable to your Beneficiary
(unless your surviving spouse elects to continue your Annuity), or on the date
that your Account Value is transferred to begin making annuity payments. The
GMIB program may also be terminated if you designate a new Annuitant who would
not be eligible to elect the GMIB program based on his or her age at the time
of the change.
Upon termination of the GMIB program we will deduct the charge from your
Account Value for the portion of the Annuity Year since the prior anniversary
of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year).
Charges under the Program
Currently, we deduct a charge equal to 0.50% per year of the average Protected
Income Value for the period the charge applies. Because the charge is
calculated based on the average Protected Income Value, it does not increase
or decrease based on changes to the Annuity's Account Value due to market
performance. The dollar amount you pay each year will increase in any year the
Protected Income Value increases, and it will decrease in any year the
Protected Income Value decreases due to withdrawal, irrespective of whether
your Account Value increases or decreases.
The charge is deducted annually in arrears each Annuity Year on the
anniversary of the Issue Date of an Annuity. We deduct the amount of the
charge pro-rata from the Account Value allocated to the Sub-accounts and the
Fixed Allocations. No MVA will apply to Account Value deducted from a Fixed
Allocation. If you surrender your Annuity, begin receiving annuity payments
under the GMIB program or any other annuity payment option we make available
during an Annuity Year, or the GMIB program terminates, we will deduct the
charge for the portion of the Annuity Year since the prior anniversary of the
Annuity's Issue Date (or the Issue Date if in the first Annuity Year).
No charge applies after the Annuity Date.
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LIFETIME FIVE/SM/ INCOME BENEFIT (LIFETIME FIVE)/SM/
The Lifetime Five Income Benefit program described below is only being offered
in those jurisdictions where we have received regulatory approval and will be
offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. Certain terms and conditions may differ
between jurisdictions once approved. Lifetime Five can be elected only where
the Annuitant and the Owner are the same person or, if the Annuity Owner is an
entity, where there is only one Annuitant. Currently, if you elect Lifetime
Five and subsequently terminate the benefit, there may be a restriction on
your ability to re-elect Lifetime Five and elect another of our lifetime
withdrawal benefits. The Annuitant must be at least 45 years old when the
program is elected. The Lifetime Five Income Benefit program is not available
if you elect any other optional living benefit. As long as your Lifetime Five
Income Benefit is in effect, you must allocate your Account Value in
accordance with the then permitted and available option(s) with this program.
We offer a program that guarantees your ability to withdraw amounts equal to a
percentage of an initial principal value (called the "Protected Withdrawal
Value"), regardless of the impact of market performance on your Account Value,
subject to our program rules regarding the timing and amount of withdrawals.
There are two options - one is designed to provide an annual withdrawal amount
for life (the "Life Income Benefit") and the other is designed to provide a
greater annual withdrawal amount as long as there is Protected Withdrawal
Value (adjusted as described below) (the "Withdrawal Benefit"). If there is no
Protected Withdrawal Value, the withdrawal benefit will be zero. You do not
choose between these two options; each option will continue to be available as
long as your Annuity has an Account Value and the Lifetime Five is in effect.
Certain benefits under Lifetime Five may remain in effect even if the Account
Value of your Annuity is zero. The program may be appropriate if you intend to
make periodic withdrawals from your Annuity and wish to ensure that market
performance will not affect your ability to receive annual payments. You are
not required to make withdrawals as part of the program - the guarantees are
not lost if you withdraw less than the maximum allowable amount each year
under the rules of the program.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is used to determine the amount of each annual
payment under the Life Income Benefit and the Withdrawal Benefit. The initial
Protected Withdrawal Value is determined as of the date you make your first
withdrawal under your Annuity following your election of Lifetime Five. The
initial Protected Withdrawal Value is equal to the greater of (A) the Account
Value on the date you elect Lifetime Five, plus any additional Purchase
Payments, as applicable, each growing at 5% per year from the date of your
election of the program, or application of the Purchase Payment to your
Annuity until the date of your first withdrawal or the 10/th/ anniversary of
the benefit effective date, if earlier (B) the Account Value on the date of
the first withdrawal from your Annuity, prior to the withdrawal, and (C) the
highest Account Value on each Annuity anniversary, plus subsequent Purchase
Payments prior to the first withdrawal or the 10/th/ anniversary of the
benefit effective date, if earlier. With respect to (A) and (C) above, after
the 10th anniversary of the benefit effective date, each value is increased by
the amount of any subsequent Purchase Payments. Credits are added to Purchase
Payments for purposes of calculating the Protected Withdrawal Value, the
Annual Income Amount and the Annual Withdrawal Amount (see below for a
description of Annual Income Amount and Annual Withdrawal Amount).
. If you elect the Lifetime Five program at the time you purchase your
Annuity, the Account Value will be your initial Purchase Payment.
. For existing Owners who are electing the Lifetime Five benefit, the
Account Value on the date of your election of the Lifetime Five program
will be used to determine the initial Protected Withdrawal Value.
. If you make additional Purchase Payments after your first withdrawal,
the Protected Withdrawal Value will be increased by the amount of each
additional Purchase Payment.
The Protected Withdrawal Value is reduced each time a withdrawal is made on a
dollar-for-dollar basis up to 7% per Annuity Year of the Protected Withdrawal
Value and on the greater of a dollar-for-dollar basis or a pro rata basis for
withdrawals in an Annuity Year in excess of that amount until the Protected
Withdrawal Value is reduced to zero. At that point the Annual Withdrawal
Amount will be zero until such time (if any) as the Annuity reflects a
Protected Withdrawal Value (for example, due to a step-up or additional
Purchase Payments being made into the Annuity).
Step-Up of the Protected Withdrawal Value
You may elect to step-up your Protected Withdrawal Value if, due to positive
market performance, your Account Value is greater than the Protected
Withdrawal Value.
. you are eligible to step-up the Protected Withdrawal Value on or after
the 1st anniversary of the first withdrawal under the Lifetime Five
program
. the Protected Withdrawal Value can be stepped up again on or after the
1st anniversary of the preceding step-up
If you elect to step-up the Protected Withdrawal Value under the program, and
on the date you elect to step-up, the charges under the Lifetime Five program
have changed for new purchasers, your program may be subject to the new charge
at the time of step-up. Upon election of the step-up, we increase the
Protected Withdrawal Value to be equal to the then current Account Value. For
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example, assume your initial Protected Withdrawal Value was $100,000 and you
have made cumulative withdrawals of $40,000, reducing the Protected Withdrawal
Value to $60,000. On the date you are eligible to step-up the Protected
Withdrawal Value, your Account Value is equal to $75,000. You could elect to
step-up the Protected Withdrawal Value to $75,000 on the date you are
eligible. If your current Annual Income Amount and Annual Withdrawal Amount
are less than they would be if we did not reflect the step-up in Protected
Withdrawal Value, then we will increase these amounts to reflect the step-up
as described below.
An optional automatic step-up ("Auto Step-Up") feature is available for this
benefit. This feature may be elected at the time the benefit is elected or at
any time while the benefit is in force.
If you elected the Lifetime Five program and have also elected the Auto
Step-Up feature:
. the first Auto Step-Up opportunity will occur on the 1st Annuity
Anniversary that is at least one year after the later of (1) the date of
the first withdrawal under the Lifetime Five program or (2) the most
recent step-up
. your Protected Withdrawal Value will only be stepped-up if 5% of the
Account Value is greater than the Annual Income Amount by any amount
. if at the time of the first Auto Step-Up opportunity, 5% of the Account
Value is not greater than the Annual Income Amount, an Auto Step-Up
opportunity will occur on each successive Annuity Anniversary until a
step-up occurs
. once a step-up occurs, the next Auto Step-Up opportunity will occur on
the 1st Annuity Anniversary that is at least one year after the most
recent step-up
If on the date that we implement an Auto Step-Up to your Protected Withdrawal
Value, the charge for Lifetime Five has changed for new purchasers, you may be
subject to the new charge at the time of such step-up. Subject to our rules
and restrictions, you will still be permitted to manually step-up the
Protected Withdrawal Value even if you elect the Auto Step-Up feature.
Key Feature - Annual Income Amount under the Life Income Benefit
The initial Annual Income Amount is equal to 5% of the initial Protected
Withdrawal Value. Under the Lifetime Five program, if your cumulative
withdrawals in an Annuity Year are less than or equal to the Annual Income
Amount, they will not reduce your Annual Income Amount in subsequent Annuity
Years, but any such withdrawals will reduce the Annual Income Amount on a
dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals
are in excess of the Annual Income Amount ("Excess Income"), your Annual
Income Amount in subsequent years will be reduced (except with regard to
required minimum distributions) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Reductions include the actual amount of the
withdrawal, including any CDSC that may apply. A withdrawal can be considered
Excess Income under the Life Income Benefit even though it does not exceed the
Annual Withdrawal Amount under the Withdrawal Benefit. When you elect a
step-up (or an auto step-up is effected), your Annual Income Amount increases
to equal 5% of your Account Value after the step-up if such amount is greater
than your Annual Income Amount. Your Annual Income Amount also increases if
you make additional Purchase Payments. The amount of the increase is equal to
5% of any additional Purchase Payments (and any associated Credit). Any
increase will be added to your Annual Income Amount beginning on the day that
the step-up is effective or the Purchase Payment is made. A determination of
whether you have exceeded your Annual Income Amount is made at the time of
each withdrawal; therefore a subsequent increase in the Annual Income Amount
will not offset the effect of a withdrawal that exceeded the Annual Income
Amount at the time the withdrawal was made.
Key Feature - Annual Withdrawal Amount under the Withdrawal Benefit
The initial Annual Withdrawal Amount is equal to 7% of the initial Protected
Withdrawal Value. Under the Lifetime Five program, if your cumulative
withdrawals each Annuity Year are less than or equal to the Annual Withdrawal
Amount, your Protected Withdrawal Value will be reduced on a dollar-for-dollar
basis. If your cumulative withdrawals are in excess of the Annual Withdrawal
Amount ("Excess Withdrawal"), your Annual Withdrawal Amount will be reduced
(except with regard to required minimum distributions) by the result of the
ratio of the Excess Withdrawal to the Account Value immediately prior to such
withdrawal (see the examples of this calculation below). Reductions include
the actual amount of the withdrawal, including any CDSC that may apply. When
you elect a step-up (or an auto step-up is effected), your Annual Withdrawal
Amount increases to equal 7% of your Account Value after the step-up if such
amount is greater than your Annual Withdrawal Amount. Your Annual Withdrawal
Amount also increases if you make additional Purchase Payments. The amount of
the increase is equal to 7% of any additional Purchase Payments (and any
associated Credit). A determination of whether you have exceeded your Annual
Withdrawal Amount is made at the time of each withdrawal; therefore, a
subsequent increase in the Annual Withdrawal Amount will not offset the effect
of a withdrawal that exceeded the Annual Withdrawal Amount at the time the
withdrawal was made.
The Lifetime Five program does not affect your ability to make withdrawals
under your Annuity or limit your ability to request withdrawals that exceed
the Annual Income Amount and the Annual Withdrawal Amount. You are not
required to withdraw all or any portion of the Annual Withdrawal Amount or
Annual Income Amount in each Annuity Year.
. If, cumulatively, you withdraw an amount less than the Annual
Withdrawal Amount under the Withdrawal Benefit in any Annuity Year,
you cannot carry-over the unused portion of the Annual Withdrawal
Amount to subsequent
63
Annuity Years. However, because the Protected Withdrawal Value is
only reduced by the actual amount of withdrawals you make under
these circumstances, any unused Annual Withdrawal Amount may extend
the period of time until the remaining Protected Withdrawal Value is
reduced to zero.
. If, cumulatively, you withdraw an amount less than the Annual Income
Amount under the Life Income Benefit in any Annuity Year, you cannot
carry-over the unused portion of the Annual Income Amount to
subsequent Annuity Years. However, because the Protected Withdrawal
Value is only reduced by the actual amount of withdrawals you make
under these circumstances, any unused Annual Income Amount may
extend the period of time until the remaining Protected Withdrawal
Value is reduced to zero.
Examples of Withdrawals
The following examples of dollar-for-dollar and proportional reductions of the
Protected Withdrawal Value, Annual Withdrawal Amount and Annual Income Amount
assume: 1.) the Issue Date and the Effective Date of the Lifetime Five program
are February 1, 2005; 2.) an initial Purchase Payment of $250,000; 3.) the
Account Value on February 1, 2006 is equal to $265,000; and 4.) the first
withdrawal occurs on March 1, 2006 when the Account Value is equal to
$263,000. The values set forth here are purely hypothetical, and do not
reflect the charge for Lifetime Five or any other fees and charges.
The initial Protected Withdrawal Value is calculated as the greatest of (a),
(b) and (c):
(a)Purchase payment accumulated at 5% per year from February 1, 2005 until
March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33
(b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000
(c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000
Therefore, the initial Protected Withdrawal Value is equal to $265,000. The
Annual Withdrawal Amount is equal to $18,550 under the Withdrawal Benefit (7%
of $265,000). The Annual Income Amount is equal to $13,250 under the Life
Income Benefit (5% of $265,000).
Example 1. Dollar-for-dollar reduction
If $10,000 was withdrawn (less than both the Annual Income Amount and the
Annual Withdrawal Amount) on March 1, 2006, then the following values would
result:
. Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 -
$10,000 = $8,550. Annual Withdrawal Amount for future Annuity Years
remains at $18,550
. Remaining Annual Income Amount for current Annuity Year = $13,250 -
$10,000 = $3,250. Annual Income Amount for future Annuity Years remains
at $13,250
. Protected Withdrawal Value is reduced by $10,000 from $265,000 to
$255,000
Example 2. Dollar-for-dollar and proportional reductions
(a)If $15,000 was withdrawn (more than the Annual Income Amount but less than
the Annual Withdrawal Amount) on March 1, 2006, then the following values
would result:
. Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 -
$15,000 = $3,550. Annual Withdrawal Amount for future Annuity Years
remains at $18,550
. Remaining Annual Income Amount for current Annuity Year = $0
Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 =
$1,750) reduces Annual Income Amount for future Annuity Years.
. Reduction to Annual Income Amount = Excess Income/Account Value before
Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X
$13,250 = $93 Annual Income Amount for future Annuity Years = $13,250 -
$93 = $13,157
. Protected Withdrawal Value is reduced by $15,000 from $265,000 to
$250,000
(b)If $25,000 was withdrawn (more than both the Annual Income Amount and the
Annual Withdrawal Amount) on March 1, 2006, then the following values would
result:
. Remaining Annual Withdrawal Amount for current Annuity Year = $0 Excess
of withdrawal over the Annual Withdrawal Amount ($25,000 - $18,550 =
$6,450) reduces Annual Withdrawal Amount for future Annuity Years.
. Reduction to Annual Withdrawal Amount = Excess Withdrawal/Account Value
before Excess Withdrawal X Annual Withdrawal Amount = $6,450/($263,000 -
$18,550) X $18,550 = $489
Annual Withdrawal Amount for future Annuity Years = $18,550 - $489 = $18,061
. Remaining Annual Income Amount for current Annuity Year = $0
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Excess of withdrawal over the Annual Income Amount ($25,000 - $13,250 =
$11,750) reduces Annual Income Amount for future Annuity Years.
. Reduction to Annual Income Amount = Excess Income/Account Value before
Excess Income X Annual Income Amount = $11,750/($263,000 - $13,250) X
$13,250 = $623. Annual Income Amount for future Annuity Years = $13,250
- $623 = $12,627
. Protected Withdrawal Value is first reduced by the Annual Withdrawal
Amount ($18,550) from $265,000 to $246,450. It is further reduced by the
greater of a dollar-for-dollar reduction or a proportional reduction.
Dollar-for-dollar reduction = $25,000 - $18,550 = $6,450
. Proportional reduction = Excess Withdrawal/Account Value before Excess
Withdrawal X Protected Withdrawal Value = $6,450/($263,000 - $18,550) X
$246,450 = $6,503 Protected Withdrawal Value = $246,450 - max {$6,450,
$6,503} = $239,947
BENEFITS UNDER THE LIFETIME FIVE PROGRAM
. If your Account Value is equal to zero, and the cumulative withdrawals
in the current Annuity Year are greater than the Annual Withdrawal
Amount, the Lifetime Five program will terminate. To the extent that
your Account Value was reduced to zero as a result of cumulative
withdrawals that are equal to or less than the Annual Income Amount and
amounts are still payable under both the Life Income Benefit and the
Withdrawal Benefit, you will be given the choice of receiving the
payments under the Life Income Benefit or under the Withdrawal Benefit.
Thus, in that scenario, the remaining amounts under the Life Income
Benefit and the Withdrawal Benefit would be payable even though your
Account Value was reduced to zero. Once you make this election we will
make an additional payment for that Annuity Year equal to either the
remaining Annual Income Amount or Annual Withdrawal Amount for the
Annuity Year, if any, depending on the option you choose. In subsequent
Annuity Years we make payments that equal either the Annual Income
Amount or the Annual Withdrawal Amount as described in this Prospectus.
You will not be able to change the option after your election and no
further Purchase Payments will be accepted under your Annuity. If you do
not make an election, we will pay you annually under the Life Income
Benefit. To the extent that cumulative withdrawals in the current
Annuity Year that reduced your Account Value to zero are more than the
Annual Income Amount but less than or equal to the Annual Withdrawal
Amount and amounts are still payable under the Withdrawal Benefit, you
will receive the payments under the Withdrawal Benefit. In the year of a
withdrawal that reduced your Account Value to zero, we will make an
additional payment to equal any remaining Annual Withdrawal Amount and
make payments equal to the Annual Withdrawal Amount in each subsequent
year (until the Protected Withdrawal Value is depleted). Once your
Account Value equals zero no further Purchase Payments will be accepted
under your Annuity.
. If annuity payments are to begin under the terms of your Annuity or if
you decide to begin receiving annuity payments and there is any Annual
Income Amount due in subsequent Annuity Years or any remaining Protected
Withdrawal Value, you can elect one of the following three options:
(1)apply your Account Value to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make annuity
payments each year equal to the Annual Income Amount. We make such annuity
payments until the Annuitant's death; or
(3)request that, as of the date annuity payments are to begin, we pay out any
remaining Protected Withdrawal Value as annuity payments. Each year such
annuity payments will equal the Annual Withdrawal Amount or the remaining
Protected Withdrawal Value if less. We make such annuity payments until the
earlier of the Annuitant's death or the date the Protected Withdrawal Value
is depleted.
We must receive your request in a form acceptable to us at our office.
. In the absence of an election when mandatory annuity payments are to
begin, we will make annual annuity payments as a single life fixed
annuity with five payments certain using the greater of the annuity
rates then currently available or the annuity rates guaranteed in your
Annuity. The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of future Annual Income Amount payments. Such present
value will be calculated using the greater of the single life fixed annuity
rates then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Account Value.
. If no withdrawal was ever taken, we will determine a Protected
Withdrawal Value and calculate an Annual Income Amount and an Annual
Withdrawal Amount as if you made your first withdrawal on the date the
annuity payments are to begin.
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Other Important Considerations
. Withdrawals under the Lifetime Five program are subject to all of the
terms and conditions of your Annuity, including any applicable CDSC.
. Withdrawals made while the Lifetime Five program is in effect will be
treated, for tax purposes, in the same way as any other withdrawals
under your Annuity. The Lifetime Five program does not directly affect
your Annuity's Account Value or Surrender Value, but any withdrawal will
decrease the Account Value by the amount of the withdrawal (plus any
applicable CDSC). If you surrender your Annuity, you will receive the
current Surrender Value, not the Protected Withdrawal Value.
. You can make withdrawals from your Annuity while your Account Value is
greater than zero without purchasing the Lifetime Five program. The
Lifetime Five program provides a guarantee that if your Account Value
declines due to market performance, you will be able to receive your
Protected Withdrawal Value or Annual Income Amount in the form of
periodic benefit payments.
. In general, you must allocate your Account Value in accordance with the
then available investment option(s) that we may prescribe in order to
elect and maintain the benefit. If, subsequent to your election of the
benefit, we change our requirements for how Account Value must be
allocated under the benefit, the new requirement will apply only to new
elections of the benefit, and we will not compel you to re-allocate your
Account Value in accordance with our newly-adopted requirements.
Subsequent to any change in requirements, transfers of Account Value and
allocation of additional Purchase Payments may be subject to the new
investment limitations.
Election of the Program
The Lifetime Five program can be elected at the time that you purchase your
Annuity. We also offer existing Owners the option to elect the Lifetime Five
program after the Issue Date of their Annuity, subject to our eligibility
rules and restrictions. Your Account Value as the date of election will be
used as a basis to calculate the initial Protected Withdrawal Value, the
initial Protected Annual Withdrawal Amount, and the Annual Income Amount.
Currently, if you terminate the program, you will only be permitted to
re-elect Lifetime Five or elect another lifetime withdrawal benefit on any
anniversary of the Issue Date that is at least 90 calendar days from the date
the benefit was last terminated. We reserve the right to limit the
re-election/election frequency in the future. Before making any such change to
the re-election/election frequency, we will provide prior notice to Owners who
have an effective Lifetime Five Income Benefit.
Termination of the Program
The program terminates automatically when your Protected Withdrawal Value and
Annual Income Amount equal zero. You may terminate the program at any time by
notifying us. If you terminate the program, any guarantee provided by the
benefit will terminate as of the date the termination is effective and certain
restrictions on re-election of the benefit will apply as described above. The
program terminates upon your surrender of your Annuity, upon the death of the
Annuitant (but your surviving spouse may elect a new Lifetime Five if your
spouse elects the spousal continuance option and your spouse would then be
eligible to elect the benefit if he or she was a new purchaser), upon a change
in ownership of your Annuity that changes the tax identification number of the
Owner, upon change in the Annuitant or upon your election to begin receiving
annuity payments. While you may terminate your program at any time, we may not
terminate the program other than in the circumstances listed above. However,
we may stop offering the program for new elections or re-elections at any time
in the future.
The charge for the Lifetime Five program will no longer be deducted from your
Account Value upon termination of the program.
Additional Tax Considerations
If you purchase an Annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts from
your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a
401(a) plan for which the participant is not a greater than five (5) percent
owner of the employer, this required beginning date can generally be deferred
to retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. The amount required under the Code may exceed the Annual
Withdrawal Amount and the Annual Income Amount, which will cause us to
increase the Annual Income Amount and the Annual Withdrawal Amount in any
Annuity Year that Required Minimum Distributions due from your Annuity are
greater than such amounts. Any such payments will reduce your Protected
Withdrawal Value. In addition, the amount and duration of payments under the
annuity payment and Death Benefit provisions may be adjusted so that the
payments do not trigger any penalty or excise taxes due to tax considerations
such as Required Minimum Distribution provisions under the tax law.
As indicated, withdrawals made while this Benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this Benefit here.
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SPOUSAL LIFETIME FIVE/SM/ INCOME BENEFIT (SPOUSAL LIFETIME FIVE)/SM/
The Spousal Lifetime Five program described below is only being offered in
those jurisdictions where we have received regulatory approval and will be
offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. Certain terms and conditions may differ
between jurisdictions once approved. Currently, if you elect Spousal Lifetime
Five and subsequently terminate the benefit, there may be a restriction on
your ability to re-elect Spousal Lifetime Five or elect another lifetime
withdrawal benefit. (See "Election of and Designations under the Program"
below for details). Spousal Lifetime Five must be elected based on two
Designated Lives, as described below. Each Designated Life must be at least 55
years old when the benefit is elected. The Spousal Lifetime Five program is
not available if you elect any other optional living benefit or optional death
benefit. As long as your Spousal Lifetime Five Income Benefit is in effect,
you must allocate your Account Value in accordance with the then permitted and
available option(s) with this program.
We offer a program that guarantees until the later death of two natural
persons that are each other's spouses at the time of election of Spousal
Lifetime Five and at the first death of one of them (the "Designated Lives",
each a "Designated Life") the ability to withdraw an annual amount ("Spousal
Life Income Benefit") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of market performance
on the Account Value, subject to our program rules regarding the timing and
amount of withdrawals. The Spousal Life Income Benefit may remain in effect
even if the Account Value of the Annuity is zero. The program may be
appropriate if you intend to make periodic withdrawals from your Annuity, wish
to ensure that market performance will not affect your ability to receive
annual payments, and wish either spouse to be able to continue the Spousal
Life Income Benefit after the death of the first. You are not required to make
withdrawals as part of the program - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the program.
Key Feature - Initial Protected Withdrawal Value
The Protected Withdrawal Value is used to determine the amount of each annual
payment under the Spousal Life Income Benefit. The initial Protected
Withdrawal Value is determined as of the date you make your first withdrawal
under the Annuity following your election of Spousal Lifetime Five. The
initial Protected Withdrawal Value is equal to the greater of (A) the Account
Value on the date you elect Spousal Lifetime Five, plus any additional
Purchase Payments as applicable, each growing at 5% per year from the date of
your election of the program, or application of the Purchase Payment to your
Annuity, until the date of your first withdrawal or the 10/th/ anniversary of
the benefit effective date, if earlier (B) the Account Value on the date of
the first withdrawal from your Annuity, prior to the withdrawal, and (C) the
highest Account Value on each Annuity anniversary, plus subsequent Purchase
Payments prior to the first withdrawal or the 10/th/ anniversary of the
benefit effective date, if earlier. With respect to (A) and (C) above, after
the 10/th/ anniversary of the benefit effective date, each value is increased
by the amount of any subsequent Purchase Payments. Credits are added to
Purchase Payments for purposes of calculating the Protected Withdrawal Value
and the Annual Income Amount (see below for a description of Annual Income
Amount).
.. If you elect the Spousal Lifetime Five program at the time you purchase
your Annuity, the Account Value will be your initial Purchase Payment.
.. For existing Owners who are electing the Spousal Lifetime Five benefit, the
Account Value on the date of your election of the Spousal Lifetime Five
program will be used to determine the initial Protected Withdrawal Value.
Key Feature - Annual Income Amount under the Spousal Life Income Benefit
The initial Annual Income Amount is equal to 5% of the initial Protected
Withdrawal Value. Under the Spousal Lifetime Five program, if your cumulative
withdrawals in an Annuity Year are less than or equal to the Annual Income
Amount, they will not reduce your Annual Income Amount in subsequent Annuity
Years, but any such withdrawals will reduce the Annual Income Amount on a
dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw
an amount less than the Annual Income Amount under the Spousal Life Income
Benefit in any Annuity Year, you cannot carry-over the unused portion of the
Annual Income Amount to subsequent Annuity Years. If your cumulative
withdrawals are in excess of the Annual Income Amount ("Excess Income"), your
Annual Income Amount in subsequent years will be reduced (except with regard
to required minimum distributions) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Reductions include the actual amount of the
withdrawal, including any CDSC that may apply. The Spousal Lifetime Five
program does not affect your ability to make withdrawals under your Annuity or
limit your ability to request withdrawals that exceed the Annual Income Amount.
Step-Up of Annual Income Amount
You may elect to step-up your Annual Income Amount if, due to positive market
performance, 5% of your Account Value is greater than the Annual Income
Amount. You are eligible to step-up the Annual Income Amount on or after the
1/st/ anniversary of the first withdrawal under the Spousal Lifetime Five
program. The Annual Income Amount can be stepped up again on or after the
1/st/ anniversary of the preceding step-up. If you elect to step-up the Annual
Income Amount under the program, and on the date you elect to step-up, the
charges under the Spousal Lifetime Five program have changed for new
purchasers, your program may be subject to the new charge at the time of such
step-up. When you elect a step-up, your Annual Income Amount increases to
equal 5% of your Account Value after the step-up. Your Annual Income Amount
also increases if you make additional Purchase Payments. The amount of the
increase is equal to 5% of any additional Purchase Payments (plus any Credit).
Any increase will be
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added to your Annual Income Amount beginning on the day that the step-up is
effective or the Purchase Payment is made. A determination of whether you have
exceeded your Annual Income Amount is made at the time of each withdrawal;
therefore a subsequent increase in the Annual Income Amount will not offset
the effect of a withdrawal that exceeded the Annual Income Amount at the time
the withdrawal was made.
An optional automatic step-up ("Auto Step-Up") feature is available for this
benefit. This feature may be elected at the time the benefit is elected or at
any time while the benefit is in force. If you elect this feature, the first
Auto Step-Up opportunity will occur on the 1st Annuity Anniversary that is at
least one year after the later of (1) the date of the first withdrawal under
the Spousal Lifetime Five program or (2) the most recent step-up. At this
time, your Annual Income Amount will be stepped-up if 5% of your Account Value
is greater than the Annual Income Amount by any amount. If 5% of the Account
Value does not exceed the Annual Income Amount, then an Auto Step-Up
opportunity will occur on each successive Annuity Anniversary until a step-up
occurs. Once a step-up occurs, the next Auto Step-Up opportunity will occur on
the 1st Annuity Anniversary that is at least 1 year after the most recent
step-up. If, on the date that we implement an Auto Step-Up to your Annual
Income Amount, the charge for Spousal Lifetime Five has changed for new
purchasers, you may be subject to the new charge at the time of such step-up.
Subject to our rules and restrictions, you will still be permitted to manually
step-up the Annual Income Amount even if you elect the Auto Step-Up feature.
Examples of withdrawals and step-up
The following examples of dollar-for-dollar and proportional reductions and
the step-up of the Annual Income Amount assume: 1.) the Issue Date and the
Effective Date of the Spousal Lifetime Five program are February 1, 2005; 2.)
an initial Purchase Payment of $250,000; 3.) the Account Value on February 1,
2006 is equal to $265,000; 4.) the first withdrawal occurs on March 1, 2006
when the Account Value is equal to $263,000; and 5.) the Account Value on
February 1, 2010 is equal to $280,000. The values set forth here are purely
hypothetical, and do not reflect the charge for the Spousal Lifetime Five or
any other fees and charges.
The initial Protected Withdrawal Value is calculated as the greatest of (a),
(b) and (c):
(a)Purchase payment accumulated at 5% per year from February 1, 2005 until
March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33
(b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000
(c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000
Therefore, the initial Protected Withdrawal Value is equal to $265,000. The
Annual Income Amount is equal to $13,250 under the Spousal Life Income Benefit
(5% of $265,000).
Example 1. Dollar-for-dollar reduction
If $10,000 was withdrawn (less than the Annual Income Amount) on March 1,
2006, then the following values would result:
.. Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000
= $3,250
.. Annual Income Amount for future Annuity Years remains at $13,250
Example 2. Dollar-for-dollar and proportional reductions
If $15,000 was withdrawn (more than the Annual Income Amount) on March 1,
2006, then the following values would result:
.. Remaining Annual Income Amount for current Annuity Year = $0 Excess of
withdrawal over the Annual Income Amount ($15,000 - $13,250 $1,750) reduces
Annual Income Amount for future Annuity Years.
.. Reduction to Annual Income Amount = Excess Income/Account Value before
Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X
$13,250 = $93. Annual Income Amount for future Annuity Years = $13,250 -
$93 = $13,157
Example 3. Step-up of the Annual Income Amount
If a step-up of the Annual Income Amount is requested on February 1, 2010 or
the Auto Step-Up feature was elected, the step-up would occur because 5% of
the Account Value, which is $14,000 (5% of $280,000), is greater than the
Annual Income Amount of $13,250. The new Annual Income Amount will be equal to
$14,000.
BENEFITS UNDER THE SPOUSAL LIFETIME FIVE PROGRAM
To the extent that your Account Value was reduced to zero as a result of
cumulative withdrawals that are equal to or less than the Annual Income Amount
and amounts are still payable under the Spousal Life Income Benefit, we will
make an additional payment for that Annuity Year equal to the remaining Annual
Income Amount for the Annuity Year, if any. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Account Value
was reduced to zero. In subsequent Annuity Years we make payments that equal
the Annual Income Amount as described in this Prospectus. No further Purchase
Payments will be accepted under your Annuity. We will make payments until the
first of the Designated Lives to die, and will continue to make payments until
the death of the second Designated Life as long as the Designated Lives were
spouses at the time of the first
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death. To the extent that cumulative withdrawals in the current Annuity Year
that reduced your Account Value to zero are more than the Annual Income
Amount, the Spousal Life Income Benefit terminates and no additional payments
will be made.
.. If annuity payments are to begin under the terms of your Annuity or if you
decide to begin receiving annuity payments and there is any Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Account Value to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the Designated Lives to die, and
will continue to make payments until the death of the second
Designated Life as long as the Designated Lives were spouses at the
time of the first death.
We must receive your request in a form acceptable to us at our office.
.. In the absence of an election when mandatory annuity payments are to begin,
we will make annual annuity payments as a joint and survivor or single (as
applicable) life fixed annuity with five payments certain using the same
basis that is used to calculate the greater of the annuity rates then
currently available or the annuity rates guaranteed in your Annuity. The
amount that will be applied to provide such annuity payments will be the
greater of:
(1)the present value of future Annual Income Amount payments. Such
present value will be calculated using the same basis that is used to
calculate the single life fixed annuity rates then currently
available or the single life fixed annuity rates guaranteed in your
Annuity; and
(2)the Account Value.
.. If no withdrawal was ever taken, we will determine an initial Protected
Withdrawal Value and calculate an Annual Income Amount as if you made your
first withdrawal on the date the annuity payments are to begin.
Other Important Considerations
.. Withdrawals under the Spousal Lifetime Five program are subject to all of
the terms and conditions of the Annuity, including any CDSC.
.. Withdrawals made while the Spousal Lifetime Five program is in effect will
be treated, for tax purposes, in the same way as any other withdrawals
under the Annuity. The Spousal Lifetime Five program does not directly
affect the Annuity's Account Value or Surrender Value, but any withdrawal
will decrease the Account Value by the amount of the withdrawal (plus any
applicable CDSC). If you surrender your Annuity, you will receive the
current Surrender Value, not the Protected Withdrawal Value.
.. You can make withdrawals from your Annuity while your Account Value is
greater than zero without purchasing the Spousal Lifetime Five program. The
Spousal Lifetime Five program provides a guarantee that if your Account
Value declines due to market performance, you will be able to receive your
Annual Income Amount in the form of periodic benefit payments.
.. In general, you must allocate your Account Value in accordance with the
then available investment option(s) that we may prescribe in order to elect
and maintain the benefit. If, subsequent to your election of the benefit,
we change our requirements for how Account Value must be allocated under
the benefit, the new requirement will apply only to new elections of the
benefit, and we will not compel you to re-allocate your Account Value in
accordance with our newly-adopted requirements. Subsequent to any change in
requirements, transfers of Account Value and allocation of additional
Purchase Payments may be subject to the new investment limitations.
.. There may be circumstances where you will continue to be charged the full
amount for the Spousal Lifetime Five program even when the benefit is only
providing a guarantee of income based on one life with no survivorship.
.. In order for the Surviving Designated Life to continue the Spousal Lifetime
Five program upon the death of an owner, the Designated Life must elect to
assume ownership of the Annuity under the spousal continuation option. When
the Annuity is owned by a Custodial Account, in order for Spousal Lifetime
Five to be continued after the death of the first Designated Life (the
Annuitant), the Custodial Account must elect to continue the Annuity and
the second Designated Life (the Contingent Annuitant) will be named as the
new Annuitant. See "Spousal Designations", and "Spousal Assumption of
Annuity" in this Prospectus.
Election of and Designations under the Program
Spousal Lifetime Five can only be elected based on two Designated Lives.
Designated Lives must be natural persons who are each other's spouses at the
time of election of the program and at the death of the first of the
Designated Lives to die. Currently, the program may only be elected where the
Owner, Annuitant and Beneficiary Designations are as follows:
. One Annuity Owner, where the Annuitant and the Owner are the same person
and the beneficiary is the Owner's spouse. The Owner/Annuitant and the
beneficiary each must be at least 55 years old at the time of election;
or
. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary Designation must be the surviving spouse. The first named
Owner must be the Annuitant. Both Owners must each be at least 55 years
old at the time of election; or
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. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any
successor Code section thereto) ("Custodial Account"), the Beneficiary
is the Custodial Account and the spouse of the Annuitant is the
Contingent Annuitant. Both the Annuitant and Contingent Annuitant must
each be at least 55 years old at the time of election.
No Ownership changes or Annuitant changes will be permitted once this program
is elected. However, if the Annuity is co-owned, the Owner that is not the
Annuitant may be removed without affecting the benefit.
The Spousal Lifetime Five program can be elected at the time that you purchase
your Annuity. We also offer existing Owners the option to elect the Spousal
Lifetime Five program after the Issue Date of their Annuity, subject to our
eligibility rules and restrictions described in this benefit section. Your
Account Value as the date of election will be used as a basis to calculate the
initial Protected Withdrawal Value and the Annual Income Amount.
Currently, if you terminate the program, you may, for certain optional
benefits, be permitted to elect a lifetime withdrawal benefit only on any
anniversary of the Issue Date that is at least 90 calendar days from the date
the benefit was last terminated.
We reserve the right to further limit the election frequency in the future.
Before making any such change to the election frequency, we will provide prior
notice to Owners who have an effective Spousal Lifetime Five Income Benefit.
Termination of the Program
The program terminates automatically when your Annual Income Amount equals
zero. You may terminate the program at any time by notifying us. If you
terminate the program, any guarantee provided by the benefit will terminate as
of the date the termination is effective and certain restrictions on
re-election of the benefit will apply as described above. We reserve the right
to further limit the frequency election in the future. The program terminates
upon your surrender of the Annuity, upon the first Designated Life to die if
the Annuity is not continued, upon the second Designated Life to die or upon
your election to begin receiving annuity payments.
The charge for the Spousal Lifetime Five program will no longer be deducted
from your Account Value upon termination of the program.
Additional Tax Considerations
If you purchase an Annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
an employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts from
your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a
401(a) plan for which the participant is not a greater than 5 percent owner of
the employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. The amount required under the Code may exceed the Annual
Income Amount, which will cause us to increase the Annual Income Amount in any
Annuity Year that Required Minimum Distributions due from your Annuity are
greater than such amounts. In addition, the amount and duration of payments
under the annuity payment and Death Benefit provisions may be adjusted so that
the payments do not trigger any penalty or excise taxes due to tax
considerations such as Required Minimum Distribution provisions under the tax
law.
As indicated, withdrawals made while this Benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this Benefit here.
HIGHEST DAILY LIFETIME FIVE/SM/ INCOME BENEFIT (HD5)/SM/
The Highest Daily Lifetime Five program described below is only being offered
in those jurisdictions where we have received regulatory approval and will be
offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. Certain terms and conditions may differ
between jurisdictions once approved. Highest Daily Lifetime Five is offered as
an alternative to Lifetime Five and Spousal Lifetime Five. Currently, if you
elect Highest Daily Lifetime Five and subsequently terminate the benefit, you
will not be able to re-elect Highest Daily Lifetime Five, and may have a
waiting period until you can elect another lifetime withdrawal benefit. See
"Election of and Designations under the Program" below for details. The income
benefit under Highest Daily Lifetime Five currently is based on a single
"designated life" who is at least 55 years old on the date that the benefit is
acquired. The Highest Daily Lifetime Five Benefit is not available if you
elect any other optional living benefit, although you may elect any optional
death benefit (other than the Highest Daily Value Death Benefit). Any DCA
program that transfers Account Value from a Fixed Allocation is also not
available as Fixed Allocations are not permitted with the benefit. As long as
your Highest Daily Lifetime Five Benefit is in effect, you must allocate your
Account Value in accordance with the then-permitted and available investment
option(s) with this program.
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We offer a benefit that guarantees until the death of the single designated
life the ability to withdraw an annual amount (the "Total Annual Income
Amount") equal to a percentage of an initial principal value (the "Total
Protected Withdrawal Value") regardless of the impact of market performance on
the Account Value, subject to our program rules regarding the timing and
amount of withdrawals. The benefit may be appropriate if you intend to make
periodic withdrawals from your Annuity, and wish to ensure that market
performance will not affect your ability to receive annual payments. You are
not required to make withdrawals as part of the program - the guarantees are
not lost if you withdraw less than the maximum allowable amount each year
under the rules of the benefit. As discussed below, we require that you
participate in our asset transfer program in order to participate in Highest
Daily Lifetime Five, and in the Appendices to this prospectus, we set forth
the formula under which we make those asset transfers.
As discussed below, a key component of Highest Daily Lifetime Five is the
Total Protected Withdrawal Value, which is an amount that is distinct from
Account Value. Because each of the Total Protected Withdrawal Value and Total
Annual Income Amount is determined in a way that is not solely related to
Account Value, it is possible for Account Value to fall to zero, even though
the Total Annual Income Amount remains. You are guaranteed to be able to
withdraw the Total Annual Income Amount for the rest of your life, provided
that you have not made "excess withdrawals." Excess withdrawals, as discussed
below, will reduce your Total Annual Income Amount. Thus, you could experience
a scenario in which your Account Value was zero, and, due to your excess
withdrawals, your Total Annual Income Amount also was reduced to zero. In that
scenario, no further amount would be payable under Highest Daily Lifetime Five.
Key Feature - Total Protected Withdrawal Value
The Total Protected Withdrawal Value is used to determine the amount of the
annual payments under Highest Daily Lifetime Five. The Total Protected
Withdrawal Value is equal to the greater of the Protected Withdrawal Value and
any Enhanced Protected Withdrawal Value that may exist. We describe how we
determine Enhanced Protected Withdrawal Value, and when we begin to calculate
it, below. If you do not meet the conditions described below for obtaining
Enhanced Protected Withdrawal Value then Total Protected Withdrawal Value is
simply equal to Protected Withdrawal Value.
The Protected Withdrawal Value initially is equal to the Account Value on the
date that you elect Highest Daily Lifetime Five. On each Valuation Day
thereafter, until the earlier of the first withdrawal or ten years after the
date of your election of the benefit, we recalculate the Protected Withdrawal
Value. Specifically, on each such Valuation Day (the "Current Valuation Day"),
the Protected Withdrawal Value is equal to the greater of:
. the Protected Withdrawal Value for the immediately preceding Valuation
Day (the "Prior Valuation Day"), appreciated at the daily equivalent of
5% annually during the calendar day(s) between the Prior Valuation Day
and the Current Valuation Day (i.e., one day for successive Valuation
Days, but more than one calendar day for Valuation Days that are
separated by weekends and/or holidays), plus the amount of any Purchase
Payment (including any associated credit) made on the Current Valuation
Day; and
. the Account Value.
If you have not made a withdrawal prior to the tenth anniversary of the date
you elected Highest Daily Lifetime Five (which we refer to as the "Tenth
Anniversary"), we will continue to calculate a Protected Withdrawal Value. On
or after the Tenth Anniversary and up until the date of the first withdrawal,
your Protected Withdrawal Value is equal to the greater of the Protected
Withdrawal Value on the Tenth Anniversary or your Account Value.
The Enhanced Protected Withdrawal Value is only calculated if you do not take
a withdrawal prior to the Tenth Anniversary. Thus, if you do take a withdrawal
on or prior to the Tenth Anniversary, you are not eligible to receive Enhanced
Protected Withdrawal Value. If so, then on or after the Tenth Anniversary up
until the date of the first withdrawal, the Enhanced Protected Withdrawal
Value is equal to the sum of:
(a)200% of the Account Value on the date you elected Highest Daily
Lifetime Five;
(b)200% of all Purchase Payments (and any associated Credits) made
during the one-year period after the date you elected Highest Daily
Lifetime Five; and
(c)100% of all Purchase Payments (and any associated Credits) made more
than one year after the date you elected Highest Daily Lifetime Five,
but prior to the date of your first withdrawal.
We cease these daily calculations of the Protected Withdrawal Value and
Enhanced Protected Withdrawal Value (and therefore, the Total Protected
Withdrawal Value) when you make your first withdrawal. However, as discussed
below, subsequent Purchase Payments (and any associated Credits) will increase
the Total Annual Income Amount, while "excess" withdrawals (as described
below) may decrease the Total Annual Income Amount.
Key Feature - Total Annual Income Amount under the Highest Daily Lifetime Five
Benefit
The initial Total Annual Income Amount is equal to 5% of the Total Protected
Withdrawal Value. For purposes of the asset transfer formula described below,
we also calculate a Highest Daily Annual Income Amount, which is initially
equal to 5% of the Protected
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Withdrawal Value. Under the Highest Daily Lifetime Five benefit, if your
cumulative withdrawals in an Annuity Year are less than or equal to the Total
Annual Income Amount, they will not reduce your Total Annual Income Amount in
subsequent Annuity Years, but any such withdrawals will reduce the Total
Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If
your cumulative withdrawals are in excess of the Total Annual Income Amount
("Excess Income"), your Total Annual Income Amount in subsequent years will be
reduced (except with regard to required minimum distributions) by the result
of the ratio of the Excess Income to the Account Value immediately prior to
such withdrawal (see examples of this calculation below). Reductions include
the actual amount of the withdrawal, including any CDSC that may apply. A
Purchase Payment that you make will increase the then-existing Total Annual
Income Amount and Highest Daily Annual Income Amount by an amount equal to 5%
of the Purchase Payment (including the amount of any associated Credits).
An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as
part of this benefit. As detailed in this paragraph, the Highest Quarterly
Auto Step-Up feature can result in a larger Total Annual Income Amount if your
Account Value increases subsequent to your first withdrawal. We begin
examining the Account Value for purposes of this feature starting with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first withdrawal under the benefit. Specifically, upon
the first such Annuity Anniversary, we identify the Account Value on the
Valuation Days corresponding to the end of each quarter that (i) is based on
your Annuity Year, rather than a calendar year; (ii) is subsequent to the
first withdrawal; and (iii) falls within the immediately preceding Annuity
Year. If the end of any such quarter falls on a holiday or a weekend, we use
the next Valuation Day. We multiply each of those quarterly Account Values by
5%, adjust each such quarterly value for subsequent withdrawals and Purchase
Payments, and then select the highest of those values. If the highest of those
values exceeds the existing Total Annual Income Amount, we replace the
existing amount with the new, higher amount. Otherwise, we leave the existing
Total Annual Income Amount intact. In later years, (i.e., after the first
Annuity Anniversary after the first withdrawal) we determine whether an
automatic step-up should occur on each Annuity Anniversary, by performing a
similar examination of the Account Values on the end of the four immediately
preceding quarters. If, on the date that we implement a Highest Quarterly Auto
Step-Up to your Total Annual Income Amount, the charge for Highest Daily
Lifetime Five has changed for new purchasers, you may be subject to the new
charge at the time of such step-up. Prior to increasing your charge for
Highest Daily Lifetime Five upon a step-up, we would notify you, and give you
the opportunity to cancel the automatic step-up feature. If you receive notice
of a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject.
The Highest Daily Lifetime Five program does not affect your ability to make
withdrawals under your annuity, or limit your ability to request withdrawals
that exceed the Total Annual Income Amount. Under Highest Daily Lifetime Five,
if your cumulative withdrawals in an Annuity Year are less than or equal to
the Total Annual Income Amount, they will not reduce your Total Annual Income
Amount in subsequent Annuity Years, but any such withdrawals will reduce the
Total Annual Income Amount on a dollar-for-dollar basis in that Annuity Year.
If, cumulatively, you withdraw an amount less than the Total Annual Income
Amount in any Annuity Year, you cannot carry-over the unused portion of the
Total Annual Income Amount to subsequent Annuity Years.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Quarterly Auto Step-Up are set forth below. The values depicted here are
purely hypothetical, and do not reflect the charges for the Highest Daily
Lifetime Five benefit or any other fees and charges. Assume the following for
all three examples:
. The Issue Date is December 1, 2006
. The Highest Daily Lifetime Five benefit is elected on March 5, 2007.
Dollar-for-dollar reductions
On May 2, 2007, the Total Protected Withdrawal Value is $120,000, resulting in
a Total Annual Income Amount of $6,000 (5% of $120,000). Assuming $2,500 is
withdrawn from the Annuity on this date, the remaining Total Annual Income
Amount for that Annuity Year (up to and including December 1, 2007) is $3,500.
This is the result of a dollar-for-dollar reduction of the Total Annual Income
Amount - $6,000 less $2,500 = $3,500.
Proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on August 6, 2007 and the Account Value at the time of this withdrawal
is $110,000. The first $3,500 of this withdrawal reduces the Total Annual
Income Amount for that Annuity Year to $0. The remaining withdrawal amount -
$1,500 - reduces the Total Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the excess withdrawal to the Account
Value immediately prior to the excess withdrawal. (Note that if there were
other withdrawals in that Annuity Year, each would result in another
proportional reduction to the Total Annual Income Amount).
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Here is the calculation:
Account Value before withdrawal $110,000.00
Less amount of "non" excess withdrawal $ 3,500.00
Account Value immediately before excess withdrawal of $1,500 $106,500.00
Excess withdrawal amount $ 1,500.00
Divided by Account Value immediately before excess withdrawal $106,500.00
Ratio 1.41%
Total Annual Income Amount $ 6,000.00
Less ratio of 1.41% $ 84.51
Total Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up
On each Annuity Anniversary date, the Total Annual Income Amount is stepped-up
if 5% of the highest quarterly value since your first withdrawal (or last
Annuity Anniversary in subsequent years), adjusted for withdrawals and
additional Purchase Payments, is higher than the Total Annual Income Amount,
adjusted for excess withdrawals and additional Purchase Payments (plus any
Credit).
Continuing the same example as above, the Total Annual Income Amount for this
Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces
this amount to $5,915.49 for future years (see above). For the next Annuity
Year, the Total Annual Income Amount will be stepped-up if 5% of the highest
quarterly Account Value, adjusted for withdrawals, is higher than $5,915.49.
Here are the calculations for determining the quarterly values. Only the
June 1 value is being adjusted for excess withdrawals as the September 1 and
December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value
(adjusted with Adjusted Total Annual
withdrawal and Purchase Income Amount (5% of the
Date* Account value Payments)** Highest Quarterly Value)
- ----- ------------- ----------------------- ------------------------
June 1, 2007 $118,000.00 $118,000.00 $5,900.00
August 6, 2007 $110,000.00 $112,885.55 $5,644.28
September 1, 2007 $112,000.00 $112,885.55 $5,644.28
December 1, 2007 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly
valuation dates are every three months thereafter -
March 1, June 1, September 1, and December 1. In this example, we do not
use the March 1 date as the first withdrawal took place after March 1. The
Annuity Anniversary Date of December 1 is considered the fourth and final
quarterly valuation date for the year.
** In this example, the first quarterly value after the first withdrawal is
$118,000 on June 1, yielding an adjusted Total Annual Income Amount of
$5,900.00. This amount is adjusted on August 6 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Account Value of $118,000 on June 1 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Total Annual Income
Amount for the Annuity Year), resulting in an adjusted Account Value of
$114,500 before the excess withdrawal.
. This amount ($114,500) is further reduced by 1.41% (this is the ratio in
the above example which is the excess withdrawal divided by the Account
Value immediately preceding the excess withdrawal) resulting in a
Highest Quarterly Value of $112,885.55.
The adjusted Total Annual Income Amount is carried forward to the next
quarterly anniversary date of September 1. At this time, we compare this
amount to 5% of the Account Value on September 1. Since the June 1 adjusted
Total Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of
$112,000), we continue to carry $5,644.28 forward to the next and final
quarterly anniversary date of December 1. The Account Value on December 1 is
$119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28,
the adjusted Total Annual Income Amount is reset to $5,950.00.
In this example, 5% of the December 1 value yields the highest amount of
$5,950.00. Since this amount is higher than the current year's Total Annual
Income Amount of $5,915.49 adjusted for excess withdrawals, the Total Annual
Income Amount for the next Annuity Year, starting on December 2, 2007 and
continuing through December 1, 2008, will be stepped-up to $5,950.00.
Benefits Under the Highest Daily Lifetime Five Program
.. To the extent that your Account Value was reduced to zero as a result of
cumulative withdrawals that are equal to or less than the Total Annual
Income Amount and amounts are still payable under Highest Daily Lifetime
Five, we will make an additional payment, if any, for that Annuity Year
equal to the remaining Total Annual Income Amount for the Annuity Year.
Thus, in that scenario, the remaining Total Annual Income Amount would be
payable even though your Account Value was reduced to zero. In subsequent
Annuity Years we make payments that equal the Total Annual Income Amount as
described in this section. We will make payments until the death of the
single designated life. To the extent that cumulative withdrawals in the
current Annuity Year that reduced your Account Value to zero are more than
the Total Annual Income Amount, the Highest Daily Lifetime Five benefit
terminates, and no additional payments will be made.
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.. If Annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving Annuity payments and there is a Total Annual
Income Amount due in subsequent Annuity Years, you can elect one of the
following two options:
(1)apply your Account Value to any Annuity option available; or
(2)request that, as of the date Annuity payments are to begin, we make
Annuity payments each year equal to the Total Annual Income Amount.
We will make payments until the death of the single designated life.
We must receive your request in a form acceptable to us at our office.
.. In the absence of an election when mandatory annuity payments are to begin,
we will make annual annuity payments in the form of a single life fixed
annuity with ten payments certain, by applying the greater of the annuity
rates then currently available or the annuity rates guaranteed in your
Annuity. The amount that will be applied to provide such Annuity payments
will be the greater of:
(1)the present value of the future Total Annual Income Amount payments.
Such present value will be calculated using the greater of the single
life fixed annuity rates then currently available or the single life
fixed annuity rates guaranteed in your Annuity; and
(2)the Account Value.
.. If no withdrawal was ever taken, we will calculate the Total Annual Income
Amount as if you made your first withdrawal on the date the annuity
payments are to begin.
.. Please note that if your Annuity has a maximum Annuity Date requirement,
payments that we make under this benefit as of that date will be treated as
annuity payments.
Other Important Considerations
.. Withdrawals under the Highest Daily Lifetime Five benefit are subject to
all of the terms and conditions of the Annuity, including any CDSC.
.. Withdrawals made while the Highest Daily Lifetime Five Benefit is in effect
will be treated, for tax purposes, in the same way as any other withdrawals
under the Annuity. The Highest Daily Lifetime Five Benefit does not
directly affect the Account Value or surrender value, but any withdrawal
will decrease the Account Value by the amount of the withdrawal (plus any
applicable CDSC). If you surrender your Annuity you will receive the
current surrender value.
.. You can make withdrawals from your Annuity while your Account Value is
greater than zero without purchasing the Highest Daily Lifetime Five
benefit. The Highest Daily Lifetime Five benefit provides a guarantee that
if your Account Value declines due to market performance, you will be able
to receive your Total Annual Income Amount in the form of periodic benefit
payments.
.. Upon inception of the benefit, 100% of your Account Value must be allocated
to the permitted sub-accounts. However, the asset transfer component of the
benefit as described below may transfer Account Value to the Benefit Fixed
Rate Account as of the effective date of the benefit in some circumstances.
.. You cannot allocate Purchase Payments or transfer Account Value to a Fixed
Allocation if you elect this benefit.
.. Transfers to and from the Sub-accounts and the Benefit Fixed Rate Option
triggered by the asset transfer component of the benefit will not count
toward the maximum number of free transfers allowable under an Annuity.
.. In general, you must allocate your Account Value in accordance with the
then available investment option(s) that we may prescribe in order to elect
and maintain the Highest Daily Lifetime Five benefit. If, subsequent to
your election of the benefit, we change our requirements for how Account
Value must be allocated under the benefit, the new requirement will apply
only to new elections of the benefit, and we will not compel you to
re-allocate your Account Value in accordance with our newly-adopted
requirements. Subsequent to any change in requirements, transfers of
Account Value and allocation of additional Purchase Payments may be subject
to the new investment limitations.
.. The charge for Highest Daily Lifetime Five is 0.60% annually, assessed on a
daily basis against the Sub-accounts and as a reduction to the interest
rate credited under the Benefit Fixed Rate Account. This charge is in
addition to any other fees under the annuity.
Election of and Designations under the Program
For Highest Daily Lifetime Five, there must be either a single Owner who is
the same as the Annuitant, or if the Annuity is entity-owned, there must be a
single natural person Annuitant. In either case, the Annuitant must be at
least 55 years old.
Any change of the Annuitant under the Annuity will result in cancellation of
Highest Daily Lifetime Five. Similarly, any change of Owner will result in
cancellation of Highest Daily Lifetime Five, except if (a) the new Owner has
the same taxpayer identification number as the previous owner (b) both the new
Owner and previous Owner are entities or (c) the previous Owner is a natural
person and the new Owner is an entity.
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Highest Daily Lifetime Five can be elected at the time that you purchase your
Annuity. We also offer existing owners (i.e., those who have already acquired
their Annuity) the option to elect Highest Daily Lifetime Five after the Issue
Date, subject to our eligibility rules and restrictions described in this
benefit section. Currently, if you terminate the Highest Daily Lifetime Five
benefit, you (a) will not be permitted to re-elect the benefit and (b) may be
allowed to elect another lifetime withdrawal benefit only on any anniversary
of the Issue Date that is at least 90 calendar days from the date the Highest
Daily Lifetime Five Benefit was terminated. We reserve the right to further
limit the election frequency in the future. Before making any such change to
the election frequency, we will provide prior notice to Owners who have an
effective Highest Daily Lifetime Five Benefit.
Currently, if you terminate the Highest Daily Lifetime Five benefit, you (a)
will not be permitted to re-elect the benefit and (b) may be allowed to elect
another lifetime withdrawal benefit only on any anniversary of the Issue Date
that is at least 90 calendar days from the date the Highest Daily Lifetime Five
Benefit was terminated. We reserve the right to further limit the election
frequency in the future. Before making any such change to the election
frequency, we will provide prior notice to Owners who have an effective Highest
Daily Lifetime Five Benefit.
Termination of the Program
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election
will apply as described above. The benefit terminates: (i) upon your
termination of the benefit (ii) upon your surrender of the Annuity (iii) upon
your election to begin receiving annuity payments (iv) upon the death of the
Annuitant (v) if both the Account Value and Total Annual Income Amount equal
zero or (vi) if you fail to meet our requirements for issuing the benefit.
Upon termination of Highest Daily Lifetime Five, we cease deducting the charge
for the benefit. With regard to your investment allocations, upon termination
we will: (i) leave intact amounts that are held in the variable investment
options, and (ii) transfer all amounts held in the Benefit Fixed Rate Account
(as defined below) to your variable investment options, based on your existing
allocation instructions or (in the absence of such existing instructions) pro
rata (i.e. in the same proportion as the current balances in your variable
investment options). Upon termination, we may limit or prohibit investment in
the Fixed Allocations.
Return of Principal Guarantee
If you have not made a withdrawal before the Tenth Anniversary, we will
increase your Account Value on that Tenth Anniversary (or the next Valuation
Day, if that anniversary is not a Valuation Day), if the requirements set
forth in this paragraph are met. On the Tenth Anniversary, we add:
(a)your Account Value on the day that you elected Highest Daily Lifetime Five;
and
(b)the sum of each Purchase Payment you made (including any Credits) during
the one-year period after you elected the benefit.
If the sum of (a) and (b) is greater than your Account Value on the Tenth
Anniversary, we increase your Account Value to equal the sum of (a) and (b),
by contributing funds from our general account. If the sum of (a) and (b) is
less than or equal to your Account Value on the Tenth Anniversary, we make no
such adjustment. The amount that we add to your Account Value under this
provision will be allocated to each of our variable investment options and the
Benefit Fixed Rate Account (described below), in the same proportion that each
such investment option bears to your total Account Value, immediately prior to
the application of the amount. Any such amount will not be considered a
Purchase Payment when calculating your Total Protected Withdrawal Value, your
death benefit, or the amount of any other or optional benefit that you may
have selected, and therefore will have no direct impact on any such values at
the time we add this amount. This potential addition to Account Value is
available only if you have elected Highest Daily Lifetime Five and if you meet
the conditions set forth in this paragraph. Thus, if you take a withdrawal
prior to the Tenth Anniversary, you are not eligible to receive the Return of
Principal Guarantee.
Asset Transfer Component of Highest Daily Lifetime Five
As indicated above, we limit the sub-accounts to which you may allocate
Account Value if you elect Highest Daily Lifetime Five. For purposes of this
benefit, we refer to those permitted sub-accounts as the "Permitted
Sub-accounts". As a requirement of participating in Highest Daily Lifetime
Five, we require that you participate in our specialized asset transfer
program, under which we may transfer Account Value between the Permitted
Sub-accounts and a fixed interest rate account that is part of our general
account (the "Benefit Fixed Rate Account"). We determine whether to make a
transfer, and the amount of any transfer, under a non-discretionary formula,
discussed below. The Benefit Fixed Rate Account is available only with this
benefit, and thus you may not allocate Purchase Payments to the Benefit Fixed
Rate Account. The interest rate that we pay with respect to the Benefit Fixed
Rate Account is reduced by an amount that corresponds generally to the charge
that we assess against your variable Sub-accounts for Highest Daily Lifetime
Five. The Benefit Fixed Rate Account is not subject to the Investment Company
Act of 1940 or the Securities Act of 1933.
Under the asset transfer component of Highest Daily Lifetime Five, we monitor
your Account Value daily and, if necessary, systematically transfer amounts
between the Permitted Sub-accounts you have chosen and the Benefit Fixed Rate
Account. Any transfer would be made in accordance with a formula, which is set
forth in the schedule supplement to the endorsement for this
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benefit (and also appears in the Appendices to this prospectus). Speaking
generally, the formula, which we apply each Valuation Day, operates as
follows. The formula starts by identifying your Protected Withdrawal Value for
that day and then multiplies that figure by 5%, to produce a projected (i.e.,
hypothetical) Highest Daily Annual Income Amount. Then, using our actuarial
tables, we produce an estimate of the total amount we would target in our
allocation model, based on the projected Highest Daily Annual Income Amount
each year for the rest of your life. In the formula, we refer to that value as
the "Target Value" or "L". If you have already made a withdrawal, your
projected Highest Daily Annual Income Amount (and thus your Target Value)
would take into account any automatic step-up that was scheduled to occur
according to the step-up formula described above. Next, the formula subtracts
from the Target Value the amount held within the Benefit Fixed Rate Account on
that day, and divides that difference by the amount held within the Permitted
Sub-accounts. That ratio, which essentially isolates the amount of your Target
Value that is not offset by amounts held within the Benefit Fixed Rate
Account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a
certain percentage (currently 83%) it means essentially that too much Target
Value is not offset by assets within the Benefit Fixed Rate Account, and
therefore we will transfer an amount from your Permitted Sub-accounts to the
Benefit Fixed Rate Account. Conversely, if the Target Ratio falls below a
certain percentage (currently 77%), then a transfer from the Benefit Fixed
Rate Account to the Permitted Sub-accounts would occur. Note that the formula
is calculated with reference to the Highest Daily Annual Income Amount, rather
than with reference to the Annual Income Amount.
As you can glean from the formula, a downturn in the securities markets (i.e.,
a reduction in the amount held within the Permitted Sub-accounts) may cause us
to transfer some of your variable Account Value to the Benefit Fixed Rate
Account, because such a reduction will tend to increase the Target Ratio.
Moreover, certain market return scenarios involving "flat" returns over a
period of time also could result in the transfer of money to the Benefit Fixed
Rate Account. In deciding how much to transfer, we use another formula, which
essentially seeks to re-balance amounts held in the Permitted Sub-accounts and
the Benefit Fixed Rate Account so that the Target Ratio meets a target, which
currently is equal to 80%. Once you elect Highest Daily Lifetime Five, the
ratios we use will be fixed. For newly issued annuities that elect Highest
Daily Lifetime Five and existing annuities that elect Highest Daily Lifetime
Five, however, we reserve the right to change the ratios.
While you are not notified when your Annuity reaches a reallocation trigger,
you will receive a confirmation statement indicating the transfer of a portion
of your Account Value either to or from the Benefit Fixed Rate Account. The
formula by which the reallocation triggers operate is designed primarily to
mitigate the financial risks that we incur in providing the guarantee under
Highest Daily Lifetime Five.
Depending on the results of the calculation relative to the reallocation
triggers, we may, on any day:
.. Not make any transfer; or
.. If a portion of your Account Value was previously allocated to the Benefit
Fixed Rate Account, transfer all or a portion of those amounts to the
Permitted Sub-accounts, based on your existing allocation instructions or
(in the absence of such existing instructions) pro rata (i.e., in the same
proportion as the current balances in your variable investment options).
Amounts taken out of the Benefit Fixed Rate Account will be withdrawn for
this purpose on a last-in, first-out basis (an amount renewed into a new
guarantee period under the Benefit Fixed Rate Account will be deemed a new
investment for purposes of this last-in, first-out rule); or
.. Transfer all or a portion of your Account Value in the Permitted
Sub-accounts pro-rata to the Benefit Fixed Rate Account. The interest that
you earn on such transferred amount will be equal to the annual rate that
we have set for that day, and we will credit the daily equivalent of that
annual interest until the earlier of one year from the date of the transfer
or the date that such amount in the Benefit Fixed Rate Account is
transferred back to the Permitted Sub-accounts.
If a significant amount of your Account Value is systematically transferred to
the Benefit Fixed Rate Account during periods of market declines or low
interest rates, less of your Account Value may be available to participate in
the investment experience of the Permitted Sub-accounts if there is a
subsequent market recovery. Under the reallocation formula that we employ, it
is possible that over time a significant portion, and under certain
circumstances all, of your Account Value may be allocated to the Benefit Fixed
Rate Account. Note that if your entire Account Value is transferred to the
Benefit Fixed Rate Account, then based on the way the formula operates, that
value would remain in the Benefit Fixed Rate Account unless you made
additional Purchase Payments to the Permitted Sub-Accounts, which could cause
Account Value to transfer out of the Benefit Fixed Rate Account.
Additional Tax Considerations
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts from
your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a
401(a) plan for which the participant is not a greater than 5 percent owner of
the employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
owner's lifetime. The amount required under the Code may exceed the Total
Annual Income Amount, which will cause us to increase the Total Annual Income
Amount in any Annuity Year that Required Minimum Distributions due from your
Annuity that are greater than such amounts. In addition, the amount and
duration of payments under the annuity payment and death benefit provisions
may be adjusted so that the payments do not trigger any penalty or excise
taxes due to tax considerations such as Required Minimum Distribution
provisions under the tax law. Please note, however, that any withdrawal you
take prior to the Tenth Anniversary, even if withdrawn to satisfy
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required minimum distribution rules, will cause you to lose the ability to
receive Enhanced Protected Withdrawal Value and an amount under the Return of
Principal Guarantee.
As indicated, withdrawals made while this Benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this Benefit
here. However, we do note that if you participate in Highest Daily Lifetime
Five through a non-qualified annuity, and your annuity has received Enhanced
Protected Withdrawal Value and/or an additional amount under the Return of
Principal Guarantee, as with all withdrawals, once all Purchase Payments are
returned under the Annuity, all subsequent withdrawal amounts will be taxed as
ordinary income.
HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (HD 7)/SM/
Highest Daily Lifetime Seven is offered as an alternative to Lifetime Five,
Spousal Lifetime Five, and Highest Daily Lifetime Five. Currently, if you
elect Highest Daily Lifetime Seven and subsequently terminate the benefit, you
may have a waiting period until you can elect another lifetime withdrawal
benefit. See "Election of and Designations under the Program" below for
details. The income benefit under Highest Daily Lifetime Seven currently is
based on a single "designated life" who is at least 55 years old on the date
that the benefit is acquired. The Highest Daily Lifetime Seven Benefit is not
available if you elect any other optional living benefit, although you may
elect any optional death benefit (other than the Highest Daily Value death
benefit). As long as your Highest Daily Lifetime Seven Benefit is in effect,
you must allocate your Account Value in accordance with the then permitted and
available investment option(s) with this program. For a more detailed
description of the permitted investment options, see the Investment options
section of this prospectus.
We offer a benefit that guarantees until the death of the single designated
life the ability to withdraw an annual amount (the "Annual Income Amount")
equal to a percentage of an initial principal value (the "Protected Withdrawal
Value") regardless of the impact of market performance on the Account Value,
subject to our program rules regarding the timing and amount of withdrawals.
The benefit may be appropriate if you intend to make periodic withdrawals from
your Annuity, and wish to ensure that market performance will not affect your
ability to receive annual payments. You are not required to make withdrawals
as part of the program - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. As
discussed below, we require that you participate in our asset transfer program
in order to participate in Highest Daily Lifetime Seven, and in Appendix F to
this prospectus, we set forth the formula under which we make those asset
transfers.
As discussed below, a key component of Highest Daily Lifetime Seven is the
Protected Withdrawal Value. Because each of the Protected Withdrawal Value and
Annual Income Amount is determined in a way that is not solely related to
Account Value, it is possible for the Account Value to fall to zero, even
though the Annual Income Amount remains. You are guaranteed to be able to
withdraw the Annual Income Amount for the rest of your life, provided that you
have not made "excess withdrawals." Excess withdrawals, as discussed below,
will reduce your Annual Income Amount. Thus, you could experience a scenario
in which your Account Value was zero, and, due to your excess withdrawals,
your Annual Income Amount also was reduced to zero. In that scenario, no
further amount would be payable under Highest Daily Lifetime Seven.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is used to calculate the initial Annual Income
Amount. On the effective date of the benefit, the Protected Withdrawal Value
is equal to your Account Value. On each Valuation Day thereafter, until the
earlier of the tenth anniversary of benefit election (the "Tenth Anniversary
Date") or the date of the first withdrawal, the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" initially is equal to the Account Value on the effective
date of the benefit. On each Valuation Day thereafter, until the earlier of
the first withdrawal or the Tenth Anniversary Date, we recalculate the
Periodic Value. We stop determining the Periodic Value upon the earlier of
your first withdrawal after the effective date of the benefit or the Tenth
Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 7% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any adjusted Purchase Payment made on the
Current Valuation Day; and
(2)the Account Value.
If you make a withdrawal prior to the Tenth Anniversary Date, the Protected
Withdrawal Value on the date of the withdrawal is equal to the greatest of:
(a)the Account Value; or
(b)the Periodic Value on the date of the withdrawal.
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If you have not made a withdrawal on or before the Tenth Anniversary Date,
your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is
equal to the greatest of:
(1)the Account Value; or
(2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent
adjusted Purchase Payments; or
(3)the sum of:
(a)200% of the Account Value on the effective date of the benefit;
(b)200% of all adjusted Purchase Payments made within one year after the
effective date of the benefit; and
(c)all adjusted Purchase Payments made after one year following the
effective date of the benefit up to the date of the first withdrawal.
On and after the date of your first withdrawal, your Protected Withdrawal
Value is increased by the amount of any subsequent Purchase Payments, is
reduced by withdrawals, including your first withdrawal (as described below),
and is increased if you qualify for a step-up (as described below).
Irrespective of these calculations, your Protected Withdrawal Value will
always be at least equal to your Account Value.
Key Feature - Annual Income Amount under the Highest Daily Lifetime Seven
Benefit
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value. The percentage depends on the age of the Annuitant on the
date of the first withdrawal after election of the benefit. The percentages
are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8%
for ages 85 and older. Under the Highest Daily Lifetime Seven benefit, if your
cumulative withdrawals in an Annuity Year are less than or equal to the Annual
Income Amount, they will not reduce your Annual Income Amount in subsequent
Annuity Years, but any such withdrawals will reduce the Annual Income Amount
on a dollar-for-dollar basis in that Annuity Year. If your cumulative
withdrawals are in excess of the Annual Income Amount ("Excess Income"), your
Annual Income Amount in subsequent years will be reduced (except with regard
to required minimum distributions) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Reductions include the actual amount of the
withdrawal, including any CDSC that may apply. Withdrawals of any amount up to
and including the Annual Income Amount will reduce the Protected Withdrawal
Value by the amount of the withdrawal. Withdrawals of Excess Income will
reduce the Protected Withdrawal Value by the same ratio as the reduction to
the Annual Income Amount. Note that if your withdrawal of the Annual Income
Amount in a given Annuity Year exceeds the applicable free withdrawal amount
under the Annuity (but is not considered Excess Income), we will not impose
any CDSC on the amount of that withdrawal.
A Purchase Payment that you make will (i) increase the then-existing Annual
Income Amount by an amount equal to a percentage of the Purchase Payment
(including the amount of any associated Credits) based on the age of the
Annuitant at the time of the first withdrawal (the percentages are: 5% for
ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85
and older) and (ii) increase the Protected Withdrawal Value by the amount of
the Purchase Payment (including the amount of any associated Credits).
An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as
part of this benefit. As detailed in this paragraph, the Highest Quarterly
Auto Step-Up feature can result in a larger Annual Income Amount if your
Account Value increases subsequent to your first withdrawal. We begin
examining the Account Value for purposes of the Highest Quarterly Step-Up
starting with the anniversary of the Issue Date of the Annuity (the "Annuity
Anniversary") immediately after your first withdrawal under the benefit.
Specifically, upon the first such Annuity Anniversary, we identify the Account
Value on the Valuation Days corresponding to the end of each quarter that
(i) is based on your Annuity Year, rather than a calendar year; (ii) is
subsequent to the first withdrawal; and (iii) falls within the immediately
preceding Annuity Year. If the end of any such quarter falls on a holiday or a
weekend, we use the next Valuation Day. Having identified each of those
quarter-end Account Values, we then multiply each such value by a percentage
that varies based on the age of the Annuitant on the Annuity Anniversary as of
which the step-up would occur. The percentages are 5% for ages 74 and younger,
6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Thus, we
multiply each quarterly value by the applicable percentage, adjust each such
quarterly value for subsequent withdrawals and Purchase Payments, and then
select the highest of those values. If the highest of those values exceeds the
existing Annual Income Amount, we replace the existing amount with the new,
higher amount. Otherwise, we leave the existing Annual Income Amount intact.
In later years, (i.e., after the first Annuity Anniversary after the first
withdrawal) we determine whether an automatic step-up should occur on each
Annuity Anniversary, by performing a similar examination of the Account Values
on the end of the four immediately preceding quarters. At the time that we
increase your Annual Income Amount, we also increase your Protected Withdrawal
Value to equal the highest quarterly value upon which your step-up was based.
If, on the date that we implement a Highest Quarterly Auto Step-Up to your
Annual Income Amount, the charge for Highest Daily Lifetime Seven has changed
for new purchasers, you may be subject to the new charge at the time of such
step-up. Prior to increasing your charge for Highest Daily Lifetime Seven upon
a step-up, we would notify you, and give you the opportunity to cancel the
automatic step-up feature. If you receive notice of a proposed step-up and
accompanying fee increase, you should carefully evaluate whether the amount of
the step-up justifies the increased fee to which you will be subject.
The Highest Daily Lifetime Seven program does not affect your ability to make
withdrawals under your Annuity, or limit your ability to request withdrawals
that exceed the Annual Income Amount. Under Highest Daily Lifetime Seven, if
your cumulative withdrawals in an Annuity Year are less than or equal to the
Annual Income Amount, they will not reduce your Annual Income
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Amount in subsequent Annuity Years, but any such withdrawals will reduce the
Annual Income Amount on a dollar-for-dollar basis in that Annuity Year.
If, cumulatively, you withdraw an amount less than the Annual Income Amount in
any Annuity Year, you cannot carry-over the unused portion of the Annual
Income Amount to subsequent Annuity Years.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Quarterly Auto Step-Up are set forth below. The values depicted here are
purely hypothetical, and do not reflect the charges for the Highest Daily
Lifetime Seven benefit or any other fees and charges. Assume the following for
all three examples:
. The Issue Date is December 1, 2007
. The Highest Daily Lifetime Seven benefit is elected on March 5, 2008
. The Annuitant was 70 years old when he/she elected the Highest Daily
Lifetime Seven benefit.
Dollar-for-dollar reductions
On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the Annuitant is younger than 75 at the
time of the 1st withdrawal, the Annual Income Amount is 5% of the Protected
Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn
from the Annuity on this date, the remaining Annual Income Amount for that
Annuity Year (up to and including December 1, 2008) is $3,500.
This is the result of a dollar-for-dollar reduction of the Annual Income
Amount - $6,000 less $2,500 = $3,500.
Proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on August 6, 2008 and the Account Value at the time of this withdrawal
is $110,000. The first $3,500 of this withdrawal reduces the Annual Income
Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 -
reduces the Annual Income Amount in future Annuity Years on a proportional
basis based on the ratio of the excess withdrawal to the Account Value
immediately prior to the excess withdrawal. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
Here is the calculation:
Account Value before withdrawal $110,000.00
Less amount of "non" excess withdrawal $ 3,500.00
Account Value immediately before excess withdrawal of $1,500 $106,500.00
Excess withdrawal amount $ 1,500.00
Divided by Account Value immediately before excess withdrawal $106,500.00
Ratio 1.41%
Annual Income Amount $ 6,000.00
Less ratio of 1.41% $ 84.51
Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up
On each Annuity Anniversary date, the Annual Income Amount is stepped-up if
the appropriate percentage (based on the Annuitant's age on the Annuity
Anniversary) of the highest quarterly value since your first withdrawal (or
last Annuity Anniversary in subsequent years), adjusted for withdrawals and
additional Purchase Payments, is higher than the Annual Income Amount,
adjusted for excess withdrawals and additional Purchase Payments (plus any
Credits).
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces
this amount to $5,915.49 for future years (see above). For the next Annuity
Year, the Annual Income Amount will be stepped-up if 5% (since the youngest
Designated Life is younger than 75 on the date of the potential step-up) of
the highest quarterly Account Value adjusted for withdrawals, is higher than
$5,915.49. Here are the calculations for determining the quarterly values.
Only the June 1 value is being adjusted for excess withdrawals as the
September 1 and December 1 Valuation Days occur after the excess withdrawal on
August 6.
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Highest Quarterly Value
(adjusted with Adjusted Annual Income
withdrawal and Purchase Amount (5% of the
Date* Account Value Payments)** Highest Quarterly Value)
- ----- ------------- ----------------------- ------------------------
June 1, 2008 $118,000.00 $118,000.00 $5,900.00
August 6, 2008 $110,000.00 $112,885.55 $5,644.28
September 1, 2008 $112,000.00 $112,885.55 $5,644.28
December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly
valuation dates are every three months thereafter - March 1,
June 1, September 1, and December 1. In this example, we do not use the
March 1 date as the first withdrawal took place after March 1. The Annuity
Anniversary Date of December 1 is considered the fourth and final quarterly
valuation date for the year.
** In this example, the first quarterly value after the first withdrawal is
$118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00.
This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The
calculations for the adjustments are:
. The Account Value of $118,000 on June 1 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in an adjusted Account Value of
$114,500 before the excess withdrawal.
. This amount ($114,500) is further reduced by 1.41% (this is the ratio in
the above example which is the excess withdrawal divided by the Account
Value immediately preceding the excess withdrawal) resulting in a
Highest Quarterly Value of $112,885.55.
. The adjusted Annual Income Amount is carried forward to the next
quarterly anniversary date of September 1. At this time, we compare this
amount to 5% of the Account Value on September 1. Since the June 1
adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5%
of $112,000), we continue to carry $5,644.28 forward to the next and
final quarterly anniversary date of December 1. The Account Value on
December 1 is $119,000 and 5% of this amount is $5,950. Since this is
higher than $5,644.28, the adjusted Annual Income Amount is reset to
$5,950.00.
In this example, 5% of the December 1 value yields the highest amount of
$5,950.00. Since this amount is higher than the current year's Annual Income
Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount
for the next Annuity Year, starting on December 2, 2008 and continuing through
December 1, 2009, will be stepped-up to $5,950.00.
Benefits Under the Highest Daily Lifetime Seven Program
.. To the extent that your Account Value was reduced to zero as a result of
cumulative withdrawals that are equal to or less than the Annual Income
Amount or as a result of the fee that we assess for Highest Daily Lifetime
Seven, and amounts are still payable under Highest Daily Lifetime Seven, we
will make an additional payment, if any, for that Annuity Year equal to the
remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Account Value was reduced to zero. In subsequent Annuity Years we make
payments that equal the Annual Income Amount as described in this section.
We will make payments until the death of the single designated life. To the
extent that cumulative withdrawals in the current Annuity Year that reduced
your Account Value to zero are more than the Annual Income Amount, the
Highest Daily Lifetime Seven benefit terminates, and no additional payments
are made. However, if a withdrawal in the latter scenario was taken to meet
required minimum distribution requirements under the Annuity, then the
benefit will not terminate, and we will continue to pay the Annual Income
Amount in the form of a fixed annuity.
.. If Annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving Annuity payments and there is a Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Account Value to any Annuity option available; or
(2)request that, as of the date Annuity payments are to begin, we make
Annuity payments each year equal to the Annual Income Amount. We will
make payments until the death of the single designated life.
We must receive your request in a form acceptable to us at our office.
.. In the absence of an election when mandatory annuity payments are to begin,
we will make annual annuity payments in the form of a single life fixed
annuity with ten payments certain, by applying the greater of the annuity
rates then currently available or the annuity rates guaranteed in your
Annuity. The amount that will be applied to provide such Annuity payments
will be the greater of:
(1)the present value of the future Annual Income Amount payments. Such
present value will be calculated using the greater of the single life
fixed annuity rates then currently available or the single life fixed
annuity rates guaranteed in your Annuity; and
(2)the Account Value.
.. If no withdrawal was ever taken, we will calculate the Annual Income Amount
as if you made your first withdrawal on the date the annuity payments are
to begin.
.. Please note that payments that we make under this benefit after the Annuity
Anniversary coinciding with or next following the annuitant's 95/th/
birthday will be treated as annuity payments.
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Other Important Considerations
.. Withdrawals under the Highest Daily Lifetime Seven benefit are subject to
all of the terms and conditions of the Annuity, including any CDSC.
.. Withdrawals made while the Highest Daily Lifetime Seven Benefit is in
effect will be treated, for tax purposes, in the same way as any other
withdrawals under the Annuity. The Highest Daily Lifetime Seven Benefit
does not directly affect the Account Value or surrender value, but any
withdrawal will decrease the Account Value by the amount of the withdrawal
(plus any applicable CDSC). If you surrender your Annuity you will receive
the current surrender value.
.. You can make withdrawals from your Annuity while your Account Value is
greater than zero without purchasing the Highest Daily Lifetime Seven
benefit. The Highest Daily Lifetime Seven benefit provides a guarantee that
if your Account Value declines due to market performance, you will be able
to receive your Annual Income Amount in the form of periodic benefit
payments.
.. Upon inception of the benefit, 100% of your Account Value must be allocated
to the permitted Sub-accounts.
.. You cannot allocate Purchase Payments or transfer Account Value to the AST
Investment Grade Bond Portfolio Sub-account (see description below) if you
elect this benefit. A summary description of the AST Investment Grade Bond
Portfolio appears within the prospectus section entitled "What Are The
Investment Objectives and Policies of The Portfolios?". Upon the initial
transfer of your Account Value into the AST Investment Grade Bond
Portfolio, we will send a prospectus for that Portfolio to you, along with
your confirmation. In addition, you can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. Transfers to and from the elected Sub-accounts and an AST Investment Grade
Bond Portfolio Sub-account triggered by the asset transfer component of the
benefit will not count toward the maximum number of free transfers
allowable under an Annuity.
.. You must allocate your Account Value in accordance with the then available
investment option(s) that we may prescribe in order to elect and maintain
the Highest Daily Lifetime Seven benefit. If, subsequent to your election
of the benefit, we change our requirements for how Account Value must be
allocated under the benefit, the new requirement will apply only to new
elections of the benefit, and we will not compel you to re-allocate your
Account Value in accordance with our newly adopted requirements. Subject to
any change in requirements, transfer of Account Value and allocation of
additional Purchase Payments may be subject to new investment limitations.
.. The fee for Highest Daily Lifetime Seven is 0.60% annually of the Protected
Withdrawal Value. We deduct this fee at the end of each quarter, where each
such quarter is part of a year that begins on the effective date of the
benefit or an anniversary thereafter. Thus, on each such quarter-end (or
the next Valuation Day, if the quarter-end is not a Valuation Day), we
deduct 0.15% of the Protected Withdrawal Value at the end of the quarter.
We deduct the fee pro rata from each of your Sub-accounts including the AST
Investment Grade Bond Portfolio Sub-account. Since this fee is based on the
Protected Withdrawal Value the fee for Highest Daily Lifetime Seven may be
greater than it would have been, had it been based on the Account Value
alone. If the fee to be deducted exceeds the current Account Value, we will
reduce the Account Value to zero, and continue the benefit as described
above.
Election of and Designations under the Program
For Highest Daily Lifetime Seven, there must be either a single Owner who is
the same as the Annuitant, or if the Annuity is entity owned, there must be a
single natural person Annuitant. In either case, the Annuitant must be at
least 55 years old.
Any change of the Annuitant under the Annuity will result in cancellation of
Highest Daily Lifetime Seven. Similarly, any change of Owner will result in
cancellation of Highest Daily Lifetime Seven, except if (a) the new Owner has
the same taxpayer identification number as the previous owner (b) ownership is
transferred from a custodian to the Annuitant, or vice versa or (c) ownership
is transferred from one entity to another entity.
Highest Daily Lifetime Seven can be elected at the time that you purchase your
Annuity or after the Issue Date, subject to our eligibility rules and
restrictions described in this benefit section.
Currently, if you terminate the Highest Daily Lifetime Seven benefit, you
generally may only be allowed to re-elect the benefit or elect the other
lifetime income benefits on any anniversary of the Issue Date that is at least
90 calendar days from the date the Highest Daily Lifetime Seven Benefit was
terminated. We reserve the right to further limit the election frequency in
the future. We also reserve the right to waive that requirement.
Return of Principal Guarantee
If you have not made a withdrawal before the Tenth Anniversary, we will
increase your Account Value on that Tenth Anniversary (or the next Valuation
Day, if that anniversary is not a Valuation Day), if the requirements set
forth in this paragraph are met. On the Tenth Anniversary, we add:
a) your Account Value on the day that you elected Highest Daily Lifetime
Seven; and
b) the sum of each Purchase Payment you made (including any Credits)
during the one-year period after you elected the benefit.
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If the sum of (a) and (b) is greater than your Account Value on the Tenth
Anniversary, we increase your Account Value to equal the sum of (a) and (b),
by contributing funds from our general account. If the sum of (a) and (b) is
less than or equal to your Account Value on the Tenth Anniversary, we make no
such adjustment. The amount that we add to your Account Value under this
provision will be allocated to each of your variable investment options (other
than a bond Sub-account used with this benefit), in the same proportion that
each such Sub-account bears to your total Account Value, immediately before
the application of the amount. Any such amount will not be considered a
Purchase Payment when calculating your Protected Withdrawal Value, your death
benefit, or the amount of any optional benefit that you may have selected, and
therefore will have no direct impact on any such values at the time we add
this amount. This potential addition to Account Value is available only if you
have elected Highest Daily Lifetime Seven and if you meet the conditions set
forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth
Anniversary, you are not eligible to receive the Return of Principal Guarantee.
Termination of the Program
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election
will apply as described above. The benefit terminates: (i) upon your
termination of the benefit (ii) upon your surrender of the Annuity (iii) upon
your election to begin receiving annuity payments (although if you have
elected to the Annual Income Amount in the form of Annuity payments, we will
continue to pay the Annual Income Amount) (iv) upon the death of the Annuitant
(v) if both the Account Value and Annual Income Amount equal zero or (vi) if
you cease to meet our requirements for issuing the benefit (see Elections and
Designations under the Program).
Upon termination of Highest Daily Lifetime Seven other than upon the death of
the Annuitant, we impose any accrued fee for the benefit (i.e., the fee for
the pro-rated portion of the year since the fee was last assessed), and
thereafter we cease deducting the charge for the benefit. With regard to your
investment allocations, upon termination we will: (i) leave intact amounts
that are held in the variable investment options, and (ii) transfer all
amounts held in the AST Investment Grade Bond Portfolio Sub-account to your
variable investment options, based on your existing allocation instructions or
(in the absence of such existing instructions) pro rata (i.e. in the same
proportion as the current balances in your variable investment options).
Asset Transfer Component of Highest Daily Lifetime Seven
As indicated above, we limit the Sub-accounts to which you may allocate
Account Value if you elect Highest Daily Lifetime Seven. For purposes of this
benefit, we refer to those permitted Sub-accounts as the "Permitted
Sub-accounts". As a requirement of participating in Highest Daily Lifetime
Seven, we require that you participate in our specialized asset transfer
program, under which we may transfer Account Value between the Permitted
Sub-accounts and a specified bond fund within the Advanced Series Trust (the
"AST Investment Grade Bond Sub-account"). We determine whether to make a
transfer, and the amount of any transfer, under a non-discretionary formula,
discussed below. The AST Investment Grade Bond Sub-account is available only
with this benefit, and thus you may not allocate Purchase Payments to the AST
Investment Grade Bond Sub-account. Under the asset transfer component of
Highest Daily Lifetime Seven, we monitor your Account Value daily and, if
dictated by the formula, systematically transfer amounts between the Permitted
Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account.
Any transfer would be made in accordance with a formula, which is set forth in
the Appendices to this prospectus. Speaking generally, the formula, which we
apply each Valuation Day, operates as follows. The formula starts by
identifying an income basis for that day and then multiplies that figure by
5%, to produce a projected (i.e., hypothetical) income amount. Note that we
use 5% in the formula, irrespective of the Annuitant's attained age. Then we
produce an estimate of the total amount we would target in our allocation
model, based on the projected income amount and factors set forth in the
formula. In the formula, we refer to that value as the "Target Value" or "L".
If you have already made a withdrawal, your projected income amount (and thus
your Target Value) would take into account any automatic step-up, any
subsequent purchase payments, and any excess withdrawals. Next, the formula
subtracts from the Target Value the amount held within the AST Investment
Grade Bond Sub-account on that day, and divides that difference by the amount
held within the Permitted Sub-accounts. That ratio, which essentially isolates
the amount of your Target Value that is not offset by amounts held within the
AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If
the Target Ratio exceeds a certain percentage (currently 83%), it means
essentially that too much Target Value is not offset by assets within the AST
Investment Grade Bond Sub-account, and therefore we will transfer an amount
from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account.
Conversely, if the Target Ratio falls below a certain percentage (currently
77%), then a transfer from the AST Investment Grade Bond Sub-account to the
Permitted Sub-accounts would occur.
As you can glean from the formula, a downturn in the securities markets (i.e.,
a reduction in the amount held within the Permitted Sub-accounts) may cause us
to transfer some of your variable Account Value to the AST Investment Grade
Bond Sub-account, because such a reduction will tend to increase the Target
Ratio. Moreover, certain market return scenarios involving "flat" returns over
a period of time also could result in the transfer of money to the AST
Investment Grade Bond Sub-account. In deciding how much to transfer, we use
another formula, which essentially seeks to re-balance amounts held in the
Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that
the Target Ratio meets a target, which currently is equal to 80%. Once you
elect Highest Daily Lifetime Seven, the ratios we use will be fixed. For
newly-issued Annuities that elect Highest Daily Lifetime Seven and existing
Annuities that elect Highest Daily Lifetime Seven, however, we reserve the
right to change the ratios.
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While you are not notified when your Annuity reaches a reallocation trigger,
you will receive a confirmation statement indicating the transfer of a portion
of your Account Value either to or from the AST Investment Grade Bond
Sub-account. The formula by which the reallocation triggers operate is
designed primarily to mitigate the financial risks that we incur in providing
the guarantee under Highest Daily Lifetime Seven.
Depending on the results of the calculation relative to the reallocation
triggers, we may, on any day:
. Not make any transfer; or
. If a portion of your Account Value was previously allocated to the AST
Investment Grade Bond Sub-account, transfer all or a portion of those
amounts to the Permitted Sub-accounts, based on your existing allocation
instructions or (in the absence of such existing instructions) pro rata
(i.e., in the same proportion as the current balances in your variable
investment options). Amounts taken out of the AST Investment Grade Bond
Sub-account will be withdrawn for this purpose on a last-in, first-out
basis; or
. Transfer all or a portion of your Account Value in the Permitted
Sub-accounts pro-rata to the AST Investment Grade Bond Sub-account.
If a significant amount of your Account Value is systematically transferred to
the AST Investment Grade Bond Sub-account during periods of market declines or
low interest rates, less of your Account Value may be available to participate
in the investment experience of the Permitted Sub-accounts if there is a
subsequent market recovery. Under the reallocation formula that we employ, it
is possible that a significant portion of your Account Value may be allocated
to the AST Investment Grade Bond Sub-account. Note that if your entire Account
Value is transferred to the AST Investment Grade Bond Sub-account, then based
on the way the formula operates, that value would remain in the AST Investment
Grade Bond Sub-account unless you made additional Purchase Payments to the
Permitted Sub-accounts, which could cause Account Value to transfer out of the
AST Investment Grade Bond Sub-account.
Additional Tax Considerations
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts from
your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a
401(a) plan for which the participant is not a greater than five (5) percent
owner of the employer, this required beginning date can generally be deferred
to retirement, if later. Roth IRAs are not subject to these rules during the
owner's lifetime. The amount required under the Code may exceed the Annual
Income Amount, which will cause us to increase the Annual Income Amount in any
Annuity Year that Required Minimum Distributions due from your Annuity are
greater than such amounts. In addition, the amount and duration of payments
under the annuity payment and death benefit provisions may be adjusted so that
the payments do not trigger any penalty or excise taxes due to tax
considerations such as Required Minimum Distribution provisions under the tax
law. Please note, however, that any withdrawal you take prior to the Tenth
Anniversary, even if withdrawn to satisfy required minimum distribution rules,
will cause you to lose the ability to receive the Return of Principal
Guarantee and the guaranteed amount described above under "KEY FEATURE -
Protected Withdrawal Value".
As indicated, withdrawals made while this Benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this Benefit
here. However, we do note that if you participate in Highest Daily Lifetime
Seven through a non-qualified annuity, as with all withdrawals, once all
Purchase Payments are returned under the Annuity, all subsequent withdrawal
amounts will be taxed as ordinary income.
HD Lifetime Seven with Beneficiary Income Option/SM/
Effective on or after July 21, 2008, and subject to regulatory approval, we
offer an optional death benefit feature under this benefit, the amount of
which is linked to your Annual Income Amount. We refer to this optional death
benefit as the Beneficiary Income Option. You may choose Highest Daily
Lifetime Seven without also selecting the Beneficiary Income Option death
benefit. You must elect the Beneficiary Income Option death benefit at the
time you elect Highest Daily Lifetime Seven. If you elect this death benefit,
you may not elect any other optional death benefit. You may elect the
Beneficiary Income Option death benefit so long as the Annuitant is no older
than age 75 at the time of election. For purposes of this optional death
benefit, we calculate the Annual Income Amount and Protected Withdrawal Value
in the same manner that we do under Highest Daily Lifetime Seven itself
(except that we also exclude from the Protected Withdrawal Value the amount of
any Credit that was granted within 12 months prior to death).
Upon a death that triggers payment of a death benefit under the Annuity, we
identify the following amounts: (a) the amount of the basic Death Benefit
under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income
Amount. If there were no withdrawals prior to the date of death, then we
calculate the Protected Withdrawal Value for purposes of this death benefit as
of the date of death, and we calculate the Annual Income Amount as if there
were a withdrawal on the date of death. If there were withdrawals prior to the
date of death, then we set the Protected Withdrawal Value and Annual Income
Amount for purposes of this death benefit as of the date that we receive due
proof of death.
If there is one beneficiary, he/she must choose to receive either the basic
Death Benefit (in a lump sum or other permitted form of distribution) or the
Beneficiary Income Option death benefit (in the form of periodic payments of
the Annual Income Amount -
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such payments may be annual or at other intervals that we permit). If there
are multiple beneficiaries, each beneficiary is presented with the same
choice. Thus, each beneficiary can choose to take his/her portion of either
(a) the basic death benefit or (b) the Beneficiary Income Option death
benefit. In order to receive the Beneficiary Income Option death benefit, each
beneficiary's share of the death benefit proceeds must be allocated as a
percentage of the total death benefit to be paid. We allow a beneficiary who
has opted to receive the Annual Income Amount to designate another
beneficiary, who would receive any remaining payments upon the former
beneficiary's death. Note also that the final payment, exhausting the
Protected Withdrawal Value, may be less than the Annual Income Amount.
Here is an example to illustrate how the death benefit may be paid:
. Assume that (i) the basic death benefit is $50,000, the Protected
Withdrawal Value is $100,000, and the Annual Income Amount is $5,000:
(ii) there are two beneficiaries (the first designated to receive 75% of
the death benefit and the second designated to receive 25% of the death
benefit); (iii) the first beneficiary chooses to receive his/her portion
of the death benefit in the form of the Annual Income Amount, and the
second beneficiary chooses to receive his/her portion of the death
benefit with reference to the basic death benefit.
. Under those assumptions, the first beneficiary will be paid a pro-rated
portion of the Annual Income Amount for 20 years (the 20 year payout
period is derived from the $5,000 Annual Income Amount, paid each year
until it exhausts the entire $100,000 Protected Withdrawal Value).
The pro-rated portion of the Annual Income Amount, equal to $3,750
annually (i.e., the first beneficiary's 75% share multiplied by $5000),
is then paid each year for the 20 year period. Payment of $3,750 for 20
years results in total payments of $75,000 (i.e., the first
beneficiary's 75% share of the $100,000 Protected Withdrawal Value).
The second beneficiary would receive 25% of the basic death benefit
amount (or $12,500).
If you elect to terminate Highest Daily Lifetime Seven with Beneficiary Income
Option, both Highest Daily Lifetime Seven and that death benefit option will
be terminated. You may not terminate the death benefit option without
terminating the entire benefit. If you terminate Highest Daily Lifetime Seven
with Beneficiary Income Option, your ability to elect other optional living
benefits will be affected as indicated in the "Election and Designations under
the Program" section, above.
HD Lifetime Seven with Lifetime Income Accelerator/SM/. Effective on or about
July 21, 2008 and subject to regulatory approval, the following benefit may be
elected:
We offer another version of Highest Daily Lifetime Seven that we call Highest
Daily Lifetime Seven with Lifetime Income Accelerator ("Highest Daily Lifetime
Seven with LIA"). This version is only being offered in those jurisdictions
where we have received regulatory approval and will be offered subsequently in
other jurisdictions when we receive regulatory approval in those
jurisdictions. Certain terms and conditions may differ between jurisdictions
once approved. Highest Daily Lifetime Seven with LIA is offered as an
alternative to other lifetime withdrawal options. The income benefit under
Highest Daily Lifetime Seven with LIA currently is based on a single
"designated life" who is between the ages of 55 and 75 on the date that the
benefit is elected.
Highest Daily Lifetime Seven with LIA guarantees, until the death of the
single designated life, the ability to withdraw an amount equal to double the
Annual Income Amount (which we refer to as the "LIA Amount") if you are
eligible. The fee for Highest Daily Lifetime Seven with LIA is 0.95% annually
of the Protected Withdrawal Value. We deduct this fee at the end of each
quarter, where each such quarter is part of a year that begins on the
effective date of the benefit or an anniversary thereafter. Thus, on each such
quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation
Day), we deduct 0.2375% of the Protected Withdrawal Value at the end of the
quarter. We deduct the fee pro rata from each of your Sub-accounts including
the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based
on the Protected Withdrawal Value, the fee for Highest Daily Lifetime Seven
with LIA may be greater than it would have been, had it been based on the
Account Value alone. If the fee to be deducted exceeds the current Account
Value, we will reduce the Account Value to zero, and continue the benefit as
described below.
If this benefit is being elected on an Annuity held as a 403 (b) plan then, in
addition to meeting the eligibility requirements listed below for the LIA
Amount, you must separately qualify for distributions from the 403 (b) plan
itself.
You may choose Highest Daily Lifetime Seven without also electing LIA, however
you may not elect LIA without Highest Daily Lifetime Seven. All terms and
conditions of Highest Daily Lifetime Seven apply to this version of the
benefit, except as described herein. Currently, if you elect Highest Daily
Lifetime Seven with LIA and subsequently terminate the benefit, you will be
able to re-elect Highest Daily Lifetime Seven with LIA but all conditions of
the benefit described below must be met, and you may be subject to a waiting
period until you can elect this or another lifetime withdrawal benefit.
Eligibility Requirements for LIA Amount. Both a waiting period of 36 months,
from the benefit effective date, and an elimination period of 120 days, from
the date of notification that one or both of the requirements described
immediately below have been met, apply before you can become eligible for the
LIA Amount. The waiting period and the elimination period may run
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concurrently. In addition to satisfying the waiting and elimination period,
one or both of the following requirements ("LIA conditions") must be met:
(1)The designated life is confined to a qualified nursing facility. A
qualified nursing facility is a facility operated pursuant to law or any
state licensed facility providing medically necessary in-patient care which
is prescribed by a licensed physician in writing and based on physical
limitations which prohibit daily living in a non-institutional setting.
(2)The designated life is unable to perform two or more basic abilities of
caring for oneself or "activities of daily living." We define these basic
abilities as:
i. Eating: Feeding oneself by getting food into the body from a
receptacle (such as a plate, cup or table) or by a feeding tube or
intravenously.
ii.Dressing: Putting on and taking off all items of clothing and any
necessary braces, fasteners or artificial limbs.
iii.Bathing: Washing oneself by sponge bath; or in either a tub or
shower, including the task of getting into or out of the tub or
shower.
iv.Toileting: Getting to and from the toilet, getting on and off the
toilet, and performing associated personal hygiene.
v. Transferring: Moving into or out of a bed, chair or wheelchair.
vi.Continence: Maintaining control of bowel or bladder function; or when
unable to maintain control of bowel or bladder function, the ability
to perform personal hygiene (including caring for catheter or
colostomy bag).
You must notify us when the LIA conditions have been met. If, when we receive
such notification, there are more than 120 days remaining until the end of the
waiting period described above, you will not be eligible for the LIA Amount.
If there are 120 days or less remaining until the end of the waiting period
when we receive notification that the LIA conditions are met, we will
determine eligibility for the LIA Amount through our then current
administrative process, which may include, but is not limited to,
documentation verifying the LIA conditions and/or an assessment by a third
party of our choice. Such assessment may be in person and we will assume any
costs associated with the aforementioned assessment. Once eligibility is
determined, the LIA Amount is equal to double the Annual Income Amount as
described in this prospectus under the Highest Daily Lifetime Seven Benefit.
Additionally, we will reassess your eligibility on an annual basis. Your first
reassessment may occur in the same year as your initial assessment. If we
determine you are no longer eligible to receive the LIA Amount, upon the next
Annuity Anniversary the Annual Income Amount would replace the LIA Amount.
There is no limit on the number of times you can become eligible for the LIA
Amount, however, each time would require the completion of the 120-day
elimination period, notification that the designated life meets the LIA
conditions, and determination, through our then current administrative
process, that you are eligible for the LIA Amount, each as described above.
LIA amount at the first Withdrawal. If your first withdrawal subsequent to
election of Highest Daily Lifetime Seven with LIA occurs while you are
eligible for the LIA Amount, the available LIA Amount is equal to double the
Annual Income Amount.
LIA amount after the First Withdrawal. If you become eligible for the LIA
Amount after you have taken your first withdrawal, the available LIA amount
for the current and subsequent Annuity Years is equal to double the then
current Annual Income Amount, however the available LIA amount in the current
Annuity Year is reduced by any withdrawals that have been taken in the current
Annuity Year. Cumulative withdrawals in an Annuity Year which are less than or
equal to the LIA Amount (when eligible for the LIA amount) will not reduce
your LIA Amount in subsequent Annuity Years, but any such withdrawals will
reduce the LIA Amount on a dollar-for-dollar basis in that Annuity Year.
Withdrawals In Excess of the LIA amount. If your cumulative withdrawals in an
Annuity Year are in excess of the LIA Amount when you are eligible ("Excess
Withdrawal"), your LIA Amount in subsequent years will be reduced (except with
regard to required minimum distributions) by the result of the ratio of the
excess portion of the withdrawal to the Account Value immediately prior to the
Excess Withdrawal. Reductions include the actual amount of the withdrawal,
including any CDSC that may apply. Withdrawals of any amount up to and
including the LIA Amount will reduce the Protected Withdrawal Value by the
amount of the withdrawal. Excess Withdrawals will reduce the Protected
Withdrawal Value by the same ratio as the reduction to the LIA Amount.
Any withdrawals that are less than or equal to the LIA amount (when eligible)
but in excess of the free withdrawal amount available under this Annuity will
not incur a CDSC.
Withdrawals are not required. However, subsequent to the first withdrawal, the
LIA Amount is not increased in subsequent Annuity Years if you decide not to
take a withdrawal in an Annuity Year or take withdrawals in an Annuity Year
that in total are less than the LIA Amount.
Purchase Payments. If you are eligible for the LIA Amount as described under
"Eligibility Requirements for LIA Amount" and you make an additional Purchase
Payment, we will increase your LIA Amount by double the amount we add to your
Annual Income Amount.
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Step Ups. If your Annual Income Amount is stepped up your LIA Amount will be
stepped up to equal double the stepped up Annual Income Amount.
Guarantee Payments. If your Account Value is reduced to zero as a result of
cumulative withdrawals that are equal to or less than the LIA Amount, or as a
result of the fee that we assess for Highest Daily Lifetime Seven with LIA,
and there is still a LIA Amount available, we will make an additional payment
for that Annuity Year equal to the remaining LIA Amount. Thus, in that
scenario, the remaining LIA Amount would be payable even though your Account
Value was reduced to zero. In subsequent Annuity Years we make payments that
equal the LIA Amount as described in this section. We will make payments until
the death of the single designated life. Should the designated life no longer
qualify for the LIA amount (as described under "Eligibility Requirements for
LIA Amount" above), the Annual Income Amount would continue to be available.
Subsequent eligibility for the LIA Amount would require the completion of the
120 day elimination period as well as meeting the LIA conditions listed above
under "Eligibility Requirements for LIA Amount." To the extent that cumulative
withdrawals in the current Annuity Year that reduce your Account Value to zero
are more than the LIA Amount (except in the case of required minimum
distributions), Highest Daily Lifetime Seven with LIA terminates, and no
additional payments are made.
Annuity Options. In addition to the Highest Daily Lifetime Seven Annuity
Options described above, after the 10th benefit anniversary you may also
request that we make annuity payments each year equal to the Annual Income
Amount. In any year that you are eligible for the LIA Amount, we make annuity
payments equal to the LIA Amount. If you would receive a greater payment by
applying your Account Value to receive payments for life under your Annuity,
we will pay the greater amount. Prior to the 10th benefit anniversary this
option is not available.
We will continue to make payments until the death of the Designated Life. If
this option is elected, the Annual Income Amount and LIA Amount will not
increase after annuity payments have begun.
If you elect HD Lifetime Seven with LIA, and never meet the eligibility
requirements you will not receive any additional payments based on the LIA
Amount.
SPOUSAL HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (SHD7)/SM/
Spousal Highest Daily Lifetime Seven is the spousal version of Highest Daily
Lifetime Seven. Currently, if you elect Spousal Highest Daily Lifetime Seven
and subsequently terminate the benefit, you will have a waiting period until
you can elect another lifetime withdrawal benefit. See "Election of and
Designations under the Program" below for details. Spousal Highest Daily
Lifetime Seven must be elected based on two Designated Lives, as described
below. Each Designated Life must be at least 59 1/2 years old when the benefit
is elected. Spousal Highest Daily Lifetime Seven is not available if you elect
any other optional living benefit or optional death benefit. As long as your
Spousal Highest Daily Lifetime Seven Benefit is in effect, you must allocate
your Account Value in accordance with the then permitted and available
investment option(s) with this program. For a more detailed description of
permitted investment options, see the Investment options section of this
prospectus.
We offer a benefit that guarantees until the later death of two natural
persons who are each other's spouses at the time of election of the benefit
and at the first death of one of them (the "Designated Lives", and each, a
"Designated Life") the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of market performance
on the Account Value, subject to our program rules regarding the timing and
amount of withdrawals. The benefit may be appropriate if you intend to make
periodic withdrawals from your Annuity, wish to ensure that market performance
will not affect your ability to receive annual payments, and wish either
spouse to be able to continue the Spousal Highest Daily Lifetime Seven benefit
after the death of the first spouse. You are not required to make withdrawals
as part of the program - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. As
discussed below, we require that you participate in our asset transfer program
in order to participate in Spousal Highest Daily Lifetime Seven, and in
Appendix F to this prospectus, we set forth the formula under which we make
those asset transfers.
As discussed below, a key component of Spousal Highest Daily Lifetime Seven is
the Protected Withdrawal Value. Because each of the Protected Withdrawal Value
and Annual Income Amount is determined in a way that is not solely related to
Account Value, it is possible for the Account Value to fall to zero, even
though the Annual Income Amount remains. You are guaranteed to be able to
withdraw the Annual Income Amount until the death of the second Designated
Life, provided that there have not been "excess withdrawals." Excess
withdrawals, as discussed below, will reduce your Annual Income Amount. Thus,
you could experience a scenario in which your Account Value was zero, and, due
to your excess withdrawals, your Annual Income Amount also was reduced to
zero. In that scenario, no further amount would be payable under Spousal
Highest Daily Lifetime Seven.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is used to calculate the initial Annual Income
Amount. On the effective date of the benefit, the Protected Withdrawal Value
is equal to your Account Value. On each Valuation Day thereafter, until the
earlier of the tenth
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anniversary of benefit election (the "Tenth Anniversary Date") or the date of
the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic
Value" described in the next paragraph.
The "Periodic Value" initially is equal to the Account Value on the effective
date of the benefit. On each Valuation Day thereafter, until the earlier of
the first withdrawal or the Tenth Anniversary Date, we recalculate the
Periodic Value. We stop determining the Periodic Value upon the earlier of
your first withdrawal after the effective date of the benefit or the Tenth
Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 7% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any adjusted Purchase Payment made on the
Current Valuation Day; and
(2)the Account Value.
If you make a withdrawal prior to the Tenth Anniversary Date, the Protected
Withdrawal Value on the date of the withdrawal is equal to the greatest of:
(1)the Account Value; or
(2)the Periodic Value on the date of the withdrawal.
If you have not made a withdrawal on or before the Tenth Anniversary Date,
your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is
equal to the greatest of:
(1)the Account Value; or
(2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent
adjusted Purchase Payments; or
(3)the sum of:
(a)200% of the Account Value on the effective date of the benefit;
(b)200% of all adjusted Purchase Payments made within one year after the
effective date of the benefit; and
(c)all adjusted Purchase Payments made after one year following the
effective date of the benefit up to the date of the first withdrawal.
On and after the date of your first withdrawal, your Protected Withdrawal
Value is increased by the amount of any subsequent Purchase Payments, is
reduced by withdrawals, including your first withdrawal (as described below),
and is increased if you qualify for a step-up (as described below).
Irrespective of these calculations, your Protected Withdrawal Value will
always be at least equal to your Account Value.
Key Feature - Annual Income Amount under the Spousal Highest Daily Lifetime
Seven Benefit
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value. The percentage depends on the age of the youngest Designated
Life on the date of the first withdrawal after election of the benefit. The
percentages are: 5% for ages 79 and younger, 6% for ages 80 to 84, 7% for ages
85 to 89, and 8% for ages 90 and older. We use the age of the youngest
Designated Life even if that Designated Life is no longer a participant under
the Annuity due to death or divorce. Under the Spousal Highest Daily Lifetime
Seven benefit, if your cumulative withdrawals in an Annuity Year are less than
or equal to the Annual Income Amount, they will not reduce your Annual Income
Amount in subsequent Annuity Years, but any such withdrawals will reduce the
Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If
your cumulative withdrawals are in excess of the Annual Income Amount ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to required minimum distributions) by the result of the
ratio of the Excess Income to the Account Value immediately prior to such
withdrawal (see examples of this calculation below). Reductions include the
actual amount of the withdrawal, including any CDSC that may apply.
Withdrawals of any amount up to and including the Annual Income Amount will
reduce the Protected Withdrawal Value by the amount of the withdrawal.
Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the
same ratio as the reduction to the Annual Income Amount. A Purchase Payment
that you make will (i) increase the then-existing Annual Income Amount by an
amount equal to a percentage of the Purchase Payment (including the amount of
any associated Credits) based on the age of the Annuitant at the time of the
first withdrawal (the percentages are: 5% for ages 79 and younger, 6% for ages
80-84, 7% for ages 85-89, and 8% for ages 90 and older) and (ii) increase the
Protected Withdrawal Value by the amount of the Purchase Payment (including
the amount of any associated Credits).
An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as
part of this benefit. As detailed in this paragraph, the Highest Quarterly
Auto Step-Up feature can result in a larger Annual Income Amount if your
Account Value increases subsequent to your first withdrawal. We begin
examining the Account Value for purposes of the Highest Quarterly Step-Up
starting with the anniversary of the Issue Date of the Annuity (the "Annuity
Anniversary") immediately after your first withdrawal
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under the benefit. Specifically, upon the first such Annuity Anniversary, we
identify the Account Value on the Valuation Days corresponding to the end of
each quarter that (i) is based on your Annuity Year, rather than a calendar
year; (ii) is subsequent to the first withdrawal; and (iii) falls within the
immediately preceding Annuity Year. If the end of any such quarter falls on a
holiday or a weekend, we use the next Valuation Day. Having identified each of
those quarter-end Account Values, we then multiply each such value by a
percentage that varies based on the age of the youngest Designated Life on the
Annuity Anniversary as of which the step-up would occur. The percentages are
5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for
ages 90 and older. Thus, we multiply each quarterly value by the applicable
percentage, adjust each such quarterly value for subsequent withdrawals and
Purchase Payments, and then select the highest of those values. If the highest
of those values exceeds the existing Annual Income Amount, we replace the
existing amount with the new, higher amount. Otherwise, we leave the existing
Annual Income Amount intact. In later years, (i.e., after the first Annuity
Anniversary after the first withdrawal) we determine whether an automatic
step-up should occur on each Annuity Anniversary, by performing a similar
examination of the Account Values on the end of the four immediately preceding
quarters. At the time that we increase your Annual Income Amount, we also
increase your Protected Withdrawal Value to equal the highest quarterly value
upon which your step-up was based. If, on the date that we implement a Highest
Quarterly Auto Step-Up to your Annual Income Amount, the charge for Spousal
Highest Daily Lifetime Seven has changed for new purchasers, you may be
subject to the new charge at the time of such step-up. Prior to increasing
your charge for Spousal Highest Daily Lifetime Seven upon a step-up, we would
notify you, and give you the opportunity to cancel the automatic step-up
feature. If you receive notice of a proposed step-up and accompanying fee
increase, you should carefully evaluate whether the amount of the step-up
justifies the increased fee to which you will be subject.
The Spousal Highest Daily Lifetime Seven program does not affect your ability
to make withdrawals under your annuity, or limit your ability to request
withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily
Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less
than or equal to the Annual Income Amount, they will not reduce your Annual
Income Amount in subsequent Annuity Years, but any such withdrawals will
reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity
Year.
If, cumulatively, you withdraw an amount less than the Annual Income Amount in
any Annuity Year, you cannot carry-over the unused portion of the Annual
Income Amount to subsequent Annuity Years.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Quarterly Auto Step-Up are set forth below. The values depicted here are
purely hypothetical, and do not reflect the charges for the Spousal Highest
Daily Lifetime Seven benefit or any other fees and charges. Assume the
following for all three examples:
. The Issue Date is December 1, 2007
. The Spousal Highest Daily Lifetime Seven benefit is elected on March 5,
2008.
. The youngest Designated Life was 70 years old when he/she elected the
Spousal Highest Daily Lifetime Seven benefit.
Dollar-for-dollar reductions
On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the youngest Designated Life is younger
than 80 at the time of the 1st withdrawal, the Annual Income Amount is 5% of
the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500
is withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including December 1, 2008) is $3,500. This
is the result of a dollar-for-dollar reduction of the Annual Income Amount -
$6,000 less $2,500 = $3,500.
Proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on August 6, 2008 and the Account Value at the time of this withdrawal
is $110,000. The first $3,500 of this withdrawal reduces the Annual Income
Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 -
reduces the Annual Income Amount in future Annuity Years on a proportional
basis based on the ratio of the excess withdrawal to the Account Value
immediately prior to the excess withdrawal. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
Here is the calculation:
Account Value before withdrawal $110,000.00
Less amount of "non" excess withdrawal $ 3,500.00
Account Value immediately before excess withdrawal of $1,500 $106,500.00
Excess withdrawal amount $ 1,500.00
Divided by Account Value immediately before excess withdrawal $106,500.00
Ratio 1.41%
Annual Income Amount $ 6,000.00
Less ratio of 1.41% $ 84.51
Annual Income Amount for future Annuity Years $ 5,915.49
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Highest Quarterly Auto Step-Up
On each Annuity Anniversary date, the Annual Income Amount is stepped-up if
the appropriate percentage (based on the youngest Designated Life's age on the
Annuity Anniversary) of the highest quarterly value since your first
withdrawal (or last Annuity Anniversary in subsequent years), adjusted for
withdrawals and additional Purchase Payments, is higher than the Annual Income
Amount, adjusted for excess withdrawals and additional Purchase Payments (plus
any Credits).
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces
this amount to $5,915.49 for future years (see above). For the next Annuity
Year, the Annual Income Amount will be stepped-up if 5% (since the youngest
Designated Life is younger than 80 on the date of the potential step-up) of
the highest quarterly Account Value adjusted for withdrawals, is higher than
$5,915.49. Here are the calculations for determining the quarterly values.
Only the June 1 value is being adjusted for excess withdrawals as the
September 1 and December 1 Valuation Days occur after the excess withdrawal on
August 6.
Highest Quarterly Value
(adjusted with Adjusted Annual
withdrawal and Purchase Income Amount (5% of the
Date* Account Value Payments)** Highest Quarterly Value)
- ----- ------------- ----------------------- ------------------------
June 1, 2008 $118,000.00 $118,000.00 $5,900.00
August 6, 2008 $110,000.00 $112,885.55 $5,644.28
September 1, 2008 $112,000.00 $112,885.55 $5,644.28
December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly
valuation dates are every three months thereafter
-March 1, June 1, September 1, and December 1. In this example, we do not
use the March 1 date as the first withdrawal took place after March 1. The
Annuity Anniversary Date of December 1 is considered the fourth and final
quarterly valuation date for the year.
** In this example, the first quarterly value after the first withdrawal is
$118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00.
This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The
calculations for the adjustments are:
. The Account Value of $118,000 on June 1 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Total Annual Income
Amount for the Annuity Year), resulting in an adjusted Account Value of
$114,500 before the excess withdrawal.
. This amount ($114,500) is further reduced by 1.41% (this is the ratio in
the above example which is the excess withdrawal divided by the Account
Value immediately preceding the excess withdrawal) resulting in a
Highest Quarterly Value of $112,885.55.
The adjusted Annual Income Amount is carried forward to the next quarterly
anniversary date of September 1. At this time, we compare this amount to 5% of
the Account Value on September 1. Since the June 1 adjusted Annual Income
Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to
carry $5,644.28 forward to the next and final quarterly anniversary date of
December 1. The Account Value on December 1 is $119,000 and 5% of this amount
is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income
Amount is reset to $5,950.00.
In this example, 5% of the December 1 value yields the highest amount of
$5,950.00. Since this amount is higher than the current year's Annual Income
Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount
for the next Annuity Year, starting on December 2, 2008 and continuing through
December 1, 2009, will be stepped-up to $5,950.00.
Benefits Under the Spousal Highest Daily Lifetime Seven Program
.. To the extent that your Account Value was reduced to zero as a result of
cumulative withdrawals that are equal to or less than the Annual Income
Amount or as a result of the fee that we assess for Spousal Highest Daily
Lifetime Seven, and amounts are still payable under Spousal Highest Daily
Lifetime Seven, we will make an additional payment, if any, for that
Annuity Year equal to the remaining Annual Income Amount for the Annuity
Year. Thus, in that scenario, the remaining Annual Income Amount would be
payable even though your Account Value was reduced to zero. In subsequent
Annuity Years we make payments that equal the Annual Income Amount as
described in this section. We will make payments until the death of the
first of the Designated Lives to die, and will continue to make payments
until the death of the second Designated Life as long as the Designated
Lives were spouses at the time of the first death. To the extent that
cumulative withdrawals in the current Annuity Year that reduced your
Account Value to zero are more than the Annual Income Amount, the Spousal
Highest Daily Lifetime Seven benefit terminates, and no additional payments
will be made. However, if a withdrawal in the latter scenario was taken to
meet required minimum distribution requirements under the Annuity, then the
benefit will not terminate, and we will continue to pay the Annual Income
Amount in the form of a fixed annuity.
.. If Annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving Annuity payments and there is a Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Account Value to any Annuity option available; or
(2)request that, as of the date Annuity payments are to begin, we make
Annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the Designated Lives to die, and
will continue to make payments until the death of the second
Designated Life as long as the Designated Lives were spouses at the
time of
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the first death. If, due to death of a Designated Life or divorce
prior to annuitization, only a single Designated Life remains, then
Annuity payments will be made as a life annuity for the lifetime of
the Designated Life.
We must receive your request in a form acceptable to us at our office.
In the absence of an election when mandatory annuity payments are to begin, we
will make annual annuity payments as a joint and survivor or single (as
applicable) life fixed annuity with ten payments certain, by applying the
greater of the annuity rates then currently available or the annuity rates
guaranteed in your Annuity. The amount that will be applied to provide such
Annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments. Such
present value will be calculated using the greater of the joint and
survivor or single (as applicable) life fixed annuity rates then
currently available or the joint and survivor or single (as
applicable) life fixed annuity rates guaranteed in your Annuity; and
(2)the Account Value.
.. If no withdrawal was ever taken, we will calculate the Annual Income Amount
as if you made your first withdrawal on the date the annuity payments are
to begin.
.. Please note that payments that we make under this benefit after the Annuity
Anniversary coinciding with or next following the older of the owner or
Annuitant's 95/th/ birthday, will be treated as annuity payments.
Other Important Considerations
.. Withdrawals under the Spousal Highest Daily Lifetime Seven benefit are
subject to all of the terms and conditions of the Annuity, including any
CDSC.
.. Withdrawals made while the Spousal Highest Daily Lifetime Seven Benefit is
in effect will be treated, for tax purposes, in the same way as any other
withdrawals under the Annuity. The Spousal Highest Daily Lifetime Seven
Benefit does not directly affect the Account Value or surrender value, but
any withdrawal will decrease the Account Value by the amount of the
withdrawal (plus any applicable CDSC). If you surrender your Annuity you
will receive the current surrender value.
.. You can make withdrawals from your Annuity while your Account Value is
greater than zero without purchasing the Spousal Highest Daily Lifetime
Seven benefit. The Spousal Highest Daily Lifetime Seven benefit provides a
guarantee that if your Account Value declines due to market performance,
you will be able to receive your Annual Income Amount in the form of
periodic benefit payments.
.. Upon inception of the benefit, 100% of your Account Value must be allocated
to the permitted Sub-accounts.
.. You cannot allocate Purchase Payments or transfer Account Value to the AST
Investment Grade Bond Portfolio Sub-account (as described below) if you
elect this benefit. A summary description of the AST Investment Grade Bond
Portfolio appears within the prospectus section entitled "What Are The
Investment Objectives and Policies of The Portfolios?". Upon the initial
transfer of your Account Value into the AST Investment Grade Bond
Portfolio, we will send a prospectus for that Portfolio to you, along with
your confirmation. In addition, you can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. You can make withdrawals from your Annuity without purchasing the Spousal
Highest Daily Lifetime Seven benefit. The Spousal Highest Daily Lifetime
Seven benefit provides a guarantee that if your Account Value declines due
to market performance, you will be able to receive your Annual Income
Amount in the form of periodic benefit payments.
.. Transfers to and from the elected Sub-accounts and the AST Investment Grade
Bond Portfolio Sub-account triggered by the asset transfer component of the
benefit will not count toward the maximum number of free transfers
allowable under an Annuity.
.. You must allocate your Account Value in accordance with the then available
investment option(s) that we may prescribe in order to elect and maintain
the Spousal Highest Daily Lifetime Seven benefit. If, subsequent to your
election of the benefit, we change our requirements for how Account Value
must be allocated under the benefit, the new requirement will apply only to
new elections of the benefit, and we will not compel you to re-allocate
your Account Value in accordance with our newly adopted requirements.
Subject to any change in requirements, transfer of Account Value and
allocation of additional Purchase Payments may be subject to new investment
limitations.
.. The fee for Spousal Highest Daily Lifetime Seven is 0.75% annually of the
Protected Withdrawal Value. We deduct this fee at the end of each quarter,
where each such quarter is part of a year that begins on the effective date
of the benefit or an anniversary thereafter. Thus, on each such quarter-end
(or the next Valuation Day, if the quarter-end is not a Valuation Day), we
deduct 0.1875% of the Protected Withdrawal Value at the end of the quarter.
We deduct the fee pro rata from each of your Sub-accounts including the AST
Investment Grade Bond Sub-account. Since this fee is based on the Protected
Withdrawal Value, the fee for Spousal Highest Daily Lifetime Seven may be
greater than it would have been, had it been based on the Account Value
alone. If the fee to be deducted exceeds the current Account Value, we will
reduce the Account Value to zero, and continue the benefit as described
above.
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Election of and Designations under the Program
Spousal Highest Daily Lifetime Seven can only be elected based on two
Designated Lives. Designated Lives must be natural persons who are each
other's spouses at the time of election of the program and at the death of the
first of the Designated Lives to die. Currently, Spousal Highest Daily
Lifetime Seven only may be elected where the Owner, Annuitant, and Beneficiary
designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the beneficiary is the Owner's spouse. The Owner/Annuitant and the
beneficiary each must be at least 59 1/2 years old at the time of election;
or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the owners must be the Annuitant. Each Owner must each be
at least 59 1/2 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Both the Annuitant and the Contingent Annuitant each must be at
least 59 1/2 years old at the time of election.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of beneficiary under this
benefit. If the Designated Lives divorce, the Spousal Highest Daily Lifetime
Seven benefit may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains ownership of the Annuity
appoint a new Designated Life upon re-marriage.
Spousal Highest Daily Lifetime Seven can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to our eligibility
rules and restrictions described in this benefit section.
Currently, if you terminate the Spousal Highest Daily Lifetime Seven benefit,
you generally may only be allowed to re-elect the benefit or to elect the
other lifetime income benefits on any anniversary of the Issue Date that is at
least 90 calendar days from the date the Spousal Highest Daily Lifetime Seven
Benefit was terminated. We reserve the right to further limit the election
frequency in the future. We also reserve the right to waive that requirement.
Return of Principal Guarantee
If you have not made a withdrawal before the Tenth Anniversary, we will
increase your Account Value on that Tenth Anniversary (or the next Valuation
Day, if that anniversary is not a Valuation Day), if the requirements set
forth in this paragraph are met. On the Tenth Anniversary, we add:
a) your Account Value on the day that you elected Spousal Highest Daily
Lifetime Seven; and
b) the sum of each Purchase Payment you made (including any Credits) during
the one-year period after you elected the benefit.
If the sum of (a) and (b) is greater than your Account Value on the Tenth
Anniversary, we increase your Account Value to equal the sum of (a) and (b),
by contributing funds from our general account. If the sum of (a) and (b) is
less than or equal to your Account Value on the Tenth Anniversary, we make no
such adjustment. The amount that we add to your Account Value under this
provision will be allocated to each of your variable investment options (other
than a bond Sub-account used with this benefit), in the same proportion that
each such Sub-account bears to your total Account Value, immediately before
the application of the amount. Any such amount will not be considered a
Purchase Payment when calculating your Protected Withdrawal Value, your death
benefit, or the amount of any optional benefit that you may have selected, and
therefore will have no direct impact on any such values at the time we add
this amount. This potential addition to Account Value is available only if you
have elected Spousal Highest Daily Lifetime Seven and if you meet the
conditions set forth in this paragraph. Thus, if you take a withdrawal prior
to the Tenth Anniversary, you are not eligible to receive the Return of
Principal Guarantee.
Termination of the Program
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election
will apply as described above. The benefit terminates: (i) if upon the death
of the first Designated Life, the surviving Designated Life opts to take the
death benefit under the Annuity (thus, the benefit does not terminate solely
because of the death of the first Designated Life) (ii) upon the death of the
second Designated Life, (iii) upon your termination of the benefit (although
if you have elected to take annuity payments in the form of the Annual Income
Amount, we will continue to pay the Annual Income Amount) (iv) upon your
surrender of the Annuity (v) upon your election to begin receiving annuity
payments (vi) if both the Account Value and Annual Income Amount equal zero or
(vii) if you cease to meet our requirements for issuing the benefit (see
Election of and Designations under the Program).
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Upon termination of Spousal Highest Daily Lifetime Seven other than upon death
of a Designated Life, we impose any accrued fee for the benefit (i.e., the fee
for the pro-rated portion of the year since the fee was last assessed), and
thereafter we cease deducting the charge for the benefit. With regard to your
investment allocations, upon termination we will: (i) leave intact amounts
that are held in the variable investment options, and (ii) transfer all
amounts held in the AST Investment Grade Bond Portfolio Sub-account (as
defined below) to your variable investment options, based on your existing
allocation instructions or (in the absence of such existing instructions) pro
rata (i.e. in the same proportion as the current balances in your variable
investment options).
Asset Transfer Component of Spousal Highest Daily Lifetime Seven
As indicated above, we limit the Sub-accounts to which you may allocate
Account Value if you elect Spousal Highest Daily Lifetime Seven. For purposes
of this benefit, we refer to those permitted Sub-accounts as the "Permitted
Sub-accounts". As a requirement of participating in Spousal Highest Daily
Lifetime Seven, we require that you participate in our specialized asset
transfer program, under which we may transfer Account Value between the
Permitted Sub-accounts and a specified bond fund within the Advanced Series
Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to
make a transfer, and the amount of any transfer, under a non-discretionary
formula, discussed below. The AST Investment Grade Bond Sub-account is
available only with this benefit, and thus you may not allocate Purchase
Payments to the AST Investment Grade Bond Sub-account. Under the asset
transfer component of Spousal Highest Daily Lifetime Seven, we monitor your
Account Value daily and, if dictated by the formula, systematically transfer
amounts between the Permitted Sub-accounts you have chosen and the AST
Investment Grade Bond Sub-account. Any transfer would be made in accordance
with a formula, which is set forth in the Appendix F to this prospectus.
Speaking generally, the formula, which we apply each Valuation Day, operates
as follows. The formula starts by identifying an income basis for that day and
then multiplies that figure by 5%, to produce a projected (i.e., hypothetical)
Highest Daily annual income amount. Note that we use 5% in the formula,
irrespective of the youngest Designated Life's attained age. Then we produce
an estimate of the total amount we would target in our allocation model, based
on the projected income amount and factors set forth in the formula. In the
formula, we refer to that value as the "Target Value" or "L". If you have
already made a withdrawal, your projected income amount (and thus your Target
Value) would take into account any automatic step-up, any subsequent purchase
payments, and any excess withdrawals. Next, the formula subtracts from the
Target Value the amount held within the AST Investment Grade Bond Sub-account
on that day, and divides that difference by the amount held within the
Permitted Sub-accounts. That ratio, which essentially isolates the amount of
your Target Value that is not offset by amounts held within the AST Investment
Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target
Ratio exceeds a certain percentage (currently 83%), it means essentially that
too much Target Value is not offset by assets within the AST Investment Grade
Bond Sub-account, and therefore we will transfer an amount from your Permitted
Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the
Target Ratio falls below a certain percentage (currently 77%), then a transfer
from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts
would occur.
As you can glean from the formula, a downturn in the securities markets (i.e.,
a reduction in the amount held within the Permitted Sub-accounts) may cause us
to transfer some of your variable Account Value to the AST Investment Grade
Bond Sub-account, because such a reduction will tend to increase the Target
Ratio. Moreover, certain market return scenarios involving "flat" returns over
a period of time also could result in the transfer of money to the AST
Investment Grade Bond Sub-account. In deciding how much to transfer, we use
another formula, which essentially seeks to re-balance amounts held in the
Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that
the Target Ratio meets a target, which currently is equal to 80%. Once you
elect Spousal Highest Daily Lifetime Seven, the ratios we use will be fixed.
For newly-issued Annuities that elect Spousal Highest Daily Lifetime Seven and
existing Annuities that elect Spousal Highest Daily Lifetime Seven, however,
we reserve the right to change the ratios.
While you are not notified when your Annuity reaches a reallocation trigger,
you will receive a confirmation statement indicating the transfer of a portion
of your Account Value either to or from the AST Investment Grade Bond
Sub-account. The formula by which the reallocation triggers operate is
designed primarily to mitigate the financial risks that we incur in providing
the guarantee under Spousal Highest Daily Lifetime Seven.
Depending on the results of the calculation relative to the reallocation
triggers, we may, on any day:
. Not make any transfer; or
. If a portion of your Account Value was previously allocated to the AST
Investment Grade Bond Sub-account, transfer all or a portion of those
amounts to the Permitted Sub-accounts, based on your existing allocation
instructions or (in the absence of such existing instructions) pro rata
(i.e., in the same proportion as the current balances in your variable
investment options). Amounts taken out of the AST Investment Grade Bond
Sub-account will be withdrawn for this purpose on a last-in, first-out
basis; or
. Transfer all or a portion of your Account Value in the Permitted
Sub-accounts pro-rata to the AST Investment Grade Bond Sub-account.
If a significant amount of your Account Value is systematically transferred to
the AST Investment Grade Bond Sub-account during periods of market declines or
low interest rates, less of your Account Value may be available to participate
in the investment experience of the Permitted Sub-accounts if there is a
subsequent market recovery. If your entire Account Value is transferred to
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the AST Investment Grade Bond Sub-account (which would be uncommon, under
normal market conditions unless you have depleted a significant portion of
your Account Value through withdrawals) then based on the way the formula
operates, that value would remain in the AST Investment Grade Bond Sub-account
unless you made additional Purchase Payments to the Permitted Sub-accounts,
which could cause Account Value to transfer out of the AST Investment Grade
Bond Sub-account.
Additional Tax Considerations
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts from
your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a
401(a) plan for which the participant is not a greater than five (5) percent
owner of the employer, this required beginning date can generally be deferred
to retirement, if later. Roth IRAs are not subject to these rules during the
owner's lifetime. The amount required under the Code may exceed the Annual
Income Amount, which will cause us to increase the Annual Income Amount in any
Annuity Year that Required Minimum Distributions due from your Annuity are
greater than such amounts. In addition, the amount and duration of payments
under the annuity payment and death benefit provisions may be adjusted so that
the payments do not trigger any penalty or excise taxes due to tax
considerations such as Required Minimum Distribution provisions under the tax
law. Please note, however, that any withdrawal you take prior to the Tenth
Anniversary, even if withdrawn to satisfy required minimum distribution rules,
will cause you to lose the ability to receive the Return of Principal
Guarantee and the guaranteed amount described above under "KEY FEATURE -
Protected Withdrawal Value".
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this benefit
here. However, we do note that if you participate in Spousal Highest Daily
Lifetime Seven through a non-qualified annuity, as with all withdrawals, once
all Purchase Payments are returned under the Annuity, all subsequent
withdrawal amounts will be taxed as ordinary income.
Spousal HD Lifetime Seven with Beneficiary Income Option/SM/
For elections of Spousal Highest Daily Lifetime Seven on or after July 21,
2008, and subject to regulatory approval, the Annuity Owner may opt for a
death benefit, the value of which is linked to the Annual Income Amount under
the benefit. We refer to the death benefit as the Beneficiary Income Option.
As detailed below, a beneficiary taking the Annuity's death benefit under this
feature is paid the Annual Income Amount until the Protected Withdrawal Value
is depleted. (Note that the final payment, exhausting the Protected Withdrawal
Value, may be less than the Annual Income Amount). We impose a total charge of
0.95% annually, applied against the Protected Withdrawal Value, if you choose
Spousal Highest Daily Lifetime Seven with Beneficiary Income Option.
Effective on or after July 21, 2008, and subject to regulatory approval, we
offer an optional death benefit feature under this benefit, the amount of
which is linked to your Annual Income Amount. You may choose Spousal Highest
Daily Lifetime Seven without also selecting the Beneficiary Income Option
death benefit. If you elect the Beneficiary Income Option death benefit, you
may not elect any other optional death benefit. You may elect the Beneficiary
Income Option death benefit so long as each Designated Life is no older than
age 75 at the time of election. This death benefit is not transferable in the
event of a divorce, nor may the benefit be split in accordance with any
divorce proceedings or similar instrument of separation.
For purposes of the Beneficiary Income Option death benefit, we calculate the
Annual Income Amount and Protected Withdrawal Value in the same manner that we
do under Spousal Highest Daily Lifetime Seven itself (except that we also
exclude from the Protected Withdrawal Value the amount of any Credit that was
granted within 12 months prior to death). Upon the first death of a Designated
Life, no amount is payable under the Beneficiary Income Option death benefit.
Upon the second death of a Designated Life, we identify the following amounts:
(a) the amount of the basic Death Benefit under the Annuity (b) the Protected
Withdrawal Value and (c) the Annual Income Amount. If there were no
withdrawals prior to the date of death, then we calculate the Protected
Withdrawal Value for purposes of this death benefit as of the date of death,
and we calculate the Annual Income Amount as if there were a withdrawal on the
date of death. If there were withdrawals prior to the date of death, then we
set the Protected Withdrawal Value and Annual Income Amount for purposes of
this death benefit as of the date that we receive due proof of death.
If there is one beneficiary, he/she must choose to receive either the basic
Death Benefit (in a lump sum or other permitted form of distribution) or the
Beneficiary Income Option death benefit (in the form of annual payment of the
Annual Income Amount - such payments may be annual or at other intervals that
we permit). If there are multiple beneficiaries, each beneficiary is presented
with the same choice. Thus, each beneficiary can choose to take his/her
portion of either (a) the basic Death Benefit or (b) the Beneficiary Income
Option death benefit. In order to receive the Beneficiary Income Option Death
Benefit, each beneficiary's share of the death benefit proceeds must be
allocated as a percentage of the total death benefit to be paid. We allow a
beneficiary who has opted to receive the Annual Income Amount to designate
another beneficiary, who would receive any remaining payments upon the former
beneficiary's death. Note also that the final payment, exhausting the
Protected Withdrawal Value, may be less than the Annual Income Amount.
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Here is an example to illustrate how the death benefit may be paid:
. Assume that (i) the basic death benefit is $50,000, the Protected
Withdrawal Value is $100,000, and the Annual Income Amount is $5,000;
(ii) there are two beneficiaries (the first designated to receive 75% of
the death benefit and the second designated to receive 25% of the death
benefit); (iii) the first beneficiary chooses to receive his/her portion
of the death benefit in the form of the Annual Income Amount, and the
second beneficiary chooses to receive his/her portion of the death
benefit with reference to the basic death benefit.
. Under those assumptions, the first beneficiary will be paid a pro-rated
portion of the Annual Income Amount for 20 years (the 20 year pay out
period is derived from the $5,000 Annual Income Amount, paid each year
until it exhausts the entire $100,000 Protected Withdrawal Value).
The pro-rated portion of the Annual Income Amount equal to $3,750 (i.e.,
the first beneficiary's 75% share multiplied by $5,000) is then paid
each year for the 20 year period. Payment of $3,750 for 20 years results
in total payments of $75,000 (i.e., the first beneficiary's 75% share of
the $100,000 Protected Withdrawal Value).
The second beneficiary would receive 25% of the basic death benefit
amount (or $12,500).
If you elect to terminate Spousal Highest Daily Lifetime Seven with
Beneficiary Income Option, both Spousal Highest Daily Lifetime Seven and that
death benefit option will be terminated. You may not terminate the death
benefit option without terminating the entire benefit. If you terminate
Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, your
ability to elect other optional living benefits will be affected as indicated
in the "Election and Designations under the Program" section, above.
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DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
Each Annuity provides a Death Benefit during its accumulation period. If an
Annuity is owned by one or more natural persons, the Death Benefit is payable
upon the first death of an Owner. If an Annuity is owned by an entity, the
Death Benefit is payable upon the Annuitant's death, if there is no Contingent
Annuitant. Generally, if a Contingent Annuitant was designated before the
Annuitant's death and the Annuitant dies, then the Contingent Annuitant
becomes the Annuitant and a Death Benefit will not be paid at that time. The
person upon whose death the Death Benefit is paid is referred to below as the
"decedent."
BASIC DEATH BENEFIT
Each Annuity provides a basic Death Benefit at no additional charge. The
Insurance Charge we deduct daily from your Account Value allocated to the
Sub-accounts is used, in part, to pay us for the risk we assume in providing
the basic Death Benefit guarantee under an Annuity. Each Annuity also offers
four different optional Death Benefits that can be purchased for an additional
charge. The additional charge is deducted to compensate Prudential Annuities
for providing increased insurance protection under the optional Death
Benefits. Notwithstanding the additional protection provided under the
optional Death Benefits, the additional cost has the impact of reducing the
net performance of the investment options. In addition under certain
circumstances, your Death Benefit may be reduced by the amount of any Credits
we applied to your Purchase Payments. (See "How are Credits Applied to My
Account Value".)
The basic Death Benefit is the greater of:
. The sum of all Purchase Payments (not including any Credits) less the
sum of all proportional withdrawals.
. The sum of your Account Value in the Sub-accounts and your Interim Value
in the Fixed Allocations (less the amount of any Credits applied within
12-months prior to the date of death).
"Proportional withdrawals" are determined by calculating the percentage of
your Account Value that each prior withdrawal represented when withdrawn. For
example, a withdrawal of 50% of Account Value would be considered as a 50%
reduction in Purchase Payments for purposes of calculating the basic Death
Benefit.
OPTIONAL DEATH BENEFITS
Four optional Death Benefits are offered for purchase with your Annuity to
provide an enhanced level of protection for your beneficiaries.
Currently, these benefits are only offered in those jurisdictions where we
have received regulatory approval and must be elected at the time that you
purchase your Annuity. We may, at a later date, allow existing Annuity Owners
to purchase an optional Death Benefit subject to our rules and any changes or
restrictions in the benefits. Certain terms and conditions may differ between
jurisdictions once approved and if you purchase your Annuity as part of an
exchange, replacement or transfer, in whole or in part, from any other Annuity
we issue. The "Combination 5% Roll-up and Highest Anniversary Value" Death
Benefit may only be elected individually, and cannot be elected in combination
with any other optional Death Benefit. If you elect Spousal Lifetime Five or
Spousal Highest Daily Lifetime Seven, you are not permitted to elect an
optional Death Benefit. Under certain circumstances, each Optional Death
Benefit that you elect may be reduced by the amount of Credits applied to your
Purchase Payments.
Investment Restrictions may apply if you elect certain optional death
benefits. See the chart in the "Investment Options" section of the Prospectus
for a list of investment options available and permitted with each benefit.
Enhanced Beneficiary Protection Optional Death Benefit
The Enhanced Beneficiary Protection Optional Death Benefit can provide
additional amounts to your Beneficiary that may be used to offset federal and
state taxes payable on any taxable gains in your Annuity at the time of your
death. Whether this benefit is appropriate for you may depend on your
particular circumstances, including other financial resources that may be
available to your Beneficiary to pay taxes on your Annuity should you die
during the accumulation period. No benefit is payable if death occurs on or
after the Annuity Date.
The Enhanced Beneficiary Protection Optional Death Benefit provides a benefit
that is payable in addition to the basic Death Benefit and certain other
optional death benefits you may elect in conjunction with this benefit. If the
Annuity has one Owner, the Owner must be age 75 or less at the time the
benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be
age 75 or less. If an Annuity is owned by an entity, the Annuitant must be age
75 or less.
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Calculation of Enhanced Beneficiary Protection Optional Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit,
the Death Benefit is calculated as follows:
1. the basic Death Benefit described above;
PLUS
2. 40% of your "Growth" under an Annuity, as defined below.
"Growth" means the sum of your Account Value in the Sub-accounts and your
Interim Value in the Fixed Allocations, minus the total of all Purchase
Payments (less the amount of any Credits applied within 12-months prior to the
date of death) reduced by the sum of all proportional withdrawals.
"Proportional withdrawals" are determined by calculating the percentage of
your Account Value that each prior withdrawal represented when withdrawn. For
example, a withdrawal of 50% of Account Value would be considered as a 50%
reduction in Purchase Payments.
The Enhanced Beneficiary Protection Optional Death Benefit is subject to a
maximum of 100% of all Purchase Payments applied to an Annuity at least 12
months prior to the death of the decedent that triggers the payment of the
Death Benefit.
The Enhanced Beneficiary Protection Optional Death Benefit is being offered in
those jurisdictions where we have received regulatory approval. Certain terms
and conditions may differ between jurisdictions once approved. Please refer to
the section entitled "Tax Considerations" for a discussion of special tax
considerations for purchasers of this benefit. The Enhanced Beneficiary
Protection Death Benefit is not available if you elect the "Combination 5%
Roll-up and Highest Anniversary Value" Death Benefit or the Spousal Lifetime
Five Income Benefit.
See Appendix B for examples of how the Enhanced Beneficiary Protection
Optional Death Benefit is calculated.
Highest Anniversary Value Death Benefit ("HAV")
If an Annuity has one Owner, the Owner must be age 79 or less at the time the
Highest Anniversary Value Optional Death Benefit is purchased. If an Annuity
has joint Owners, the oldest Owner must be age 79 or less. If an Annuity is
owned by an entity, the Annuitant must be age 79 or less.
Certain of the Portfolios offered as Sub-accounts under the Annuity are not
available if you elect the Highest Anniversary Value Death Benefit. In
addition, we reserve the right to require you to use certain asset allocation
model(s) if you elect this death benefit.
Calculation of Highest Anniversary Value Death Benefit
The HAV Death Benefit depends on whether death occurs before or after the
Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date, the Death
Benefit equals the greater of:
1. the basic Death Benefit described above; and
2. the Highest Anniversary Value as of the Owner's date of death.
If the Owner dies on or after the Death Benefit Target Date, the Death
Benefit equals the greater of:
1. the basic Death Benefit described above; and
2. the Highest Anniversary Value on the Death Benefit Target Date plus
the sum of all Purchase Payments (including any Credits applied to
such Purchase Payments more than twelve (12) months prior to date of
death) less the sum of all proportional withdrawals since the Death
Benefit Target Date.
The amount determined by this calculation is increased by any Purchase
Payments received after the Owner's date of death and decreased by any
proportional withdrawals since such date.
The Highest Anniversary Value Death Benefit described above is currently
being offered in those jurisdictions where we have received regulatory
approval. Certain terms and conditions may differ between jurisdictions
once approved. The Highest Anniversary Value Death Benefit is not
available if you elect the "Combination 5% Roll-up
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and Highest Anniversary Value" or the "Highest Daily Value" Death
Benefit. It is also not available with Spousal Lifetime Five or Spousal
Highest Daily Lifetime Seven.
Please refer to the definition of Death Benefit Target Date below. This death
benefit may not be an appropriate feature where the Owner's age is near the
age specified in the Death Benefit Target Date. This is because the benefit
may not have the same potential for growth as it otherwise would, since there
will be fewer contract anniversaries before the death benefit target date is
reached. The death benefit target date under this death benefit is earlier
than the death benefit target date under the Combination 5% Roll-up and
Highest Anniversary Value Death Benefit for Owners who are age 76 or older
when an Annuity is issued, which may result in a lower value on the death
benefit, since there will be fewer contract anniversaries before the death
benefit target date is reached.
See Appendix B for examples of how the Highest Anniversary Value Death Benefit
is calculated.
Combination 5% Roll-up and Highest Anniversary Value Death Benefit
If an Annuity has one Owner, the Owner must be age 79 or less at the time the
Combination 5% Roll-up and HAV Optional Death Benefit is purchased. If an
Annuity has joint Owners, the oldest Owner must be age 79 or less. If the
Annuity is owned by an entity, the Annuitant must be age 79 or less.
Certain of the Portfolios offered as Sub-accounts under an Annuity are not
available if you elect the Combination 5% Roll-up and HAV Death Benefit. If
you elect this benefit, you must allocate your Account Value in accordance
with the then permitted and available option(s). In addition, we reserve the
right to require you to use certain asset allocation model(s) if you elect
this Death Benefit.
Calculation of the Combination 5% Roll-up and Highest Anniversary Value Death
Benefit
The Combination 5% Roll-up and HAV Death Benefit equals the greatest of:
1. the basic Death Benefit described above; and
2. the Highest Anniversary Value Death Benefit described above; and
3. 5% Roll-up described below.
The calculation of the 5% Roll-up depends on whether death occurs before
or after the Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date the 5% Roll up is
equal to:
. all Purchase Payments (including any Credits applied to such
Purchase Payments more than twelve (12) months prior to date of
death) increasing at an annual effective interest rate of 5%
starting on the date that each Purchase Payment is made and ending
on the Owner's date of death;
MINUS
. the sum of all withdrawals, dollar for dollar up to 5% of the Death
Benefit's value as of the prior contract anniversary (or Issue Date
if the withdrawal is in the first contract year). Any withdrawals in
excess of the 5% dollar for dollar limit are proportional.
If the Owner dies on or after the Death Benefit Target Date the 5%
Roll-up is equal to:
. the 5% Roll-up value as of the Death Benefit Target Date increased
by total Purchase Payments (including any Credits applied to such
Purchase Payments more than twelve (12) months prior to date of
death) made after the Death Benefit Target Date;
MINUS
. the sum of all withdrawals which reduce the 5% Roll-up
proportionally.
The amounts calculated in Items 1, 2 and 3 above (before, on or after the
Death Benefit Target Date) may be reduced by any Credits under certain
circumstances. Please refer to the definitions of Death Benefit Target Date
below. This Death Benefit may not be an appropriate feature where the Owner's
age is near the age specified in the Death Benefit Target Date. This is
because the benefit may not have the same potential for growth as it otherwise
would, since there will be fewer Annuity anniversaries before the Death
Benefit Target Date is reached.
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The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit
described above is currently being offered in those jurisdictions where we
have received regulatory approval. Certain terms and conditions may differ
between jurisdictions once approved. The "Combination 5% Roll-up and Highest
Anniversary Value" Death Benefit is not available if you elect any other
optional Death Benefit or elect Spousal Lifetime Five or Spousal Highest Daily
Lifetime Seven. See Appendix B for examples of how the "Combination 5% Roll-up
and Highest Anniversary Value" Death Benefit is calculated.
Key Terms Used with the Highest Anniversary Value Death Benefit and the
Combination 5% Roll-up and Highest Anniversary Value Death Benefit:
. The Death Benefit Target Date for the Highest Anniversary Value Death
Benefit is the contract anniversary on or after the 80/th/ birthday of
the current Owner, the oldest of either joint Owner or the Annuitant, if
entity owned.
. The Death Benefit Target Date for the Combination 5% Roll-up and HAV
Death Benefit is the later of the contract anniversary on or after the
80/th/ birthday of the current Owner, the oldest of either joint Owner
or the Annuitant, if entity owned, or five years after the Issue Date of
an Annuity.
. The Highest Anniversary Value equals the highest of all previous
"Anniversary Values" less proportional withdrawals since such
anniversary and plus any Purchase Payments (including any Credits
applied to such Purchase Payments more than twelve (12) months prior to
the date of death) since such anniversary.
. The Anniversary Value is the Account Value as of each anniversary of the
Issue Date of an Annuity. The Anniversary Value on the Issue Date is
equal to your Purchase Payment. (including any Credits applied to such
Purchase Payments more than twelve (12) months prior to the date of
death)
. Proportional withdrawals are determined by calculating the percentage of
your Account Value that each prior withdrawal represented when
withdrawn. Proportional withdrawals result in a reduction to the Highest
Anniversary Value or 5% Roll-up value by reducing such value in the same
proportion as the Account Value was reduced by the withdrawal as of the
date the withdrawal occurred. For example, if your Highest Anniversary
Value or 5% Roll-up value is $125,000 and you subsequently withdraw
$10,000 at a time when your Account Value is equal to $100,000 (a 10%
reduction), when calculating the optional Death Benefit we will reduce
your Highest Anniversary Value ($ 125,000) by 10% or $12,500.
Highest Daily Value Death Benefit ("HDV")
If an Annuity has one Owner, the Owner must be age 79 or less at the time the
Highest Daily Value Death Benefit is elected. If an Annuity has joint Owners,
the older Owner must be age 79 or less. If there are joint Owners, death of
the Owner refers to the first to die of the joint Owners. If an Annuity is
owned by an entity, the Annuitant must be age 79 or less and death of the
Owner refers to the death of the Annuitant.
If you elect this benefit, you must allocate your Account Value in accordance
with the then permitted and available option(s) with this benefit. If,
subsequent to your election of the benefit, we change our requirements for how
Account Value must be allocated under the benefit, the new requirement will
apply only to new elections of the benefit, and we will not compel you to
re-allocate your Account Value in accordance with our newly-adopted
requirements. Subsequent to any change in requirements, transfers of Account
Value and allocation of additional Purchase Payments may be subject to the new
investment limitations.
The HDV Death Benefit depends on whether death occurs before or after
the Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date, the Death
Benefit equals the greater of:
1. the basic Death Benefit described above (including any Credits
applied to such Purchase Payments more than twelve (12) months prior
to the date of death); and
2. the HDV as of the Owner's date of death.
If the Owner dies on or after the Death Benefit Target Date, the Death
Benefit equals the greater of:
1. the basic Death Benefit described above; and
2. the HDV on the Death Benefit Target Date plus the sum of all Purchase
Payments (including any Credits applied to such Purchase Payments
more than twelve (12) months prior to the date of death) less the sum
of all proportional withdrawals since the Death Benefit Target Date.
The amount determined by this calculation is increased by any Purchase
Payments received after the Owner's date of death and decreased by any
proportional withdrawals since such date.
The Highest Daily Value Death Benefit described above is currently being
offered in those jurisdictions where we have received regulatory
approval. Certain terms and conditions may differ between jurisdictions
once approved.
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The Highest Daily Value Death Benefit is not available if you elect the
Guaranteed Return Option Plus 2008, Highest Daily GRO, Spousal Lifetime
Five, Highest Daily Lifetime Five, Highest Daily Lifetime Seven, Spousal
Highest Daily Lifetime Seven, the "Combination 5% Roll-up and Highest
Anniversary Value" Death Benefit, or the Highest Anniversary Value Death
Benefit.
Key Terms Used with the Highest Daily Value Death Benefit:
. The Death Benefit Target Date for the Highest Daily Value Death Benefit
is the later of an Annuity anniversary on or after the 80/th/ birthday
of the current Owner, or the older of either the joint Owner or the
Annuitant, if entity owned, or five years after the Issue Date of an
Annuity.
. The Highest Daily Value equals the highest of all previous "Daily
Values" less proportional withdrawals since such date and plus any
Purchase Payments (plus associated Credits) since such date.
. The Daily Value is the Account Value as of the end of each Valuation
Day. The Daily Value on the Issue Date is equal to your Purchase Payment
(plus associated Credits applied more than twelve (12) months prior to
the date of death).
. Proportional withdrawals are determined by calculating the percentage of
your Account Value that each prior withdrawal represented when
withdrawn. Proportional withdrawals result in a reduction to the Highest
Daily Value by reducing such value in the same proportion as the Account
Value was reduced by the withdrawal as of the date the withdrawal
occurred. For example, if your Highest Daily Value is $125,000 and you
subsequently withdraw $10,000 at a time when your Account Value is equal
to $100,000 (a 10% reduction), when calculating the optional Death
Benefit we will reduce your Highest Daily Value ($125,000) by 10% or
$12,500.
Please see Appendix B to this prospectus for a hypothetical example of how the
HDV Death Benefit is calculated.
Annuities with Joint Owners
For Annuities with Joint Owners, the Death Benefits are calculated as shown
above except that the age of the oldest of the joint Owners is used to
determine the Death Benefit Target Date. NOTE: If you and your spouse own your
Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole
primary Beneficiary is the surviving spouse, then the surviving spouse can
elect to assume ownership of your Annuity and continue the Annuity instead of
receiving the Death Benefit.
Annuities Owned by Entities
For Annuities owned by an entity, the Death Benefits are calculated as shown
above except that the age of the Annuitant is used to determine the Death
Benefit Target Date. Payment of the Death Benefit is based on the death of the
Annuitant (or Contingent Annuitant, if applicable). Where a contract is
structured so that it is owned by a grantor trust but the annuitant is not the
grantor, then the contract is required to terminate upon the death of the
grantor if the grantor pre-deceases the annuitant under Section 72(s) of the
Code. Under this circumstance, the contract value will be paid out to the
beneficiary and it is not eligible for the death benefit provided under the
contract.
Can I terminate the optional Death Benefits? Do the optional Death Benefits
terminate under other circumstances?
You can terminate the Enhanced Beneficiary Protection Death Benefit and the
Highest Anniversary Value Death Benefit at any time. The "Combination 5%
Roll-up and HAV Death Benefit" and the HDV Death Benefit may not be terminated
once elected. The optional Death Benefits will terminate automatically on the
Annuity Date. We may also terminate any optional Death Benefit if necessary to
comply with our interpretation of the Code and applicable regulations.
What are the charges for the optional Death Benefits?
We deduct a charge equal to 0.25% per year of the average daily net assets of
the Sub-accounts for each of the Highest Anniversary Value Death Benefit and
the Enhanced Beneficiary Protection Death Benefit and 0.50% per year of the
average daily net assets of the Sub-accounts for each of the "Combination 5%
Roll-up and HAV Death Benefit" and the HDV Death Benefit. We deduct the charge
for each of these benefits to compensate Prudential Annuities for providing
increased insurance protection under the optional Death Benefits. The
additional annual charge is deducted daily against your Account Value
allocated to the Sub-accounts.
Please refer to the section entitled "Tax Considerations" for additional
considerations in relation to the optional Death Benefit.
PRUDENTIAL ANNUITIES' ANNUITY REWARDS
What is the Annuity Rewards Benefit?
The Annuity Rewards Benefit offers Owners the ability to capture any market
gains since the Issue Date of their Annuity as an enhancement to their current
Death Benefit so their Beneficiaries will not receive less than an Annuity's
value as of the effective date of the benefit. Under the Annuity Rewards
Benefit, Prudential Annuities guarantees that the Death Benefit will not be
less than:
. your Account Value in the Sub-accounts plus the Interim Value in any
Fixed Allocations as of the effective date of the benefit
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. MINUS any proportional withdrawals following the effective date of
the benefit
. PLUS any additional Purchase Payments applied to your Annuity
following the effective date of the benefit.
The Annuity Rewards Death Benefit enhancement does not affect the calculation
of the basic Death Benefit or any Optional Death Benefits available under an
Annuity. If the Death Benefit amount payable under your Annuity's basic Death
Benefit or any Optional Death Benefits you purchase is greater than the
enhanced Death Benefit under the Annuity Rewards Benefit on the date the Death
Benefit is calculated, your Beneficiary will receive the higher amount.
Who is eligible for the Annuity Rewards benefit?
Owners can elect the Annuity Rewards Death Benefit enhancement when there is
no longer a CDSC associated with your Annuity. However, the Account Value on
the date that the Annuity Rewards benefit is effective, must be greater than
the amount that would be payable to the Beneficiary under the Death Benefit
(including any amounts payable under any Optional Death Benefit then in
effect). The effective date must occur before annuity payments begin. There
can only be one effective date for the Annuity Rewards Death Benefit
enhancement. There is no additional charge for electing the Annuity Rewards
Death Benefit enhancement.
PAYMENT OF DEATH BENEFITS
Alternative Death Benefit Payment Options - Annuities owned by Individuals
(not associated with Tax-Favored Plans)
Except in the case of a spousal assumption as described below, upon your
death, certain distributions must be made under the contract. The required
distributions depend on whether you die before you start taking annuity
payments under the contract or after you start taking annuity payments under
the contract.
If you die on or after the Annuity Date, the remaining portion of the interest
in the contract must be distributed at least as rapidly as under the method of
distribution being used as of the date of death.
In the event of your death before the Annuity Date, the Death Benefit must be
distributed:
. within five (5) years of the date of death; or
. as a series of payments not extending beyond the life expectancy of the
Beneficiary or over the life of the Beneficiary. Payments under this
option must begin within one year of the date of death.
Unless you have made an election prior to Death Benefit proceeds becoming due,
a Beneficiary can elect to receive the Death Benefit proceeds under the
Beneficiary Continuation Option as described below in the section entitled
"Beneficiary Continuation Option," as a series of annuity payments.
Upon our receipt of proof of death, we will send to the beneficiary materials
that list these payment options.
Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans
The Code provides for alternative death benefit payment options when an
Annuity is used as an IRA, 403(b) or other "qualified investment" that
requires minimum distributions. Upon your death under an IRA, 403(b) or other
"qualified investment", the designated Beneficiary may generally elect to
continue the Annuity and receive Required Minimum Distributions under the
Annuity instead of receiving the death benefit in a single payment. The
available payment options will depend on whether you die before the date
Required Minimum Distributions under the Code were to begin, whether you have
named a designated beneficiary and whether the Beneficiary is your surviving
spouse.
. If you die after a designated beneficiary has been named, the death
benefit must be distributed by December 31/st/ of the year including the
five year anniversary of the date of death, or as periodic payments not
extending beyond the life expectancy of the designated beneficiary
(provided such payments begin by December 31/st/ of the year following
the year of death). However, if your surviving spouse is the
beneficiary, the death benefit can be paid out over the life expectancy
of your spouse with such payments beginning no later than
December 31/st/ of the year following the year of death or
December 31/st/ of the year in which you would have reached age 70 1/2,
which ever is later. Additionally, if the contract is payable to (or for
the benefit of) your surviving spouse, that portion of the contract may
be continued with your spouse as the owner.
. If you die before a designated beneficiary is named and before the date
required minimum distributions must begin under the Code, the death
benefit must be paid out within five years from the date of death. For
contracts where multiple beneficiaries have been named and at least one
of the beneficiaries does not qualify as a designated beneficiary and
the account has not been divided into separate accounts by
December 31/st/ of the year following the year of death, such contract
is deemed to have no designated beneficiary.
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. If you die before a designated beneficiary is named and after the date
required minimum distributions must begin under the Code, the death
benefit must be paid out at least as rapidly as under the method then in
effect. For contracts where multiple beneficiaries have been named and
at least one of the beneficiaries does not qualify as a designated
beneficiary and the account has not been divided into separate accounts
by December 31/st/ of the year following the year of death, such
contract is deemed to have no designated beneficiary.
A beneficiary has the flexibility to take out more each year than mandated
under the required minimum distribution rules.
Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment"
continue to be tax deferred. Amounts withdrawn each year, including amounts
that are required to be withdrawn under the Required Minimum Distribution
rules, are subject to tax. You may wish to consult a professional tax advisor
for tax advice as to your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
death benefit must be distributed under the same rules applied to IRAs where
death occurs before the date Required Minimum Distributions must begin under
the Code.
The tax consequences to the beneficiary may vary among the different death
benefit payment options. See the Tax Considerations section of this
prospectus, and consult your tax advisor.
Beneficiary Continuation Option
Instead of receiving the death benefit in a single payment, or under an
Annuity Option, a beneficiary may take the death benefit under an alternative
death benefit payment option, as provided by the Code and described above
under the sections entitled "Payment of Death Benefits" and "Alternative Death
Benefit Payment Options - Annuities Held by Tax-Favored Plans." This
"Beneficiary Continuation Option" is described below and is available for both
qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or
403(b)) and non-qualified Annuities.
Under the Beneficiary Continuation Option:
. The Owner's Annuity will be continued in the Owner's name, for the
benefit of the beneficiary.
. Beginning on the date we receive an election by the beneficiary to take
the death benefit in a form other than a lump sum, the beneficiary will
incur a Settlement Service Charge which is an annual charge assessed on
a daily basis against the average assets allocated to the Sub-accounts.
For non-qualified Annuities the charge is 1.00% per year, and for
qualified Annuities the charge is 1.40% per year.
. Beginning on the date we receive an election by the beneficiary to take
the death benefit in a form other than a lump sum, the beneficiary will
incur an annual maintenance fee equal to the lesser of $30 or 2% of
Account Value. For non-qualified annuities, the fee will only apply if
the Account Value is less than $25,000 at the time the fee is assessed.
The fee will not apply if it is assessed 30 days prior to a surrender
request.
. The initial Account Value will be equal to any death benefit (including
any optional death benefit) that would have been payable to the
beneficiary if the beneficiary had taken a lump sum distribution.
. The available Sub-accounts will be among those available to the Owner at
the time of death, however certain Sub-Accounts may not be available.
. The beneficiary may request transfers among Sub-accounts, subject to the
same limitations and restrictions that applied to the Owner. Transfers
in excess of 20 per year will incur a $10 transfer fee.
. No Fixed Allocations or fixed interest rate options will be offered for
the non-qualified Beneficiary Continuation Options. However, for
qualified Annuities, the Fixed Allocations will be those offered at the
time the Beneficiary Continuation Option is elected.
. No additional Purchase Payments can be applied to the Annuity.
. The basic death benefit and any optional benefits elected by the Owner
will no longer apply to the beneficiary.
. The beneficiary can request a withdrawal of all or a portion of the
Account Value at any time, unless the Beneficiary Continuation Option
was the payout predetermined by the Owner and the Owner restricted the
beneficiary's withdrawal rights.
. Withdrawals are not subject to CDSC.
. Upon the death of the beneficiary, any remaining Account Value will be
paid in a lump sum to the person(s) named by the beneficiary
(successor), unless the successor chooses to continue receiving payments.
Currently only Investment Options corresponding to Portfolios of the Advanced
Series Trust are available under the Beneficiary Continuation Option.
In addition to the materials referenced above, the Beneficiary will be
provided with a prospectus and a settlement agreement describing the
Beneficiary Continuation Option. We may pay compensation to the broker-dealer
of record on the Annuity based on amounts held in the Beneficiary Continuation
Option. Please contact us for additional information on the availability,
restrictions and limitations that will apply to a beneficiary under the
Beneficiary Continuation Option.
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Spousal Assumption of Annuity
You may name your spouse as your Beneficiary. If you and your spouse own your
Annuity jointly, we assume that the sole primary Beneficiary will be the
surviving spouse unless you elect an alternative Beneficiary Designation.
Unless you elect an alternative Beneficiary Designation, the spouse
Beneficiary may elect to assume ownership of the Annuity instead of taking the
Death Benefit payment. Any Death Benefit (including any optional Death
Benefits) that would have been payable to the Beneficiary will become the new
Account Value as of the date we receive due proof of death and any required
proof of a spousal relationship. As of the date the assumption is effective,
the surviving spouse will have all the rights and benefits that would be
available under the Annuity to a new purchaser of the same attained age. For
purposes of determining any future Death Benefit for the surviving spouse, the
new Account Value will be considered as the initial Purchase Payment. No CDSC
will apply to the new Account Value. However, any additional Purchase Payments
applied after the date the assumption is effective will be subject to all
provisions of the Annuity, including any CDSC that may apply to the additional
Purchase Payments.
See the section entitled "Managing Your Annuity" - "Spousal Designations" and
"Contingent Annuitant" for a discussion of the treatment of a spousal
Contingent Annuitant in the case of the death of the Annuitant in an Annuity
owned by a Custodial Account.
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is
calculated. There are exceptions to the Death Benefit if the decedent was not
the Owner or Annuitant as of the Issue Date (or within 60 days thereafter) and
did not become the Owner or Annuitant due to the prior Owner's or Annuitant's
death. Any Death Benefit (including any optional Death Benefit) that applies
will be suspended for a two-year period from the date he or she first became
Owner or Annuitant. After the two-year suspension period is completed, the
Death Benefit is the same as if this person had been an Owner or Annuitant on
the Issue Date.
When do you determine the Death Benefit?
We determine the amount of the Death Benefit as of the date we receive "due
proof of death" (and in certain limited circumstances as of the date of
death), any instructions we require to determine the method of payment and any
other written representations we require to determine the proper payment of
the Death Benefit to all Beneficiaries. "Due proof of death" may include a
certified copy of a death certificate, a certified copy of a decree of a court
of competent jurisdiction as to the finding of death or other satisfactory
proof of death. Upon our receipt of "due proof of death" we automatically
transfer the Death Benefit to the AST Money Market Sub-account until we
further determine the universe of eligible Beneficiaries. Once the universe of
eligible Beneficiaries has been determined each eligible Beneficiary may
allocate his or her eligible share of the Death Benefit to an eligible annuity
payment option.
Each Beneficiary must make an election as to the method they wish to receive
their portion of the Death Benefit. Absent an election of a Death Benefit
payment method, no Death Benefit can be paid to the Beneficiary. We may
require written acknowledgment of all named Beneficiaries before we can pay
the Death Benefit. During the period from the date of death until we receive
all required paper work, the amount of the Death Benefit may be subject to
market fluctuations.
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VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, your Annuity has an Account Value. The Account
Value is determined separately for each Sub-account allocation and for each
Fixed Allocation. The Account Value is the sum of the values of each
Sub-account allocation and the value of each Fixed Allocation. For Annuities
with a Highest Daily Lifetime Five election, Account Value also includes the
value of any allocation to the Benefit Fixed Rate Account. See the "Living
Benefit Programs - Highest Daily Lifetime Five" section of the Prospectus for
a description of the Benefit Fixed Rate Account. The Account Value does not
reflect any CDSC that may apply to a withdrawal or surrender. The Account
Value includes any Credits we applied to your Purchase Payments which we are
entitled to take back under certain circumstances. When determining the
Account Value on a day more than 30 days prior to a Fixed Allocation's
Maturity Date, the Account Value may include any Market Value Adjustment that
would apply to a Fixed Allocation (if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day
during the accumulation period. The Surrender Value is defined under "Glossary
of Terms" above.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-account, you are purchasing units of
the Sub-account. Each Sub-account invests exclusively in shares of an
underlying Portfolio. The value of the Units fluctuates with the market
fluctuations of the Portfolios. The value of the Units also reflects the daily
accrual for the Insurance Charge, and if you elected one or more optional
benefits whose annual charge is deducted daily, the additional charge made for
such benefits. There may be several different Unit Prices for each Sub-account
to reflect the Insurance Charge, and the charges for any optional benefits.
The Unit Price for the Units you purchase will be based on the total charges
for the benefits that apply to your Annuity. See the section entitled "What
Happens to My Units When There is a Change in Daily Asset-Based Charges?" for
a detailed discussion of how Units are purchased and redeemed to reflect
changes in the daily charges that apply to your Annuity.
Each Valuation Day, we determine the price for a Unit of each Sub-account,
called the "Unit Price." The Unit Price is used for determining the value of
transactions involving Units of the Sub-accounts. We determine the number of
Units involved in any transaction by dividing the dollar value of the
transaction by the Unit Price of the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the
allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the
Sub-account. Assume that later, you wish to transfer $3,000 of your Account
Value out of that Sub-account and into another Sub-account. On the Valuation
Day you request the transfer, the Unit Price of the original Sub-account has
increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To
transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you
158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit
Price of $17.83. You would then have 168.255 Units of the new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The
Interim Value can be calculated on any day and is equal to the initial value
allocated to a Fixed Allocation plus all interest credited to a Fixed
Allocation as of the date calculated. The Interim Value does not include the
impact of any Market Value Adjustment. If you made any transfers or
withdrawals from a Fixed Allocation, the Interim Value will reflect the
withdrawal of those amounts and any interest credited to those amounts before
they were withdrawn. To determine the Account Value of a Fixed Allocation on
any day more than 30 days prior to its Maturity Date, we multiply the Account
Value of the Fixed Allocation times the Market Value Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Prudential Annuities is generally open to process financial transactions on
those days that the New York Stock Exchange (NYSE) is open for trading. There
may be circumstances where the NYSE does not open on a regularly scheduled
date or time or closes at an earlier time than scheduled (normally 4:00 p.m.
EST). Generally, financial transactions requested before the close of the NYSE
which meet our requirements will be processed according to the value next
determined following the close of business. Financial transactions requested
on a non-Valuation Day or after the close of the NYSE will be processed based
on the value next computed on the next Valuation Day. There may be
circumstances when the opening or closing time of the NYSE is different than
other major stock exchanges, such as NASDAQ or the American Stock Exchange.
Under such circumstances, the closing time of the NYSE will be used when
valuing and processing transactions.
There may be circumstances where the NYSE is open, however, due to inclement
weather, natural disaster or other circumstances beyond our control, our
offices may be closed or our business processing capabilities may be
restricted. Under those circumstances, your Account Value may fluctuate based
on changes in the Unit Values, but you may not be able to transfer Account
Value, or make a purchase or redemption request.
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We have arrangements with certain selling firms, under which receipt by the
firm in good order prior to our cut-off time on a given Valuation Date is
treated as receipt by us on that Valuation Day for pricing purposes.
Currently, we have such an arrangement with Citigroup Global Markets, Inc.
The NYSE is closed on the following nationally recognized holidays: New Year's
Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates,
we will not process any financial transactions involving purchase or
redemption orders.
Prudential Annuities will also not process financial transactions involving
purchase or redemption orders or transfers on any day that:
.. trading on the NYSE is restricted;
.. an emergency exists as determined by the commission making redemption or
valuation of securities held in the separate account impractical; or
.. the SEC, by order, permits the suspension or postponement for the
protection of security holders.
Initial Purchase Payments: We are required to allocate your initial Purchase
Payment to the Sub-accounts within two (2) Valuation Days after we receive all
of our requirements at our office to issue an Annuity. If we do not have all
the required information to allow us to issue your Annuity, we may retain the
Purchase Payment while we try to reach you or your representative to obtain
all of our requirements. If we are unable to obtain all of our required
information within five (5) Valuation Days, we are required to return the
Purchase Payment to you at that time, unless you specifically consent to our
retaining the Purchase Payment while we gather the required information. Once
we obtain the required information, we will invest the Purchase Payment (and
any associated Credits) and issue an Annuity within two (2) Valuation Days.
With respect to both your initial Purchase Payment and any subsequent Purchase
Payment that is pending investment in our separate account, we may hold the
amount temporarily in our general account and may earn interest on such
amount. You will not be credited with interest during that period.
Additional Purchase Payments: We will apply any additional Purchase Payments
(and any associated Credit) on the Valuation Day that we receive the Purchase
Payment at our office with satisfactory allocation instructions.
Scheduled Transactions: Scheduled transactions include transfers made in
connection with dollar cost averaging, the asset allocation program,
auto-rebalancing, systematic withdrawals, systematic investments, required
minimum distributions, substantially equal periodic payments under
Section 72(t) of the Code, or annuity payments. Scheduled transactions are
processed and valued as of the date they are scheduled, unless the scheduled
day is not a Valuation Day. In that case, the transaction will be processed
and valued on the next Valuation Day, unless (with respect to required minimum
distributions, substantially equal periodic payments under Section 72(t) of
the Code, systematic withdrawals and annuity payments only), the next
Valuation Day falls in the subsequent calendar year, in which case the
transaction will be processed and valued on the prior Valuation Day.
Unscheduled Transactions: "Unscheduled" transactions include any other
non-scheduled transfers and requests for Partial Withdrawals or Free
Withdrawals or Surrenders. Unscheduled transactions are processed and valued
as of the Valuation Day we receive the request at our Office and have all of
the required information.
Medically-related Surrenders & Death Benefits: Medically-related surrender
requests and Death Benefit claims require our review and evaluation before
processing. We price such transactions as of the date we receive at our Office
all supporting documentation we require for such transactions and that are
satisfactory to us.
Termination of Optional Benefits: Except for the Guaranteed Minimum Income
Benefit, the "Combination 5% Roll-up and Highest Anniversary Value Death
Benefit" and the Highest Daily Value Death Benefit, which generally cannot be
terminated by the owner once elected, if any optional benefit terminates, we
will no longer deduct the charge we apply to purchase the optional benefit.
Certain optional benefits may be added after you have purchased your Annuity.
On the date a charge no longer applies or a charge for an optional benefit
begins to be deducted, your Annuity will become subject to a different daily
asset-based charge. This change may result in the number of Units attributed
to your Annuity and the value of those Units being different than it was
before the change; however, the adjustment in the number of Units and Unit
Price will not affect your Account Value (although the change in charges that
are deducted will affect your Account Value).
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TAX CONSIDERATIONS
The tax considerations associated with an Annuity vary depending on whether
the contract is (i) owned by an individual or non-natural person, and not
associated with a tax-favored retirement plan, or (ii) held under a
tax-favored retirement plan. We discuss the tax considerations for these
categories of contracts below. The discussion is general in nature and
describes only federal income tax law (not state or other tax laws). It is
based on current law and interpretations, which may change. The information
provided is not intended as tax advice. You should consult with a qualified
tax advisor for complete information and advice. References to purchase
payments below relate to your cost basis in your contract. Generally, your
cost basis in a contract not associated with a tax-favored retirement plan is
the amount you pay into your contract, or into annuities exchanged for your
contract, on an after-tax basis less any withdrawals of such payments. Cost
basis for a tax-favored retirement plan is provided only in limited
circumstances, such as for contributions to a Roth IRA or nondeductible IRA
contributions. The discussion includes a description of certain spousal rights
under the contract, and our administration of such spousal rights and related
tax reporting accords with our understanding of the Defense of Marriage Act
(which defines a "marriage" as a legal union between a man and a woman and a
"spouse" as a person of the opposite sex). Depending on the state in which
your annuity is issued, we may offer certain spousal benefits to civil union
couples. You should be aware, however, that federal tax law does not recognize
civil unions. Therefore, we cannot permit a civil union partner to continue
the annuity upon the death of the first partner under the annuity's "spousal
continuance" provision. Civil union couples should consider that limitation
before selecting a spousal benefit under the annuity.
NONQUALIFIED ANNUITY CONTRACTS
In general, as used in this prospectus, a Nonqualified Annuity is owned by an
individual or non-natural person and is not associated with a tax-favored
retirement plan.
Taxes Payable by You
We believe the Annuity is an annuity contract for tax purposes. Accordingly,
as a general rule, you should not pay any tax until you receive money under
the contract. Generally, annuity contracts issued by the same company (and
affiliates) to you during the same calendar year must be treated as one
annuity contract for purposes of determining the amount subject to tax under
the rules described below. Charges for investment advisory fees that are taken
from the contract are treated as a partial withdrawal from the contract and
will be reported as such to the contract owner.
It is possible that the Internal Revenue Service (IRS) would assert that some
or all of the charges for the optional benefits under the contract should be
treated for federal income tax purposes as a partial withdrawal from the
contract. If this were the case, the charge for this benefit could be deemed a
withdrawal and treated as taxable to the extent there are earnings in the
contract. Additionally, for owners under age 59 1/2, the taxable income
attributable to the charge for the benefit could be subject to a tax penalty.
If the IRS determines that the charges for one or more benefits under the
contract are taxable withdrawals, then the sole or surviving owner will be
provided with a notice from us describing available alternatives regarding
these benefits.
You must commence annuity payments no later than the first day of the calendar
month next following the maximum Annuity date for your Contract. Please refer
to your Annuity Contract for the applicable maximum Annuity date. For some of
our contracts, you are able to choose to defer the Annuity Date beyond the
default Annuity date described in your Contract. However, the IRS may not then
consider your contract to be an annuity under the tax law.
Taxes on Withdrawals and Surrender
If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income,
rather than as return of purchase payments, until all gain has been withdrawn.
Once all gain has been withdrawn, payments will be treated as a nontaxable
return of purchase payments until all purchase payments have been returned.
After all purchase payments are returned, all subsequent amounts will be taxed
as ordinary income. You will generally be taxed on any withdrawals from the
contract while you are alive even if the withdrawal is paid to someone else.
Withdrawals under any of the optional living benefit programs or as a
systematic payment are taxed under these rules. If you assign or pledge all or
part of your contract as collateral for a loan, the part assigned generally
will be treated as a withdrawal. If you transfer your contract for less than
full consideration, such as by gift, you will also trigger tax on any gain in
the contract. This rule does not apply if you transfer the contract to your
spouse or under most circumstances if you transfer the contract incident to
divorce.
If you choose to receive payments under an interest payment option, or a
beneficiary chooses to receive a death benefit under an interest payment
option, that election will be treated, for tax purposes, as surrendering your
Annuity and will immediately subject any gain in the contract to income tax.
Taxes on Annuity Payments
A portion of each annuity payment you receive will be treated as a partial
return of your purchase payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the
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annuity payment you receive by a fraction, the numerator of which is your
purchase payments (less any amounts previously received tax-free) and the
denominator of which is the total expected payments under the contract. After
the full amount of your purchase payments have been recovered tax-free, the
full amount of the annuity payments will be taxable. If annuity payments stop
due to the death of the annuitant before the full amount of your purchase
payments have been recovered, a tax deduction may be allowed for the
unrecovered amount.
Tax Penalty for Early Withdrawal from a Nonqualified Annuity Contract
You may owe a 10% tax penalty on the taxable part of distributions received
from your Nonqualified Annuity contract before you attain age 59 1/2. Amounts
are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled;
.. generally the amount paid or received is in the form of substantially equal
payments not less frequently than annually (please note that substantially
equal payments must continue until the later of reaching age 59 1/2 or 5
years and modification of payments during that time period will result in
retroactive application of the 10% tax penalty); or
.. the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
Other exceptions to this tax may apply. You should consult your tax advisor
for further details.
Special Rules in Relation to Tax-free Exchanges Under Section 1035
Section 1035 of the Internal Revenue Code of 1986, as amended (Code), permits
certain tax-free exchanges of a life insurance, annuity or endowment contract
for an annuity. Partial surrenders may be treated in the same way as tax-free
1035 exchanges of entire contracts, therefore avoiding current taxation of any
gains in the contract as well as the 10% tax penalty on pre-age 59 1/2
withdrawals. The IRS has reserved the right to treat transactions it considers
abusive as ineligible for this favorable partial 1035 exchange treatment. In
Revenue Procedure 2008-24, the IRS has indicated that where there is a
surrender or distribution from either the initial annuity contract or
receiving annuity contract within 12 months of the date on which the partial
exchange was completed, the transfer will retroactively be treated as a
taxable distribution from the initial annuity contract and a contribution to
the receiving annuity contract. Tax free exchange treatment will be retained
if the subsequent surrender or distribution would be eligible for an exception
to the 10% federal income tax penalty, other than the exceptions for
substantially equal periodic payments or distributions under an immediate
annuity. It is unclear how the IRS will treat a partial exchange from a life
insurance, endowment, or annuity contract into an immediate annuity. As of the
date of this prospectus, we will accept a partial 1035 exchange from a
non-qualified annuity into an immediate annuity as a "tax-free" exchange for
future tax reporting purposes, except to the extent that we, as a reporting
and withholding agent, believe that we would be expected to deem the
transaction to be abusive. However, some insurance companies may not recognize
these partial surrenders as tax-free exchanges and may report them as taxable
distributions to the extent of any gain distributed as well as subjecting the
taxable portion of the distribution to the 10% tax penalty. We strongly urge
you to discuss any transaction of this type with your tax advisor before
proceeding with the transaction.
If an Annuity is purchased through a tax-free exchange of a life insurance,
annuity or endowment contract that was purchased prior to August 14, 1982,
then any purchase payments made to the original contract prior to August 14,
1982 will be treated as made to the new contract prior to that date.
Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of
your investment in the contract first until purchase payments made before
August 14, 1982 are withdrawn. Moreover, any income allocable to purchase
payments made before August 14, 1982, is not subject to the 10% tax penalty.
Taxes Payable by Beneficiaries
The Death Benefit options are subject to income tax to the extent the
distribution exceeds the cost basis in the contract. The value of the Death
Benefit, as determined under federal law, is also included in the owner's
estate. Generally, the same tax rules described above would also apply to
amounts received by your beneficiary. Choosing any option other than a lump
sum Death Benefit may defer taxes. Certain minimum distribution requirements
apply upon your death, as discussed further below in the Annuity Qualification
section. Tax consequences to the beneficiary vary depending upon the Death
Benefit payment option selected. Generally, for payment of the Death Benefit
.. As a lump sum payment: the beneficiary is taxed on gain in the contract.
.. Within 5 years of death of owner: the beneficiary is taxed as amounts are
withdrawn (in this case gain is treated as being distributed first).
.. Under an annuity or annuity settlement option with distribution beginning
within one year of the date of death of the owner: the beneficiary is taxed
on each payment (part will be treated as gain and part as return of
purchase payments).
Considerations for Contingent Annuitants: We may allow the naming of a
contingent annuitant when a Nonqualified Annuity contract is held by a pension
plan or a tax favored retirement plan. In such a situation, the Annuity may no
longer qualify for tax deferral where the Annuity contract continues after the
death of the Annuitant.
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Reporting and Withholding on Distributions
Taxable amounts distributed from an Annuity are subject to federal and state
income tax reporting and withholding. In general, we will withhold federal
income tax from the taxable portion of such distribution based on the type of
distribution. In the case of an annuity or similar periodic payment, we will
withhold as if you are a married individual with three (3) exemptions unless
you designate a different withholding status. If no U.S. taxpayer
identification number is provided, we will automatically withhold using single
with zero exemptions as the default. In the case of all other distributions,
we will withhold at a 10% rate. You may generally elect not to have tax
withheld from your payments. An election out of withholding must be made on
forms that we provide.
State income tax withholding rules vary and we will withhold based on the
rules of your State of residence. Special tax rules apply to withholding for
nonresident aliens, and we generally withhold income tax for nonresident
aliens at a 30% rate. A different withholding rate may be applicable to a
nonresident alien based on the terms of an existing income tax treaty between
the United States and the nonresident alien's country. Please refer to the
discussion below regarding withholding rules for a Qualified Annuity.
Regardless of the amount withheld by us, you are liable for payment of federal
and state income tax on the taxable portion of annuity distributions. You
should consult with your tax advisor regarding the payment of the correct
amount of these income taxes and potential liability if you fail to pay such
taxes.
Entity Owners
Where a contract is held by a non-natural person (e.g. a corporation), other
than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract over its cost basis will be subject to tax annually.
Where a contract is issued to a trust, and such trust is characterized as a
grantor trust under the Internal Revenue Code, such contract shall not be
considered to be held by a non-natural person and will generally be subject to
the tax reporting and withholding requirements for a Nonqualified Annuity.
Where a contract is structured so that it is owned by a grantor trust but the
annuitant is not the grantor, then the contract is required to terminate upon
the death of the grantor if the grantor pre-deceases the annuitant under
Section 72(s) of the Code. Under this circumstance, the contract value will be
paid out to the beneficiary and it is not eligible for the death benefit
provided under the contract.
Annuity Qualification
Diversification And Investor Control. In order to qualify for the tax rules
applicable to annuity contracts described above, the assets underlying the
Sub-accounts of an Annuity must be diversified, according to certain rules
under the Internal Revenue Code. Each portfolio is required to diversify its
investments each quarter so that no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. Generally, securities
of a single issuer are treated as one investment and obligations of each U.S.
Government agency and instrumentality (such as the Government National
Mortgage Association) are treated as issued by separate issuers. In addition,
any security issued, guaranteed or insured (to the extent so guaranteed or
insured) by the United States or an instrumentality of the U.S. will be
treated as a security issued by the U.S. Government or its instrumentality,
where applicable. We believe the portfolios underlying the variable investment
options of the Annuity meet these diversification requirements.
An additional requirement for qualification for the tax treatment described
above is that we, and not you as the contract owner, must have sufficient
control over the underlying assets to be treated as the owner of the
underlying assets for tax purposes. While we also believe these investor
control rules will be met, the Treasury Department may promulgate guidelines
under which a variable annuity will not be treated as an annuity for tax
purposes if persons with ownership rights have excessive control over the
investments underlying such variable annuity. It is unclear whether such
guidelines, if in fact promulgated, would have retroactive effect. It is also
unclear what effect, if any, such guidelines might have on transfers between
the investment options offered pursuant to this Prospectus. We reserve the
right to take any action, including modifications to your Annuity or the
investment options, required to comply with such guidelines if promulgated.
Any such changes will apply uniformly to affected owners and will be made with
such notice to affected owners as is feasible under the circumstances.
Required Distributions Upon Your Death for Nonqualified Annuity Contracts.
Upon your death, certain distributions must be made under the contract. The
required distributions depend on whether you die before you start taking
annuity payments under the contract or after you start taking annuity payments
under the contract. If you die on or after the Annuity Date, the remaining
portion of the interest in the contract must be distributed at least as
rapidly as under the method of distribution being used as of the date of
death. If you die before the Annuity Date, the entire interest in the contract
must be distributed within 5 years after the date of death, or as periodic
payments over a period not extending beyond the life or life expectancy of
such designated beneficiary
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(provided such payments begin within one year of your death). Your designated
beneficiary is the person to whom benefit rights under the contract pass by
reason of death, and must be a natural person in order to elect a periodic
payment option based on life expectancy or a period exceeding five years.
Additionally, if the Annuity is payable to (or for the benefit of) your
surviving spouse, that portion of the contract may be continued with your
spouse as the owner. For Nonqualified annuity contracts owned by a non-natural
person, the required distribution rules apply upon the death of the annuitant.
This means that for a contract held by a non-natural person (such as a trust)
for which there is named a co-annuitant, then such required distributions will
be triggered by the death of the first co-annuitants to die.
Changes In Your Annuity. We reserve the right to make any changes we deem
necessary to assure that your Annuity qualifies as an annuity contract for tax
purposes. Any such changes will apply to all contract owners and you will be
given notice to the extent feasible under the circumstances.
Qualified Annuity Contracts
In general, as used in this prospectus, a Qualified Annuity is an Annuity
contract with applicable endorsements for a tax-favored plan or a Nonqualified
Annuity contract held by a tax-favored retirement plan.
The following is a general discussion of the tax considerations for Qualified
Annuity contracts. This Annuity may or may not be available for all types of
the tax-favored retirement plans discussed below. This discussion assumes that
you have satisfied the eligibility requirements for any tax-favored retirement
plan. Please consult your Financial Professional prior to purchase to confirm
if this contract is available for a particular type of tax-favored retirement
plan or whether we will accept the type of contribution you intend for this
contract.
A Qualified annuity may typically be purchased for use in connection with:
.. Individual retirement accounts and annuities (IRAs) which are subject to
Sections 408(a) and 408(b) of the Code;
.. Roth IRAs under Section 408A of the Code;
.. A corporate Pension or Profit-sharing plan (subject to 401(a) of the Code);
.. H.R. 10 plans (also known as Keogh Plans, subject to 401(a) of the Code);
.. Tax Sheltered Annuities (subject to 403(b) of the Code, also known as Tax
Deferred Annuities or TDAs);
.. Section 457 plans (subject to 457 of the Code).
A Nonqualified annuity may also be purchased by a 401(a) trust, a 457 plan, a
custodial IRA or Roth IRA account, which can hold other permissible assets.
The terms and administration of the trust or custodial account or plan in
accordance with the laws and regulations for 401(a) plans, IRAs or Roth IRAs,
as applicable, are the responsibility of the applicable trustee or custodian.
You should be aware that tax favored plans such as IRAs generally provide
income tax deferral regardless of whether they invest in annuity contracts.
This means that when a tax favored plan invests in an annuity contract, it
generally does not result in any additional tax benefits (such as income tax
deferral and income tax free transfers).
Types of Tax-favored Plans
IRAs. If you buy an Annuity for use as an IRA, we will provide you a copy of
the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA
Disclosure Statement" which accompany the prospectus contain information about
eligibility, contribution limits, tax particulars, and other IRA information.
In addition to this information (some of which is summarized below), the IRS
requires that you have a "free look" after making an initial contribution to
the contract. During this time, you can cancel the Annuity by notifying us in
writing, and we will refund all of the purchase payments under the Annuity
(or, if provided by applicable state law, the amount credited under the
Annuity, if greater), less any applicable federal and state income tax
withholding.
Contributions Limits/Rollovers. Subject to the minimum purchase payment
requirements of an Annuity, you may purchase an Annuity for an IRA in
connection with a "rollover" of amounts from a qualified retirement plan, as a
transfer from another IRA, by making a single contribution consisting of your
IRA contributions and catch-up contributions, if applicable, attributable to
the prior year and the current year during the period from January 1 to
April 15, or as a current year contribution. In 2008 the contribution limit is
$5,000. After 2008 the contribution amount will be indexed for inflation. The
tax law also provides for a catch-up provision for individuals who are age 50
and above, allowing these individuals an additional $1,000 contribution each
year. The catch-up amount is not indexed for inflation.
The "rollover" rules under the Code are fairly technical; however, an
individual (or his or her surviving spouse) may generally "roll over" certain
distributions from tax favored retirement plans (either directly or within 60
days from the date of these distributions) if he or she meets the requirements
for distribution. Once you buy an Annuity, you can make regular IRA
contributions under the Annuity (to the extent permitted by law). However, if
you make such regular IRA contributions, you should note that you will not be
able to treat the contract as a "conduit IRA," which means that you will not
retain possible favorable tax treatment if you subsequently "roll over" the
contract funds originally derived from a qualified retirement plan or TDA into
another Section 401(a)
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plan or TDA. In some circumstances, non-spouse beneficiaries may directly roll
over to an IRA amounts due from qualified plans, 403(b) plans, and
governmental 457(b) plans.
Required Provisions. Contracts that are IRAs (or endorsements that are part of
the contract) must contain certain provisions:
.. You, as owner of the contract, must be the "annuitant" under the contract
(except in certain cases involving the division of property under a decree
of divorce);
.. Your rights as owner are non-forfeitable;
.. You cannot sell, assign or pledge the contract;
.. The annual contribution you pay cannot be greater than the maximum amount
allowed by law, including catch-up contributions if applicable (which does
not include any rollover amounts);
.. The date on which required minimum distributions must begin cannot be later
than April 1st of the calendar year after the calendar year you turn age
70 1/2; and
.. Death and annuity payments must meet "required minimum distribution" rules
described below.
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As
taxable income, these distributions are subject to the general tax withholding
rules described earlier regarding a Nonqualified Annuity. In addition to this
normal tax liability, you may also be liable for the following, depending on
your actions:
.. A 10% early withdrawal penalty described below;
.. Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
.. Failure to take a required minimum distribution, also described below.
SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP
must satisfy the same general requirements described under IRAs (above). There
are, however, some differences:
.. If you participate in a SEP, you generally do not include in income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $46,000 in 2008 ($45,000 in 2007) or (b) 25% of your taxable
compensation paid by the contributing employer (not including the
employer's SEP contribution as compensation for these purposes). However,
for these purposes, compensation in excess of certain limits established by
the IRS will not be considered. In 2008, this limit is $230,000 ($225,000
for 2007);
.. SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
.. SEPs that contain a salary reduction or "SARSEP" provision prior to 1997
may permit salary deferrals up to $15,500 in 2008 with the employer making
these contributions to the SEP. However, no new "salary reduction" or
"SARSEPs" can be established after 1996. Individuals participating in a
SARSEP who are age 50 or above by the end of the year will be permitted to
contribute an additional $5,000 in 2008. These amounts are indexed for
inflation. These Annuities are not available for SARSEPs. You will also be
provided the same information, and have the same "free look" period, as you
would have if you purchased the contract for a standard IRA.
ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about
eligibility, contribution limits, tax particulars and other Roth IRA
information. Like standard IRAs, income within a Roth IRA accumulates
tax-free, and contributions are subject to specific limits. Roth IRAs have,
however, the following differences:
.. Contributions to a Roth IRA cannot be deducted from your gross income;
.. "Qualified distributions" from a Roth IRA are excludable from gross income.
A "qualified distribution" is a distribution that satisfies two
requirements: (1) the distribution must be made (a) after the owner of the
IRA attains age 59 1/2; (b) after the owner's death; (c) due to the owner's
disability; or (d) for a qualified first time homebuyer distribution within
the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution
must be made in the year that is at least five tax years after the first
year for which a contribution was made to any Roth IRA established for the
owner or five years after a rollover, transfer, or conversion was made from
a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not
qualified distributions will be treated as made first from contributions
and then from earnings and earnings will be taxed generally in the same
manner as distributions from a traditional IRA.
.. If eligible (including meeting income limitations and earnings
requirements), you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Subject to the minimum purchase payment requirements of an Annuity, if you
meet certain income limitations you may purchase an Annuity for a Roth IRA in
connection with a "rollover" of amounts of another traditional IRA, conduit
IRA, SEP, SIMPLE-IRA or Roth IRA by making a single contribution consisting of
your Roth IRA contributions and catch-up contributions, if applicable,
attributable to the prior year and the current year during the period from
January 1 to April 15 of the current year, or with a current contribution. The
Code permits persons who meet certain income limitations (generally, adjusted
gross income under $100,000) who are not married filing a separate return and
who receive certain qualifying distributions from such non-Roth IRAs, to
directly rollover or make, within 60 days, a "rollover" of all or any part of
the amount of such distribution to a Roth IRA which they establish. Beginning
January 2008, an individual receiving an eligible rollover distribution from
an employer sponsored retirement plan under sections 401(a) or 403(b) of the
Code can directly roll over contributions to a Roth IRA, subject to the same
income limits. This conversion triggers current taxation (but is not subject
to a 10% early distribution penalty). Once an Annuity has been
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purchased, regular Roth IRA contributions will be accepted to the extent
permitted by law. In addition, an individual receiving an eligible rollover
distribution from a designated Roth account under an employer plan may roll
over the distribution to a Roth IRA even if the individual is not eligible to
make regular contributions to a Roth IRA. Until 2010, participants with an
adjusted gross income greater than $100,000 are not permitted to roll over
funds from an employer plan, including a Roth 401(k) distribution, to a Roth
IRA.
TDAs. You may own a Tax Deferred Annuity (also known as a TDA, Tax Sheltered
Annuity (TSA), 403(b) plan or 403(b) annuity) generally if you are either an
employer or employee of a tax-exempt organization (as defined under Code
Section 501(c)(3)) or a public educational organization, and you may make
contributions to a TDA so long as your rights (or your employee's rights) to
the annuity are nonforfeitable. Contributions to a TDA, and any earnings, are
not taxable until distribution. You may also make contributions to a TDA under
a salary reduction agreement, generally up to a maximum of $15,500 in 2008.
Individuals participating in a TDA who are age 50 or above by the end of the
year will be permitted to contribute an additional $5,000 in 2008. This amount
is indexed for inflation. Further, you may roll over TDA amounts to another
TDA or an IRA. You may also roll over TDA amounts to a qualified retirement
plan, a SEP and a 457 government plan. A contract may generally only qualify
as a TDA if distributions of salary deferrals (other than "grandfathered"
amounts held as of December 31, 1988) may be made only on account of:
.. Your attainment of age 59 1/2;
.. Your severance of employment;
.. Your death;
.. Your total and permanent disability; or
.. Hardship (under limited circumstances, and only related to salary
deferrals, not including earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by
April 1st of the calendar year after the calendar year you turn age 70 1/2 or
retire, whichever is later. These distribution limits do not apply either to
transfers or exchanges of investments under the contract, or to any "direct
transfer" of your interest in the contract to another TDA or to a mutual fund
"custodial account" described under Code Section 403(b)(7). Employer
contributions to TDAs are subject to the same general contribution,
nondiscrimination, and minimum participation rules applicable to "qualified"
retirement plans.
Final regulations related to 403(b) contracts were issued in 2007. Under these
final regulations certain contract exchanges may be accepted only if the
employer and the issuer have entered into the required information sharing
agreements. Such agreements must be in place by January 1, 2009. We do not
currently accept transfers of funds under 403(b) contracts. Funds can only be
added to the contract as a current salary deferral under an agreement with
your employer or as a direct rollover from another employer plan. We intend to
begin accepting such transfers in the future when we can comply with the new
regulations.
Required Minimum Distributions and Payment Options
If you hold the contract under an IRA (or other tax-favored plan), required
minimum distribution rules must be satisfied. This means that generally
payments must start by April 1 of the year after the year you reach age 70 1/2
and must be made for each year thereafter. For a TDA or a 401(a) plan for
which the participant is not a greater than 5% owner of the employer, this
required beginning date can generally be deferred to retirement, if later.
Roth IRAs are not subject to these rules during the Owner's lifetime. The
amount of the payment must at least equal the minimum required under the IRS
rules. Several choices are available for calculating the minimum amount. More
information on the mechanics of this calculation is available on request.
Please contact us at a reasonable time before the IRS deadline so that a
timely distribution is made. Please note that there is a 50% tax penalty on
the amount of any required minimum distribution not made in a timely manner.
Required minimum distributions are calculated based on the sum of the Account
Value and the actuarial value of any additional death benefits and benefits
from optional riders that you have purchased under the contract. As a result,
the required minimum distributions may be larger than if the calculation were
based on the Account Value only, which may in turn result in an earlier (but
not before the required beginning date) distribution of amounts under the
Annuity and an increased amount of taxable income distributed to the Annuity
owner, and a reduction of death benefits and the benefits of any optional
riders.
You can use the Minimum Distribution option to satisfy the required minimum
distribution rules for an Annuity without either beginning annuity payments or
surrendering the Annuity. We will distribute to you the required minimum
distribution amount, less any other partial withdrawals that you made during
the year. Such amount will be based on the value of the contract as of
December 31 of the prior year, but is determined without regard to other
contracts you may own.
Although the IRS rules determine the required amount to be distributed from
your IRA each year, certain payment alternatives are still available to you.
If you own more than one IRA, you can choose to satisfy your minimum
distribution requirement for each of your IRAs by withdrawing that amount from
any of your IRAs. If you inherit more than one IRA or more than one Roth IRA
from the same owner, similar rules apply.
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Required Distributions Upon Your Death for Qualified Annuity Contracts
Upon your death under an IRA, Roth IRA, 403(b) or other employer sponsored
plan, the designated beneficiary may generally elect to continue the contract
and receive required minimum distributions under the contract instead of
receiving the death benefit in a single payment. The available payment options
will depend on whether you die before the date required minimum distributions
under the Code were to begin, whether you have named a designated beneficiary
and whether that beneficiary is your surviving spouse.
.. If you die after a designated beneficiary has been named, the death benefit
must be distributed by December 31/st/ of the year including the five year
anniversary of the date of death, or as periodic payments not extending
beyond the life or life expectancy of the designated beneficiary (as long
as payments begin by December 31/st/ of the year following the year of
death). However, if your surviving spouse is the beneficiary, the death
benefit can be paid out over the life or life expectancy of your spouse
with such payments beginning no later than December 31/st/ of the year
following the year of death or December 31/st/ of the year in which you
would have reached age 70 1/2, which ever is later. Additionally, if the
contract is payable to (or for the benefit of) your surviving spouse, that
portion of the contract may be continued with your spouse as the owner.
.. If you die before a designated beneficiary is named and before the date
required minimum distributions must begin under the Code, the death benefit
must be paid out by December 31st of the year including the five year
anniversary of the date of death. For contracts where multiple
beneficiaries have been named and at least one of the beneficiaries does
not qualify as a designated beneficiary and the account has not been
divided into separate accounts by December 31st of the year following the
year of death, such contract is deemed to have no designated beneficiary. A
designated beneficiary may elect to apply the rules for no designated
beneficiary if those would provide a smaller payment requirement.
.. If you die before a designated beneficiary is named and after the date
required minimum distributions must begin under the Code, the death benefit
must be paid out at least as rapidly as under the method then in effect.
For contracts where multiple beneficiaries have been named and at least one
of the beneficiaries does not qualify as a designated beneficiary and the
account has not been divided into separate accounts by December 31st of the
year following the year of death, such contract is deemed to have no
designated beneficiary. A designated beneficiary may elect to apply the
rules for no designated beneficiary if those would provide a smaller
payment requirement.
A beneficiary has the flexibility to take out more each year than mandated
under the required minimum distribution rules.
Until withdrawn, amounts in a Qualified Annuity contract continue to be tax
deferred. Amounts withdrawn each year, including amounts that are required to
be withdrawn under the required minimum distribution rules, are subject to
tax. You may wish to consult a professional tax advisor for tax advice as to
your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
death benefit must be distributed under the same rules applied to IRAs where
death occurs before the date required minimum distributions must begin under
the Code.
Tax Penalty for Early Withdrawals from Qualified Annuity Contracts
You may owe a 10% tax penalty on the taxable part of distributions received
from an IRA, SEP, Roth IRA, TDA or qualified retirement plan before you attain
age 59 1/2. Amounts are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled; or
.. generally the amount paid or received is in the form of substantially equal
payments not less frequently than annually. (Please note that substantially
equal payments must continue until the later of reaching age 59 1/2 or 5
years. Modification of payments during that time period will result in
retroactive application of the 10% tax penalty.)
Other exceptions to this tax may apply. You should consult your tax advisor
for further details.
Withholding
We will withhold federal income tax at the rate of 20% for any eligible
rollover distribution paid by us to or for a plan participant, unless such
distribution is "directly" rolled over into another qualified plan, IRA
(including the IRA variations described above), SEP, 457 government plan or
TDA. An eligible rollover distribution is defined under the tax law as a
distribution from an employer plan under 401(a), a TDA or a 457 governmental
plan, excluding any distribution that is part of a series of substantially
equal payments (at least annually) made over the life expectancy of the
employee or the joint life expectancies of the employee and his designated
beneficiary, any distribution made for a specified period of 10 years or more,
any distribution that is a required minimum distribution and any hardship
distribution. Regulations also specify certain other items which are not
considered eligible rollover distributions. For all other distributions,
unless you elect otherwise, we will withhold federal income tax from the
taxable portion of such distribution at an appropriate percentage. The rate of
withholding on annuity payments where no mandatory withholding is required is
determined on the basis of the withholding certificate that you file with us.
If you do not file a certificate, we will automatically withhold federal taxes
on the following basis:
.. For any annuity payments not subject to mandatory withholding, you will
have taxes withheld by us as if you are a married individual, with 3
exemptions. If no U.S. taxpayer identification number is provided, we will
automatically withhold using single with zero exemptions as the default; and
.. For all other distributions, we will withhold at a 10% rate.
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We will provide you with forms and instructions concerning the right to elect
that no amount be withheld from payments in the ordinary course. However, you
should know that, in any event, you are liable for payment of federal income
taxes on the taxable portion of the distributions, and you should consult with
your tax advisor to find out more information on your potential liability if
you fail to pay such taxes. There may be additional state income tax
withholding requirements.
ERISA Requirements
ERISA (the "Employee Retirement Income Security Act of 1974") and the Code
prevent a fiduciary and other "parties in interest" with respect to a plan
(and, for these purposes, an IRA would also constitute a "plan") from
receiving any benefit from any party dealing with the plan, as a result of the
sale of the contract. Administrative exemptions under ERISA generally permit
the sale of insurance/annuity products to plans, provided that certain
information is disclosed to the person purchasing the contract. This
information has to do primarily with the fees, charges, discounts and other
costs related to the contract, as well as any commissions paid to any agent
selling the contract. Information about any applicable fees, charges,
discounts, penalties or adjustments may be found in the applicable sections of
this Prospectus. Information about sales representatives and commissions may
be found in the sections of this Prospectus addressing distribution of the
Annuities.
Other relevant information required by the exemptions is contained in the
contract and accompanying documentation.
Please consult with your tax advisor if you have any questions about ERISA and
these disclosure requirements.
Spousal Consent Rules for Retirement Plans - Qualified Contracts
If you are married at the time your payments commence, you may be required by
federal law to choose an income option that provides survivor annuity income
to your spouse, unless your spouse waives that right. Similarly, if you are
married at the time of your death, federal law may require all or a portion of
the Death Benefit to be paid to your spouse, even if you designated someone
else as your beneficiary. A brief explanation of the applicable rules follows.
For more information, consult the terms of your retirement arrangement.
Defined Benefit Plans and Money Purchase Pension Plans. If you are married at
the time your payments commence, federal law requires that benefits be paid to
you in the form of a "qualified joint and survivor annuity" (QJSA), unless you
and your spouse waive that right, in writing. Generally, this means that you
will receive a reduced payment during your life and, upon your death, your
spouse will receive at least one-half of what you were receiving for life. You
may elect to receive another income option if your spouse consents to the
election and waives his or her right to receive the QJSA. If your spouse
consents to the alternative form of payment, your spouse may not receive any
benefits from the plan upon your death. Federal law also requires that the
plan pay a Death Benefit to your spouse if you are married and die before you
begin receiving your benefit. This benefit must be available in the form of an
annuity for your spouse's lifetime and is called a "qualified pre-retirement
survivor annuity" (QPSA). If the plan pays Death Benefits to other
beneficiaries, you may elect to have a beneficiary other than your spouse
receive the Death Benefit, but only if your spouse consents to the election
and waives his or her right to receive the QPSA. If your spouse consents to
the alternate beneficiary, your spouse will receive no benefits from the plan
upon your death. Any QPSA waiver prior to your attaining age 35 will become
null and void on the first day of the calendar year in which you attain age
35, if still employed.
Defined Contribution Plans (including 401(k) Plans and ERISA 403(b)
Annuities). Spousal consent to a distribution is generally not required. Upon
your death, your spouse will receive the entire Death Benefit, even if you
designated someone else as your beneficiary, unless your spouse consents in
writing to waive this right. Also, if you are married and elect an annuity as
a periodic income option, federal law requires that you receive a QJSA (as
described above), unless you and your spouse consent to waive this right.
IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a
distribution usually is not required. Upon your death, any Death Benefit will
be paid to your designated beneficiary.
Additional Information
For additional information about federal tax law requirements applicable to
IRAs and Roth IRAs, see the IRA Disclosure Statement or Roth IRA Disclosure
Statement, as applicable.
Generation-skipping Transfers
If you transfer your contract to a person two or more generations younger than
you (such as a grandchild or grandniece) or to a person that is more than
37 1/2 years younger than you, there may be generation-skipping transfer tax
consequences.
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GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to
you at your last known address of record. You should therefore give us prompt
notice of any address change. We reserve the right, to the extent permitted by
law and subject to your prior consent, to provide any prospectus, prospectus
supplements, confirmations, statements and reports required by applicable law
or regulation to you through our Internet Website at
www.prudentialannuities.com or any other electronic means, including diskettes
or CD ROMs. We send a confirmation statement to you each time a transaction is
made affecting Account Value, such as making additional Purchase Payments,
transfers, exchanges or withdrawals. We may also send quarterly statements
detailing the activity affecting your Annuity during the calendar quarter. We
may confirm regularly scheduled transactions, including, but not limited to,
the Annual Maintenance Fee, Systematic Withdrawals (including 72(t) payments
and required minimum distributions), electronic funds transfer, Dollar Cost
Averaging, and static rebalancing, in quarterly statements instead of
confirming them immediately. You should review the information in these
statements carefully. You may request additional reports. We reserve the right
to charge up to $50 for each such additional report. We may also send an
annual report and a semi-annual report containing applicable financial
statements for the Separate Account and the Portfolios, as of December 31 and
June 30, respectively, to Owners or, with your prior consent, make such
documents available electronically through our Internet Website or other
electronic means.
WHO IS PRUDENTIAL ANNUITIES?
Prudential Annuities Life Assurance Corporation, a Prudential Financial
Company, ("Prudential Annuities") is a stock life insurance company
incorporated under the laws of the State of Connecticut on July 26, 1988 and
is domiciled in Connecticut with licenses in all 50 states, the District of
Columbia and Puerto Rico. Prudential Annuities is a wholly-owned subsidiary of
Prudential Annuities, Inc., whose ultimate parent is Prudential Financial,
Inc. Prudential Annuities markets its products to broker-dealers and financial
planners through an internal field marketing staff. In addition, Prudential
Annuities markets through and in conjunction with financial institutions such
as banks that are permitted directly, or through affiliates, to sell annuities.
Prudential Annuities offers a wide array of annuities, including (1) deferred
variable annuities that are registered with the SEC, including fixed interest
rate annuities that are offered as a companion to certain of our variable
annuities and are registered because of their market value adjustment feature
and (2) fixed annuities that are not registered with the SEC. In addition,
Prudential Annuities has in force a relatively small block of variable life
insurance policies and immediate variable annuities, but it no longer actively
sells such policies.
No company other than Prudential Annuities has any legal responsibility to pay
amounts that it owes under its annuity and variable life insurance contracts.
However, Prudential Financial exercises significant influence over the
operations and capital structure of Prudential Annuities.
Prudential Annuities conducts the bulk of its operations through staff
employed by it or by affiliated companies within the Prudential Financial
family. Certain discrete functions have been delegated to non-affiliates that
could be deemed "service providers" under the Investment Company Act of 1940.
The entities engaged by Prudential Annuities may change over time. As of
December 31, 2007, non-affiliated entities that could be deemed service
providers to Prudential Annuities and/or another insurer within the Prudential
Annuities business unit consisted of the following: ADP (proxy tabulation
services) located at 100 Burma Road Jersey City, New Jersey 07305,
Alliance-One Services Inc. (administration of variable life policies) located
at 55 Hartland Street East Hartford CT 06108, BISYS Retirement Services
(qualified plan administrator) located at 200 Dryden Road, Dresher, PA 19025,
Blue Frog Solutions, Inc. (order entry systems provider) located at 555 SW
12th Ave, Suite 202 Pompano Beach, FL 33069, EBIX Inc. (order-entry system)
located at 5 Concourse Parkway Suite 3200 Atlanta, GA 30328, Diversified
Information Technologies Inc. (records management) located at 123 Wyoming Ave
Scranton, PA 18503, Fosdick Fulfillment Corp. (fulfillment of prospectuses and
marketing materials) located at 26 Barnes Industrial Park Road North
Wallingford, CT 06492, Insurance Technologies (annuity illustrations) located
at Two South Cascade Avenue, Suite 200 Colorado Springs, CO 80903, Lason
Systems Inc. (contract printing and mailing) located at 1305 Stephenson
Highway Troy, MI 48083, Morningstar Associates LLC (asset allocation
recommendations) located at 225 West Wacker Drive Chicago, IL 60606, Pershing
LLC (order-entry systems provider) located at One Pershing Plaza Jersey City,
NJ 07399, Personix (printing and fulfillment of confirmations and client
statements) located at 13100 North Promenade Boulevard Stafford, TX 77477, RR
Donnelley Receivables Inc. (printing annual reports and prospectuses) located
at 111 South Wacker Drive Chicago, IL 60606-4301, Stanton Group (qualified
plan administrator) located at Two Pine Tree Drive Suite 400 Arden Hills, MN
55112 Attention: Alerus Retirement Solutions, State Street (accumulation unit
value calculations) located at State Street Financial Center One Lincoln
Street Boston, Massachusetts 02111, The Harty Press, Inc. (printing and
fulfillment of marketing materials) located at 25 James Street New Haven, CT
06513, VG Reed & Sons Inc. (printing and fulfillment of annual reports)
located at 1002 South 12/th/ Street Louisville, KY 40210, William B. Meyer
(printing and fulfillment of prospectuses and marketing materials) located at
255 Long Beach Boulevard Stratford, CT 06615.
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WHAT ARE SEPARATE ACCOUNTS?
The separate accounts are where Prudential Annuities sets aside and invests
the assets of some of our annuities. In the accumulation period, assets
supporting Account Values of the Annuities are held in a separate account
established under the laws of the State of Connecticut. We are the legal owner
of assets in the separate accounts. In the payout period, assets supporting
fixed annuity payments and any adjustable annuity payments we make available
are held in our general account. Assets supporting variable annuity payment
options may be invested in our separate accounts. Income, gains and losses
from assets allocated to these separate accounts are credited to or charged
against each such separate account without regard to other income, gains or
losses of Prudential Annuities or of any other of our separate accounts. These
assets may only be charged with liabilities which arise from the Annuities
issued by Prudential Annuities. The amount of our obligation in relation to
allocations to the Sub-accounts is based on the investment performance of such
Sub-accounts. However, the obligations themselves are our general corporate
obligations.
Separate Account B
During the accumulation period, the assets supporting obligations based on
allocations to the Sub-accounts are held in Sub-accounts of Prudential
Annuities Life Assurance Corporation Variable Account B, also referred to as
"Separate Account B".
Separate Account B was established by us pursuant to Connecticut law on
November 25, 1987. Separate Account B also holds assets of other annuities
issued by us with values and benefits that vary according to the investment
performance of Separate Account B.
Separate Account B consists of multiple Sub-accounts. Each Sub-account invests
only in a single mutual fund or mutual fund portfolio. The name of each
Sub-account generally corresponds to the name of the underlying Portfolio.
Each Sub-account in Separate Account B may have several different Unit Prices
to reflect the Insurance Charge, and the charges for any optional benefits
that are offered under the Annuities issued by us through Separate Account B.
Separate Account B is registered with the SEC under the Investment Company Act
of 1940 ("Investment Company Act") as a unit investment trust, which is a type
of investment company. The SEC does not supervise investment policies,
management or practices of Separate Account B.
We reserve the right to make changes to the Sub-accounts available under the
Annuities as we determine appropriate. We may offer new Sub-accounts,
eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may
also close Sub-accounts to additional Purchase Payments on existing Annuities
or close Sub-accounts for Annuities purchased on or after specified dates. We
may also substitute an underlying mutual fund or portfolio of an underlying
mutual fund for another underlying mutual fund or portfolio of an underlying
mutual fund, subject to our receipt of any exemptive relief that we are
required to obtain under the Investment Company Act. We will notify Owners of
changes we make to the Sub-accounts available under their Annuity.
Values and benefits based on allocations to the Sub-accounts will vary with
the investment performance of the underlying mutual funds or fund portfolios,
as applicable. We do not guarantee the investment results of any Sub-account.
Your Account Value allocated to the Sub-accounts may increase or decrease. You
bear the entire investment risk. There is no assurance that the Account Value
of your Annuity will equal or be greater than the total of the Purchase
Payments you make to us.
Separate Account D
During the accumulation period, assets supporting our obligations based on
Fixed Allocations are held in Prudential Annuities Life Assurance Corporation
Separate Account D, also referred to as "Separate Account D". Such obligations
are based on the fixed interest rates we credit to Fixed Allocations and the
terms of the Annuities. These obligations do not depend on the investment
performance of the assets in Separate Account D. Separate Account D was
established by us pursuant to Connecticut law.
There are no units in Separate Account D. The Fixed Allocations are guaranteed
by our general account. An Annuity Owner who allocates a portion of their
Account Value to Separate Account D does not participate in the investment
gain or loss on assets maintained in Separate Account D. Such gain or loss
accrues solely to us. We retain the risk that the value of the assets in
Separate Account D may drop below the reserves and other liabilities we must
maintain. Should the value of the assets in Separate Account D drop below the
reserve and other liabilities we must maintain in relation to the annuities
supported by such assets, we will transfer assets from our general account to
Separate Account D to make up the difference. We have the right to transfer to
our general account any assets of Separate Account D in excess of such
reserves and other liabilities. We maintain assets in Separate Account D
supporting a number of annuities we offer.
We may employ investment managers to manage the assets maintained in Separate
Account D. Each manager we employ is responsible for investment management of
a different portion of Separate Account D. From time to time additional
investment managers may be employed or investment managers may cease being
employed. We are under no obligation to employ or continue to employ any
investment manager(s) and have sole discretion over the investment managers we
retain.
We are not obligated to invest according to specific guidelines or strategies
except as may be required by Connecticut and other state insurance laws.
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WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment
company under the Investment Company Act. Shares of the underlying mutual fund
portfolios are sold to separate accounts of life insurance companies offering
variable annuity and variable life insurance products. The shares may also be
sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which
the Sub-accounts invest. However, under SEC rules, you have voting rights in
relation to Account Value maintained in the Sub-accounts. If an underlying
mutual fund portfolio requests a vote of shareholders, we will vote our shares
based on instructions received from Owners with Account Value allocated to
that Sub-account. Owners have the right to vote an amount equal to the number
of shares attributable to their contracts. If we do not receive voting
instructions in relation to certain shares, we will vote those shares in the
same manner and proportion as the shares for which we have received
instructions. This voting procedure is sometimes referred to as "mirror
voting" because, as indicated in the immediately preceding sentence, we mirror
the votes that are actually cast, rather than decide on our own how to vote.
In addition, because all the shares of a given mutual fund held within our
separate account are legally owned by us, we intend to vote all of such shares
when that underlying fund seeks a vote of its shareholders. As such, all such
shares will be counted towards whether there is a quorum at the underlying
fund's shareholder meeting and towards the ultimate outcome of the vote. Thus,
under "mirror voting," it is possible that the votes of a small percentage of
contractholders who actually vote will determine the ultimate outcome. We will
furnish those Owners who have Account Value allocated to a Sub-account whose
underlying mutual fund portfolio has requested a "proxy" vote with proxy
materials and the necessary forms to provide us with their voting
instructions. Generally, you will be asked to provide instructions for us to
vote on matters such as changes in a fundamental investment strategy, adoption
of a new investment advisory agreement, or matters relating to the structure
of the underlying mutual fund that require a vote of shareholders.
Advanced Series Trust (the "Trust") has obtained an exemption from the
Securities and Exchange Commission that permits its co-investment advisers,
AST Investment Services, Inc. and Prudential Investments LLC, subject to
approval by the Board of Trustees of the Trust, to change sub-advisors for a
Portfolio and to enter into new sub-advisory agreements, without obtaining
shareholder approval of the changes. This exemption (which is similar to
exemptions granted to other investment companies that are organized in a
similar manner as the Trust) is intended to facilitate the efficient
supervision and management of the sub-advisors by AST Investment Services,
Inc., Prudential Investments LLC and the Trustees. The Trust is required,
under the terms of the exemption, to provide certain information to
shareholders following these types of changes. We may add new Sub-accounts
that invest in a series of underlying funds other than the Trust that is
managed by an affiliate. Such series of funds may have a similar order from
the SEC. You also should review the prospectuses for the other underlying
funds in which various Sub-accounts invest as to whether they have obtained
similar orders from the SEC.
Material Conflicts
It is possible that differences may occur between companies that offer shares
of an underlying mutual fund portfolio to their respective separate accounts
issuing variable annuities and/or variable life insurance products.
Differences may also occur surrounding the offering of an underlying mutual
fund portfolio to variable life insurance policies and variable annuity
contracts that we offer. Under certain circumstances, these differences could
be considered "material conflicts," in which case we would take necessary
action to protect persons with voting rights under our variable annuity
contracts and variable life insurance policies against persons with voting
rights under other insurance companies' variable insurance products. If a
"material conflict" were to arise between owners of variable annuity contracts
and variable life insurance policies issued by us we would take necessary
action to treat such persons equitably in resolving the conflict. "Material
conflicts" could arise due to differences in voting instructions between
owners of variable life insurance and variable annuity contracts of the same
or different companies. We monitor any potential conflicts that may exist.
Service Fees Payable to Prudential Annuities
Prudential Annuities or our affiliates have entered into agreements with the
investment adviser or distributor of the underlying Portfolios. Under the
terms of these agreements, Prudential Annuities, or our affiliates may provide
administrative and support services to the Portfolios for which it receives a
fee of up to 0.75% (currently) of the average assets allocated to the
Portfolios under each Annuity from the investment adviser, distributor and/or
the fund. These agreements may be different for each underlying mutual fund
whose portfolios are offered as Sub-accounts.
In addition, an investment adviser, sub-adviser or distributor of the
underlying Portfolios may also compensate us by providing reimbursement,
defraying the costs of, or paying directly for, among other things, marketing
and/or administrative services and/or other services they provide in
connection with the Annuity. These services may include, but are not limited
to: sponsoring or co-sponsoring various promotional, educational or marketing
meetings and seminars attended by distributors, wholesalers, and/or broker
dealer firms' registered representatives, and creating marketing material
discussing the contract, available options, and underlying Portfolios. The
amounts paid depend on the nature of the meetings, the number of meetings
attended by the adviser, sub-adviser, or distributor, the number of
participants and attendees at the meetings, the costs expected to be incurred,
and the level of the adviser's, sub-adviser's or distributor's participation.
These payments or reimbursements may not be offered by all advisers,
sub-advisers, or distributor and the amounts of such payments may vary between
and among each adviser, sub-adviser and distributor depending on their
respective participation.
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During 2007, with regard to amounts that were paid under these kinds of
arrangements, the amounts ranged from approximately $750 to approximately
$981,102. These amounts may have been paid to one or more
Prudential-affiliated insurers issuing individual variable annuities.
WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES?
Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of
Prudential Annuities, Inc., is the distributor and principal underwriter of
the Annuities offered through this prospectus. PAD acts as the distributor of
a number of annuity and life insurance products, and is the co-distributor of
the Advanced Series Trust. PAD's principal business address is One Corporate
Drive, Shelton, Connecticut 06484. PAD is registered as a broker-dealer under
the Securities Exchange Act of 1934 (Exchange Act), and is a member of the
Financial Industry Regulatory Authority (FINRA).
Each Annuity is offered on a continuous basis. PAD enters into distribution
agreements with broker-dealers who are registered under the Exchange Act and
with entities that may offer the Annuities but are exempt from registration
("firms"). Applications for each Annuity are solicited by registered
representatives of those firms. Such representatives will also be our
appointed insurance agents under state insurance law. In addition, PAD may
offer the Annuities directly to potential purchasers.
Prudential Annuities sells its annuity products through multiple distribution
channels, including (1) independent broker-dealer firms and financial
planners; (2) broker-dealers that are members of the New York Stock Exchange,
including "wirehouse" and regional broker-dealer firms; and (3) broker-dealers
affiliated with banks or that specialize in marketing to customers of banks.
Although we are active in each of those distribution channels, the majority of
our sales have come from the independent broker-dealer firms and financial
planners. On June 1, 2006, The Prudential Insurance Company of America, an
affiliate of Prudential Annuities, acquired the variable annuity business of
The Allstate Corporation ("Allstate"), which included exclusive access to the
Allstate affiliated broker-dealer. We began selling variable annuities through
the Allstate affiliated broker-dealer registered representatives in the third
quarter of 2006.
Commissions are paid to firms on sales of the Annuities according to one or
more schedules. The individual representative will receive a portion of the
compensation, depending on the practice of his or her firm. Commissions are
generally based on a percentage of Purchase Payments made, up to a maximum of
6.0%. Alternative compensation schedules are available that provide a lower
initial commission plus ongoing annual compensation based on all or a portion
of the Account Value. We may also provide compensation to the distributing
firm for providing ongoing service to you in relation to your Annuity.
Commissions and other compensation paid in relation to your Annuity do not
result in any additional charge to you or to the Separate Account.
In addition, in an effort to promote the sale of our products (which may
include the placement of Prudential Annuities and/or the Annuities on a
preferred or recommended company or product list and/or access to the firm's
registered representatives), we or PAD may enter into compensation
arrangements with certain broker-dealer firms with respect to certain or all
registered representatives of such firms under which such firms may receive
separate compensation or reimbursement for, among other things, training of
sales personnel and/or marketing and/or administrative services and/or other
services they provide. These services may include, but are not limited to:
educating customers of the firm on the Annuity's' features; conducting due
diligence and analysis, providing office access, operations and systems
support; holding seminars intended to educate the firm's registered
representatives and make them more knowledgeable about the Annuities;
providing a dedicated marketing coordinator; providing priority sales desk
support; and providing expedited marketing compliance approval. To the extent
permitted by FINRA rules and other applicable laws and regulations, PAD may
pay or allow other promotional incentives or payments in the form of cash or
non-cash compensation. These arrangements may not be offered to all firms and
the terms of such arrangements may differ between firms. A list of the firms
to whom Prudential Annuities pays an amount of greater than $10,000 under
these arrangements is provided below, which is available upon request. You
should note that firms and individual registered representatives and branch
managers within some firms participating in one of these compensation
arrangements might receive greater compensation for selling the Annuities than
for selling a different annuity that is not eligible for these compensation
arrangements. While compensation is generally taken into account as an expense
in considering the charges applicable to an annuity product, any such
compensation will be paid by us or PAD and will not result in any additional
charge to you. Overall compensation paid to the distributing firm does not
exceed, based on actuarial assumptions, 8.5% of the total Purchase Payments
made. Your registered representative can provide you with more information
about the compensation arrangements that apply upon the sale of the Annuity.
Further information about the firms that are part of these compensation
arrangements appears in the Statement of Additional Information, which is
available without charge upon request.
We or PAD also may compensate third-party vendors, for services that such
vendors render to broker-dealer firms. To the extent permitted by the FINRA
rules and other applicable laws and regulations, PAD may pay or allow other
promotional incentives or payments in the forms of cash or non-cash
compensation. These arrangements may not be offered to all firms and the terms
of such arrangements may differ between firms.
The list below identifies three general types of payments that PAD pays which
are broadly defined as follows:
.. Percentage Payments based upon "Assets under Management" or "AUM": This
type of payment is a percentage payment that is based upon the total amount
held in all Prudential Annuities products that were sold through the firm.
116
.. Percentage Payments based upon sales: This type of payment is a percentage
payment that is based upon the total amount of money received as purchase
payments under Prudential Annuities annuity products sold through the firm.
.. Fixed Payments: These types of payments are made directly to or in
sponsorship of the firm (or its affiliated broker-dealers). Examples of
arrangements under which such payments may be made currently include, but
are not limited to: sponsorships, conferences (national, regional and top
producer), speaker fees, promotional items and reimbursements to firms for
marketing activities or services paid by the firms and/or their individual
representatives. The amount of these payments varies widely because some
payments may encompass only a single event, such as a conference, and
others have a much broader scope. In addition, we may make payments upon
the initiation of a relationship for systems, operational and other support.
The list below includes the names of the firms (or their affiliated
broker/dealers) that we are aware (as of December 31, 2007) received payment
with respect to annuity business during 2007 (or as to which a payment amount
was accrued during 2007). The firms listed below include payments in
connection with products issued by Prudential Annuities Life Assurance
Corporation. Your registered representative can provide you with more
information about the compensation arrangements that apply upon the sale of
the contract. During 2007, the least amount paid, and greatest amount paid,
were $46 and $8,664,735, respectively.
Name of Firm:
1717 Capital Management Co. Commonwealth Financial Network HBW Securities
1st Global Capital Corporation Contemporary Fin'l Solutions Hornor, Townsend & Kent
A.G. Edwards & Sons Crown Capital Securities, L.P. Huntington Investment Services
Advantage Capital Corporation Cumberland Brokerage Corporation ICC
AICPA CUNA Brokerage IFMG Securities, Inc.
AIG Financial Advisors Inc CUSO Financial Services, L.P. IMS Securities, Inc.
Allegheny Investments LTD. Deutsche Independent Financial Group, LLC
Allegiant Securities LLC EDI Financial Infinex Investments Inc.
Alliance Bernstein ePlanning Securities, Inc. ING Financial Advisors, LLC
Alliance Financial Group, Inc. Equity Services, Inc. ING Financial Partners, LLC
Allianz Ferris Baker Watts, Inc Institutional Securities Corp.
Allstate Financial Srvcs, LLC FFP Securities, Inc. InterSecurities, Inc.
Almax Financial Solutions, LLC Financial Network Investments Corp. Invest Financial Corporation
Alternative Wealth Strategies Financial Planning Consultants Investacorp
American General Securities, Inc. Financial West Group Investment Centers of America
AMERICAN PORTFOLIO FIN SVCS INC Fintegra, LLC Investment Management Corp
Ameritas Investment Corp First Allied Securities, Inc. Investment Planners, Inc.
Arrowhead Investment Center First Financial Services Investment Professionals
Associated Securities First Heartland Capital, Inc. Investors Capital Corporation
AXA Advisors First Montauk Securities Corp. Investors Security Co, Inc.
BancorpSouth Investment Services, Inc. First Trust Portfolios ISG Equity Sales
BB&T Investments First Western Advisors J.W. Cole Financial, Inc.
BCG Securities, Inc. Foothill Securities, Inc. Janney Montgomery Scott, LLC.
Benefit Funding Services Group Fortune Financial Services, Inc. JB Hanauer
Berthel Fisher & Company Founders Financial Securities Jefferson Pilot Securities Co.
Brecek & Young Advisors, Inc. Fox & Co. Investments, Inc. JJB Hilliard Lyons
Broker Dealer Financial Freedom Investors Corp. Key Investment Services LLC
Brookstone Securities, Inc. FSC Securities Corp KMS FINANCIAL SERVICES, INC
Brookstreet Securities Corp. FSIC Kovack Securities, Inc
Butler Freeman Tally Fn Gp LLC Garden State Securities, Inc. Leaders Group Inc.
Cadaret, Grant & Co., Inc. Gary Goldberg & Co. Legacy Advisors, LLC
Calton & Associates, Inc Geneos Wealth Management, Inc. Legacy Financial Services, Inc.
Cambridge Investment Research, Inc. Genworth Financial Securities Legend Equities Corporation
Cantella & Co., Inc Corporation Legend Securities, Inc.
Capital Analysts Girard Securities, Inc. Leonard & Company
Capital Financial Services Goldman Sachs Asset Management Lewis Financial Group, L.C.
Capital Investment Group Great American Advisors, Inc. Lincoln Financial Advisors
Capital One Investments GunnAllen Financial, Inc. Lincoln Investment Planning
Capital Securities Management, GWN Securities, Inc. Linsco Private Ledger Corp
Centaurus Financial, Inc. H&R Block Financial Advisors, Inc. Lombard Securities Inc.
CFD Investments, Inc. H. Beck, Inc. M Holdings Securities, Inc
Citigroup Global Markets Inc Hantz Financial Services, Inc. Main Street Securities, LLC
City Securities Corporation Harbour Investments, Inc. MarketMax
Commonwealth Financial Group Hazard & Siegel, Inc. Medallion Investment Services
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MFS R. Seelaus & Co., Inc. The Investment Center, Inc.
Michigan Securities, Inc. Rampart Financial Services Inc Tower Square Securities Inc
MML Investors Services, Inc. Raymond James & Associates Transamerica Financial Advisors
Money Concepts Capital Corp. Raymond James Financial Services Triad Advisors, Inc.
Moors & Cabot, Inc RBC Dain Rauscher Trustmont Financial Group, Inc.
Morgan Keegan Resource Horizon Group, LLC UBS Financial Services, Inc.
MTL Equity Products, Inc. Resource Marketing United Planners Financial Services of
Multi Financial Securities Corp. Rhodes Securities, Inc. America
Mutual Service Corporation RNR Securities, L.L.C. United Securities Alliance, Inc.
Mutual Trust Co. of America Sec Robert W. Baird & Co., Inc. USA Financial Securities Corporation
National Planning Corporation Royal Alliance UVEST Financial Services Group, Inc.
Neuberger/Berman Ryan Beck & Co, Inc. Valley National Investments, Inc.
New England Securities Rydex Distributors Inc Veritrust Financial LLC
Next Financial Group, Inc. SAIC VSR Financial Services, Inc.
NFP Securities, Inc. Sammons Securities Wachovia Bank
North Ridge Securities Corp. Saunders Discount Brokerage Wachovia Wirehouse
Oppenheimer & Co, Inc. Scottsdale Capital Advisors Wall Street Financial Group
Pacific West Securities, Inc. Securian Financial Services, Inc. Walnut Street Securities
Packerland Brokerage Svcs, Inc Securities America, Inc. Waterstone Financial Group Inc
Partnervest Securities, Inc. Securities Service Network Waterstone Investor Services
Paulson Investment Company, Inc. Sentra/Spelman Webster Investment Services, Inc.
Planmember Securities Corporation Sigma Financial Corporation Wellstone Securities, LLC
PNC Investment Signator Investor, Inc Westcom Financial Services
Preferred Financial Group SII Investments, Inc. Wilbanks Securities, Inc.
Presidential Brokerage Silver Oaks Securities Williams Financial Group
PrimeVest Financial Services Stanford Group Company Woodbury Financial Services, Inc.
Principal Financial Group Stifel Nicolaus & Co., Inc. World Choice Securities, Inc.
ProEquities, Inc Summit Brokerage Services, Inc World Equity Group, Inc.
Prospera Financial Svcs, Inc. Summit Equities, Incorporated World Group Securities, Inc.
Pruco Securities SunAmerica Securities Worth Financial Group, Inc.
Prudential Annuities Sunset Financial Services, Inc WRP Investments, Inc.
Prudential Financial SWS Financial Services, Inc Your Money Matters Brokerage
Prudential Securities Incorporated Synergy Investment Group, LLC
QA3 Financial Corp. T. Rowe Price Associates
Questar Capital Corporation TFS Securities, Inc.
On July 1, 2003, Prudential Financial combined its retail securities brokerage
and clearing operations with those of Wachovia Corporation ("Wachovia") and
formed Wachovia Securities Financial Holdings, LLC ("Wachovia Securities"), a
joint venture headquartered in Richmond, Virginia. Wachovia is the majority
owner and Prudential Financial, indirectly through subsidiaries, is a minority
owner of Wachovia Securities.
Wachovia and Wachovia Securities are key distribution partners for certain
products of Prudential Financial affiliates, including mutual funds and
individual annuities that are distributed through their financial advisors,
bank channel and independent channel. In addition, Prudential Financial is a
service provider to the managed account platform and certain wrap-fee programs
offered by Wachovia Securities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Prudential Annuities publishes annual and quarterly reports that are filed
with the SEC. These reports contain financial information about Prudential
Annuities that is annually audited by an independent registered public
accounting firm. Prudential Annuities' annual report for the year ended
December 31, 2007, together with subsequent periodic reports that Prudential
Annuities files with the SEC, are incorporated by reference into this
prospectus. You can obtain copies, at no cost, of any and all of this
information, including the Prudential Annuities annual report that is not
ordinarily mailed to contract owners, the more current reports and any
subsequently filed documents at no cost by contacting us at Prudential
Annuities - Variable Annuities; P.O. Box 7960, Philadelphia, PA 19176
(Telephone: 203-926-1888). The SEC file number for Prudential Annuities is
33-44202. You may read and copy any filings made by Prudential Annuities with
the SEC at the SEC's Public Reference Room at 100 F Street, N.E. Washington,
D.C. 20549. You can obtain information on the operation of the Public
Reference Room by calling (202) 551-8090. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
FINANCIAL STATEMENTS
The financial statements of the separate account and Prudential Annuities Life
Assurance Corporation are included in the Statement of Additional Information.
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HOW TO CONTACT US
You can contact us by:
.. calling our Customer Service Team at 1-800-752-6342 during our normal
business hours, Monday through Friday, or our telephone automated response
system at 1-800-766-4530.
.. writing to us via regular mail at Prudential Annuities, P.O. Box 7960,
Philadelphia, PA 19176 OR for express mail Prudential Annuities, 2101 Welsh
Road, Dresher, PA 19025. NOTE: Failure to send mail to the proper address
may result in a delay in our receiving and processing your request.
.. accessing information about your Annuity through our Internet Website at
www.prudentialannuities.com.
You can obtain account information by calling our automated response system
and at www.prudentialannuities.com, our Internet Website. Our Customer Service
representatives are also available during business hours to provide you with
information about your account. You can request certain transactions through
our telephone voice response system, our Internet Website or through a
customer service representative. You can provide authorization for a third
party, including your attorney-in-fact acting pursuant to a power of attorney
or your Financial Professional, to access your account information and perform
certain transactions on your account. You will need to complete a form
provided by us which identifies those transactions that you wish to authorize
via telephonic and electronic means and whether you wish to authorize a third
party to perform any such transactions. Please note that unless you tell us
otherwise, we deem that all transactions that are directed by your Financial
Professional with respect to your Annuity have been authorized by you. We
require that you or your representative provide proper identification before
performing transactions over the telephone or through our Internet Website.
This may include a Personal Identification Number (PIN) that will be provided
to you upon issue of your Annuity or you may establish or change your PIN by
calling our automated response system and at www.prudentialannuities.com, our
Internet Website. Any third party that you authorize to perform financial
transactions on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by
law, we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your
Social Security number, PIN or other form of electronic identification. We may
be liable for losses due to unauthorized or fraudulent instructions if we did
not follow such procedures.
Prudential Annuities does not guarantee access to telephonic, facsimile,
Internet or any other electronic information or that we will be able to accept
transaction instructions via such means at all times. Regular and/or express
mail will be the only means by which we will accept transaction instructions
when telephonic, facsimile, Internet or any other electronic means are
unavailable or delayed. Prudential Annuities reserves the right to limit,
restrict or terminate telephonic, facsimile, Internet or any other electronic
transaction privileges at any time.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
LEGAL PROCEEDINGS
We are subject to legal and regulatory actions in the ordinary course of our
businesses, including class action lawsuits. Our pending legal and regulatory
actions include proceedings specific to us and proceedings generally
applicable to business practices in the industry in which we operate. We are
subject to class action lawsuits and other litigation alleging, among other
things, that we made improper or inadequate disclosures in connection with the
sale of annuity products or charged excessive or impermissible fees on these
products, recommended unsuitable products to customers, mishandled customer
accounts or breached fiduciary duties to customers. We are also subject to
litigation arising out of our general business activities, such as our
investments and contracts, and could be exposed to claims or litigation
concerning certain business or process patents. Regulatory authorities from
time to time make inquiries and conduct investigations and examinations
relating particularly to us and our products. In addition, we, along with
other participants in the business in which we engage, may be subject from
time to time to investigations, examinations and inquiries, in some cases
industry-wide, concerning issues or matters upon which such regulators have
determined to focus. In some of our pending legal and regulatory actions,
parties are seeking large and/or indeterminate amounts, including punitive or
exemplary damages. The outcome of a litigation or regulatory matter, and the
amount or range of potential loss at any particular time, is inherently
uncertain. The following is a summary of certain pending proceedings.
We have commenced a remediation program to correct errors in the
administration of approximately 11,000 annuity contracts issued by us. The
owners of these contracts did not receive notification that the contracts were
approaching or past their designated annuitization date or default
annuitization date (both dates referred to as the "contractual annuity date")
and the contracts were not annuitized at their contractual annuity dates. Some
of these contracts also were affected by data integrity errors resulting in
incorrect contractual annuity dates. The lack of notice and the data integrity
errors, as reflected on the annuities administrative
119
system, all occurred before the acquisition of Prudential Annuities by
Prudential Financial, Inc. (the "Acquisition"). The remediation and
administrative costs of the remediation program are subject to the
indemnification provisions of the agreement (the "Acquisition Agreement")
pursuant to which Prudential Financial, Inc. acquired Prudential Annuities
from Skandia Insurance Company Ltd. (publ) ("Skandia").
Commencing in 2003, we received formal requests for information from the SEC
and the New York Attorney General ("NYAG") relating to market timing in
variable annuities by us and certain affiliated companies. In connection with
these investigations, with the approval of Skandia an offer was made by us to
the authorities investigating our companies, the SEC and NYAG, to settle these
matters by paying restitution and a civil penalty of $95 million in the
aggregate. While not assured, we believe these discussions are likely to lead
to settlements with these authorities by us or our affiliates. Any regulatory
settlement involving us and certain affiliates would be subject to the
indemnification provisions of the Acquisition Agreement pursuant to which
Prudential Financial, Inc. purchased Prudential Annuities and certain
affiliates in May 2003 from Skandia. If achieved, settlement of the matters
relating to us and certain affiliates also could involve continuing
monitoring, changes to and/or supervision of business practices, findings that
may adversely affect existing or cause additional litigation, adverse
publicity and other adverse impacts to our businesses.
During the third quarter of 2004, we identified a system-generated calculation
error in our annuity contract administration system that existed prior to the
Acquisition. This error related to the calculation of amounts due to customers
for certain transactions subject to a market value adjustment upon the
surrender or transfer of monies out of their annuity contract's fixed
allocation options. The error resulted in an underpayment to policyholders, as
well as additional anticipated costs to us associated with remediation,
breakage and other costs. Our consultants have developed the systems
functionality to compute remediation amounts and are in the process of running
the computations on affected contracts. We contacted state insurance
regulators and commenced Phase I of our outreach to customers on November 12,
2007. We have advised Skandia that a portion of the remediation and related
administrative costs are subject to the indemnification provisions of the
Acquisition Agreement.
From January 2006 to May 2007, thirty complaints were filed in 17/th/ Judicial
Circuit Court, Broward County, Florida alleging misrepresentations in the sale
of annuities against us and in certain of the cases, the two brokers who sold
the annuities. The complaints allege that the brokers represented that any
losses in the annuities would be insured or paid by a state guaranty fund and
purport to state claims of breach of fiduciary duty, negligence, fraud,
fraudulent inducement, negligent misrepresentation and seek damages in
unspecified amounts but in excess of $15,000 per case. The matter is subject
to the indemnification provisions of the Acquisition Agreement.
Our litigation and regulatory matters are subject to many uncertainties, and
given their complexity and scope, the outcomes cannot be predicted. It is
possible that the results of operations or the cash flow of Prudential
Annuities in a particular quarterly or annual period could be materially
affected by an ultimate unfavorable resolution of pending litigation and
regulatory matters depending, in part, upon the results of operations or cash
flow for such period. In light of the unpredictability of our litigation and
regulatory matters, it is also possible that in certain cases an ultimate
unfavorable resolution of one or more pending litigation or regulatory matters
could have a material adverse effect on our financial position. Management
believes, however, that, based on information currently known to it, the
ultimate outcome of all pending litigation and regulatory matters, after
consideration of applicable reserves and rights to indemnification, is not
likely to have a material adverse effect on our financial position.
It should be noted that the judgments, settlements and expenses associated
with many of these lawsuits, administrative and regulatory matters, and
contingencies, including certain claims described above, may, in whole or in
part, after satisfaction of certain retention requirements, fall within
Skandia's indemnification obligations to Prudential Financial and its
subsidiaries under the terms of the Acquisition Agreement. Those obligations
of Skandia provide for indemnification of certain judgments, settlements, and
costs and expenses associated with lawsuits and other claims against
Prudential Annuities ("matters"), and apply only to matters, or groups of
related matters, for which the costs and expenses exceed $25,000 individually.
Additionally, those obligations only apply to such otherwise indemnifiable
losses that exceed $10 million in the aggregate, subject to reduction for
insurance proceeds, certain accruals and any realized tax benefit applicable
to such amounts, and those obligations do not apply to the extent that such
aggregate exceeds $1 billion. We are in discussions with Skandia regarding the
satisfaction of the $10 million deductible.
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CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about Prudential Annuities
Prudential Annuities Life Assurance Corporation
Prudential Annuities Life Assurance Corporation Variable Account B
Prudential Annuities Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - Prudential Annuities Distributors, Inc.
How the Unit Price is Determined
Additional Information on Fixed Allocations
How We Calculate the Market Value Adjustment
General Information
Voting Rights
Modification
Deferral of Transactions
Misstatement of Age or Sex
Ending the Offer
Annuitization
Experts
Legal Experts
Financial Statements
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APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
Separate Account B consists of multiple Sub-accounts that are available as
investment options for the Prudential Annuities. Each Sub-account invests only
in a single mutual fund or mutual fund portfolio. All or some of these
Sub-accounts are available as investment options for other variable annuities
we offer pursuant to different prospectuses. Because this Annuity is new, we
include no historical unit values here.
APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS
Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation
The following are examples of how the Enhanced Beneficiary Protection Optional
Death Benefit is calculated. Each example assumes that a $50,000 initial
Purchase Payment is made. Each example assumes that there is one Owner who is
age 50 on the Issue Date and that all Account Value is maintained in the
variable investment options. Each example assumes that no Credits have been
applied to the Account Value. The formula for determining the Enhanced
Beneficiary Protection Optional Death Benefit is as follows:
Growth = Account Value of variable minus Purchase Payments -
investment options plus Interim proportional withdrawals
Value of Fixed Allocations
(no MVA applies)
Example with market increase
Assume that the Owner has made no withdrawals and that the Account Value has
been increasing due to positive market performance. On the date we receive due
proof of death, the Account Value is $75,000. The basic Death Benefit is
calculated as Purchase Payments minus proportional withdrawals, or Account
Value, which ever is greater. Therefore, the basic Death Benefit is equal to
$75,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal
to the amount payable under the basic Death Benefit ($75,000) PLUS 40% of the
"Growth" under the Annuity.
Growth = $75,000 - [$50,000 - $0]
= $25,000
Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth
= $25,000 * 0.40
= $10,000
Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit
= $85,000
Examples with market decline
Assume that the Owner has made no withdrawals and that the Account Value has
been decreasing due to declines in market performance. On the date we receive
due proof of death, the Account Value is $45,000. The basic Death Benefit is
calculated as Purchase Payments minus proportional withdrawals, or Account
Value, which ever is greater. Therefore, the basic Death Benefit is equal to
$50,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal
to the amount payable under the basic Death Benefit ($50,000) PLUS the
"Growth" under the Annuity.
Growth = $45,000 - [$50,000 - $0]
= $-5,000
Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth
NO BENEFIT IS PAYABLE
Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit
= $50,000
In this example you would receive no additional benefit from purchasing the
Enhanced Beneficiary Protection Optional Death Benefit.
B-1
Example with market increase and withdrawals
Assume that the Account Value has been increasing due to positive market
performance and the Owner made a withdrawal of $15,000 in Annuity Year 5 when
the Account Value was $75,000. On the date we receive due proof of death, the
Account Value is $90,000. The basic Death Benefit is calculated as Purchase
Payments minus proportional withdrawals, or Account Value, which ever is
greater. Therefore, the basic Death Benefit is equal to $90,000. The Enhanced
Beneficiary Protection Optional Death Benefit is equal to the amount payable
under the basic Death Benefit ($90,000) PLUS 40% of the "Growth" under the
Annuity.
Growth = $90,000 - [$50,000 - ($50,000 * $15,000/$75,000)]
= $90,000 - [$50,000 - $10,000]
= $90,000 - $40,000
= $50,000
Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth
= $50,000 * 0.40
= $20,000
Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit
= $110,000
Examples of Highest Anniversary Value Death Benefit Calculation
The following are examples of how the Highest Anniversary Value Death Benefit
is calculated. Each example assumes an initial Purchase Payment of $50,000.
Each example assumes that there is one Owner who is age 70 on the Issue Date
and that all Account Value is maintained in the variable investment options.
Example with market increase and death before Death Benefit Target Date
Assume that the Owner's Account Value has generally been increasing due to
positive market performance and that no withdrawals have been made. On the
date we receive due proof of death, the Account Value is $75,000; however, the
Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000.
Assume as well that the Owner has died before the Death Benefit Target Date.
The Death Benefit is equal to the greater of the Highest Anniversary Value or
the basic Death Benefit. The Death Benefit would be the Highest Anniversary
Value ($90,000) because it is greater than the amount that would have been
payable under the basic Death Benefit ($75,000).
Example with withdrawals
Assume that the Account Value has been increasing due to positive market
performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when
the Account Value was $75,000. On the date we receive due proof of death, the
Account Value is $80,000; however, the Anniversary Value on the 5/th/
anniversary of the Issue Date was $90,000. Assume as well that the Owner has
died before the Death Benefit Target Date. The Death Benefit is equal to the
greater of the Highest Anniversary Value or the basic Death Benefit.
Highest Anniversary Value = $90,000 - [$90,000 * $15,000/$75,000]
= $90,000 - $18,000
= $72,000
Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)]
= max [$80,000, $40,000]
= $80,000
The Death Benefit therefore is $80,000.
B-2
Example with death after Death Benefit Target Date
Assume that the Owner's Account Value has generally been increasing due to
positive market performance and that no withdrawals had been made prior to the
Death Benefit Target Date. Further assume that the Owner dies after the Death
Benefit Target Date, when the Account Value is $75,000. The Highest
Anniversary Value on the Death Benefit Target Date was $80,000; however,
following the Death Benefit Target Date, the Owner made a Purchase Payment of
$15,000 and later had taken a withdrawal of $5,000 when the Account Value was
$70,000. The Death Benefit is equal to the greater of the Highest Anniversary
Value plus Purchase Payments minus proportional withdrawals after the Death
Benefit Target Date or the basic Death Benefit.
Highest Anniversary Value = $80,000 + $15,000 - [($80,000 + $15,000) * $5,000/$70,000]
= $80,000 + $15,000 - $6,786
= $88,214
Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}]
= max [$75,000, $60,357]
= $75,000
The Death Benefit therefore is $88,214.
Examples of Combination 5% Roll-Up and Highest Anniversary Value Death Benefit
Calculation
The following are examples of how the Combination 5% Roll-Up and Highest
Anniversary Value Death Benefit are calculated. Each example assumes an
initial Purchase Payment of $50,000. Each example assumes that there is one
Owner who is age 70 on the Issue Date and that all Account Value is maintained
in the variable investment options.
Example with market increase and death before Death Benefit Target Date
Assume that the Owner's Account Value has generally been increasing due to
positive market performance and that no withdrawals have been made. On the
7/th/ anniversary of the Issue Date we receive due proof of death, at which
time the Account Value is $75,000; however, the Anniversary Value on the 5/th/
anniversary of the Issue Date was $90,000. Assume as well that the Owner has
died before the Death Benefit Target Date. The Roll-Up Value is equal to
initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The Death
Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary
Value or the basic Death Benefit. The Death Benefit would be the Highest
Anniversary Value ($90,000) because it is greater than both the Roll-Up Value
($67,005) and the amount that would have been payable under the basic Death
Benefit ($75,000).
Example with withdrawals
Assume that the Owner made a withdrawal of $5,000 on the 6/th/ anniversary of
the Issue Date when the Account Value was $45,000. The Roll-Up Value on the
6/th/ anniversary of the Issue Date is equal to initial Purchase Payment
accumulated at 5% for 6 years, or $67,005. The 5% Dollar-for-Dollar Withdrawal
Limit for the 7/th/ annuity year is equal to 5% of the Roll-Up Value as of the
6/th/ anniversary of the Issue Date, or $3,350. Therefore, the remaining
$1,650 of the withdrawal results in a proportional reduction to the Roll-Up
Value. On the 7/th/ anniversary of the Issue Date we receive due proof of
death, at which time the Account Value is $43,000; however, the Anniversary
Value on the 2/nd/ anniversary of the Issue Date was $70,000. Assume as well
that the Owner has died before the Death Benefit Target Date. The Death
Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary
Value or the basic Death Benefit.
Roll-Up Value = {(67,005 - $3,350) - [($67,005 - $3,350) * $1,650/($45,000 - $3,350)]} * 1.05
= ($63,655 - $2,522) * 1.05
= $64,190
Highest Anniversary Value = $70,000 - [$70,000 * $5,000/$45,000]
= $70,000 - $7,778
= $62,222
Basic Death Benefit = max [$43,000, $50,000 - ($50,000 * $5,000/$45,000)]
= max [$43,000, $44,444]
= $44,444
The Death Benefit therefore is $64,190.
B-3
Example with death after Death Benefit Target Date
Assume that the Owner has not made any withdrawals prior to the Death Benefit
Target Date. Further assume that the Owner dies after the Death Benefit Target
Date, when the Account Value is $75,000. The Roll-Up Value on the Death
Benefit Target Date (the contract anniversary on or following the Owner's
80/th/ birthday) is equal to initial Purchase Payment accumulated at 5% for 10
years, or $81,445. The Highest Anniversary Value on the Death Benefit Target
Date was $85,000; however, following the Death Benefit Target Date, the Owner
made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000
when the Account Value was $70,000. The Death Benefit is equal to the greatest
of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit as
of the Death Benefit Target Date; each increased by subsequent Purchase
Payments and reduced proportionally for subsequent withdrawals.
Roll-Up Value = $81,445 + $15,000 - [($81,445 + 15,000) * $5,000/$70,000]
= $81,445 + $15,000 - $6,889
= $89,556
Highest Anniversary Value = $85,000 + $15,000 - [($85,000 + 15,000) * $5,000/$70,000]
= $85,000 + $15,000 - $7,143
= $92,857
Basic Death Benefit = max [$75,000, $50,000 + $15,000 - {(50,000 + $15,000) * $5,000/$70,000}]
= max [$75,000, $60,357]
= $75,000
The Death Benefit therefore is $92,857.
Examples of Highest Daily Value Death Benefit Calculation
The following are examples of how the HDV Death Benefit is calculated. Each
example assumes an initial Purchase Payment of $50,000. Each example assumes
that there is one Owner who is age 70 on the Issue Date.
Example with market increase and death before Death Benefit Target Date
Assume that the Owner's Account Value has generally been increasing due to
positive market performance and that no withdrawals have been made. On the
date we receive due proof of death, the Account Value is $75,000; however, the
Highest Daily Value was $90,000. Assume as well that the Owner has died before
the Death Benefit Target Date. The Death Benefit is equal to the greater of
the Highest Daily Value or the basic Death Benefit. The Death Benefit would be
the HDV ($90,000) because it is greater than the amount that would have been
payable under the basic Death Benefit ($75,000).
Example with withdrawals
Assume that the Account Value has been increasing due to positive market
performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when
the Account Value was $75,000. On the date we receive due proof of death, the
Account Value is $80,000; however, the Highest Daily Value ($90,000) was
attained during the fifth Annuity Year. Assume as well that the Owner has died
before the Death Benefit Target Date. The Death Benefit is equal to the
greater of the Highest Daily Value (proportionally reduced by the subsequent
withdrawal) or the basic Death Benefit.
Highest Daily Value = $90,000 - [$90,000 * $15,000/$75,000]
= $90,000 - $18,000
= $72,000
Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)]
= max [$80,000, $40,000]
= $80,000
The Death Benefit therefore is $80,000.
B-4
Example with death after Death Benefit Target Date
Assume that the Owner's Account Value has generally been increasing due to
positive market performance and that no withdrawals had been made prior to the
Death Benefit Target Date. Further assume that the Owner dies after the Death
Benefit Target Date, when the Account Value is $75,000. The Highest Daily
Value on the Death Benefit Target Date was $80,000; however, following the
Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and
later had taken a withdrawal of $5,000 when the Account Value was $70,000. The
Death Benefit is equal to the greater of the Highest Daily Value on the Death
Benefit Target Date plus Purchase Payments minus proportional withdrawals
after the Death Benefit Target Date or the basic Death Benefit.
Highest Daily Value = $80,000 + $15,000 - [($80,000 + $15,000) * $5,000/$70,000]
= $80,000 + $15,000 - $6,786
= $88,214
Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}]
= max [$75,000, $60,357]
= $75,000
The Death Benefit therefore is $88,214.
B-5
APPENDIX C - ASSET TRANSFER FORMULA UNDER HIGHEST DAILY LIFETIME FIVE INCOME
BENEFIT
We set out below the current formula under which we may transfer amounts
between the variable investment options and the Benefit Fixed Rate Account.
Upon your election of Highest Daily Lifetime Five, we will not alter the asset
transfer formula that applies to your Annuity. However, as discussed in the
"Living Benefits" section, we reserve the right to modify this formula with
respect to those who elect Highest Daily Lifetime Five in the future.
TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA:
. C\\u\\ - the upper target is established on the effective date of the
Highest Daily Lifetime Five benefit (the "Effective Date") and is not
changed for the life of the guarantee. Currently, it is 83%.
. C\\t\\ - the target is established on the Effective Date and is not
changed for the life of the guarantee. Currently, it is 80%.
. C\\l\\ - the lower target is established on the Effective Date and is
not changed for the life of the guarantee. Currently, it is 77%.
. L - the target value as of the current Valuation Day.
. r - the target ratio.
. a - the factors used in calculating the target value. These factors are
established on the Effective Date and are not changed for the life of
the guarantee. The factors that we use currently are derived from the
a2000 Individual Annuity Mortality Table with an assumed interest rate
of 3%. Each number in the table "a" factors (which appears below)
represents a factor, which when multiplied by the Highest Daily Annual
Income Amount, projects our total liability for the purpose of asset
transfers under the guarantee.
. Q - age based factors used in calculating the target value. These
factors are established on the Effective Date and are not changed for
the life of the guarantee. The factor is currently set equal to 1.
. V - the total value of all Permitted Sub-accounts in the Annuity.
. F - the total value of all Benefit Fixed Rate Account allocations.
. I - the income value prior to the first withdrawal. The income value is
equal to what the Highest Daily Annual Income Amount would be if the
first withdrawal were taken on the date of calculation. After the first
withdrawal the income value equals the greater of the Highest Daily
Annual Income Amount, the quarterly step-up amount times the annual
income percentage, and the Account Value times the annual income
percentage.
. T - the amount of a transfer into or out of the Benefit Fixed Rate
Account.
. I% - annual income amount percentage. This factor is established on the
Effective Date and is not changed for the life of the guarantee.
Currently, this percentage is equal to 5%
TARGET VALUE CALCULATION:
On each Valuation Day, a target value (L) is calculated, according to the
following formula. If the variable Account Value (V) is equal to zero, no
calculation is necessary.
L = I * Q * a
Transfer Calculation:
The following formula, which is set on the Effective Date and is not changed
for the life of the guarantee, determines when a transfer is required:
Target Ratio r = (L - F) / V.
. If r ((greater than)) C\\u\\, assets in the Permitted Sub-accounts
are transferred to Benefit Fixed Rate Account.
. If r ((less than)) C\\l\\, and there are currently assets in the
Benefit Fixed Rate Account (F ((greater than)) 0), assets in the
Benefit Fixed Rate Account are transferred to the Permitted
Sub-accounts.
C-1
The following formula, which is set on the Effective Date and is not changed
for the life of the guarantee, determines the transfer amount:
T = {Min(V, [L - F - V * C\\t\\] / (1 - C\\t\\))} T(greater than)0, Money moving from the Permitted
Sub-accounts to the Benefit Fixed Rate Account
T = {Min(F, [L - F - V * C] / (1 - C\\t\\))} T(less than)0, Money moving from the Benefit Fixed Rate
Account to the Permitted Sub-accounts]
Example:
Male age 65 contributes $100,000 into the Permitted Sub accounts and the value
drops to $92,300 during year one, end of day one. A table of values for "a"
appears below.
Target Value Calculation:
L = I * Q * a
= 5000.67 * 1 * 15.34
= 76,710.28
Target Ratio:
r = (L - F) / V
= (76,710.28 - 0) / 92,300.00
= 83.11%
Since r (greater than) Cu ( because 83.11% (greater than) 83%) a transfer into
the Benefit Fixed rate Account occurs.
T = { Min ( V, [ L - F - V * Ct] / ( 1 - Ct))}
= { Min ( 92,300.00, [ 76,710.28 - 0 - 92,300.00 * 0.80] / ( 1 - 0.80))}
= { Min ( 92,300.00, 14,351.40 )}
= 14,351.40
C-2
Age 65 "a" Factors for Liability Calculations
(in Years and Months since Benefit Effective Date)*
Months
Years 1 2 3 4 5 6 7 8 9 10 11 12
----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95
2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51
3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07
4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63
5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19
6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75
7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30
8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86
9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42
10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98
11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54
12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11
13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68
14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26
15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84
16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44
17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04
18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65
19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27
20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91
21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55
22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22
23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89
24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58
25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29
26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01
27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75
28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51
29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28
30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06
31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84
32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64
33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44
34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24
35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03
36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83
37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62
38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42
39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22
40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02
41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages.
C-3
APPENDIX D - ANNUITIES APPROVED FOR SALE BY THE NEW YORK STATE INSURANCE
DEPARTMENT
XTra Credit EIGHT NY
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Minimum Investment $10,000
- ----------------------------------------------------------------------------------------------------------------------------
Maximum Issue Age Annuitant 85 Oldest Owner 75
- ----------------------------------------------------------------------------------------------------------------------------
Contingent Deferred Sales 10 Years
Charge Schedule (9%, 9%, 8%, 7%, 6%, 5%, 4%, 3%, 2%, 1%) (Applied to Purchase
Payments based on the inception date of the Annuity)
- ----------------------------------------------------------------------------------------------------------------------------
Insurance Charge 1.75%
- ----------------------------------------------------------------------------------------------------------------------------
Annual Maintenance Fee Lesser of $30 or 2% of Account Value
- ----------------------------------------------------------------------------------------------------------------------------
Transfer Fee $10 after twenty in any annuity year
- ----------------------------------------------------------------------------------------------------------------------------
Contract Credit Yes. The amount of the credit applied to a Purchase Payment is based
on the year the Purchase Payment is received, for the first 6 years of the
contract. Currently the credit percentages for each year starting with the
first year are: If the Purchase Payments are 100,000+: 8%, 6%, 4%, 3%,
2%, 1% and if the Purchase Payments are (less than) $100,000: 6%, 5%, 4%,
3%, 2%, and 1%.
- ----------------------------------------------------------------------------------------------------------------------------
Fixed Allocation (If No
available, early withdrawals
are subject to a Market
Value Adjustment) ("MVA")
- ----------------------------------------------------------------------------------------------------------------------------
Variable Investment Options All options generally available except where restrictions apply when
certain riders are purchased.
- ----------------------------------------------------------------------------------------------------------------------------
Basic Death Benefit The greater of: Purchase Payments less proportional withdrawals or
Account Value (variable); no MVA applied.
- ----------------------------------------------------------------------------------------------------------------------------
Optional Death Benefits (for HAV
an additional cost)/1/
- ----------------------------------------------------------------------------------------------------------------------------
Optional Living Benefits (for Highest Daily GRO, GMWB, GMIB, Lifetime Five, Spousal Lifetime
an additional cost)/2/ Five, Highest Daily Lifetime Five, Highest Daily Lifetime Seven,
Spousal Highest Daily Lifetime Seven (Highest Daily GRO, Highest
Daily Lifetime Seven and Spousal Highest Daily Lifetime Seven
pending New York Department of Insurance approval.)
- ----------------------------------------------------------------------------------------------------------------------------
Annuity Rewards/3/ Available after initial CDSC period
- ----------------------------------------------------------------------------------------------------------------------------
Annuitization Options Fixed option only Annuity date cannot exceed the first day of the
calendar month following Annuitant's 90/th/ birthday. The maximum
Annuity Date is based on the first Owner or Annuitant to reach the
maximum age, as indicated in your Annuity.
- ----------------------------------------------------------------------------------------------------------------------------
(1)For more information on these benefits, refer to the "Death Benefit"
section in the Prospectus.
(2)For more information on these benefits, refer to the "Living Benefit
Programs" section in the Prospectus.
(3)The Annuity rewards benefit offers Owners an ability to increase the
guaranteed death benefit so that the death benefit will at least equal the
Annuity's Account Value on the effective date of the Annuity Rewards
benefits, if the terms of the Annuity Rewards benefit are met.
For more information about variations applicable to annuities approved for
sale by the New York State Insurance Department, please refer to your annuity
contract.
D-1
APPENDIX E - ASSET TRANSER FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO
THE FOLLOWING ARE THE TERMS AND DEFINITIONS REFERENCED IN THE TRANSFER
CALCULATION FORMULA:
. AV is the current Account Value of the Annuity
. V is the current Account Value of the elected Sub-accounts of the Annuity
. B is the total current value of the AST bond portfolio Sub-account
. C\\l\\ is the lower target value. Currently, it is 79%.
. C\\t\\ is the middle target value. Currently, it is 82%.
. C\\u\\ is the upper target value. Currently, it is 85%.
For each guarantee provided under the program,
. G\\i\\ is the guarantee amount
. N\\i\\ is the number of days until the maturity date
. d\\i\\ is the discount rate applicable to the number of days until the
maturity date. It is determined with reference to a benchmark index,
reduced by the Discount Rate Adjustment. Once selected, we will not
change the applicable benchmark index. However, if the benchmark index
is discontinued, we will substitute a successor benchmark index, if
there is one. Otherwise we will substitute a comparable benchmark index.
We will obtain any required regulatory approvals prior to substitution
of the benchmark index.
The formula, which is set on the Effective Date and is not changed while the
Rider is in effect, determines, on each Valuation Day, when a transfer is
required.
The formula begins by determining the value on that Valuation Day that, if
appreciated at the applicable discount rate, would equal the guarantee amount
at the end of the Base Guarantee Period or Step-Up Guarantee Period. We call
the greatest of these values the "current liability (L)."
L = MAX (L\\i\\), where L\\i\\ = G\\i\\ / (1 + d\\i\\)/(Ni/365)/.
Next the formula calculates the following formula ratio:
r = (L - B) / V.
If the formula ratio exceeds an upper target value, then all or a portion of
the Account Value will be transferred to the bond fund Sub-account associated
with the current liability. If at the time we make a transfer to the bond fund
Sub-account associated with the current liability there is Account Value
allocated to a bond fund Sub-account not associated with the current
liability, we will transfer all assets from that bond fund Sub-account to the
bond fund Sub-account associated with the current liability.
The formula will transfer assets into the Transfer Account if r (greater than)
C\\u\\.
The transfer amount is calculated by the following formula:
T = {Min(V, [L - B - V*C\\t\\] / (1 - C\\t\\))}
If the formula ratio is less than a lower target value and there are assets in
the Transfer Account, then the formula will transfer assets out of the
Transfer Account into the elected Sub-accounts.
The transfer amount is calculated by the following formula:
T = {Min(B, - [L - B - V*C\\t\\] / (1 - C \\t\\))}
If following a transfer to the elected Sub-accounts, there are assets
remaining in a bond fund Sub-account not associated with the current
liability, we will transfer all assets from that bond fund Sub-account to the
bond fund Sub-account associated with the current liability.
E-1
APPENDIX F - ASSET TRANSFER FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN INCOME
BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT
TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA:
. C\\u\\ - the upper target is established on the effective date of the
Highest Daily Lifetime Seven benefit (the "Effective Date") and is not
changed for the life of the guarantee. Currently, it is 83%.
. C\\t\\ - the target is established on the Effective Date and is not
changed for the life of the guarantee. Currently, it is 80%.
. C\\l\\ - the lower target is established on the Effective Date and is
not changed for the life of the guarantee. Currently, it is 77%.
. L - the target value as of the current business day.
. r - the target ratio.
. a - factors used in calculating the target value. These factors are
established on the Effective Date and are not changed for the life of
the guarantee.
. V - the total value of all Permitted Sub-accounts in the annuity.
. B - the total value of the AST Investment Grade Bond Portfolio
Sub-account.
. P - Income Basis. Prior to the first withdrawal, the Income Basis is the
Protected Withdrawal Value calculated as if the first withdrawal were
taken on the date of calculation. After the first withdrawal, the Income
Basis is equal to the greater of (1) the Protected Withdrawal Value at
the time of the first withdrawal, adjusted for additional purchase
payments including the amount of any associated Credits, and adjusted
proportionally for excess withdrawals*, (2) any highest quarterly value
increased for additional purchase payments including the amount of any
associated Credits, and adjusted for withdrawals, and (3) the Account
Value.
. T - the amount of a transfer into or out of the AST Investment Grade
Bond Portfolio Sub-account
* Note: withdrawals of less than the Annual Income Amount do not reduce the
Income Basis.
TARGET VALUE CALCULATION:
On each business day, a target value (L) is calculated, according to the
following formula. If the variable account value (V) is equal to zero, no
calculation is necessary.
L = 0.05 * P * a
Transfer Calculation:
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines when a transfer is required:
Target Ratio r = (L - B) / V.
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are
transferred to the AST Investment Grade Bond Portfolio Sub-account.
. If r (less than) C\\l\\, and there are currently assets in the AST
Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets
in the AST Investment Grade Bond Portfolio Sub-account are transferred
to the Permitted Sub-accounts according to most recent allocation
instructions.
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines the transfer amount:
T = {Min(V, [L - B - V * C\\t\\] / (1-C\\t\\))}, Money moving from the Permitted Sub-accounts
to the AST Investment Grade Bond Portfolio
Sub-account
T = {Min(B,- [L - B - V * C\\t\\] / (1-C\\t\\))}, Money moving from the AST Investment Grade
Bond Portfolio Sub-account to the Permitted Sub-
accounts]
F-1
For elections of Highest Daily Lifetime Seven on or after July 21, 2008, the
asset transfer formula is revised as set forth below. The revised formula
reflects the fact that Account Value may include amounts allocated to certain
Fixed Rate Options. Currently no Fixed Rate Options are available for use with
Highest Daily Lifetime Seven and Spousal Highest Daily Lifetime Seven.
Here is the revised formula (the Table of "a" factors remains the same):
TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA:
. Cu - the upper target is established on the effective date of the
Highest Daily Lifetime Seven benefit (the "Effective Date") and is not
changed for the life of the guarantee. Currently, it is 83%.
. Ct - the target is established on the Effective Date and is not changed
for the life of the guarantee. Currently, it is 80%.
. Cl - the lower target is established on the Effective Date and is not
changed for the life of the guarantee. Currently, it is 77%.
. L - the target value as of the current business day.
. r - the target ratio.
. a - factors used in calculating the target value. These factors are
established on the Effective Date and are not changed for the life of
the guarantee.
. V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity.
. V\\F\\ the total value of all elected Fixed Rate Options in the Annuity
. B - the total value of the AST Investment Grade Bond Portfolio
Sub-account.
. P - Income Basis. Prior to the first withdrawal, the Income Basis is the
Protected Withdrawal Value calculated as if the first withdrawal were
taken on the date of calculation. After the first withdrawal, the Income
Basis is equal to the greater of (1) the Protected Withdrawal Value at
the time of the first withdrawal, adjusted for additional purchase
payments including the amount of any associated Credits, and adjusted
proportionally for excess withdrawals*, (2) any highest quarterly value
increased for additional purchase payments including the amount of any
associated Credits, and adjusted for withdrawals, and (3) the Account
Value.
. T - the amount of a transfer into or out of the AST Investment Grade
Bond Portfolio Sub-account
* Note: withdrawals of less than the Annual Income Amount do not reduce the
Income Basis.
TARGET VALUE CALCULATION:
On each business day, a target value (L) is calculated, according to the
following formula. If the Account Value (V\\V\\ + V\\F\\) is equal to zero, no
calculation is necessary.
L = 0.05 * P * a
TRANSFER CALCULATION:
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines when a transfer is required:
Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If r (greater than) Cu, assets in the Permitted Sub-accounts are
transferred to the AST Investment Grade Bond Portfolio Sub-account.
. If r (less than) Cl, and there are currently assets in the AST
Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets
in the AST Investment Grade Bond Portfolio Sub-account are transferred
to the Permitted Sub-accounts according to most recent allocation
instructions.
F-2
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines the transfer amount:
T = {Min (V\\V\\ + V\\F\\), [L - B - (V\\V\\ + V\\F\\) * Ct] / Money is transferred from the elected
(1 - Ct))} Sub-accounts and Fixed Rate Options to the
Transfer Account
T = {Min (B, - [L - B -(V\\V\\ + V\\F\\)* C\\t\\] / (1 - C\\t\\))} Money is transferred from the Transfer Account
to the elected Sub-accounts
For elections of Spousal Highest Daily Lifetime Seven on or after July 21,
2008, and subject to regulatory approval, the asset transfer formula is
revised. See the section above under Highest Daily Lifetime Seven for the
revised formula.
F-3
"a" Factors for Liability Calculations
(in Years and Months since Benefit Effective Date)*
Months
Years 1 2 3 4 5 6 7 8 9 10 11 12
----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95
2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51
3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07
4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63
5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19
6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75
7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30
8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86
9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42
10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98
11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54
12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11
13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68
14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26
15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84
16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44
17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04
18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65
19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27
20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91
21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55
22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22
23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89
24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58
25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29
26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01
27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75
28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51
29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28
30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06
31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84
32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64
33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44
34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24
35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03
36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83
37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62
38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42
39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22
40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02
41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages.
F-4
APPENDIX G
SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU
Although only the XTra Credit Eight variable annuity is offered through this
prospectus, you should know that Prudential Annuities Life Assurance
Corporation ("PALAC") offers other deferred variable annuity products through
separate prospectuses. Not all of those other annuities may be available to
you, depending on your state of residence and/or the broker-dealer through
which your annuity was sold. However, to the extent that other PALAC annuities
(or those of other insurers) are available to you, you should be aware that
those annuities likely come with a different array of optional features (e.g.,
living benefits or death benefits) and charges than XTra Credit Eight. For
example, some annuities do not offer any credit, but typically would bear
lower CDSCs and insurance charges than XTra Credit Eight. You can identify the
PALAC annuities available to you by speaking to your Financial Professional or
calling 1-888-PRU-2888.
Among the factors you should consider when choosing which annuity product may
be most appropriate for your individual needs are the following:
. Your age;
. The amount of your investment and any planned future deposits into the
annuity,
. How long you intend to hold the annuity (also referred to as investment
time horizon);
. Your desire to make withdrawals from the annuity and the timing thereof;
. Your investment return objectives;
. The effect of optional benefits that may be elected;
. The value of being able to "lock-in" growth in your annuity after the
initial withdrawal charge period for purposes of calculating the death
benefit payable from the annuity; and
. Your desire to minimize costs and/or maximize return associated with the
annuity.
In general, you will pay higher ongoing fees for added liquidity and other
product benefits while annuities with longer surrender charge periods often
have lower ongoing expenses. There are trade-offs associated with the costs
and benefits provided by each annuity. You should consider which benefits are
most important to you, and whether the associated costs offer the greatest
value to you.
The following chart reflects the Account Value and Surrender Value of the XT8
variable annuity over a variety of holding periods under the hypothetical
assumptions noted. The chart is intended to help you compare XTra Credit Eight
with other annuities that may be available to you. The values shown below are
based on the following assumptions:
.. Annuity was issued on or after June 16, 2008
.. An initial investment of $100,000 is made in the Xtra Credit Eight Annuity
earning a gross rate of return of 0%, 6%, and 10% respectively.
.. No subsequent deposits or withdrawals are made from the Annuity.
.. The hypothetical gross rates of return are reduced by the arithmetic
average of the fees and expenses of the Portfolios and the charges that are
deducted from the Annuity at the Separate Account level as follows:
a. 1.14% for the Portfolios offered under XTra Credit Eight, based on the
fees and expenses of the Portfolios as of December 31, 2007. The arithmetic
average of all the fund expenses is computed by adding portfolios and then
dividing by the number of Portfolios. For purposes of the illustration, we
do not reflect any expense reimbursements or expense waivers that might
apply and are described in the prospectus fee table.
b. The Separate Account level charges refer to the Insurance
Charge/Administration charge.
.. The Account Value and Surrender Value are further reduced by the annual
maintenance fee. For the Xtra Credit Eight, the Account Value and Surrender
Value reflect the addition of any applicable Purchase Credits.
The Account Value assumes no surrender, while the Surrender Value assumes a
100% surrender 2 days prior to the anniversary of the Issue Date of the
Annuity ("Annuity Anniversary"), therefore reflecting the withdrawal charge
applicable to that Annuity Year. Note that a withdrawal on the Annuity
Anniversary, or the day before the Annuity Anniversary, would be subject to
the withdrawal charge applicable to the next Annuity Year, which usually is
lower. The surrender charge is calculated based on the date that the Purchase
Payment was made and for purposes of this illustration, we assume that a
single purchase payment of $100,000 was made on the Issue Date. The values
that you actually experience under an Annuity will be different from what is
depicted here if any of the assumptions we make here differ from your
circumstances. (We will provide you a personalized illustration upon request).
G-1
------------------------------------------------------------------------
0% Gross Rate of Return 6% Gross Rate of Return 10% Gross Rate of Return
Xtra Credit 8 Xtra Credit 8 Xtra Credit 8
------------------------------------------------------------------------
Net rate of return Net rate of return Net rate of return
All years -2.87% All years 2.96% All years 6.84%
------------------------------------------------------------------------
Account Surrender Account Surrender Account Surrender
Year Value Value Value Value Value Value
-----------------------------------------------------------------------------
1 104,909 95,909 111,185 102,185 115,369 106,369
-----------------------------------------------------------------------------
2 101,864 92,864 114,438 105,438 123,227 114,227
-----------------------------------------------------------------------------
3 98,906 90,906 117,787 109,787 131,622 123,622
-----------------------------------------------------------------------------
4 96,034 89,034 121,235 114,235 140,591 133,591
-----------------------------------------------------------------------------
5 93,243 87,243 124,784 118,784 150,174 144,174
-----------------------------------------------------------------------------
6 90,533 85,533 128,439 123,439 160,413 155,413
-----------------------------------------------------------------------------
7 87,901 83,901 132,202 128,202 171,353 167,353
-----------------------------------------------------------------------------
8 85,344 82,344 136,076 133,076 183,041 180,041
-----------------------------------------------------------------------------
9 82,861 80,861 140,065 138,065 195,529 193,529
-----------------------------------------------------------------------------
10 80,449 79,449 144,172 143,172 208,872 207,872
-----------------------------------------------------------------------------
11 78,106 78,106 148,400 148,400 223,127 223,127
-----------------------------------------------------------------------------
12 75,830 75,830 152,753 152,753 238,358 238,358
-----------------------------------------------------------------------------
13 73,620 73,620 157,235 157,235 254,632 254,632
-----------------------------------------------------------------------------
14 71,473 71,473 161,850 161,850 272,019 272,019
-----------------------------------------------------------------------------
15 69,387 69,387 166,601 166,601 290,595 290,595
-----------------------------------------------------------------------------
16 67,362 67,362 171,492 171,492 310,443 310,443
-----------------------------------------------------------------------------
17 65,395 65,395 176,529 176,529 331,649 331,649
-----------------------------------------------------------------------------
18 63,484 63,484 181,714 181,714 354,306 354,306
-----------------------------------------------------------------------------
19 61,628 61,628 187,053 187,053 378,514 378,514
-----------------------------------------------------------------------------
20 59,825 59,825 192,549 192,549 404,378 404,378
-----------------------------------------------------------------------------
21 58,074 58,074 198,208 198,208 432,012 432,012
-----------------------------------------------------------------------------
22 56,373 56,373 204,035 204,035 461,537 461,537
-----------------------------------------------------------------------------
23 54,721 54,721 210,033 210,033 493,082 493,082
-----------------------------------------------------------------------------
24 53,117 53,117 216,210 216,210 526,786 526,786
-----------------------------------------------------------------------------
25 51,558 51,558 222,569 222,569 562,797 562,797
-----------------------------------------------------------------------------
Assumptions:
a. $100,000 initial investment
b. Fund Expenses = 1.14%
c. No optional death benefits or living benefits elected
d. Annuity was issued on or after June 16, 2008
e. Surrender value assumes surrender 2 days before policy anniversary
G-2
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS
FURTHER DETAILS ABOUT THE PRUDENTIAL ANNUITIES ANNUITY DESCRIBED IN
PROSPECTUS XT8PROS (05/2008) .
--------------------------------------
(print your name)
--------------------------------------
(address)
--------------------------------------
(city/state/zip code)
---------------
[LOGO] Prudential PRSRT STD
The Prudential Insurance Company of America U.S. POSTAGE
751 Broad Street PAID
Newark, NJ 07102-3777 LANCASTER, PA
PERMIT NO. 1793
---------------
Variable Annuity Issued by: Variable Annuity Distributed by:
PRUDENTIAL ANNUITIES LIFE PRUDENTIAL ANNUITIES
ASSURANCE CORPORATION DISTRIBUTORS, INC.
A Prudential Financial Company A Prudential Financial Company
One Corporate Drive One Corporate Drive
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 203-926-1888
http://www.prudentialannuities.com http://www.prudentialannuities.com
MAILING ADDRESSES:
PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES
P.O. Box 7960
Philadelphia, PA 19176
EXPRESS MAIL:
PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES
2101 Welsh Road
Dresher, PA 19025
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution: Not Applicable.
Item 15. Indemnification of Directors and Officers: Under Section 33-320a of
the Connecticut General Statutes, the Registrant must indemnify a director or
officer against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses including attorneys' fees, for actions brought or
threatened to be brought against him in his capacity as a director or officer
when certain disinterested parties determine that he acted in good faith and in
a manner he reasonably believed to be in the best interests of the Registrant.
In any criminal action or proceeding, it also must be determined that the
director or officer had no reason to believe his conduct was unlawful. The
director or officer must also be indemnified when he is successful on the
merits in the defense of a proceeding or in circumstances where a court
determines that he is fairly and reasonable entitled to be indemnified, and the
court approves the amount. In shareholder derivative suits, the director or
officer must be finally adjudged not to have breached this duty to the
Registrant or a court must determine that he is fairly and reasonably entitled
to be indemnified and must approve the amount. In a claim based upon the
director's or officer's purchase or sale of the Registrants' securities, the
director or officer may obtain indemnification only if a court determines that,
in view of all the circumstances, he is fairly and reasonably entitled to be
indemnified and then for such amount as the court shall determine. The By-Laws
of Prudential Annuities Life Assurance Corporation ("PALAC") also provide
directors and officers with rights of indemnification, consistent with
Connecticut Law.
The foregoing statements are subject to the provisions of Section 33-320a.
Directors and officers of PALAC and Prudential Annuities Distributors, Inc.
("PAD") can also be indemnified pursuant to indemnity agreements between each
director and officer and Prudential Annuities, Inc., a corporation organized
under the laws of the state of Delaware. The provisions of the indemnity
agreement are governed by Section 45 of the General Corporation Law of the
State of Delaware.
The directors and officers of PALAC and PAD are covered under a directors and
officers liability insurance policy. Such policy will reimburse PALAC or PAD,
as applicable, for any payments that it shall make to directors and officers
pursuant to law and, subject to certain exclusions contained in the policy,
will pay any other costs, charges and expenses, settlements and judgments
arising from any proceeding involving any director or officer of PALAC or PAD,
as applicable, in his or her past or present capacity as such.
Item 16. Exhibits:
Exhibits Page
-------------------------------------------- ------------------------
1 Underwriting agreement incorporated by
reference to Post Effective Amendment No. 1
to Registration Statement No. 333-25733,
filed via EDGAR March 2, 1998.
2 Plan of acquisition, reorganization, Not applicable
arrangement, liquidation or succession
3 Articles of incorporation and by-laws
incorporated by reference to Post-Effective
Amendment No. 6 to Registration Statement
No. 33-87010, filed via EDGAR March 2, 1998.
4 Instruments defining the rights of security
holders, including indentures, incorporated
by reference to Post-Effective Amendment No.
3 to Registration Statement No. 33-87010,
filed via EDGAR April 25, 1996.
5 Opinion re legality (included as Exhibit 23b)
6 - 9 Not applicable
10 Material contracts (Investment Management
Agreement):
(a) Agreement with Alliance Capital
Management L.P. incorporated by
reference to Post- Effective No. 3 to
Registration Statement No. 33-53507,
filed via EDGAR April 26, 2002.
(b) Agreement with Blackrock Financial
Management, Inc. incorporated by
reference to Post-Effective No. 3 to
Registration Statement No. 33-53507,
filed via EDGAR April 26, 2002.
11 - 22 Not applicable
23a Consent of PricewaterhouseCoopers LLP FILED HEREWITH
23b Opinion & Consent of Counsel Filed via EDGAR with
Pre-Effective
Amendment No. 1 to
Registration Statement
333-150220, filed
June 3, 2008
24 (a) Powers of Attorney for Directors James J. Avery, Helen M. Galt,
Kenneth Y. Tanji, and Bernard J. Jacob, David R. Odenath, Chief
Executive Officer, President and Director
filed with Post-Effective Amendment No. 1 to Registration Statement
No. 333-136996, filed October 6, 2006.
25 - 28 Not applicable
An index to the financial statement schedules is omitted because it is not
required or is not applicable.
Item 17. Undertakings: The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendments to this registration statement:
(i) To include any prospectus required by section 10 (a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) 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.
LEGAL EXPERTS: The Counsel of Prudential Annuities Life Assurance Corporation
has passed on the legal matters with respect to Federal laws and regulations
applicable to the issue and sale of the Annuities and with respect to
Connecticut law.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Shelton, State of Connecticut, on the 3rd day of
June, 2008.
PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION
Depositor
By: /s/ C. Christopher Sprague
--------------------------
C. Christopher Sprague,
Vice President, Corporate
Counsel
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ------------------------------------- ---------------
(Principal Executive Officer)
David R. Odenath* Chief Executive Officer and President June 3, 2008
- ---------------------
David R. Odenath
(Principal Financial Officer and
Principal Accounting Officer)
Kenneth Y. Tanji* Executive Vice President and June 3, 2008
- --------------------- Chief Financial Officer
Kenneth Y. Tanji
(Board of Directors)
James Avery* Bernard J. Jacob* Helen Galt*
- ------------------- ------------------------------ ----------------
James Avery Bernard J. Jacob Helen Galt
Kenneth Y. Tanji* David R. Odenath*
- ------------------- ------------------------------
Kenneth Y. Tanji David R. Odenath
By: /s/ C. Christopher Sprague
--------------------------
C. Christopher Sprague
- --------
* Executed by C. Christopher Sprague on behalf of those indicated pursuant to
Power of Attorney
EXHIBITS
Exhibit 23a Consent of PricewaterhouseCoopers LLP FILED
HEREWITH