424B3: Prospectus [Rule 424(b)(3)]
Published on
STRATEGIC PARTNERS/SM/ HORIZON ANNUITY
PROSPECTUS: MAY 1, 2009
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This prospectus describes a market value adjusted individual annuity contract
offered by Pruco Life Insurance Company (Pruco Life). Pruco Life offers
several different annuities which your representative may be authorized to
offer to you. Each 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. The different features and benefits include
variations in death benefit protection and the ability to access your
annuity's contract value. The fees and charges under the annuity contract and
compensation paid to your representative may also be different between each
annuity. If you are purchasing the contract as a replacement for variable
annuity or variable life coverage, you should consider, among other things,
any surrender or penalty charges you may incur when replacing your existing
coverage. Pruco Life is a wholly owned subsidiary of the Prudential Insurance
Company of America. Pruco Life is located at 213 Washington Street, Newark, NJ
07102-2992, and can be contacted by calling 800-944-8786. Pruco Life
administers the Strategic Partners Horizon Annuity contracts at the Prudential
Annuity Service Center, P.O. Box 7960, Philadelphia, PA 19176. You can contact
the Prudential Annuity Service Center by calling, toll-free, (888) PRU-2888.
PLEASE READ THIS PROSPECTUS
Please read this prospectus before purchasing a Strategic Partners Horizon
Annuity contract and keep it for future reference. The Risk Factors section
appears in Section 9 of the Summary.
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THE SEC HAS NOT DETERMINED THAT THIS CONTRACT IS A GOOD INVESTMENT, NOR HAS
THE SEC DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE. INVESTMENT IN A MARKET VALUE ADJUSTED
ANNUITY CONTRACT IS SUBJECT TO RISK, INCLUDING THE POSSIBLE LOSS OF YOUR
MONEY. AN INVESTMENT IN STRATEGIC PARTNERS HORIZON ANNUITY IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
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Strategic Partners/SM/ is a service mark of the Prudential Insurance Company
of America ORD01124
CONTENTS
2
PART I SUMMARY
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STRATEGIC PARTNERS HORIZON ANNUITY PROSPECTUS
3
PART I: STRATEGIC PARTNERS HORIZON ANNUITY PROSPECTUS SUMMARY
GLOSSARY
We have tried to make this prospectus as easy to read and understand as
possible. By the nature of the contract, however, certain technical words or
terms are unavoidable. We have identified the following as some of the key
words or terms. Other defined terms are set forth in your contract.
Accumulation Phase
The period that begins with the contract date (which we define below) and ends
when you start receiving income payments, or earlier if the contract is
terminated through a full withdrawal or payment of a death benefit.
Adjusted Contract Value
When you begin receiving income payments, the value of your contract minus any
charge we impose for premium taxes and withdrawal charges, adjusted for any
market value adjustment.
Annuitant
The person whose life determines the amount of income payments that we will
pay. If the annuitant dies before the annuity date, the co-annuitant (if any)
becomes the annuitant if the contract's requirements for changing the annuity
date are met. If, upon the death of the annuitant, there is no surviving
eligible co-annuitant, and the owner is not the annuitant, then the owner
becomes the annuitant.
Annuity Date
The date when income payments are scheduled to begin. You must have our
permission to change the annuity date. If the co-annuitant becomes the
annuitant due to the death of the annuitant, and the co-annuitant is older
than the annuitant, then the annuity date will be based on the age of the
co-annuitant, provided that the contract's requirements for changing the
annuity date are met (e.g., the co-annuitant cannot be older than a specified
age). If the co-annuitant is younger than the annuitant, then the annuity date
will remain unchanged.
Beneficiary
The person(s) or entity you have chosen to receive a death benefit.
Business Day
A day that we are open for business. Our business day generally ends at 4:00
p.m. Eastern time.
Co-Annuitant
The person shown on the contract data pages who becomes the annuitant (if
eligible) upon the death of the annuitant if the requirements for changing the
annuity date are met. No co-annuitant may be designated if the owner is a
non-natural person.
Code
The Internal Revenue Code of 1986, as amended from time to time.
Contract Date
The date we accept your initial purchase payment and all necessary paperwork
in good order at the Prudential Annuity Service Center. Contract anniversaries
are measured from the contract date. A contract year starts on the contract
date or on a contract anniversary.
Contract Owner, Owner or You
The person entitled to the ownership rights under the contract.
Contract Surrender Value
This is the total value of your contract adjusted by any market-value
adjustment, minus any withdrawal charge(s) and premium taxes.
Contract Value
The total value of the amount in a contract allocated to a guarantee period as
of a particular date.
Death Benefit
If a death benefit is payable, the beneficiary you designate will receive the
contract value as the death benefit. If the contract is owned by an entity
(e.g. a corporation or trust), rather than by an individual, then we will pay
the death benefit upon the death of the annuitant. See Section 4, "What Is The
Death Benefit?"
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Free Look
Under state insurance laws, you have the right, during a limited period of
time, to examine your contract 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.
Good Order
An instruction received at the Prudential Annuity Service Center, utilizing
such forms, signatures and dating as we require, which is sufficiently clear
that we do not need to exercise any discretion to follow such instructions.
Guarantee Period
A period of time during which your invested purchase payment earns interest at
the declared rate. We currently make available guarantee periods equal to any
or all of the following: 1 year (currently available only as a renewal
option), 3 years, 5 years, 7 years, and 10 years. During the 30 day period
immediately preceding the end of a guarantee period, we allow you to make an
additional purchase payment, which will be allocated to another guarantee
period available at that time (provided that the new guarantee period ends
prior to the contract anniversary next following the annuitant's 95th birthday
and that you reinvest at least $1000).
Income Options
Options under the contract that define the frequency and duration of income
payments. In your contract, we also refer to these as payout or annuity
options.
Invested Purchase Payment
Your purchase payment (which we define below) less any deduction we make for
any tax charge. In addition to the initial invested purchase payment, we allow
you to make additional purchase payments during the 30 days preceding the end
of a guarantee period.
Joint Owner
The person named as the joint owner, who shares ownership rights with the
owner as defined in the contract. A joint owner must be a natural person.
Prudential Annuity Service Center
For general correspondence: P.O. Box 7960, Philadelphia, PA, 19176. For
express overnight mail: 2101 Welsh Road, Dresher, PA 19025. The phone number
is (888) PRU-2888. Prudential's Web site is www.prudential.com.
Purchase Payments
The amount of money you pay us to purchase the contract, as well as any
additional payment you make.
Tax Deferral
This is a way to increase your assets without currently being taxed.
Generally, you do not pay taxes on your contract earnings until you take money
out of your contract. You should be aware that tax favored plans (such as
IRAs) already provide tax deferral regardless of whether they invest in
annuity contracts. See Section 8, "What Are The Tax Considerations Associated
With The Strategic Partners Horizon Annuity Contract?"
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SUMMARY FOR SECTIONS 1-9
For a more complete discussion of the following topics, see the corresponding
section in the prospectus.
SECTION 1
What Is The Strategic Partners Horizon Annuity?
This market value adjusted annuity contract, offered by Pruco Life, is a
contract between you, as the owner, and us. The contract is intended for
retirement savings or other long-term investment purposes and provides a death
benefit and guaranteed income options.
While your money remains in the contract for the full guarantee period, your
principal amount is guaranteed and the minimum interest amount that your money
will earn is dictated by applicable state law. Payments allocated to the
contract are held as a separate pool of assets, but the income, gains or
losses experienced by these assets are not directly credited or charged
against the contracts. As a result, the strength of our guarantees under the
contract are based on the overall financial strength of Pruco Life.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase,
earnings grow on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase starts when you begin receiving regular payments
from your contract. The amount of money you are able to accumulate in your
contract during the accumulation phase will help determine the amount of the
payments you will receive during the income phase. Other factors will affect
the amount of your payments such as age, gender and the payout option you
selected.
We may amend the contract as permitted by law. For example, we may add new
features to the contract. Subject to applicable law, we determine whether or
not to make such contract amendments available to contracts that already have
been issued.
Free Look. If you change your mind about owning Strategic Partners Horizon
Annuity, you may cancel your contract within 10 days after receiving it (or
whatever period is required by applicable law). You can request a refund by
returning the contract either to the representative who sold it to you, or to
the Prudential Annuity Service Center at the address shown on the first page
of this prospectus.
We impose neither a withdrawal charge nor any market value adjustment if you
cancel your contract under the "free look" provision. To the extent dictated
by state law, we will include in your refund the amount of any fees and
charges that we deducted.
SECTION 2
What Guarantee Periods Can I Choose?
You can allocate your initial purchase payment to one of the guarantee periods
available under the contract. We have the right under the contract to offer
one or more of the following guarantee periods: 1 year (currently available
only as a renewal option), 3 years, 5 years, 7 years, or 10 years, and we may
offer other guarantee periods in the future. At any time, we may offer any or
all of these guarantee periods. You may not allocate your purchase payment to
more than one guarantee period.
SECTION 3
What Kind Of Payments Will I Receive During The Income Phase? (Annuitization)
If you want to receive regular income from your annuity, you can choose one of
several options, including guaranteed payments for the annuitant's lifetime.
Once you begin receiving regular payments, you cannot change your payment plan.
SECTION 4
What Is The Death Benefit?
If the sole owner or the first of the joint owners dies, the designated
person(s) or the beneficiary will receive the contract value as the death
benefit. If the contract is owned by an entity (e.g., a corporation or trust),
rather than by an individual, then we will pay the death benefit upon the
death of the annuitant.
SECTION 5
How Can I Purchase A Strategic Partners Horizon Annuity Contract?
You can purchase this contract, under most circumstances, with a minimum
initial purchase payment of $5,000, but not greater than $5 million, absent
our prior approval. We allow you to make additional purchase payments only
during the 30 days immediately preceding the end of a guarantee period. Your
representative can help you fill out the proper forms.
SECTION 6
What Are The Expenses Associated With The Strategic Partners Horizon Annuity
Contract?
There are a few states/jurisdictions that assess a premium tax on us when you
begin receiving regular income payments from your annuity. In those states, we
deduct a charge designed to approximate this tax, which can range from 0-3.5%
of your contract value.
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During the accumulation phase, if you withdraw money, you may have to pay a
withdrawal charge on all or part of the withdrawal. The withdrawal charge that
we impose depends on the guarantee period from which you are withdrawing your
money. The withdrawal charge ranges from 0%-7%. You also will be subject to a
market value adjustment if you make a withdrawal prior to the end of a
guarantee period.
SECTION 7
How Can I Access My Money?
You may withdraw money at any time during the accumulation phase. You may,
however, be subject to income tax and, if you make a withdrawal prior to age
59 1/2, an additional tax penalty as well. Each contract year after the first,
you may withdraw without charge, an amount equal to the interest you earned
during the previous contract year. Withdrawals greater than that amount will
be subject to a withdrawal charge. A market-value adjustment may also apply.
SECTION 8
What Are The Tax Considerations Associated With The Strategic Partners Horizon
Annuity Contract?
Your earnings are generally not taxed until withdrawn. If you withdraw money
during the accumulation phase, the tax laws first treat the withdrawals as a
withdrawal of earnings, which are taxed as ordinary income. If you are younger
than age 59 1/2 when you withdraw money, you may be charged a 10% federal tax
penalty on the earnings in addition to ordinary taxation. A portion of the
payments you receive during the income phase is considered a partial return of
your original investment. Generally, all amounts withdrawn from an Individual
Retirement Annuity (IRA) contract (excluding Roth IRAs) are taxable and
subject to the 10% penalty if withdrawn prior to age 59 1/2.
SECTION 9
Other Information
This contract is issued by Pruco Life Insurance Company, a subsidiary of The
Prudential Insurance Company of America, and sold by registered
representatives of affiliated and unaffiliated broker/dealers.
RISK FACTORS
There are various risks associated with an investment in the Strategic
Partners Horizon Annuity that we summarize below.
Issuer Risk. Your Strategic Partners Horizon Annuity is available under a
contract issued by Pruco Life, and thus is backed by the financial strength of
that company. If Pruco Life were to experience significant financial
adversity, it is possible that Pruco Life's ability to pay interest and
principal under the Strategic Partners Horizon Annuity could be impaired.
Risks Related To Changing Interest Rates. You do not participate directly in
the investment experience of the bonds and other instruments that Pruco Life
holds to support the Strategic Partners Horizon Annuity. Nonetheless, the
market value adjustment formula (which is detailed in the appendix to this
prospectus) reflects the effect that prevailing interest rates have on those
bonds and other instruments. If you need to withdraw your money during a
period in which prevailing interest rates have risen above their level when
you made your purchase, you will experience a "negative" market value
adjustment. When we impose this market value adjustment, it could result in
the loss of both the interest you have earned and a portion of your purchase
payments. Thus, before you commit to a particular guarantee period, you should
consider carefully whether you have the ability to remain invested throughout
the guarantee period. In addition, we cannot, of course, assure you that the
Strategic Partners Horizon Annuity will perform better than another investment
that you might have made.
Risks Related To The Withdrawal Charge. We may impose withdrawal charges that
range as high as 7%. If you anticipate needing to withdraw your money prior to
the end of a guarantee period, you should be prepared to pay the withdrawal
charge that we will impose.
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PART II SECTIONS 1-9
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STRATEGIC PARTNERS HORIZON ANNUITY PROSPECTUS
8
1: WHAT IS THE STRATEGIC PARTNERS HORIZON ANNUITY?
The Strategic Partners Horizon Annuity is a contract between you, the owner,
and us, the insurance company, Pruco Life Insurance Company (Pruco Life, We or
Us).
Under our contract or agreement, in exchange for your payment to us, we
promise to pay you a guaranteed income stream that can begin any time after
the second contract anniversary. This time period may differ in certain
states. Your annuity is in the accumulation phase until you decide to begin
receiving annuity payments. The date you begin receiving annuity payments is
the annuity date. On the annuity date, your contract switches to the income
phase.
This annuity contract benefits from tax deferral. Tax deferral means that you
are not taxed on earnings or appreciation on the assets in your contract until
you withdraw money from your contract. (If you purchase the annuity contract
in a tax-favored plan such as an IRA, that plan generally provides tax
deferral even without investing in an annuity contract. Therefore, before
purchasing an annuity in a tax-favored plan, you should consider whether its
features and benefits beyond tax deferral meet your needs and goals. You may
also want to consider the relative features, benefits and costs of these
annuities compared with any other investment that you may use in connection
with your retirement plan or arrangement.)
Strategic Partners Horizon Annuity allows you to allocate a purchase payment
to one of several guarantee periods that we offer at the time. As the owner of
the contract, you have all of the decision-making rights under the contract.
You will also be the annuitant unless you designate someone else. The owner is
the person upon whose death during the accumulation phase, the death benefit
generally is payable. The annuitant is the person whose life is used to
determine the amount of annuity payments and how long the payments will
continue. On and after the annuity date, the annuitant may not be changed.
The beneficiary is the person(s) or entity designated to receive any death
benefit if the owner (or first-to-die of joint owners) dies during the
accumulation phase. You may change the beneficiary any time prior to the
annuity date by making a written request to us. Your request becomes effective
when we approve it.
SHORT TERM CANCELLATION RIGHT OR "FREE LOOK"
If you change your mind about owning Strategic Partners Horizon Annuity, you
may cancel your contract within 10 days after receiving it (or whatever period
may be required by applicable law). You can request a refund by returning the
contract either to the representative who sold it to you, or to the Prudential
Annuity Service Center at the address shown on the first page of this
prospectus. You will receive, depending on applicable state law:
.. Your full purchase payment less any applicable federal and state income tax
withholding; or
.. The amount your contract is worth as of the day we receive your request,
less any applicable federal and state income tax withholding.
We impose neither a withdrawal charge nor any market value adjustment if you
cancel your contract under this provision. To the extent dictated by state
law, we will include in your refund the amount of any fees and charges that we
deducted.
2: WHAT GUARANTEE PERIODS CAN I CHOOSE?
The contract gives you the choice of allocating your purchase payment to one
of the guarantee periods that we are offering at the time.
GUARANTEE PERIODS
Under the Strategic Partners Horizon Annuity contract, we have the right to
offer one or more of several guarantee periods. These guarantee periods are 1
year (currently available only as a renewal option), 3 years, 5 years, 7
years, or 10 years in length. In the future, we may offer other guarantee
periods on substantially the same terms as described in this prospectus. We
are not obligated to offer more than one guarantee period at any time. We will
apply your purchase payment to the guarantee period you have chosen. You must
allocate all of your initial purchase payment to a single guarantee period. A
Guarantee Period begins:
.. when all or part of a purchase payment is allocated to that particular
Guarantee Period; or
.. when you "renew" into a new Guarantee Period.
We declare the interest rate for each available guarantee period periodically,
and guarantee that you will receive an interest rate at least equal to the
minimum stipulated by applicable state law. You will earn interest on your
invested purchase payment at the rate that we have declared for the guarantee
period you have chosen. We do not have a rigid formula for determining the
fixed interest rates. Generally the interest rates we offer 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, mortgage-backed securities,
mortgage loans, corporate debt obligations of different durations, private
placements, asset-backed obligations and municipal bonds. In determining
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2: WHAT GUARANTEE PERIODS CAN I CHOOSE? continued
rates we also consider factors such as the length of the guarantee period,
regulatory and tax requirements, liquidity of the markets for the type of
investments we make, commissions, administrative and investment expenses, our
insurance risks, general economic trends and competition. We will credit
interest on a new guarantee period at a rate not less than the rate we are
then crediting to guarantee periods of the same length selected by new
purchasers in the same class.
In addition to the basic interest, we also may pay additional interest with
respect to guarantee periods other than the one year and three year periods.
The amount of the additional interest varies according to the amount of your
purchase payment. Specifically, we will pay additional interest equal to 0.50%
annually for a purchase payment of $25,000 to $74,999, and 1.00% annually for
a purchase payment of $75,000 or more. If we grant additional interest to you,
you will earn that interest only during the first year of your contract (and,
in most states, during the first year of the initial renewal guarantee period,
other than the one and three year periods). We are not obligated to offer this
additional interest continuously, meaning that we reserve the right to offer
additional interest only during limited time periods of our choosing. We also
reserve the right to change the amount of the additional interest.
We express interest rates as annual rates, although we credit interest within
each guarantee period on a daily basis. The daily interest that we credit is
equal to the pro rated portion of the interest that would be earned on an
annual basis. We credit interest from the business day on which your purchase
payment is received in good order at the Prudential Annuity Service Center
until the earliest to occur of any of the following events: (a) full surrender
of the contract, (b) commencement of annuity payments or settlement,
(c) cessation of the guarantee period, or (d) death of the first to die of the
owner and joint owner (or annuitant, for entity-owned contracts). At the time
that we confirm your guarantee period, we will advise you of the interest rate
in effect and the date your guarantee period matures. We may change the rates
we credit to a new guarantee period at any time. Any change in interest rate
does not affect guarantee periods that were in effect before the date of the
change. To inquire as to the current rates for guarantee periods, please call
1-888-PRU-2888.
During the 30-day period immediately preceding the end of a guarantee period,
we allow you to do any of the following, without the imposition of the
withdrawal charge or market value adjustment: (a) surrender the contract, in
whole or in part, (b) allocate the contract value to another guarantee period
available at that time (provided that the new guarantee period ends prior to
the contract anniversary next following the annuitant's 95/th/ birthday and
that you reinvest at least $1,000), or (c) apply the contract value to the
annuity or settlement option of your choice. If we do not receive instructions
from you concerning the disposition of the contract value in your maturing
guarantee period, we will reinvest the contract value in a guarantee period
having the same duration as the guarantee period that matured (provided that
the new guarantee period ends prior to the contract anniversary next following
the annuitant's 95/th/ birthday and that you reinvest at least $1,000). If any
available new guarantee period would end on or after the contract anniversary
next following the annuitant's 95/th/ birthday, then we will make only the one
year guarantee period available as the renewal period. We will not impose a
withdrawal charge on amounts you withdraw from the one year guarantee period
described in the immediately preceding sentence, although such a withdrawal
would be subject to a market value adjustment.
MARKET VALUE ADJUSTMENT
When you allocate a purchase payment to a guarantee period, we use that money
to buy and sell securities and other instruments to support our obligation to
pay interest. Generally, we buy bonds and certain other instruments for this
purpose. The duration of the bonds and other instruments that we buy with
respect to a particular guarantee period is influenced significantly by the
length of the guarantee period. For example, we typically would acquire
longer-duration bonds with respect to the 10 year guarantee period than we do
for the 3 year guarantee period. The value of these bonds is affected by
changes in interest rates, among other factors. The market value adjustment
that we assess against your contract value if you withdraw prior to the end of
a guarantee period involves our attributing to you a portion of our investment
experience on these bonds and other instruments.
For example, if you make a full withdrawal when interest rates have risen
since the time of your investment, the bonds and other investments in the
guarantee period likely would have decreased in value, meaning that we would
impose a "negative" market value adjustment on you (i.e., one that results in
a reduction of the withdrawal proceeds that you receive). For a partial
withdrawal, we would deduct a negative market value adjustment from your
remaining contract value. Conversely, if interest rates have decreased, the
market value adjustment could be positive.
Other things you should know about the market value adjustment include the
following:
.. We determine the market value adjustment according to a mathematical
formula, which is set forth at the end of this prospectus under the heading
"Market-Value Adjustment Formula." In that section of the prospectus, we
also provide hypothetical examples of how the formula works.
.. A negative market value adjustment could cause you to lose not only the
interest you have earned but also a portion of your principal.
.. You may withdraw (after the first contract year), without the imposition of
any market value adjustment, an amount equal to the interest earned under
your contract during the immediately preceding contract year.
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.. In addition to imposing a market value adjustment on withdrawals, we also
will impose a market value adjustment on the contract value you apply to an
annuity or settlement option, except if you annuitize during the 30-day
period preceding the end of a guarantee period (See Section 3 for details).
You should realize, however, that apart from the market value adjustment, the
value of the benefits under your contract does not depend on the investment
performance of the bonds and other instruments that we hold with respect to
your guarantee period. Apart from the effect of any market value adjustment,
we do not pass through to you the gains or losses on the bonds and other
instruments that we hold in connection with a guarantee period.
3: WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)
PAYMENT PROVISIONS
We can begin making annuity payments any time after the second contract
anniversary (or as required by state law if different). Annuity payments must
begin no later than the contract anniversary coinciding with or next following
the annuitant's 95/th/ birthday. If you begin annuity payments or commence
Option 3 at a time other than the 30-day period prior to the end of a
guarantee period, then:
.. We will impose both a withdrawal charge, if applicable, and a market value
adjustment if you choose an annuity option with a fixed period of fewer
than 10 years or Option 3. (If your adjusted contract value is allocated to
the one year guarantee period, we will impose only a market value
adjustment).
.. We will impose a market value adjustment, but not a withdrawal charge, if
you choose a life annuity or an annuity option with a fixed period of at
least 10 years.
We make the income plans described below available before the annuity date.
These plans are called annuity options. You must choose an annuity option at
least 30 days in advance of the annuity date. If you do not, we will select
Option 2 below on your behalf unless prohibited by applicable law. During the
income phase, all of the annuity options under this contract are fixed annuity
options. GENERALLY, ONCE THE ANNUITY PAYMENTS BEGIN, THE ANNUITY OPTION CANNOT
BE CHANGED AND YOU CANNOT MAKE WITHDRAWALS.
If the annuitant dies or assigns the contract, and the new annuitant is older
than the original annuitant, then the annuity date will be based on the new
annuitant's age. If the annuitant dies or assigns the contract, and the new
annuitant is younger than the original annuitant, then the annuity date will
remain unchanged. In no event, however, may an original or revised annuity
date be later than the contract anniversary next following the annuitant's
95/th/ birthday.
Option 1
Annuity Payments For A Fixed Period: Under this option, we will make equal
payments for the period chosen, up to 25 years. The annuity payments may be
made monthly, quarterly, semi-annually, or annually, as you choose, for the
fixed period. If the annuitant dies during the income phase, a lump sum
payment generally will be made to the beneficiary. The amount of the lump sum
payment is determined by calculating the present value of the unpaid future
payments. This is done by using the interest rate used to compute the actual
payments. The interest rate will be at least 3% a year.
Option 2
Life Annuity With 120 Payments (10 Years): Under this option, we will make
annuity payments monthly, quarterly, semi-annually, or annually as long as the
annuitant is alive. If the annuitant dies before we have made 10 years worth
of payments, we will pay the beneficiary in one lump sum the present value of
the annuity payments scheduled to have been made over the remaining portion of
that 10 year period, unless we were specifically instructed that such
remaining annuity payments continue to be paid to the beneficiary. The present
value of the remaining annuity payments is calculated by using the interest
rate used to compute the amount of the original 120 payments. If this contract
is issued as a Qualified Annuity Contract and annuity payments begin after age
92, then this Option 2 will be modified to permit a period certain that will
end no later than the life expectancy of the annuitant defined under the IRS
Required Minimum Distribution tables.
Option 3
Interest Payment Option: Under this option, we will credit interest on the
adjusted contract value until you request payment of all or part of the
adjusted contract value. We can make interest payments on a monthly,
quarterly, semiannual, or annual basis or allow the interest to accrue on your
contract assets. Under this option, we will pay you interest at an effective
rate of at least 1.50% a year. This option may not be available in all states,
and is not available if you hold your contract in an IRA.
Other Annuity Options: We currently offer a variety of other annuity options
not described above. At the time annuity payments are chosen, we may make
available to you any of the fixed annuity options that are offered at your
annuity date.
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3: WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION) continued
TAX CONSIDERATIONS
If your contract is held under a tax-favored plan, you should consider the
required minimum distribution rules under the tax law when selecting your
annuity option.
4: WHAT IS THE DEATH BENEFIT?
BENEFICARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued, unless
you change it at a later date. Unless an irrevocable beneficiary has been
named, you can change the beneficiary at any time before the owner or last
surviving owner dies. However, if the contract is jointly owned, the owner
must name the joint owner and the joint owner must name the owner as the
beneficiary.
CALCULATION OF THE DEATH BENEFIT
If the owner (or first-to-die of the owner and joint owner) dies during the
accumulation phase, we will, upon receiving appropriate proof of death and any
other needed documentation in good order (proof of death), pay a death benefit
to the beneficiary designated by the deceased owner or joint owner. If the
contract is owned by an entity (e.g., a corporation or trust), rather than by
an individual, then we will pay the death benefit upon the death of the
annuitant. We require proof of death to be submitted promptly. The beneficiary
will receive a death benefit equal to the contract value as of the date that
proof of death is received in good order at the Prudential Annuity Service
Center.
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 Surrender
Value will be paid out to the beneficiary and it is not eligible for the death
benefit provided under the contract.
Instead of asking us to pay a death benefit, the surviving spouse may opt to
continue the contract, as discussed below. Generally, we impose no withdrawal
charge or market value adjustment when we pay the death benefit.
JOINT OWNERSHIP RULES
If the contract has an owner and a joint owner and they are spouses, then upon
the first to die of the owner and joint owner, the surviving spouse has the
choice of the following:
.. The contract can continue, with the surviving spouse as the sole owner of
the contract; or
.. The surviving spouse can receive the death benefit and the contract will
end. If the surviving spouse wishes to receive the death benefit, he or she
must make that choice within the first 60 days following our receipt of
proof of death. Otherwise, the contract will continue with the surviving
spouse as the sole owner.
If the contract has an owner and a joint owner, and they are not spouses, the
contract will not continue. Instead, the beneficiary will receive the death
benefit.
The death benefit payout options are:
Choice 1. Lump sum.
Choice 2. Payment of the entire death benefit within 5 years of the date of
death of the first to die. Under this choice, we will impose a market value
adjustment upon any withdrawal made during the 5 year period (unless the
withdrawal is made during the 30-day period immediately preceding the end of a
guarantee period).
Choice 3. Payment under an annuity or settlement option over the lifetime of
the beneficiary or over a period not extending beyond the life expectancy of
the beneficiary with distribution beginning within one year of the date of
death of the first to die.
The tax consequences to the beneficiary may vary among the three death benefit
payout options. See Section 8, "What Are The Tax Considerations Associated
With The Strategic Partners Horizon Annuity Contract?"
12
5: HOW CAN I PURCHASE A STRATEGIC PARTNERS HORIZON ANNUITY CONTRACT?
PURCHASE PAYMENT
A purchase payment is the amount of money you give us to purchase the
contract. The minimum initial purchase payment is $5,000, and may not exceed
$5 million absent our prior approval, unless we are prohibited under
applicable state law from insisting on such prior approval. You can allocate
subsequent purchase payments to a guarantee period only during the 30-day
period immediately preceding the end of a guarantee period, provided that any
such purchase payment is at least $1,000.
Purchase payments must be submitted by check drawn on a U.S. bank, in U.S.
dollars, and made payable to Pruco Life. Purchase payments may also be
submitted via 1035 exchange or direct transfer of funds. Under certain
circumstances, purchase payments may be transmitted to Pruco Life via wiring
funds through your Financial Professional's broker-dealer firm. 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.
Generally, your initial purchase payment consists of a single sum. However,
with respect to an exchange or roll-over, your purchase payment can consist of
multiple sums that you identify at the time of application. With respect to
the latter:
.. we will aggregate each sum for purposes of computing the amount of any
additional interest that we pay on each sum; and
.. each sum will earn interest only from the business day on which it is
received in good order at the Prudential Annuity Service Center until the
end of the guarantee period.
We generally will sell you a contract only if the eldest of the owner, any
joint owner, annuitant, and any co-annuitant is 85 or younger on the contract
date.
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 contract to government regulators.
ALLOCATION OF PURCHASE PAYMENT
When you purchase a contract, we will allocate your invested purchase payment
to the guarantee period of your choosing, provided that we are offering that
guarantee period at the time. You must allocate all of your initial purchase
payment to a single guarantee period. Likewise, any subsequent purchase
payment you make during the 30-day period immediately preceding the end of a
guarantee period will be consolidated with your existing contract value, and
the total will be allocated to a single guarantee period of your choosing.
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
co-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 contract is owned by an entity; and
. a change in beneficiary if the owner had previously made the designation
irrevocable.
6: WHAT ARE THE EXPENSES ASSOCIATED WITH THE STRATEGIC PARTNERS HORIZON
ANNUITY CONTRACT?
There are charges associated with the contract that may reduce the return on
your investment. These charges and expenses are described below.
WITHDRAWAL CHARGE
The withdrawal charge is for the payment of the expenses involved in selling
and distributing the contracts, including sales commissions, printing of
prospectuses, sales administration, preparation of sales literature and other
promotional activities.
You may surrender your contract in whole or in part while the guarantee period
remains in effect. If you do so, however, you will be subject to (a) a
possible withdrawal charge, (b) a market value adjustment (which we discussed
in Section 2 above) and (c) possible tax penalties. After the first contract
year, you may withdraw, without the imposition of any withdrawal charge or
market value adjustment, an amount equal to the interest earned under your
contract during the immediately preceding contract
13
6: WHAT ARE THE EXPENSES ASSOCIATED WITH THE STRATEGIC PARTNERS HORIZON
ANNUITY CONTRACT? continued
year. For purposes of this "free withdrawal" provision, you may not carry over
to future contract years any amount of interest that you did not withdraw in a
prior contract year. When we calculate the withdrawal charge and market value
adjustment, we first take into account any available charge-free amount. We
impose a withdrawal charge and market value adjustment only after that amount
has been exhausted. In addition, we do not impose either a withdrawal charge
or a market value adjustment on amounts you withdraw under the contract's
minimum distribution option to satisfy Internal Revenue Service required
minimum distribution rules. 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 contract. 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.
If you make a full withdrawal, we will deduct the withdrawal charge from the
proceeds that we pay to you. If you make a partial withdrawal, we will deduct
the withdrawal charge from the contract value remaining in the guarantee
period. We calculate the withdrawal charge after we have given effect to any
market value adjustment.
The withdrawal charge that we impose is equal to a specified percentage of the
contract value withdrawn that is in excess of the charge-free amount described
above. With respect to the initial guarantee period, the withdrawal charge is
based on the number of contract anniversaries that have elapsed since the
contract date. If permitted by state law, the below withdrawal charge schedule
is reinstated during your first, renewal guarantee period, and the contract
anniversaries set out in the table below also refer to contract anniversaries
within the first, renewal guarantee period. No withdrawal charges apply to any
guarantee period that you choose subsequent to your first, renewal guarantee
period. Moreover, we impose no withdrawal charge on withdrawals from any one
year guarantee period. The withdrawal charge generally is equal to the
following, if the contract is issued (or the initial renewal guarantee period
is selected) by an owner who is 84 or younger at that time:
As specified in the contract, we reduce withdrawal charges (from what is
depicted above) if the annuitant is 85 or older. There is a separate
withdrawal charge schedule applicable to each of ages 85, 86, 87, 88, 89 and
90. With certain exceptions, the withdrawal charge at any contract anniversary
declines by 1% from one age to the next successive age, at such older ages.
Some or all of the guarantee periods that we offer at any given time will be
shorter than the time periods indicated immediately above. As such, the length
of the guarantee period that you have selected, in and of itself, may prevent
you from taking advantage of the decreasing withdrawal charges depicted above.
For example, if you choose a three year guarantee period, you would not be
able to take advantage of the lower withdrawal charges that would have been
available in subsequent contract years. If a withdrawal is effective on the
day before a contract anniversary, the withdrawal charge percentage will be
that as of the next following contract anniversary. The withdrawal charge
applicable to contracts issued in certain states differs slightly from what we
describe above-check your contract for complete details.
14
WAIVER OF WITHDRAWAL CHARGE FOR CRITICAL CARE
We will allow you to withdraw money from the contract, and will waive any
withdrawal charge and market value adjustment, if the owner or joint owner (if
applicable) becomes confined to an eligible nursing home or hospital for a
period of at least three consecutive months after the contract was purchased.
You would need to provide us with proof of the confinement. If a physician has
certified that the owner or joint owner is terminally ill (has twelve months
or less to live) there will be no charge imposed for withdrawals nor any
market value adjustment. Critical Care Access is not available in all states.
Eligibility for this waiver may vary, depending on the terms of the contract
issued in your State. Please consult your contract.
TAXES ATTRIBUTABLE TO PREMIUM
There may be federal, state and local premium based taxes applicable to your
purchase payment. We are responsible for the payment of these taxes and may
make a charge against the value of the contract to pay some or all of these
taxes. It is our current practice not to deduct a charge for state premium
taxes until annuity payments begin. In the states that impose a premium tax on
us, the current rates range up to 3.5%. It is also our current practice not to
deduct a charge for the federal tax associated with deferred acquisition costs
paid by us that are based on premium received. However, we reserve the right
to charge the contract owner in the future for any such tax associated with
deferred acquisition costs and any federal, state or local income, excise,
business or any other type of tax measured by the amount of premium received
by us.
7: HOW CAN I ACCESS MY MONEY?
You can withdraw money at any time during the accumulation phase. If you do
so, however, you may be subject to income tax and, if the withdrawal is prior
to your attaining age 59 1/2, an additional tax penalty. You will need our
consent to make a partial withdrawal if the requested withdrawal is less than
$250. During the accumulation phase, we generally have the right to terminate
your contract and pay you the contract value if the current contract value is
less than $2,000 and certain other conditions apply. We may postpone paying
any amount for a full or partial surrender to authenticate the signature on a
request. In the event that we postpone payment, the request will not be
effective until we have validated the signature on the request to our
satisfaction.
Income taxes, tax penalties, withdrawal charges, and a market value adjustment
may apply to any withdrawal you make. For a more complete explanation of tax
consequences, see Section 8.
AUTOMATED WITHDRAWALS
We offer an automated withdrawal feature. This feature enables you to receive
periodic withdrawals in monthly, quarterly, semiannual, or annual intervals.
We will process your withdrawal at the end of the business day at the
intervals you specify. We will continue at these intervals until you tell us
otherwise. We reserve the right to cease paying automated withdrawals if
paying any such withdrawal would cause the contract value to be less than
$2,000.
The minimum automated withdrawal amount you can make is $100. An assignment of
the contract terminates any automated withdrawal program that you had in
effect. Withdrawal charges, and a market value adjustment, may apply to any
automated withdrawal you make. You may not use the automated withdrawal
feature to withdraw the interest earned under your contract.
Income taxes, tax penalties, withdrawal charges, and a market value adjustment
may apply to any withdrawal you make. For a more complete explanation of tax
consequences, see Section 8.
8: WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS
HORIZON ANNUITY CONTRACT?
The tax considerations associated with a contract 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 or same-sex marriages. You should be aware, however, that federal tax
law does not recognize civil unions or same-sex marriages. Therefore, we
cannot permit a civil union partner or same-sex spouse to continue the
contract upon the death of the first partner under the annuity's "spousal
continuance" provision. Civil union couples and same-sex marriage spouses
should consider that limitation before selecting a spousal benefit under the
contract.
15
8: WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS
HORIZON ANNUITY CONTRACT? continued
The discussion below generally assumes that the contract is issued to the
Owner. In addition, the discussion below is general in nature, and the fact
that we refer to a particular kind of ownership arrangement below (e.g., a
particular kind of tax-qualified plan) does not mean that such an ownership
arrangement necessarily is permitted under this contract.
NONQUALIFIED ANNUITY CONTRACTS
In general, as used in this prospectus, a Nonqualified contract 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 contract 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.
You must commence annuity payments no later than the first day of the calendar
month next following the maximum annuity date for your contract.
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.
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
contract 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 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.
Please refer to your contract for the maximum annuity date.
Tax Penalty for Early Withdrawal from a Nonqualified Contract
You may owe a 10% tax penalty on the taxable part of distributions received
from your Nonqualified 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.
16
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 a contract 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 is 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 Co-Annuitant: We may allow the naming of a co-annuitant
when a Nonqualified contract is held by a pension plan or a tax favored
retirement plan. In such a situation, the contract may no longer qualify for
tax deferral where the contract continues after the death of the Annuitant.
Reporting and Withholding on Distributions. Taxable amounts distributed from
an contract 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 contract.
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.
17
8: WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS
HORIZON ANNUITY CONTRACT? continued
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.
Required Distributions Upon Your Death for Nonqualified 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 (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 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. 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 Contract. We reserve the right to make any changes we deem
necessary to assure that your contract 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 a 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
contracts. This contract 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 contract may typically be purchased for use in connection with:
.. Individual retirement accounts and annuities (IRAs), including inherited
IRAs (which we refer to as a Beneficiary IRA), which are subject to
Sections 408(a) and 408(b) of the Code;
.. Roth IRAs, including inherited Roth IRAs (which we refer to as a
Beneficiary Roth IRA) 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 contract may also be purchased by a 401(a) trust or custodial
IRA or Roth IRA account, or a Section 457 plan, 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, or a Section 457 plan, as applicable, are the
responsibility of the applicable trustee or custodian.
18
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 a contract 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 contract by notifying us in
writing, and we will refund all of the purchase payments under the contract
(or, if provided by applicable state law, the amount credited under the
contract, if greater), less any applicable federal and state income tax
withholding.
Contributions Limits/Rollovers. Subject to the minimum purchase payment
requirements of a contract, you may purchase an contract 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 2009 the contribution limit is
$5,000. The contribution amount is 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 a contract, you can make regular IRA
contributions under the contract (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) 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.
The rollover rules applicable to non-spouse beneficiaries under the Code are
more restrictive than the rollover rules applicable to owner/participants and
spouse beneficiaries. Generally, non-spouse beneficiaries may roll over
distributions from tax favored retirement plans only as a direct rollover, and
if permitted by the plan. Under the 2008 Retiree and Employer Recovery Act,
employer retirement plans are required to permit non-spouse beneficiaries to
roll over funds to an inherited IRA for plan years beginning after
December 31, 2009. No additional contributions can be made to a Beneficiary
IRA.
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 contract. 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) $49,000 in 2009 ($46,000 in 2008) 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 2009, this limit is $245,000 ($230,000
for 2008);
.. SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
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8: WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS
HORIZON ANNUITY CONTRACT? continued
.. SEPs that contain a salary reduction or "SARSEP" provision prior to 1997
may permit salary deferrals up to $16,500 in 2009 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 $5,500 in 2009. These amounts are indexed for
inflation. These contracts 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 a contract, if you
meet certain income limitations you may purchase a contract 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 a contract has been 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 , other than a Roth 401(k) or Roth 403(b) distribution, to a
Roth IRA.
Non-spouse beneficiaries receiving a distribution from an employer sponsored
retirement plan under sections 401(a) or 403(b) of the Code can also directly
roll over contributions to a Roth IRA, subject to the same income limits.
However, it is our understanding of the Code that non-spouse beneficiaries
cannot "rollover" benefits from a traditional IRA 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 an 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 employer maintains such a plan and your 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 $16,500 in 2009. Individuals
participating in a TDA who are age 50 or above by the end of the year will be
permitted to contribute an additional $5,500 in 2009. 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).
20
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 employer's TDA plan or
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.
Caution: Under recent IRS regulations we can accept contributions, transfers
and rollovers only if we have entered into an information-sharing agreement,
or its functional equivalent, with the applicable employer or its agent. In
addition, in order to comply with the regulations, we will only process
certain transactions (e.g, transfers, withdrawals, hardship distributions and,
if applicable, loans) with employer approval. This means that if you request
one of these transactions we will not consider your request to be in good
order, and will not therefore process the transaction, until we receive the
employer's approval in written or electronic form.
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.
Note that under the Worker, Retiree and Employer Recovery Act of 2008,
Required Minimum Distributions are suspended for 2009 and are scheduled to
resume in 2010.
Required minimum distributions are calculated based on the sum of the contract
value under the contract. As a result, the required minimum distributions may
be larger than if the calculation were based on the contract value only, which
may in turn result in an earlier (but not before the required beginning date)
distribution of amounts under the contract and an increased amount of taxable
income distributed to the Annuity owner, and a reduction of death benefits.
You can use the Minimum Distribution option to satisfy the required minimum
distribution rules for a contract without either beginning annuity payments or
surrendering the contract. 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. If you have previously elected the Minimum Distribution
Option to satisfy your required minimum distributions, we will continue to
make such distributions to you in 2009 based on this methodology, unless you
tell us not to make a 2009 distribution.
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.
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.
Note that the Worker, Retiree and Employer Recovery Act of 2008 suspended
Required Minimum Distributions for 2009. This means that if your
beneficiary receives payment as periodic payments, no payment is required
in 2009. If your beneficiary elects to receive full distribution by
December 31 of the year including the five year anniversary of the date of
death, 2009 shall not be included in the five year requirement period. This
effectively extends this period to December 31/st/ of the six year
anniversary of the date of death.
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8: WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS
HORIZON ANNUITY CONTRACT? continued
.. 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 31/st/ 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 31/st/ 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. For this
distribution requirement also, 2009 shall not be included in the five year
requirement period.
.. 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. For this distribution requirement also, 2009 shall not
be included in the five year requirement period.
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 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 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.
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.
22
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
contracts.
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.
9: OTHER INFORMATION
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company (Pruco Life) is a stock life insurance company,
organized on December 23, 1971 under the laws of the State of Arizona. It is
licensed to sell life insurance and annuities in the District of Columbia,
Guam, and in all states except New York.
Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of
America (Prudential), a New Jersey stock life insurance company that has been
doing business since October 13, 1875. Prudential is an indirect wholly-owned
subsidiary of
23
9: OTHER INFORMATION continued
Prudential Financial, Inc. (Prudential Financial), a New Jersey insurance
holding company. As Pruco Life's ultimate parent, Prudential Financial
exercises significant influence over the operations and capital structure of
Pruco Life and Prudential. However, neither Prudential Financial, Prudential,
nor any other related company has any legal responsibility to pay amounts that
Pruco Life may owe under the contract.
Pruco Life incorporates by reference into the prospectus its latest annual
report on Form 10-K filed pursuant to Section 13(a) or Section 15(d) of the
Exchange Act since the end of the fiscal year covered by its latest annual
report. In addition, all documents subsequently filed by Pruco Life pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act also are
incorporated into the prospectus by reference. Pruco Life will provide to each
person, including any beneficial owner, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by reference
into the prospectus but not delivered with the prospectus. Such information
will be provided upon written or oral request at no cost to the requester by
writing to Prudential Annuities Life Assurance Corporation, One Corporate
Drive, Shelton, CT 06484 or by calling 800-752-6342. Pruco Life files periodic
reports as required under the Securities Exchange Act of 1934. The public may
read and copy any materials that Pruco Life files with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy, and information statements, and other information
regarding issuers that file electronically with the SEC (see
http://www.sec.gov). Our internet address is
http://www.prudentialannuities.com.
Pruco Life 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 Pruco Life may change over time. As of December 31, 2008,
non-affiliated entities that could be deemed service providers to Pruco Life
and/or another insurer within the Prudential Annuities business unit consisted
of the following: Alliance-One Services Inc. (administration of variable life
policies) located at 55 Hartland Street East Hartford CT 06108, Ascensus
(qualified plan administrator) located at 200 Dryden Road, Dresher, PA 19025,
Blue Frog Solutions, Inc. (order entry systems provider) located at 555 SW
12/th/ Ave, Suite 202 Pompano Beach, FL 33069, Broadridge Investor
Communications Solutions, Inc. (proxy tabulation services), 51 Mercedes Way,
Edgewood, NY, 07666, 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 38120 Amrheim
Ave., Livonia MI 48150, 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.
SALE AND DISTRIBUTION OF THE CONTRACT
Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of
Prudential Annuities, Inc., is the distributor and principal underwriter of
the contracts offered through this prospectus. PAD acts as the distributor of
a number of annuity and life insurance products. 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).
The contract 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 contracts but are exempt from registration
("firms"). Applications for the contract 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 contracts directly to potential purchasers.
Commissions are paid to firms on sales of the contract 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
5.0%. Alternative compensation schedules are available that provide a lower
initial commission plus ongoing annual compensation based on all or a portion
of contract value. We may also provide compensation to the distributing firm
for providing ongoing service to you in relation to the contract. Commissions
and other compensation paid in relation to the contract do not result in any
additional charge to you.
24
In addition, in an effort to promote the sale of our products (which may
include the placement of Pruco Life and/or the contract 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 contract'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 contract; 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
Pruco Life pays an amount under these arrangements is provided below. 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 contract 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 contract.
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 Pruco Life products that were sold through the firm (or its
affiliated broker-dealers).
.. 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 Pruco Life annuity products sold through the firm (or its
affiliated broker-dealers).
.. 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, 2008) received payment
with respect to annuity business during 2008 (or as to which a payment amount
was accrued during 2008). The firms listed below include payments in
connection with products issued by Pruco Life Insurance Company and Pruco Life
Insurance Company of New Jersey. Your registered representative can provide
you with more information about the compensation arrangements that apply upon
the sale of the contract. During 2008, the least amount paid, and greatest
amount paid, were $1,587 and $1,376,472, respectively (where the selling firm
received variable payments and where any fixed payment was deemed attributable
solely to Pruco Life).
Name of Firm:
A.G. Edwards & Sons, Inc.
Advantage Capital
AIG Financial Advisors, Inc.
American General Securities
Citigroup Global Markets, Inc.
Financial Network Investment Corp.
FSC Securities Corp.
ING Financial Partners, Inc.
Merrill Lynch
Morgan Stanley & Co. Incorporated
Multi-Financial Securities Corp.
PrimeVest Financial Services, Inc.
Pruco Securities LLC
Raymond James & Associates, Inc.
Raymond James Financial Services
Royal Alliance Associates, Inc.
25
9: OTHER INFORMATION continued
Stifel Nicolaus & Co., Inc.
UBS Financial Services, Inc.
Wachovia Securities, Inc.
Wachovia Securities, LLC
Wells Fargo Investments, LLC
You should note that firms and individual registered representatives and
branch managers with some firms participating in one of these compensation
arrangements might receive greater compensation for selling the contracts 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 a contract product, any such
compensation will be paid by us or PAD and will not result in any additional
charge to you. Your registered representative can provide you with more
information about the compensation arrangements that apply upon the sale of
the contract.
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. Prudential Financial has announced its intention
to divest its interest in the joint venture.
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.
This contract is sold through firms that are unaffiliated with us, and also is
sold through an affiliated firm called Pruco Securities LLC. Pruco Securities,
LLC is an indirect wholly-owned subsidiary of Prudential Financial that sells
variable annuities and variable life insurance (among other products) through
its registered representatives. Pruco Securities LLC also serves as principal
underwriter of certain variable life insurance contracts issued by subsidiary
insurers of Prudential Financial.
LITIGATION
Pruco Life is subject to legal and regulatory actions in the ordinary course
of the businesses including class action lawsuits. Legal and regulatory
actions may include proceedings relating to aspects of the businesses and
operations that are specific to the Pruco Life and that are typical of the
businesses in which Pruco Life operates. Class action and individual lawsuits
may involve a variety of issues and/or allegations, which include sales
practices, underwriting practices, claims payment and procedures, premium
charges, policy servicing and breach of fiduciary duties to customers. Pruco
Life may also be subject to litigation arising out of its general business
activities, such as investments and third party contracts. In certain of these
matters, plaintiffs may seek large and/or indeterminate amounts, including
punitive or exemplary damages.
Our affiliate Prudential Annuities Life Assurance Corporation ("PALAC") has
substantially completed a remediation program to correct errors in the
administration of approximately 11,000 annuity contracts issued by PALAC. 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 system, all occurred
before the acquisition of PALAC 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
PALAC from Skandia Insurance Company Ltd. (publ) ("Skandia").
On April 17, 2009, AST Investment Services, Inc. ("ASISI") one of the
Investment Managers of Advanced Series Trust, settled separate administrative
proceedings brought by the SEC and the New York Attorney General's Office
("NYAG") regarding market timing activities of ASISI related to certain
variable annuities and Advanced Series Trust. The settlements relate to
conduct that generally occurred between January 1998 and September 2003.
Prudential Financial, Inc. ("Prudential Financial") acquired ASISI, formerly
named American Skandia Investment Services, Inc., from Skandia Insurance
Company Ltd. (publ) in May 2003. Subsequent to the acquisition, Prudential
Financial implemented controls, procedures and measures designed to protect
customers from the types of activities involved in these settlements. Under
the terms of the settlements, ASISI is paying a total of $34 million in
disgorgement and an additional $34 million as a civil money penalty, and ASISI
has undertaken that by the end of 2009 it will undergo a compliance review by
an independent third party, who shall issue a report of its findings and
recommendations to ASISI's Board of Directors, the Audit Committee of Advanced
Series Trust and the Staff of the SEC. Prudential Investments LLC, the other
Investment Manager of Advanced Series Trust, is not involved in the
settlements.
During the third quarter of 2004, PALAC identified a system-generated
calculation error in its annuity contract administration system that existed
prior to the Acquisition. This error related to the calculation of amounts due
to customers for certain
26
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 PALAC associated with remediation, breakage and other
costs. PALAC's consultants have developed the systems functionality to compute
remediation amounts and are in the process of running the computations on
affected contracts. PALAC contacted state insurance regulators and commenced
Phase I of its outreach to customers on November 12, 2007. Phase II commenced
June 6, 2008. Phase III commenced December 5, 2008. A final phase is expected
to rollout in April of 2009. PALAC has 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 February 2008, thirty-one complaints were filed in 17th
Judicial Circuit Court, Broward County, Florida alleging misrepresentations in
the sale of annuities against PALAC 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. Thirty of
the thirty-one lawsuits settled in December 2008. Skandia has indemnified
PALAC for the thirty settled matters, but has reserved the right to seek
reimbursement of a portion of the total indemnified settlement amount pursuant
to the provisions of the Acquisition Agreement.
Pruco Life's litigation and regulatory matters are subject to many
uncertainties, and given their complexity and scope, their outcomes cannot be
predicted. It is possible that results of operations or cash flow of Pruco
Life 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 Pruco Life's 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 Pruco Life's 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 Pruco Life's financial
position.
ASSIGNMENT
In general, you can assign the contract during your lifetime. For contracts
sold on or after May 1, 2009, we may, if allowed by applicable state law,
require advance notice of an assignment, and may reserve the right to reject
an assignment. We will not be bound by the assignment until we receive written
notice. We will not be liable for any payment or other action we take in
accordance with the contract if that action occurs before we receive notice of
the assignment. An assignment, like any other change in ownership, may trigger
a taxable event. If you assign the contract, that assignment will result in
the termination of any automated withdrawal program that had been in effect.
If the new owner wants to re-institute an automated withdrawal program, then
he/she needs to submit the forms that we require, in good order.
If the contract is issued under a qualified plan, there may be limitations on
your ability to assign the contract. For further information please speak to
your registered representative.
HOUSEHOLDING
To reduce costs, we now send only a single copy of prospectuses to each
consenting household, in lieu of sending a copy to each contract owner that
resides in the household. If you are a member of such a household, you should
be aware that you can revoke your consent to householding at any time, and
begin to receive your own copy of prospectuses and shareholder reports, by
calling (877) 778-5008.
INDEMNIFICATION
Pruco Life, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of Pruco Life, or who is or was serving at the request of Pruco Life as
a trustee, director, officer, employee or agent of such other affiliated trust
or corporation, against any liability asserted against and incurred by him or
her arising out of his or her position with such trust or corporation.
Arizona, being the state of organization of Pruco Life, permits entities
organized under its jurisdiction to indemnify directors and officers with
certain limitations. The relevant provisions of Arizona law permitting
indemnification can be found in Section 10-850 et. seq. of the Arizona
Statutes Annotated. The text of Pruco Life's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its form 10-Q filed August 15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Pruco
Life pursuant to the foregoing provisions or otherwise, Pruco Life 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 Pruco Life of expenses
incurred or paid by a director, officer or controlling person of Pruco Life 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, Pruco Life
27
9: OTHER INFORMATION continued
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.
HOW TO CONTACT US
You can contact us by:
.. calling our Customer Service Team at 1-888-PRU-2888 during our normal
business hours, 8:00 a.m. EST to 7:00 p.m. EST Monday through Thursday and
8:00 a.m. EST to 6:00 p.m. EST on Friday,
.. writing to us via regular mail at Prudential Annuity Service Center, P.O.
Box 7960, Philadelphia, PA 19176. 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 contract through our Internet Website at
www.prudential.com.
You can obtain account information by calling our automated response system
and at www.prudential.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,
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 registered representative with respect
to your contract have been authorized by you. We require that you or your
registered 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 contract or you may establish or change your PIN by calling
our automated response system and at www.prudential.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 contract 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.
Pruco Life 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. Pruco Life reserves the right to limit, restrict or terminate
telephonic, facsimile, Internet or any other electronic transaction privileges
at any time.
MARKET-VALUE ADJUSTMENT FORMULA
With respect to residents of states, other than Indiana and Pennsylvania, in
which Strategic Partners Horizon Annuity is being offered.
The formula under which Pruco Life calculates the market value adjustment
applicable to a full or partial surrender, annuitization, or settlement under
Strategic Partners Horizon Annuity is set forth below. The market value
adjustment is expressed as a multiplier factor. That is, the Contract Value
after the market value adjustment ("MVA"), but before any surrender charge, is
as follows: Contract Value (after MVA) = Contract Value (before MVA) X (1 +
MVA). The MVA itself is calculated as follows:
28
For contracts issued in Indiana, we use the same formula as is set forth
above, except that the .0025 component of the formula is eliminated. We use
the same MVA formula with respect to contracts issued in Pennsylvania, except
that "J" in the formula above uses an interpolated rate as the current
credited interest rate. Specifically, "J" is the interpolated current credited
interest rate offered on new money at the time of withdrawal, annuitization,
or settlement. The interpolated value is calculated using the following
formula:
m/365 X (n + 1) year rate + (365 - m)/365 X n year rate,
where "n" equals the number of whole years remaining in the Contract's current
guarantee period, and "m" equals the number of additional days remaining in
the current guarantee period.
Market Value Adjustment Example
(ALL STATES EXCEPT INDIANA AND PENNSYLVANIA)
The following will illustrate the application of the Market-Value Adjustment.
For simplicity, surrender charges are ignored in these hypothetical examples.
Positive market value adjustment
.. Suppose a contract owner made an invested purchase payment of $10,000 on
July 1, 2005 and received a guaranteed interest rate of 6% for 5 years. A
request to surrender the contract is made on May 1, 2007. At the time, the
Contract Value has accumulated to $11,127.11. The number of whole years
remaining in the guarantee period is 3.
.. On May 1, 2007 the interest rate declared by Pruco Life for a guarantee
period of 4 years (the number of whole years remaining plus 1) is 5%.
The following computations would be made:
1) Calculate the Charge Free Amount. The Charge Free Amount is the interest
credited in the contract in the previous contract year. This amount is
$600.00. It is not subject to a Market Value Adjustment.
2) Subtract the Charge Free Amount from the Contract Value. The result is the
amount subject to a Market Value Adjustment (MVA). $11,127.11 - $600.00 =
$10,527.11
3) Determine the Market Value Adjustment factor.
The MVA factor calculation would be: [(1.06) / (1.05 + .0025)]/38/12/ -1 =
0.02274
4) Multiply the amount subject to a Market Value Adjustment by the factor
calculated in Step 3.
$10,527.11 X 0.02274 = $239.39
5) Add together the Market Value Adjustment and the amount subject to the MVA.
$10,527.11 + $239.39 = $10,766.50
6) Add back the Charge Free Amount to get the total Contract Surrender Value.
$10,766.50 + $600.00 = $11,366.50
The MVA may not always be positive. Here is an example where it is negative.
.. Suppose a contract owner made an invested purchase payment of $10,000 on
July 1, 2005 and received a guaranteed interest rate of 6% for 5 years. A
request to surrender the contract is made on May 1, 2007. At the time, the
Contract Value has accumulated to $11,127.11. The number of whole years
remaining in the guarantee period is 3.
.. On May 1, 2007 the interest rate declared by Pruco Life for a guarantee
period of 4 years (the number of whole years remaining plus 1) is 7%.
29
9: OTHER INFORMATION continued
The following computations would be made:
1) Calculate the Charge Free Amount. The Charge Free Amount is the interest
credited in the contract in the previous contract year. This amount is
$600.00. It is not subject to a Market Value Adjustment.
2) Subtract the Charge Free Amount from the Contract Value. The result is the
amount subject to a Market Value Adjustment (MVA). $11,127.11 - $600.00 =
$10,527.11
3) Determine the Market Value Adjustment factor.
The MVA factor calculation would be: [(1.06)/(1.07+.0025)]/38/12/ -1 = -0.03644
4) Multiply the amount subject to a Market Value Adjustment by the factor
calculated in Step 3.
$10,527.11 X -0.03644 = -$383.61
5) Add together the Market Value Adjustment and the amount subject to the MVA.
$10,527.11 - $383.61 = $10,143.50
6) Add back the Charge Free Amount to get the total Contract Surrender Value.
$10,143.50 + $600.00 = $10,743.50
Market Value Adjustment Example
(INDIANA)
The following will illustrate the application of the Market-Value Adjustment.
For simplicity, surrender charges are ignored in this example.
Positive market value adjustment
.. Suppose a contract owner made an invested purchase payment of $10,000 on
July 1, 2005 and received a guaranteed interest rate of 6% for 5 years. A
request to surrender the contract is made on May 1, 2007. At the time, the
Contract Value will have accumulated to $11,127.11. The number of whole
years remaining in the guarantee period is 3.
.. On May 1, 2007 the interest rate declared by Pruco Life for a guarantee
period of 4 years (the number of whole years remaining plus 1) is 5%.
The following computations would be made:
1) Calculate the Charge Free Amount. The Charge Free Amount is the interest
credited in the contract in the previous contract year. This amount is
$600.00. It is not subject to a Market Value Adjustment.
2) Subtract the Charge Free Amount from the Contract Value. The result is the
amount subject to a Market Value Adjustment (MVA). $11,127.11 - $600.00 =
$10,527.11
3) Determine the Market Value Adjustment factor.
The MVA factor calculation would be: ([(1.06)/(1.05)] f/38/12/ -1 = 0.03047
30
4) Multiply the amount subject to a Market Value Adjustment by the factor
calculated in Step 3.
$10,527.11 X 0.03047 = $320.76
5) Add together the Market Value Adjustment and the amount subject to the MVA.
$10,527.11 + $320.76 = $10,847.87
6) Add back the Charge Free Amount to get the total Contract Surrender Value.
$10,847.87 + $600.00 = $11,447.87
The MVA may not always be positive. Here is an example where it is negative.
.. Suppose a contract owner made an invested purchase payment of $10,000 on
July 1, 2005 and received a guaranteed interest rate of 6% for 5 years. A
request to surrender the contract is made on May 1, 2007. At the time, the
Contract Value will have accumulated to $11,127.11. The number of whole
years remaining in the guarantee period is 3.
.. On May 1, 2007 the interest rate declared by Pruco Life for a guarantee
period of 4 years (the number of whole years remaining plus 1) is 7%.
The following computations would be made:
1) Calculate the Charge Free Amount. The Charge Free Amount is the interest
credited in the contract in the previous contract year. This amount is
$600.00. It is not subject to a Market Value Adjustment (MVA).
2) Subtract the Charge Free Amount from the Contract Value. The result is the
amount subject to a Market Value Adjustment. $11,127.11 - $600.00 =
$10,527.11
3) Determine the Market Value Adjustment factor.
The MVA factor calculation would be:
[(1.06)/(1.07)]/38/12/ -1 = -0.02930
4) Multiply the amount subject to a Market Value Adjustment by the factor
calculated in Step 3.
$10,527.11 X -0.02930 = -$308.44
5) Add together the Market Value Adjustment and the amount subject to the MVA.
$10,527.11 - $308.44 = $10,218.67
6) Add back the Charge Free Amount to get the total Contract Surrender Value.
$10,218.67 + $600.00 = $10,818.67
(Pennsylvania)
The following will illustrate the application of the Market-Value Adjustment.
For simplicity, surrender charges are ignored in these hypothetical examples.
Positive market value adjustment
.. Suppose a contract owner made an invested purchase payment of $10,000 on
July 1, 2005 and received a guaranteed interest rate of 6% for 5 years. A
request to surrender the contract is made on May 1, 2007. At the time, the
Contract Value has accumulated to $11,127.11. The number of whole years
remaining in the guarantee period is 3.
.. On May 1, 2007 the interest rate declared by Pruco Life for a guarantee
period of 3 years (the number of whole years remaining) is 4%, and for a
guarantee period of 4 years (the number of whole years remaining plus 1) is
5%.
31
9: OTHER INFORMATION continued
The following computations would be made:
1) Calculate the Charge Free Amount. The Charge Free Amount is the interest
credited in the contract in the previous contract year. This amount is
$600.00. It is not subject to a Market Value Adjustment.
2) Subtract the Charge Free Amount from the Contract Value. The result is the
amount subject to a Market Value Adjustment (MVA).
$11,127.11 - $600.00 = $10,527.11
3) Determine the Market Value Adjustment factor.
The MVA factor calculation would be:
[(1.06)/(1.0417 + .0025)]/38/12/ -1 = .04871
4) Multiply the amount subject to a Market Value Adjustment by the factor
calculated in Step 3.
$10,527.11 X 0.04871 = $512.78
5) Add together the Market Value Adjustment and the amount subject to the MVA.
$10,527.11 + $512.78 = $11,039.89
6) Add back the Charge Free Amount to get the total Contract Surrender Value.
$11,039.89 + $600.00 = $11,639.89
The MVA may not always be positive. Here is an example where it is negative.
.. Suppose a contract owner made an invested purchase payment of $10,000 on
July 1, 2005 and received a guaranteed interest rate of 6% for 5 years. A
request to surrender the contract is made on May 1, 2007. At the time, the
Contract Value has accumulated to $11,127.11. The number of whole years
remaining in the guarantee period is 3.
.. On May 1, 2007 the interest rate declared by Pruco Life for a guarantee
period of 3 years (the number of whole years remaining) is 7%, and for a
guarantee period of 4 years (the number of whole years remaining plus 1) is
8%.
The following computations would be made:
1) Calculate the Charge Free Amount. The Charge Free Amount is the interest
credited in the contract in the previous contract year. This amount is
$600.00. It is not subject to a Market Value Adjustment.
2) Subtract the Charge Free Amount from the Contract Value. The result is the
amount subject to a Market Value Adjustment (MVA).
$11,127.11 - $600.00 = $10,527.11
3) Determine the Market Value Adjustment Factor.
32
The MVA Factor calculation would be:
[(1.06)/(1.0717 + .0025)]/38/12/ -1 = -0.04126
4) Multiply the amount subject to a Market Value Adjustment by the factor
calculated in Step 3.
$10,527.11 X - 0.04126 = -$434.35
5) Add together the Market Value Adjustment and the amount subject to the MVA.
$10,527.11 - $434.35 = $10,092.76
6) Add back the Charge Free Amount to get the total Contract Surrender Value.
$10,092.76 + $600.00 = $10,692.76
33
ORD01124